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The Center for Freedom and Prosperity Announces Creation of “Taxpayers Against Illicit Opioids”

Thu, 05/24/2018 - 2:50pm

Center for Freedom and Prosperity

For Immediate Release
Thursday, May 24, 2018
202-285-0244

www.freedomandprosperity.org

The Center for Freedom and Prosperity Announces Creation of “Taxpayers Against Illicit Opioids”

Illicit opioid overdose deaths are sky-rocketing and the growing epidemic is draining government funds. A new group has been created to provide a voice to those who are tired of carrying this financial burden.

(Washington, D.C., Thursday, May 24, 2018) Today, the Center for Freedom and Prosperity formally announces the creation of their new coalition – “Taxpayers Against Illicit Opioids.” In October 2017, President Trump declared the opioid crisis in America a “national health emergency.” A driving force behind this evolving epidemic are the illegal, dangerous synthetic opioids, such as fentanyl, which are smuggled into the United States from both Mexican drug cartels and Chinese drug smugglers.

While prescription opioid deaths have seen a significant decline, fentanyl overdose deaths have seen a spike of 540% since 2013. To combat the severity of American opioid overdoses, local, state and federal budgets are dwindling. The reality is law enforcement are being outspent and outmanned by these sophisticated, billion-dollar criminal enterprises.

The cost of the crisis is estimated to have already exceeded a whopping $1 trillion – with a predicted additional $500 billion needed by 2020. As noted in the group’s mission statement, Taxpayers Against Illicit Opioids look to fight back against the illegal drugs entering the United States in order to preserve essential local, state and federal resources.

“The crackdown on prescription drugs has led to a subsequent rise in illegal opioid alternatives,” said Center for Freedom and Prosperity founder Andrew Quinlan. “The proliferation of illicit opioids smuggled from Mexico and China and their misuse is costing taxpayers, big time. It’s clear that lawmakers need a new approach to salvage American dollars and American lives.”

To learn more about the devastating effects of illicit opioids and how you can help, visit the Taxpayers Against Illicit Opioids website.

About the Center for Freedom and Prosperity

The Center for Freedom and Prosperity (CF&P) is a non-profit organization created to advance market liberalization. The CF&P Foundation and CF&P seek to promote economic prosperity by advocating competitive markets and limited government. The organization accomplishes its goals by educating the American people and its elected representatives.

For more information, visit http://freedomandprosperity.org/.

Italy’s Countdown to Fiscal Crisis

Sun, 05/20/2018 - 12:06pm

As a general rule, we worry too much about deficits and debt. Yes, red ink matters, but we should pay more attention to variables such as the overall burden of government spending and the structure of the tax system.

That being said, Greece shows that a nation can experience a crisis if investors no longer trust that a government is capable of “servicing” its debt (i.e., paying interest and principal to people and institutions that hold government bonds).

This doesn’t change the fact that Greece’s main fiscal problem is too much spending. It simply shows that it’s also important to recognize the side-effects of too much spending (if you have a brain tumor, that’s your main problem, even if crippling headaches are a side-effect of the tumor).

Anyhow, it’s quite likely that Italy will be the next nation to travel down this path.

This in in part because the Italian economy is moribund, as noted by the Wall Street Journal.

Italy’s national elections…featured populist promises of largess but neglected what economists have long said is the real Italian disease: The country has forgotten how to grow. …The Italian economy contracted deeply in Europe’s debt crisis earlier this decade. A belated recovery now under way yielded 1.5% growth in 2017—a full percentage point less than the eurozone as a whole and not enough to dispel Italians’ pervasive sense of national decline. Many European policy makers view Italy’s stasis as the likeliest cause of a future eurozone crisis.

Why would Italy be the cause of a future crisis?

For the simple reason that it is only the 4th-largest economy in Europe, but this chart from the Financial Times shows it has the most nominal debt.

So what’s the solution?

The obvious answer is to dramatically reduce the burden of government.

Interestingly, even the International Monetary Fund put forth a half-decent proposal based on revenue-neutral tax reform and modest spending restraint.

The scenario modeled assumes a permanent fiscal consolidation of about 2 percent of GDP (in the structural primary balance) over four years…, supported by a pro-growth mix of revenue and expenditure reforms… Two types of growth-friendly revenue and spending measures are considered along the envisaged fiscal consolidation path: shifting taxation from direct to indirect taxes, and lowering expenditure and shifting its composition from transfers to investment. On the revenue side, a lower labor tax wedge (1.5 percent of GDP) is offset by higher VAT collections (1 percent of GDP) and introducing a modern property tax (0.5 percent of GDP). On the expenditure side, spending on public consumption is lowered by 1.25 percent of GDP, while productive public investment spending is increased by 0.5 percent of GDP. The remaining portion of the fiscal consolidation, 1.25 percent of GDP, is implemented via reduced social transfers.

Not overly bold, to be sure, but I suppose I should be delighted that the IMF didn’t follow its usual approach and recommend big tax increases.

So are Italians ready to take my good advice or even the so-so advice of the IMF?

Nope. They just had an election and the result is a government that wants more red ink.

The Wall Street Journal‘s editorial page is not impressed by the economic agenda of Italy’s putative new government.

Five-Star wants expansive welfare payments for poor Italians, revenues to pay for it not included. Italy’s public debt to GDP, at 132%, is already second-highest in the eurozone behind Greece. Poor Italians need more economic growth to generate job opportunities, not public handouts that discourage work. The League’s promise of a pro-growth 15% flat tax is a far better idea, especially in a country where tax avoidance is rife. The two parties would also reverse the 2011 Monti government pension reforms, which raised the retirement age and moved Italy toward a contribution-based benefit system. …Recent labor-market reforms may also be on the block.

Simply stated, Italy elected free-lunch politicians who promised big tax cuts and big spending increases. I like the first part of that lunch, but the overall meal doesn’t add up in a nation that has a very high debt level.

And I don’t think the government has a very sensible plan to make the numbers work.

…problematic for the rest of Europe are the two parties’ demand for an exemption from the European Union’s 3% GDP cap on annual budget deficits. …the two parties want the European Central Bank to cancel some €250 billion in Italian debt.

Demond Lachman of the American Enterprise Institute suggests this will lead to a fiscal crisis because of two factors. First, the economy is weak.

Anyone who thought that the Eurozone debt crisis was resolved has not been paying attention to economic and political developments in Italy…the recent Italian parliamentary election…saw a surge in support for populist political parties not known for their commitment to economic orthodoxy or to real economic reform. …To say that the Italian economy is in a very poor state would be a gross understatement. Over the past decade, Italy has managed to experience a triple-dip economic recession that has left the level of its economy today 5 percent below its pre-2008 peak. Meanwhile, Italy’s current unemployment level is around double that of its northern neighbors, while its youth unemployment continues to exceed 25 percent. …the country’s public debt to GDP ratio continued to rise to 133 percent, making the country the most indebted country in the Eurozone after Greece. …its banking system remains clogged with non-performing loans that still amount to 15 percent of its balance sheet…

Second, existing debt is high.

…having the world’s third-largest government bond market after Japan and the United States, with $2.5 trillion in bonds outstanding, Italy is simply too large a country for even Germany to save. …global policymakers…, it would seem not too early for them to start making contingency plans for a full blown Italian economic crisis.

Since he writes on issues I care about, I always enjoy reading Lachman’s work. Though I don’t always agree with his analysis.

Why, for instance, does he think an Italian fiscal crisis threatens the European currency?

…the Italian economy is far too large an economy to fail if the Euro is to survive in anything like its present form.

Would the dollar be threatened if (when?) Illinois goes bankrupt?

But let’s not get sidetracked.3

To give you an idea of the fairy-tale thinking of Italian politicians, I’ll close with this chart from L’Osservatorio on the fiscal impact of the government’s agenda. It’s in Italian, but all you need to know is that the promised tax cuts and spending increases are on the left side and the compensating savings (what we would call “pay-fors”) are on the right side.

Wow, makes me wonder if Italy has passed the point of no return.

By the way, Italy may be the next domino, but it’s not the only European nation with fiscal problems.

P.S. No wonder some people want Sardinia to secede from Italy and become part of “sensible” Switzerland.

P.P.S. Some leftists genuinely think the United States should emulate Italy.

P.P.P.S. As a fan of spending caps, I can’t resist pointing out that anti-deficit rules in Europe have not stopped politicians from expanding government.

Rand Paul’s Sensible Budget Rejected, but Here’s the Silver Lining

Sat, 05/19/2018 - 12:59pm

During the election season, I speculated Trump was a big government Republican, and he confirmed my analysis this past February when he acquiesced to an orgy of new spending and agreed to bust the spending caps.

That awful spending spree gave huge increases to almost every part of the budget, and I pointed out that the deal probably will create the conditions for future tax hikes.

I got so upset at profligate GOPers that I crunched the numbers and revealed that (with the notable exception of Reagan) Republican presidents are even bigger spenders than Democrats.

Well, Senate Republicans recently had a chance to atone for their sins by voting for a proposal from Rand Paul to balance the budget.

So what did they do? Rejected it, of course.

In a column for Reason, Eric Boehm justly condemns Republicans for being big spenders.

The Senate on Thursday resoundingly rejected the Kentucky Republican’s plan to balance the federal budget by 2023, voting 76 to 21 against a bill that would have required a $400 billion cut in federal spending next year, followed by 1 percent spending increases for the rest of the next decade. …Paul’s proposal never really had a chance of passing, coming as it did just months after Congress approved enormous spending hikes that busted Obama-era caps once championed by Republicans as necessary for fiscal restraint. …Paul’s plan would have balanced the budget by 2023, as long as revenue met current CBO projections. By 2028, his proposal envisioned a $700 billion surplus instead of the $1.5 trillion deficit currently projected by the CBO.

Lifezette column by Brendan Kirby was even more critical of big-government Republicans.

Sen. Rand Paul (R-Ky.) was hoping his Republican colleagues would be embarrassed by their vote to jack up federal spending earlier this year and support his plan to phase in a balanced budget. Few were. Paul got 20 other Republican senators on Thursday — less than half of the Senate GOP caucus — to vote for his “penny plan,” which would balance the federal budget over five years… No Democrats back the proposal. …Even though Paul’s bid failed, it did pick up the support of some senators who voted for the spending bill in February, including Senate Majority Whip John Cornyn (R-Texas). The others were Sens. Marco Rubio (R-Fla.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), Deb Fischer (R-Neb.) and Jerry Moran (R-Kan.). …Paul also got more votes than he did for a similar proposal last year.

Kirby’s article ended on an upbeat note based on voting patterns.

I also want to close on an upbeat note, but for an entirely different reason. Here are the annual numbers from the CBO baseline (what will happen to spending and revenue if government continues on its current path) and the numbers for Senator Paul’s proposal.

And why do these depressing numbers leave me with a feeling of optimism?

For the simple reason that they show how simple it is to make progress with some modest spending restraint. The lower set of number show that Senator Paul quickly gets to a balanced budget by imposing an overall reduction of about 2 percent on spending in 2019, followed by annual increases of about 1 percent until 2025.

I think that’s a great plan, but I’d also be happy with a plan that allows spending to grow by 1 percent each year. Or even 2 percent each year.

My bottom line is that we need some sort of spending cap so that the burden of government spending grows slower than the productive sector of the economy. In other words, comply with the Golden Rule.

And what’s especially remarkable is that solving our fiscal problems is still quite feasible notwithstanding the reckless spending bill that was recently approved (Paul’s proposal, incidentally, leaves in place the small – and temporary – tax cut from the recent reform legislation).

P.S. Senator Paul would achieve a balanced budget in just five years by letting spending grow during that period by a bit less than 4/10ths of 1 percent per year. Does that sound impossibly radical? Well, it’s what Republicans managed to achieve during the heyday of the Tea Party revolution, when they actually produced a five-year nominal spending freeze. In other words, zero spending growth! If they could impose that level of discipline with Obama in the White House, why not do the same with Trump (who quasi-endorsed the Penny Plan) at the other end of Pennsylvania Avenue?

Pope Francis Endorses Slower Growth and More Poverty

Fri, 05/18/2018 - 12:55pm

I almost feel guilty when I criticize the garbled economic thoughts of Pope Francis. After all, he was influenced by Peronist ideology as a youngster, so he wasprobably a lost cause from the beginning.

Moreover, Walter Williams and Thomas Sowell have already dissected his irrational ramblings on economics and explained that free markets are better for the poor. Especially when compared to government dependency.

But since Pope Francis just attacked tax havens, and I consider myself the world’s foremost defender of these low-tax jurisdictions, I can’t resist adding my two cents. Here’s what the Wall Street Journal just reported about the Pope’s ideological opposition to market-friendly tax systems.

The Vatican denounced the use of offshore tax havens… The document, which was released jointly by the Vatican’s offices for Catholic doctrine and social justice, echoed past warnings by Pope Francis over the dangers of unbridled capitalism. …The teaching document, which was personally approved by the pope, suggested that greater regulation of the world’s financial markets was necessary to contain “predatory and speculative” practices and economic inequality.

He even embraced global regulation, not understanding that this increases systemic risk.

“The supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries,” the Vatican said. “The current globalization of the financial system requires a stable, clear and effective coordination among various national regulatory authorities.”

And he said that governments should have more money to spend.

A section of the document was dedicated to criticizing offshore tax havens, which it said contribute to the “creation of economic systems founded on inequality,” by depriving nations of legitimate revenue.

Wow, it’s like the Pope is applying for a job at the IMF or OECD. Or even with the scam charity Oxfam.

In any event, he’s definitely wrong on how to generate more prosperity. Maybe he should watch this video.

Or read Marian Tupy.

Or see what Nobel Prize winners have to say.

P.S. And if the all that doesn’t work, methinks Pope Francis should have a conversation with Libertarian Jesus. He could start herehere, and here.

California (Hopefully) Learns a Lesson about Marijuana Taxes and the Laffer Curve

Thu, 05/17/2018 - 12:52pm

I wanted California to decriminalize marijuana because I believe in freedom. Smoking pot may not be a wise choice in many cases, but it’s not the role of government to dictate private behavior so long as people aren’t violating the rights of others.

Politicians, by contrast, are interested in legalization because they see dollar signs. They want to tax marijuana consumption to they can have more money to spend (I half-joked that this was a reason to keep it illegal, but that’s a separate issue).

Lawmakers need to realize, though, that the Laffer Curve is very real. They may not like it, but there’s very strong evidence that imposing lots of taxes does not necessarily mean collecting lots of revenue. Especially when tax rates are onerous.

Here’s some of what the AP recently reported about California’s experiment with taxing pot.

So far, the sale of legal marijuana in California isn’t bringing in the green stuff. Broad legal sales kicked off on Jan. 1. State officials had estimated California would bank $175 million from excise and cultivation taxes by the end of June. But estimates released Tuesday by the state Legislative Analyst’s Office show just $34 million came in between January and March. …it’s unlikely California will reap $175 million by midyear.

And here are some excerpts from a KHTS story.

Governor Jerry Brown’s January budget proposal predicted that $175 million would pour into the state’s coffers from excise and cultivation taxes…analysts believe revenue will be significantly lower… Some politicians argue high taxes are to blame for the revenue shortfalls preventing that prediction from becoming reality, saying the black market is “undercutting” the legal one. …The current taxes on legal marijuana businesses include a 15 percent excise tax on purchases of all cannabis and cannabis products, including medicinal marijuana. The law also added a $9.25 tax for every ounce of bud grown and a $2.75-an-ounce tax on dried cannabis leaves for cultivators.

These results should not have been a surprise.

I’ve been warning – over and over again – that politicians need to pay attention to the Laffer Curve. Simply stated, high tax rates don’t necessarily produce high revenuesif taxpayers have the ability to alter their behavior.

That happens with income taxes. It happens with consumption taxes.

And it happens with taxes on marijuana.

Moreover, it’s not just cranky libertarians who make this point. Vox isn’t a site know for rabid support of supply-side economics, so it’s worth noting some of the findings from a recent article on pt taxes.

After accounting for substitution between products by consumers, we find that the tax-inclusive price faced by consumers for identical products increased by 2.3%. We find that the quantity purchased decreased by 0.95%…, implying a short-term price elasticity of -0.43. However, over time, the magnitude of the quantity response significantly increases, and our estimates suggest that the price elasticity of demand is about negative one within two weeks of the reform. We conclude that Washington, the state with the highest marijuana taxes in the country, is near the peak of the Laffer curve – further increases in tax rates may not increase revenue. …tax revenue has historically been one of the many arguments in favour of legalising marijuana…the optimal taxation of marijuana should be designed to take into account responses…excessive taxation might prop up the very black markets that legal marijuana is intended to supplant. As additional jurisdictions consider legalising marijuana and debate over optimal policy design, these trade-offs should be explored and taken into account.

Let’s close by reviewing some interesting passages from a McClatchey report, starting with some observations about the harmful impact of excessive taxes.

Owners of legalized cannabis operations face a range of challenges… But taxes – local, state, federal – present a particular headache. They are a big reason why, in California and other states, only a small percentage of cannabis growers and retailers have chosen to get licensed and come out of the shadows. …In a March report, Fitch Ratings suggested that California may not realize the tax revenue – $1 billion a year – the state projected when Proposition 64, a legalization initiative, was put before voters in 2016. “While it is still too early to assess California’s revenue performance, comparatively high taxes on legal cannabis will likely continue to divert sales to illegal markets, reducing potential tax collections,” Fitch said in its report. …Add it all up, and state-legal cannabis in some parts of California could be taxed at an effective rate of 45 percent, Fitch said in a report last year.

Interestingly, even politicians realize they need to adapt to the harsh reality of the Laffer Curve.

Some state lawmakers blame the taxation for creating a price gap between legal and illegal pot that could doom California’s regulated market. Last month, Assembly members Tom Lackey, R-Palmdale, and Rob Bonta, D-Oakland, introduced legislation, AB 3157, that would reduce the state marijuana sales tax rate from 15 percent to 11 percent, and suspend all cultivation taxes until June 2021.

And I can’t resist including one final passage that has nothing to do with taxes. Instead, it’s a reference to the lingering effect of Obama’s dreadful Operation Choke Point.

Davies owns Canna Care, a medical marijuana dispensary in Sacramento. Like other state-legal cannabis businesses nationwide, her pot shop operates largely with cash. Most banks won’t transact with enterprises deemed illegal by the U.S. government. That forces Davies to stuff $10,000 in bills into her purse each month… even lawyers who represent state-legal marijuana businesses face financial risks. Sacramento lawyer Khurshid Khoja recently lost his two bank accounts with Umpqua Bank, after Umpqua started asking him about his state-legal cannabis clients.

The good news is that Trump has partially eased this awful policy. The bad news is that he only took a small step in the right direction.

But let’s get back to our main topic. I’ve written several times on whether our friends on the left are capable of learning about the Laffer Curve. Especially in cases when they imposed a tax in hopes of changing behavior!

What’s happening in California with pot taxes is simply the latest example.

And I’m hoping leftists will apply the lesson to taxes on things that we don’t want to discourage – such as work, saving, investment, and entrepreneurship.

P.S. I’ve pointed out that some leftists want high tax rates on income even if no money is collected. That’s because their real goal is punishing success. I wonder if there are some conservatives who are pushing punitive marijuana taxes because they want to discourage “sin” rather than collect revenue.

The Political Compass Test

Wed, 05/16/2018 - 12:47pm

I’ve taken several tests and quizzes on political philosophy. Not surprisingly, I usually wind up being some type of libertarian.

But sometimes I get odd results. For instance, the Political Left/Right Test, put me exactly in the middle, and another political quiz pegged me as a “moderate.”

The former might be reasonable since libertarians have some right-wing views and some left-wing views. But the latter quiz concluded that I had “few strong opinions,” which is a nonsensical result.

Anyhow, I found another test. This new survey is called the Political Compass Test, and it’s based on the theory that the traditional left-right economic spectrum is insufficient.

…the social dimension is also important in politics. That’s the one that the mere left-right scale doesn’t adequately address. So we’ve added one, ranging in positions from extreme authoritarian to extreme libertarian.

And here’s the four quadrants that are created by their two lines.

While no system will capture everything, I have no objection to their theoretical construct.

But I think two of the examples they provide are somewhat crazy.

First, Hitler was the head of the National Socialist Workers Party and he belongs on the left side of the horizontal axis. Second, it’s absurd to have Thatcher anywhere near Stalin and Hitler on the vertical axis.

I also think Friedman should be moved more in the libertarian direction, but at least they have him in the correct quadrant.

Now let’s look at my results. I’m somewhat disappointed because I’m not way on the right for economic issues. And I’m even more irked that I’m barely on the libertarian side for social issues.

For what it’s worth, some of the questions were more about attitude and outlook rather than policy. And since I’m the boring kind of libertarian, perhaps that’s why I don’t get a strong score.

Let’s close by looking at my score compared to various famous people. I’m closest to Gary Johnson, which strikes me as a reasonable result.

But some of the other results are very bizarre. First of all, Milton Friedman magically moved. Now he’s very libertarian on social issues, but squishy on economics. Needless to say, that’s nonsense.

But not nearly as nonsensical as Benito Mussolini being on the far right for economic policy. That’s crazy. He was a strident opponent of capitalism.

Likewise, they have Hillary Clinton on the right side of the spectrum for economic policy. The person who did that must have been on some crazy drugs at the time.

And I’m not a Trump fan, but I think it’s laughable to have him ranked as more authoritarian than MugabeMao, and Castro.

Slovakia, Economic Reform, and National Competitiveness

Tue, 05/15/2018 - 12:34pm

I had mixed feeling when I spoke yesterday in Bratislava, Slovakia, as part of the 2018 Free Market Road Show.

Last decade, Slovakia was a reform superstar, shaking off the vestiges of communism with a plethora of very attractive policies – including a flat taxpersonal retirement accounts, and spending restraint.

As Marian Tupy explained last year, “…in 1998, Slovaks kicked out the nationalists and elected a reformist government, which proceeded to liberalise the economy, privatise loss-making state-owned enterprises and massively improve the country’s business environment. …In 2005, the World Bank declared Slovakia the “most reformist” country in the world.”

And these policies paid off. According to research from both Europe and the United States, Slovakia has enjoyed reasonably strong growth that has resulted in considerable “convergence” to western living standards.

But in recent years, Slovakia has gradually moved in the wrong direction, which means I have good and bad memories of my visits.

The nation’s strong rise and subsequent slippage can be seen in the data from Economic Freedom of the World.

The drop may not seem that dramatic. And in terms of Slovakia’s absolute score, it “only” fell from 7.63 to 7.31.

But what really matters (as I explained last year when writing about Italy) is the relative score. And if you take a closer look at the data, Slovakia has dropped in the rankings from #20 in 2005 to #53 in 2015.

This relative decline is not good news for a nation that wants to compete for jobs and investment. Moreover, I’m not the only one to be worried about slippage in Slovakia.

Jan Oravec is similarly concerned about a gradual erosion of competitiveness in his country.

…the World Economic forum, which compares the competitiveness of 140 countries around the world, Slovakia ranked 67th. …If we…look at the long-term evolution of the Slovak economy’s competitiveness not only in this, but in other rankings, we realize…a tragic story of a dramatic decline in our competitiveness. Let us start by looking back at our previous scores: In 2000, we ranked 38th, while in 2010 we painfully fell to 60th – today we hold the aforementioned 67th place. …If we take a look at the evolution of Slovakia’s situation from the last 10 years, we come to the conclusion that there has been a significant drop in the ranking of our competitiveness. While 10 years ago we usually ranked in the top third or quarter of the ranked countries, today we usually rank in the bottom half… An explanation to this negative trend is twofold: Other countries have been improving while our business environment has been worsening, or stagnating at best.

There are three glaring examples of slippage in Slovakia.

  • The first is that the flat tax was undone in 2012.
  • The second is that the private social security system was weakened.
  • The third is an erosion of fiscal discipline.

To be sure, it’s not as if Slovakia went hard left. The top tax rate under the new “progressive” system is 25 percent. And as I noted last month, that means high-income workers in Slovakia are still treated rather well compared to their counterparts in other industrialized nations.

And the leftist government in Slovakia weakened – but did not completely reverse – personal retirement accounts.

Jan Oravec explains the good reform that was adopted last decade.

During 2003 two main legislative acts – the Social Insurance Act and the Old-Age Pension Savings Act – were prepared by the reform team.…Prior to reform Slovaks were obliged to pay to the PAYGO system contributions of 28.75 % of their gross wages, and the system promised in exchange to pay an average old-age benefit amounting to 50 % of gross wages. The reform allowed workers to redirect a significant part of their contributions, 9 % of gross wage, to their personal retirement accounts.

Under current law, however, the amount that workers are allowed to place in private accounts has been reduced. Moreover, the government is forcing the accounts to invest in government bonds, which means workers will earn sub-par returns. These are bad changes, but at least personal accounts still exist.

Even the bad news on government spending isn’t horrible news. As you can see from this OECD data, the spending burden (measured as a share of GDP) has climbed to a higher plateau in recent years, wiping out some of the gains that were achieved thanks to a period of strong restraint early last decade. That being said, Slovakia is still in better shape than many other industrialized nations.

So where does Slovakia go from here?

That’s not clear. The Prime Minister that imposed some of the bad policies recently was forced out of office by scandal, but his replacement isn’t any better and there’s not another election scheduled until 2020.

That’s the bad news. The good news is that Slovakia has one of Europe’s best pro-market think tanks, the Institute of Economic and Social Studies. Which hopefully means another wave of reform may happen. Hopefully including some of my favorite policies, such as a pure flat tax as well as some constitutional spending restraint.

P.S. Like other nations in Central and Eastern Europe, Slovakia faces demographic decline. To avert long-term crisis, reform is a necessity, not a luxury.

Another Dupe and Apologist for Totalitarian Communism

Mon, 05/14/2018 - 12:13pm

A couple of weeks ago, I expressed disgust that the President of the European Commission was going to give a speech commemorating the 200th birthday of Karl Marx.

To be blunt, Marx was a despicable person who developed an ideology that butchered 100 million people.

Yet he still has plenty of apologists.

It’s disgusting when serious publications such as the New York Times publish fan-boy columns about Marxism. But what should we think when Teen Vogue publishes an article celebrating Marx? Here’s some of the pabulum offered to readers.

Karl Marx…developed the theory of communism, which advocates for workers’ control over their labor (instead of their bosses). …his ideas can still teach us about the past and present. …The famed German co-authored The Communist Manifesto with fellow scholar Friedrich Engels in 1848, a piece of writing that makes the case for the political theory of socialism— where the community (rather than rich people) have ownership and control over their labor — which later inspired millions of people to resist oppressive political leaders… His writings have inspired social movements in Soviet Russia, China, Cuba.

As an economist, I’m most offended by the laughably inaccurate description of labor in a market economy.

As a human being, I’m utterly nauseated by the description of communism as a means of resisting oppressive political leaders. Is the author really that clueless?!? For heaven’s sake, communism and oppressive politics may as well be synonyms.

The article then offers up some oleaginous descriptions of how students are being fed Marxist propaganda.

So how can teens learn the legacy of Marx’s ideas and how they’re relevant to the current political climate? …Public high school teacher Mark Brunt teaches excerpts from The Communist Manifesto alongside curriculum about the industrial revolution in his English class. …Brunt talks about how these factory workers did all of the leg work — including slaughtering animals and packaging meat on top of working long days with little, if any, time off — to keep the factories intact, yet had very little control over their work, including their working conditions, compared to the profiteering factory owners. …He then introduces Marx’s distinction between the proletariat — the working class as a whole — and bourgeoisie — the ruling class who controls the workers and profits from their labor.

Needless to say, Mr. Brunt is wrong about the history of sweatshops.

But he’s downright delusional when trying to explain why workers reject Marxism.

In his advanced class, Brunt also introduces the idea of false consciousness, which is defined as the many ways the working class is mislead to believe certain ideologies. …“You’re tricked into thinking your allies are different and your enemies are different than they actually are.”

Gee, Mr. Brunt, maybe workers reject Marxism because they like freedom and better living standards.

College students also get subjected to propaganda.

Former Drexel University professor George Ciccariello-Maher uses Marx to teach history… “When I teach Marx, …There’s this myth of the free market, but Marx shows very clearly that capitalism emerged through a state of violence.” …Some examples of violence that aided in the establishment of capitalism in the United States include stealing the land of Indigenous people and trafficking Africans through slavery.

Wow, only an academic could blame capitalism (a system of mutually beneficial voluntary exchange) for the actions of governments (land expropriations and state-sanctioned slavery).

But I’m not overly agitated by the incoherent thoughts of bitter “educators.”

What does upset me is that some impressionable young ladies looking for make-up tips and relationship advice may accidentally read this terrible article and actually conclude that Marx, instead of being a totalitarian, was some well-meaning, run-of-the-mill leftist.

Which is why this tweet from a journalist at the Weekly Standard is a nice summary of what’s wrong with the article.

But it’s even worse than the tweet suggests. The author didn’t under-estimate the body count resulting from communist tyranny. She wrote an entire article about Marx and never mentioned any of the death, misery, and destruction resulting from Marx’s evil ideology.

So let’s set the record straight.

Writing for the Wall Street Journal, Professor Paul Kengor opined about the real Marx.

May 5 marks the bicentennial of Karl Marx, who set the stage with his philosophy for the greatest ideological massacres in history. Or did he? …deniers still remain. “Only a fool could hold Marx responsible for the Gulag,” writes Francis Wheen in “Karl Marx: A Life” (1999). Stalin, Mao and Kim Il Sung, Mr. Wheen insists, created “bastard creeds,” “wrenched out of context” from Marx’s writings.

But, as Kengor explains, Marx’s writing was a green light for totalitarianism.

In “The Communist Manifesto,” he and Friedrich Engels were quite clear that “the theory of the Communists may be summed up in the single sentence: abolition of private property.” …Marx and Engels acknowledged their coercive nature: “Of course, in the beginning, this cannot be effected except by means of despotic inroads.” In the close of the Manifesto, Marx said, “The Communists . . . openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions.” They were right about that. Human beings would not give up fundamental liberties without resistance. Seizing property would require a terrible fight, including the use of guns and gulags. Lenin, Trotsky, Stalin and a long line of revolutionaries and dictators candidly admitted that force and violence would be necessary. We’re told the philosophy was never the problem—that Stalin was an aberration, as were, presumably, Lenin, Trotsky, Ceausescu, Mao, Pol Pot, Ho Chi Minh, the Kims and the Castros… Couldn’t any of them read? Yes, they could read. They read Marx. The rest is history—ugly, deadly history.

Unless you’re reading vapid articles in Teen Vogue. In which case you’ll be less knowledgeable about history when you’re done.

P.S. While it’s tempting to laugh at the article in Teen Vogue, you can enjoy deliberate humor about communism by clicking herehereherehere, and here.

The Illinois Tax-Hike Experiment Won’t End Well

Sun, 05/13/2018 - 12:24pm

Even though I wrote about proposed tax increases in Illinois just 10 days ago, it’s time to revisit the issue because the Tax Foundation just published a very informative article about the state’s self-destructive fiscal policy.

It starts by noting that the aggregate tax burden is higher in Illinois than it is in adjoining states.

Just what are Illinois’ neighbors doing on taxes? They’re taxing less, for starters. In Illinois, state and local taxes account for 9.3 percent of state income. The state and local taxes in Illinois’ six neighboring states account, in aggregate, for 8.0 percent of the income of those states.

Here’s the table showing the gap between Illinois and its neighbors. And it’s probably worth noting that the tax gap is the largest with the two states – Indiana and Missouri – that have the longest borders with Illinois.

While the aggregate tax burden is an important measure, I’ve explained before that it’s also important to focus on marginal tax rates. After all, that’s the variable that determines incentives for productive behavior since it measures how much the government confiscates when investors and entrepreneurs generate additional wealth.

And this brings us to the most important point in the article. Illinois politicians want to move in the wrong direction on marginal tax rates while neighboring jurisdictions are moving in the right direction.

Except for Iowa, all of Illinois’ neighbors have cut their income taxes since Illinois adopted its “temporary” income tax increases in 2011—and Iowa is on the verge of adopting a tax reform package that cuts individual income tax rates… Over the same period, Illinois’ single-rate income tax was temporarily raised from 3 to 5 percent, then allowed to partially sunset to 3.75 percent before being raised to the current 4.95 percent rate. A 1.5 percent surtax on pass-through business income brings the rate on many small businesses to 6.45 percent. Now there are calls to amend the state constitution to allow graduated-rate income taxes, with proposals circulating to create a top marginal rate as high as 9.85 percent (11.35 percent on pass-through businesses).

Here’s the chart showing the top rate in various states in 2011, the top rates today, and where top tax rates could be in the near future.

What’s especially remarkable is that Illinois politicians are poised to jack up tax rates just as federal tax reform has significantly reduced the deduction for state and local taxes.

For all intents and purposes, they’re trying to drive job creators out of the state (a shift that already has been happening, but now will accelerate).

Normally, when I write that a jurisdiction is committing fiscal suicide, I try to explain that it’s a slow-motion process. Illinois, however, could be taking the express lane. No wonder readers overwhelmingly picked the Land of Lincoln when asked which state will be the first to suffer a fiscal collapse.

P.S. Illinois politicians claim they want to bust the flat tax so they can impose higher taxes on the (supposedly) evil rich. High-income taxpayers doubtlessly will be the first on the chopping block, but I can say with 99.99 percent certainty that class-warfare tax increases will be a precursor to higher taxes on everybody.

P.P.S. Illinois residents should move to states with no income taxes. But if they only want to cross one border, Indiana would be a very good choice. And Kentucky just shifted to a flat tax, so that’s another potential option.

Two Sentences that Capture the Essential Difference Between Libertarians and Statists

Sat, 05/12/2018 - 12:22pm

Why are there so few liberty-oriented societies compared to the number of places with statist governments?

And why does it seem like the size and scope of government keeps expanding around the world?

If I’m feeling optimistic, I’ll disagree with the tone of those questions. There are reasons to be cheerful, after all. the Soviet Empire collapsed and there’s solid data that global economic liberty has increased over the past few decades. And for those who care about evidence, there’s a slam-dunk argument that smaller government means more prosperity.

But if I’m feeling pessimistic, I’ll look at grim numbers suggesting that the burden of government automatically will expand because of demographic change. And I also worry about eroding societal capital, with more and more people thinking it’s okay to live off the government. And let’s not forget “public choice,” the theory that explains why politicians have an incentive to make government bigger.

I go back and forth on whether the glass is half full or half empty, and I’m not sure which side is winning. All I can say for sure is that Americans are getting increasingly polarized as we have big fights about the proper role of government.

Which is why I’ve always thought decentralization would be a good idea. No just for policy reasons, but also for domestic tranquility. All the leftists could move to places such as CaliforniaIllinois, and New Jersey and vote themselves Greek-style government. And all the advocates of limited government could move to more laissez-faire states such as New HampshireTexas, and South Dakota.

We don’t need a national divorce, not even the humorous version. We just need Swiss-style federalism.

But statists will never agree to that approach. And these two sentences from Reddit‘s Libertarian page succinctly explain the left’s opposition.

This guy nails it.

Libertarians have no objection to a bunch of statists creating some sort of socialist or communist mini-society, so long as it’s voluntary. Indeed, we’ve periodically had experimental societies in America based on Marxist principles. Starting with the Pilgrims (who learned from their mistake). And I still laugh every time I think about Bernie Sanders getting ejected from a hippie commune because he was too lazy to do his share of the common work.

But this tolerance isn’t a two-way street. Libertarians will let socialists create statist systems inside a free society, but the left won’t allow libertarian outposts in statist societies.

Heck, our statist friends don’t even like it when other nations have pro-market policy. That’s one of the reasons international bureaucracies always persecute so-called tax havens. Folks on the left may be misguided, but they’re usually not stupid. They know that statist systems will quickly fail if productive people have the ability to move themselves (or at least their money) across national borders.

The bottom line is that federalism is good because it means people can easily move when a government imposes bad policy. This is also a recipe for tolerance and tranquility, though only one side sees it that way.

P.S. The left is so hostile to tax havens that a bureaucrat from the U.S. Treasury accused me of “being disloyal” to America. A former Senator said my actions to defend low-tax jurisdictions were akin to “trading with the enemy.” And the bureaucrats at the OECD actually threatened to throw me in a Mexican jail for defending tax competition.

No Need to Fear Online Gaming

Fri, 05/11/2018 - 3:23pm

Originally published by The Detroit News on May 8, 2018.

Opponents to the effort to legalize online gaming in Michigan, currently manifested through House Bill 4926 proposed by Rep. Brandt Iden, argue that allowing controlled, online gaming for adults is a threat to children. These arguments fall flat, but also frequently serve to obscure who stands to gain from sinking the effort. If they succeed in stopping legalization, the only beneficiary will be competing casino interests at the expense of Michiganians.

A column recently published in The Detroit News (“Don’t legalize internet gaming,” April 26) cites a single study from the U.K. as the primary evidence of the dangers online gaming poses to children. It reported that some number of children indicated in a survey that they had recently spent their own money on gambling and that ads for gambling sometimes reached those who are underage. From this, we are to conclude that legalized gambling is a grave threat to young people.

There are two flaws with this argument. First, the U.K. is not the United States. Regulatory and legal systems differ between nations and so their experience is not necessarily indicative of our own. More importantly, the alternative to legal, regulated online gaming is not a complete absence of gambling, but rather a proliferation of illegal sites typically hosted overseas and untouchable by U.S. law.

The failure to account for the increased dangers posed by illicit black markets is why prohibition never solves social problems caused by irresponsible human behavior. While gambling to excess is a problem for some, the vast majority play responsibly and should not be punished for the indiscretions of a few.

Michigan is not the only state weighing these issues. While only a handful of states have thus far legalized online gaming, many more are on their way to doing so. There is a growing recognition that legalization both provides better safeguards against problem gambling and prevents tax revenues from traveling out of state.

There is also a pattern to the opposition in each state, which takes its cues from a front-group funded by billionaire Las Vegas casino owner Sheldon Adelson. Yet notably, no evidence from the other states with legal online gaming exists to justify a moral panic over the welfare of children.

Adelson is not only fighting state-to-state to discourage legalization of the same service he has made a fortune providing, but he and his lobbyists are also trying to get Washington, D.C., to deny states the opportunity to decide what is best for themselves. Despite his efforts, national momentum remains on the side of legalization.

We shouldn’t let our fears be exploited just so one powerful special interest doesn’t have to innovate and adapt an old business model to changing times.

Michael Cohen, Tony Podesta, and the Nauseating Corruption Enabled by Big Government

Fri, 05/11/2018 - 12:08pm

Ordinary Americans have a low opinion of Washington, but they’re underestimating the extent of the problem.

The nation’s capital is basically a playpen for special interests. It’s now the richest region of the country, with lobbyists, bureaucrats, contractors, politicians, and other insiders and cronies getting fat and happy thanks to money that is taken from people in the productive sector of the economy.

Republicans play the game and Democrats play the game, with both sides getting undeserved wealth at our expense.

Let’s take an up-close look at how this sordid game is played.

Here are some excerpts from a column by Catherine Rampell in today’s Washington Post.

The GOP is no longer the Party of Reagan. It’s the Party of Michael Cohen. …the Cohen blueprint for achieving the American Dream: Work minimally, if you can, and leverage government connections whenever possible. …following Donald Trump’s unexpected presidential victory, Cohen cashed in. …Cohen told companies that he could provide valuable “insights” into the new administration. Huge multinational corporations lined up to purchase these “insights,” dumping millions into Essential Consultants LLC… Cohen is hardly the only prominent Trumpster invoking White House connections… Cabinet members and other senior government officials, too, have enjoyed a sweetheart apartment deal, lobbyist-arranged vacations and private jet rides. These are not amenities secured through brains, honesty and hard work, the virtues that Republicans traditionally say are required for upward mobility and financial comfort. They are the fruits of luck, cronyism and a loose approach to ethical lines.

This is disgusting. Republicans often come to Washington claiming they’re going to “drain the swamp.” Many of them, however, quickly decide it’s a hot tub.

But don’t forget that sleaze is a bipartisan activity in Washington.

Here are excerpts from a Wall Street Journal report about influence-peddling on the other side of the aisle.

Tony Podesta was in line to be king of K Street. His lobbying firm ended 2015 as the third largest in Washington, D.C., with nearly $30 million in revenue from more than 100 clients, spanning Alphabet Inc.’s Google to Wells Fargo & Co. With his longtime friend Hillary Clinton expected to win the White House, 2016 promised to be even better. Mr. Podesta…hosted lawmakers and power brokers at his flat in Venice during the Art Biennale. It was one of many homes around the globe, including the Washington mansion where he displayed a collection of museum-grade artwork. In early 2016, he was ready to buy a $7.4 million condo overlooking Madison Square Park in New York City. …At age 59, he married Heather Miller, a congressional staffer 26 years younger. …Mrs. Podesta started her own lobbying firm, Heather Podesta + Partners, and they emerged a Washington power couple. …Mr. Podesta drew an annual salary of more than $2 million and made millions more in commissions and bonuses. …The Podesta Group grew from the 20th largest lobbying firm to third in three years, in terms of domestic and foreign lobbying revenues, propelled by business during President Barack Obama’s first term.

But this story of graft and corruption has a happy ending.

Then he fell, a calamitous collapse… The Podesta Group lost its banker over news the firm did work for the U.S. subsidiary of a Russian bank under sanctions. …Mrs. Clinton’s…victory would go a long way to fixing many of his problems. She lost…and Mr. Podesta, like many who had banked on her victory, did too. Clients who had hired him for access to a new Clinton administration fell away. By the end of the year, the departures cost the firm more than $10 million in annual business… the Podesta Group did public relations work in 2015 for Raffaello Follieri, an Italian businessman who had pleaded guilty to swindling millions of dollars from an investment fund run partly by Mr. Clinton, one of Mr. Podesta’s early patrons. …Before closing the firm’s doors, Mr. Podesta gave himself an advance on his lobbying commissions.

The common theme, as explained by Karen Tumulty for the Washington Post, is that D.C. is an utterly corrupt place.

…the game in Washington never really changes. The only things that shift from election to election are the most sought-after players. …When Trump won, the traditional rosters of lobbyists — ex-congressmen, lawyers from white-shoe firms, former congressional staffers — were of little use in figuring out and gaining access to a band of outsiders who came to town vowing to demolish the old order. Cohen was not the only Trump insider to see a chance to cash in… The president’s former campaign manager, Corey Lewandowski, along with former Trump aide Barry Bennett, also opened a consulting firm, which quickly had more business than it could handle. “It was like shooting fish in the barrel,” Bennett told The Post. …Nor is Team Trump unique in seizing these opportunities. President Barack Obama had not been in office a month before his 2008 campaign manager, David Plouffe, was paid $50,000 to give a speech in Azerbaijan to a group with close ties to that repressive government. …Washington continues to have a most durable ecosystem: The swamp is never drained; it just gets taken over by different reptiles.

Utterly nauseating.

But allow me to point out that lobbying isn’t inherently bad. And neither are campaign contributions. It all depends on the reason.

If a company hires a lobbyist or give cash to a politician because it wants handouts or government intervention that will produce unearned profit, that’s wrong. Sort of like being a co-conspirator to a crime.

However, if a company hires a lobbyist and donates money because it is fighting tax hikes or new regulatory burdens, that’s noble and just. Sort of like engaging in an act of self-defense.

But wouldn’t it be wonderful if there wasn’t a need for either the bad type of lobbying or the good type of lobbying?

Richard Ebeling, a professor at the Citadel, offers a very good solution in a column for the Foundation for Economic Education. He starts by explaining that government and corruption have always been connected.

The corruption of government officials seems to be as old as recorded history. …the ancient Roman senate passed laws against such political corruption in the first century, B.C. …Emperor Constantine issued one of the strongest decrees against corruption during this time in A.D. 331. …Today, high levels of political corruption remain one of the major problems people confront around the world. …Political corruption, clearly, is found everywhere around the world… Why?

Richard answers his own question, pointing out that big government is a major enabler of corruption.

Part of the answer certainly…can be found in the relationship between the level of corruption in society and the degree of government intervention in the marketplace. In a generally free market society, …government officials have few regulatory or redistributive responsibilities, and therefore they have few special favors, privileges, benefits, or dispensations to “sell”… The smaller the range of government activities, therefore, the less politicians or bureaucrats have to sell to voters and special interest groups. And the smaller the incentive or need for citizens to have to bribe government officials to allow them to peacefully go about their private business and personal affairs. …On the other hand, the…interventionist state…taxes the public and has huge sums of money to disburse to various programs and projects. It imposes licensing and regulatory restrictions on free and open competition. It transfers great amounts of income and wealth to different groups through sundry “redistributive” schemes. …Those in the government who wield these powers hold the fate of virtually everyone in their decision-making hands. It is inevitable that those drawn to employment in the political arena often will see the potential for personal gain… The business of the interventionist state, therefore, is the buying and selling of favors and privileges. It must lead to corruption because by necessity it uses political power to harm some for the benefit of others, and those expecting to be either harmed or benefited will inevitably try to influence what those holding power do with it.

So what’s the bottom line?

Ending global political corruption in its various “petty” and “grand” forms, therefore, will only come with the removal of government from social and economic life. When government is limited to protecting our lives and property, there will be little left to buy and sell politically.

Amen. That’s the message I also shared in this CF&P video.

Sadly, Donald Trump’s promises to “drain the swamp” don’t seem to have been very sincere. Earlier this year, he meekly acquiesced to a budget deal that produced a feeding frenzy among the swamp creatures.

How is that any different from what would have happened if Hillary Clinton was in the White House? Big government doesn’t magically become less harmful and corrupt just because Republicans are in charge.

Indeed, there’s some hard evidence the problem actually becomes worse.

As Ms. Tumulty wrote, “Same swamp, different reptiles.”

The IMF’s Reprehensible Campaign for Continued Poverty in Sub-Saharan Africa

Thu, 05/10/2018 - 12:22pm

A couple of months ago, I thought I did something meaningful by sharing six separate examples of the International Monetary Fund pressuring sub-Saharan African nations to impose higher tax burdens. This was evidence, I suggested, that the IMF had a disturbing agenda of bigger government for the entire region.

I didn’t imply the bureaucrats were motivated by racism. After all, the IMF has pushed for higher taxes in the United States, in China, in Latin America, in the Middle East, and in Europe. (folks who work at the IMF don’t pay taxes on their own salaries, but they clearly believe in equal opportunity when urging higher taxes for everyone else).

Nonetheless, I thought it was scandalous that the IMF was systematically agitating for taxes in a region that desperately needs more investment and entrepreneurship. And my six examples were proof of a continent-wide agenda!

But it turns out that I wasn’t exposing some sort of sinister secret. The IMF just published a new report where the bureaucrats openly argue that there should be big tax hikes in all sub-Saharan nations.

Domestic revenue mobilization is one of the most pressing policy challenges facing sub-Saharan African countries. …the region as a whole could mobilize about 3 to 5 percent of GDP, on average, in additional revenues. …domestic revenue mobilization should be a key component of any fiscal consolidation strategy. Absent adequate efforts to raise domestic revenues, fiscal consolidation tends to rely excessively on reductions in public spending.

Notice, by the way, the term “domestic revenue mobilization.” Such a charming euphemism for higher taxes.

And it’s also worth pointing out that the IMF openly urges more revenue so that governments don’t have to impose spending restraint.

Moreover, the IMF is happy that there have been “substantial gains in revenue mobilization” over the past two decades.

Over the past three decades, many sub-Saharan African countries have achieved substantial gains in revenue mobilization. For the median sub-Saharan African economy, total revenue excluding grants increased from around 14 percent of GDP in the mid-1990s, to more than 18 percent in 2016, while tax revenue increased from 11 to 15 percent. …Two-thirds of sub-Saharan African countries now have revenue ratios above 15 percent, compared with fewer than half in 1995. …the region still has the lowest revenue-to-GDP ratio compared to other regions in the world. The good news is that there are signs of convergence. Over the past three decades, the increase in sub-Saharan Africa’s revenue ratio has been double that for all emerging market and developing economies.

To the bureaucrats at the IMF, the “convergence” toward higher taxes is “good news.”

However, there is some data in the report that is genuine good news.

In most regions of the world, there has been a trend in recent years toward reducing rates for the CIT and the personal income tax (PIT). In sub-Saharan African countries, the average top PIT rate has been reduced from about 44 to 32 percent since 2000, while average top CIT rates have been reduced by more than 5 percentage points during the same period.

Here are two charts showing the decline in tax rates, not only in Africa, but in most other regions.

By the way, the IMF bureaucrats appear to be surprised that revenues went up as tax rates went down. I guess they’ve never heard of the Laffer Curve.

Despite this decline in rates, total direct taxes (PIT and CIT) as a percentage of GDP have been trending upward.

But the IMF obviously didn’t learn from this evidence (or from the evidence it shared last year).

Rather than proposing lower tax rates, the report urges a plethora of tax hikes.

Successful experiences in revenue mobilization have relied on efforts to implement broad-based VATs, gradually expand the base for direct taxes (CIT and PIT), and implement a system to tax small businesses and levy excises on a few key items.

Wow. I don’t know what’s worse, claiming that tax increases are good for growth, or pushing higher taxes in the world’s poorest region.

Let’s close by debunking the IMF’s absurd contention that bigger government would be good for Africa.

I suppose the simplest response would be to share my video series about the economics of government spending, especially since I cite a wealth of academic research.

But let’s take an even simpler approach. The IMF report complained that governments in sub-Saharan Africa don’t have enough money to spend.

The good news, as illustrated by this chart (based on data from the bureaucracy’s World Economic Outlook database), is that the IMF is accurate about relative fiscal burdens.

The bad news is that the IMF wants us to believe that a low fiscal burden is a bad thing. The bureaucrats at the IMF (and at other international bureaucracies) actually want people to believe that bigger government means more prosperity. Which is why the report urges big tax hikes.

But you won’t be surprised to learn that the IMF doesn’t provide any evidence for this bizarre assertion.

Though I’ve had folks on the left sometimes tell me that bigger government must be good for growth because rich nations in the western world have bigger governments while poor nations in Africa have comparatively small governments.

If you want to get in the weeds of public finance theory, the IMF bureaucrats are misinterpreting Wagner’s Law.

But there’s no need to delve into theory. When people make this assertion to me, I challenge them to identify a poor nation that ever became a rich nation with big government.

It’s true, of course, that there are rich nations that have big governments, but all of those countries became rich in the 1800s when government was very small and welfare state programs were basically nonexistent.

So let’s take the previous chart, which supposedly showed too little spending in sub-Saharan Africa, and add another column (in red) showing the level of government spending in North America and Western Europe in the 1800s.

The obvious takeaway is that African nations should cut taxes and reducing spending. The exact opposite of what the IMF recommends.

In other words, the IMF’s agenda of bigger government and higher taxes is a recipe for continued poverty.

But keep in mind that fiscal policy is just one piece of the puzzle. As explained in Economic Freedom of the World, a nation’s prosperity also is affected by regulatory policy, trade policy, monetary policy, and quality of governance.

And nations in sub-Saharan Africa generally score even lower in those areas than they do for fiscal policy. So while those countries should reduce their fiscal burdens, it’s probably even more important for them to address other policy mistakes.

To end on an upbeat note, here’s a video from Reason about how free markets can help bring prosperity to Africa.

I also recommend this CF&P video since it does a great job of debunking the argument that higher taxes and bigger government are a recipe for prosperity.

And this video about Botswana is a good case study of how African nations can enjoy more prosperity with market-oriented policy.

Expanding Government to Address Problems Caused by Previous Expansions of Government, the U.K. Version

Wed, 05/09/2018 - 12:07pm

According to research from the Bank for International Settlements, the long-term fiscal outlook for the United Kingdom is very grim. The data generated by the International Monetary Fund and the Organization for Economic Cooperation and Development isn’t quite as dour, but those bureaucracies also show very significant long-run fiscal challenges.

The problem in the U.K. is the same as the problem in the United States. And France. And Germany. And Japan. Simply stated, the welfare state is becoming an ever-larger burden in large part because the elderly population is expanding in developed nations compared to the number of potential taxpayers.

The good news, as noted in this BBC story, is that some folks in the United Kingdom realize this is bad news for young people.

Lord Willetts…said the contract between young and old had “broken down”. Without action, young people would become “increasingly angry”.

The bad news is that these folks apparently think you solve the problem of young-to-old redistribution by adding a layer of old-to-young redistribution.

I’m not joking.

A £10,000 payment should be given to the young and pensioners taxed more, a new report into inter-generational fairness in the UK suggests. The research and policy organisation, the Resolution Foundation, says these radical moves are needed to better fund the NHS and maintain social cohesion. …The foundation’s Intergenerational Commission report calls for an NHS “levy” of £2.3bn paid for by increased national insurance contributions by those over the age of 65. It says that all young people should receive a £10,000 windfall at the age of 25 to help pay for a deposit on a home, start a business or improve their education or skills.

To be fair, proponents of this idea are correct about young people getting a bad deal from the current system. And they are right about older people getting more from government than they pay to government.

“There’s no avoiding the pressures for more spending on healthcare and social care, the question is how we meet those pressures,” he replied. “Extra borrowing is unfair on the younger generation. “Extra taxes on the working population – when especially younger workers have not really seen any increase in their pay – will be very unfair. “It so happens that the older people who will benefit most from extra spending on health care have got some resources, so at low rates, it’s reasonable to expect them to contribute.

But I fundamentally disagree with their conclusion that bigger government is the answer.

“It is better than any of the alternatives.”

For what it’s worth, what’s happening in the U.K. is an example of Mitchell’s Law. Young people are getting a bad deal because of programs created by government.

But rather than proposing to unwind the programs that caused the problem, the folks at the Resolution Foundation have decided that creating additional programs financed by additional taxes is the way to go.

By the way, you won’t be surprised to learn that the group also has other bad ideas.

The report calls for the scrapping of the council tax system, replacing it with a new property tax which would raise more money from wealthier homeowners. The proceeds would be used to halve stamp duty for first-time buyers.

Let’s close by looking at some interesting data about the attitudes of the young.

…a poll undertaken for the Intergenerational Commission also suggested people were more pessimistic in Britain about the chances of the next generation having “better lives” than the one before it – compared with almost any other country.

Here’s the chart showing data for the U.K. and several other nations.

Congratulations to France for having the most pessimistic young people (maybe this is why so many of them would move to the U.S. if they had the chance).

And I think the South Koreans are too glum and the Chinese are too optimistic. The Italians also are too upbeat. But otherwise, these numbers generally make sense.

P.S. I was very pessimistic about the U.K. in 2012, but had a more upbeat assessment last summer. Now the pendulum has now swung back in the other direction.

P.P.S. If the Brits screw up Brexit, I’ll be even more downbeat about the nation’s outlook.

Investment, Productivity, Capital Taxation, and Worker Compensation

Tue, 05/08/2018 - 12:56pm

I was a big fan of the lower corporate tax rate in last year’s tax bill, largely because I want a better investment climate, which then will lead to higher productivity and rising wages.

Simply stated, the current tax code (as shown in the chart) has a very harsh bias against income that is saved and invested.

Anything that can be done to reduce the magnitude of this “double taxation” will lead to better economic performance.

Now that the lower corporate tax rate has been implemented, there’s a debate about whether it is having desirable effects.

In this CNBC debate, I explain that stock “buybacks” and employee bonuses are positive short-run results, but that I’m much more interested in the potential long-run benefits.

As with all brief interviews, it’s difficult to share a lot of information. My main goal was to point out that there’s nothing wrong with buybacks for shareholders or bonuses for workers, but that it’s much more important to focus on potential changes in long-run growth.

And we’ll get more long-run growth, I argue, because the lower corporate rate reduces the tax burden on capital (i.e., saving and investment). Jared dismisses this as “trickle-down economics,” but that’s simply his pejorative term for common-sense microeconomics.

But you don’t have to believe me. Many scholars have pointed out that harsh taxes on capital wind up hurting workers. Let’s look at some of the findings from an academic study by Gregory Mankiw, Matthew Weinzierl,  and Danny Yagan.

Perhaps the most prominent result from dynamic models of optimal taxation is that the taxation of capital income ought to be avoided. …The intuition for a zero capital tax can be developed in a number of ways. …First, because capital equipment is an intermediate input to the production of future output, the Diamond and Mirrlees (1971) result suggests that it should not be taxed. Second, because a capital tax is effectively a tax on future consumption but not on current consumption, it violates the Atkinson and Stiglitz (1976) prescription for uniform taxation. In fact, a capital tax imposes an ever-increasing tax on consumption further in the future, so its violation of the principle of uniform commodity taxation is extreme. A third intuition for a zero capital tax comes from elaborations of the tax problem considered by Frank Ramsey (1928). In important papers, Chamley (1986) and Judd (1985) examine optimal capital taxation in this model. They find that…a zero tax on capital is optimal. …any tax on capital income will leave the after-tax return to capital unchanged but raise the pre-tax return to capital, reducing the size of the capital stock and aggregate output in the economy. This distortion is so large as to make any capital income taxation suboptimal compared with labor income taxation, even from the perspective of an individual with no savings.

And here’s some analysis by Garret Jones at George Mason University.

Chamley and Judd separately came to the same discovery: In the long run, capital taxes are far more distorting that most economists had thought, so distorting that the optimal tax rate on capital is zero.  If you’ve got a fixed tax bill it’s better to have the workers pay it. …let me sum up a key implication of Chamley-Judd: Under standard, pretty flexible assumptions, it’s impossible to tax capitalists, give the money to workers, and raise the total long-run income of workers. Not, hard, not inefficient, not socially wasteful, not immoral: Impossible. If you tax capital income and hand all of the tax revenue to workers, then in the long run (or the “steady state”) you’ll wind up with a smaller capital stock. And since workers use the capital stock to earn their wages, the capital tax pushes down their wages.

Even economists on the left agree about the link between productivity and wages. Here’s a recent article from the Wall Street Journal, citing Larry Summers about why wages are still linked to productivity and why growth should still be the goal.

Wages are supposed to track worker productivity… Many on the left argue the link is now broken and redistributing income from the wealthy downward would help workers more than faster economic growth. But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. …The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way. …Over one- to five-year periods between 1973 and 2015, they found that a one-percentage-point increase in productivity growth generally led to a 0.5- to one-percentage-point increase in average or median pay growth, depending on the type of workers measured. …In an interview, Mr. Summers says the idea that “policy should shift from growth to inequality is badly misleading.”

Let’s close with some excerpts from an article in the Cayman Financial Review by Orphe Divounguy.

Historically, productivity growth has led to gains in compensation for workers and greater profits for firms. This has big implications for tax policy – especially the degree to which capital is taxed since capital – an essential ingredient to improvements in workers’ living standards –is highly responsive to changes in the tax climate. …The standard theory of optimal taxation argues that a tax system should maximize social welfare subject to a set of constraints. The goal should be to enact a tax system that maximizes households’ welfare… Pioneering work on optimal taxation is the work of Frank Ramsey (1927), who suggested…only commodities with inelastic demand are taxed. Another important contribution on this topic is the work of James Mirlees (1971), who posits that when a tax system aims to redistribute income from high ability to low ability individuals, the tax system should provide sufficient incentive for high-ability/high-income taxpayers to keep producing… the empirical evidence on the effects of taxation largely supports a move away from capital taxation. …higher taxes on capital income discourage investments in productive capital. This reduction in productive capital causes workers to become less productive, thus causing the real wage to decrease.

Amen. The bottom line is that you can’t punish capital without punishing labor.

Which is the point of this great cartoon, which I gather was campaign literature at some point for the British Liberal Party (with “liberal” meaning “classical liberal“). It correctly captures the key point about labor and capital being complementary factors of production.

 

This chart makes the same point.

P.S. I’ve debunked the argument that capital is taxed at a lower rate than labor.

Threatening A Program That Brings Investment to U.S.

Tue, 05/08/2018 - 12:38pm

Originally published by The Washington Times on May 1, 2018.

Earlier this year, President Trump told the gathering of business and political elites at the World Economic Forum in Davos, Switzerland, that “America is open for business.” It’s true that last year’s historic tax reform effort did much to make America a more attractive destination for business and investment, but more still can be done. For one, the president can put an end to an Obama-era regulatory effort threatening a program that brings new investment into the United States each year.

The list of last minute Obama regulations is long and destructive. Sam Batkins of the American Action Forum issued a report following the end of President Obama’s tenure that noted, “with a last-minute flourish of $24 billion in final regulatory costs in the last three weeks, the Obama administration passed $890 billion in cumulative burdens. The record-breaking regulatory output of 2016, which imposed the most major rules in history, capped perhaps the most aggressive regulatory record in history.” One of those last-minute Obama regulations sabotaged the EB-5 immigrant investor visa program in a way that hurts economic output.

In recent years, the EB-5 immigrant investor program has seen significant growth. Currently capped at 10,000 visas per year, it is the only immigrant program that doesn’t create any new competition for domestic workers. While low unemployment makes this less of an issue than it might be otherwise, that’s still politically significant. It is also the only investment-focused visa category.

Qualifying for an EB-5 visa requires an investment of $500,000 in rural or high-unemployment areas, or $1 million elsewhere, that creates or preserves at least 10 full-time jobs. A conservative estimate places the total investment brought into the U.S. economy since 2008 at $20 billion, and a Department of Commerce report estimated over 174,000 jobs created just in fiscal years 2012 and 2013, or approximately 16 per investor.

This is a win for America. But since many nations offer investment immigrant programs to attract foreign capital, the U.S. version must remain competitive for these economic benefits to continue. Unfortunately, the last-minute regulatory effort by the Obama administration has placed the program in jeopardy.

The 11th-hour Obama rules would significantly raise the investment thresholds and discourage many investors from using the program. Even though the rules have not been finalized, continued uncertainty over the status of the program is already having a negative effect by making it harder to raise funds for new investments.

The rules were delayed after Mr. Trump took office, but now members of Congress critical of the program but dissatisfied with their inability to convince colleagues of their views want regulators to step in and do their work for them.

In a recent letter to Mr. Trump’s new secretary of Homeland Security, Kirstjen Nielsen, the chairs of the House and Senate Judiciary Committees, Republican Rep. Bob Goodlatte and Sen. Chuck Grassley, along with former Judiciary Committee chair and Democratic Sen. Patrick Leahy, urged her to advance the Obama-era rules. This would be a mistake and would undermine her boss’ stated agenda, though the EB-5 program does have some room for reform.

Currently, more than half of the visas go to family members, but it was not the intent of Congress for family members to count against the 10,000 cap. And since immigration reform is likely to reduce the number of non-merit-based visas, the EB-5 cap can be raised to replace at least some of those numbers with more job-creating immigrants.

Some congressional members are concerned about fraud within the program, and new protections to satisfy these concerns may be needed to get legislation through Congress and shore up support for the program. Similarly, the discount for high-unemployment and rural areas could be better targeted if Congress still sees such incentives as a worthwhile goal, though the economy would be best served by letting the market direct investment rather than giving weight to political preferences. Critics also sometimes cite national security as a reason to oppose the program, but there’s no evidence that it has ever led to a serious security threat.

Whatever the final details, it’s important that the work to reform the program takes place in Congress rather than through regulation so that policymakers can be assured that new rules are not so restrictive as to undermine the intent of the program.

There is fierce debate over how to settle some of the pressing immigration issues. Legislative solutions to questions surrounding DACA, the diversity lottery program, and what to do about illegal immigration have so far remained elusive. However, some manner of compromise reform is likely to pass eventually. That is the preferred vehicle for making any changes to the EB-5. Legislators should not throw up their hands and accept the regulatory preferences of an administration no longer in office.

Bernie’s (Latest) Boondoggle

Mon, 05/07/2018 - 12:49pm

When I wrote about “crazy Bernie Sanders” in 2016, I wasn’t just engaging in literary hyperbole. The Vermont Senator is basically an unreconstructed leftist with a disturbing affinity for crackpot ideas and totalitarian regimes.

His campaign agenda that year was an orgy of new taxes and higher spending.

Though it’s worth noting that he’s at least crafty enough to steer clear of pure socialism. He wants massive increases in taxes, spending, and regulation, but even he doesn’t openly advocate government ownership of factories.

Then again, there probably wouldn’t be any factories to nationalize if Sanders was ever successful in saddling the nation with a Greek-sized public sector.

He’s already advocated a “Medicare-for-All” scheme with a 10-year price tag of $15 trillion, for instance. And now he has a new multi-trillion dollar proposal for guaranteed jobs.

In a column for the Washington Post, Robert Samuelson dissects Bernie’s latest vote-buying scheme. Here’s a description of what Senator Sanders apparently wants.

Sen. Bernie Sanders (I-Vt.) wants the federal government to guarantee a job for every American willing and able to work. The proposal sounds compassionate and enlightened, but in practice, it would almost certainly be a disaster. …Just precisely how Sanders’s scheme would work is unclear, because he hasn’t yet submitted detailed legislation. However, …a job-guarantee plan devised by economists at Bard College’s Levy Economics Institute…suggests how a job guarantee might function. …anyone needing a job could get one at a uniform wage of $15 an hour, plus health insurance (probably Medicare) and other benefits (importantly: child care). When fully deployed, the program would create 15 million public-service jobs, estimate the economists. …the federal government would pay the costs, the program would be administered by states, localities and nonprofit organizations.

As you might expect, the fiscal costs would be staggering (and, like most government programs, would wind up being even more expensive than advertised).

This would be huge: about five times the number of existing federal jobs (2.8 million) and triple the number of state government jobs (5 million). …The proposal would add to already swollen federal budget deficits. The Bard economists put the annual cost at about $400 billion. …overall spending is likely underestimated.

But the budgetary costs would just be the beginning.

Bernie’s scheme would basically destroy a big chunk of the job market since people in low-wage and entry-level jobs would seek to take advantage of the new government giveaway.

…uncovered workers might stage a political rebellion or switch from today’s low-paying private-sector jobs to the better-paid public-service jobs… The same logic applies to child-care subsidies.

And there are many other unanswered questions about how the plan would work.

Does the federal government have the managerial competence to oversee the creation of so many jobs? …Can the new workers be disciplined? …Finally, would state and local governments substitute federally funded jobs for existing jobs that are supported by local taxes?

If the plan ever got adopted, the only silver lining to the dark cloud is that it would provide additional evidence that government programs don’t work.

The irony is that, by assigning government tasks likely to fail, the advocates of activist government bring government into disrepute.

But that silver lining won’t matter much since a bigger chunk of the population will be hooked on the heroin of government dependency.

In other words, just as it’s now difficult to repeal Obamacare even though we know it doesn’t work, it also would be difficult to repeal make-work government jobs.

So we may have plenty of opportunities to mock Bernie Sanders, but he may wind up with the last laugh.

P.S. Regarding getting people into productive work, I figure the least destructive approach would be “job training” programs.

Beyond that, I’m not sure whether make-work government jobs are more harmful or basic income is more harmful.

Confronted by Reality, a Leftist Changes His Mind on Gun Rights

Sun, 05/06/2018 - 12:46pm

I’ve periodically featured folks on the left who have rejected gun control.

  • In 2012, Jeffrey Goldberg admitted gun ownership reduces crime.
  • In 2013, Justin Cronin explained how he became a left-wing supporter of gun rights.
  • In 2015, Jamelle Bouie poured cold water on Obama’s gun control agenda.
  • Last year, Leah Libresco confessed that gun control simply doesn’t work.

Now it’s time to look at another person who has changed his mind.

Here are some excerpts from a column in the Des Moines Register written by a long-time supporter of gun control.

I was 14 years old when John Lennon was killed — it affected me deeply and it was the biggest event that led to my anti-gun feelings. As I got older, my heroes were JFK, RFK and MLK, which furthered my anti-gun sentiments. …I thought the Second Amendment was not relevant to our modern-day society and it should be repealed. …In 2012 I tweeted: “@BarackObama please repeal the 2nd amendment and stop the @nra.” …I was a lifelong Democrat. In the 2016 presidential debates I watched…Hillary Clinton… I voted for her. …I was a little turned off by…the NRA.

But he began to change his mind as the election was happening.

I decided to leave San Francisco and to build a house in Washington. …as my house was being built I started wondering what I would do in the event of a home invasion. I knew right away becoming a gun owner was going to be the best way to defend myself.

Sounds like he’s part of the 22 percent in my poll who support the 2nd Amendment because of concerns about crime.

But he also enjoyed the process of becoming proficient.

I gave it a lot of thought and decided I was going to purchase a gun and learn to shoot… I started going to the range and discovered that I really enjoyed target shooting.

His philosophical shift apparently wasn’t because he was convinced by the NRA, but rather because he grew increasingly concerned about the left’s radical opposition to private firearms (something I’ve noticed as well).

I gradually came around to see how extremely anti-gun, anti-Second Amendment the left was. For a large portion of them, their ultimate goal is a full gun ban and to repeal the Second Amendment — I know I was one of them.

And even though he no longer considers himself on the left, he doesn’t want his friends on that side of the debate to misinterpret his views.

To my easily confused friends on the left — no, I am not calling for violence; no, I am not a terrorist, no, I am not racist. Peace.

Since the author’s overall perspective has changed, I guess he doesn’t belong on my “honest leftists” page, but his shift on gun rights is nonetheless worth noting.

Hopefully, he’s now sufficiently “woke” on guns that he would be part of the resistance if his former fellow travelers on the left ever tried a gun ban.

More Pay for Unionized Teachers Is the Wrong Solution to the Wrong Problem

Sat, 05/05/2018 - 12:41pm

Education spending and teacher pay have become big issues in certain states.

Unfortunately, not for the right reasonIn an ideal world, taxpayers would be demanding systemic reform because government schools are getting record amounts of money (higher than any other nation on a per-student basis) while producing sub-par results.

Instead, we live in a surreal parallel universe where teacher unions are pushing a narrative that taxpayers should cough up more money because teachers supposedly are underpaid.

Let’s look at the data.

An article in City Journal debunks the claim that teachers are underpaid.

…protests across the country have reinforced the perception that public school teachers are dramatically underpaid. They’re not: the average teacher already enjoys market-level wages plus retirement benefits vastly exceeding those of private-sector workers. Across-the-board salary increases, such as those enacted in Arizona, West Virginia, and Kentucky, are the wrong solution to a non-problem. …At the lowest skill levels—a GS-6 on the federal scale—teachers earn salaries about 26 percent higher than similar white-collar workers. …The average public school teaching position rated an 8.8 on the federal GS scale. After adjustment to reflect the time that teachers work outside the formal school day, the BLS data show that public school teachers on average receive salaries about 8 percent above similar private-sector jobs. …Data from the Survey of Income and Program Participation show that teachers who change to non-teaching jobs take an average salary cut of about 3 percent. Studies using administrative records in Florida, Missouri, Georgia, and Montana showed similar results. …public-employee retirement and health benefits are bleeding dry state and local budgets. Neither the public nor teachers fully appreciates the costs of these programs. We forget the value of benefits when considering how teacher pay compares with private-sector work.

And keep in mind those lavish pensions are woefully underfunded, so taxpayers are paying too much now and they’ll have to pay even more in the future.

But I think the key factoid from the above article is that teachers take a pay cut, on average, when they leave the profession. Along with the “JOLTS” data, that’s real-world evidence that teachers are getting paid more than counterparts in the economy’s productive sector.

Allysia Finley of the Wall Street Journal also punctures the false claims of the union bosses.

Teachers unions… They’re using misleading statistics… They conflate school funding and state education spending. In Oklahoma, unions proclaimed that per pupil school spending fell by 28.2% over the past decade. That refers to the inflation-adjusted state’s general funding formula. But total per pupil outlays increased by 16% in nominal terms between 2006 and 2016… They use elevated spending baselines. Teachers unions nearly always compare school spending and teacher salaries today with peak levels before the great recession, which were inflated like housing prices. Between 2000 and 2009, average per pupil spending across the country increased 52%…per pupil spending ticked up by 7.5% between 2012 and 2015. School spending growth…increased faster than the consumer price index. …They don’t account for other forms of compensation. Since 2000, per pupil spending on employee benefits has doubled. …pensions and health benefits are the fastest-growing expenses for many school districts, and most of the money goes to retired teachers. …the unions are lying with statistics.

In a column for the Denver Post, a parent showed that his state’s teachers are getting above-average compensation.

Teachers are…mostly paid via a union “salary schedule,” meaning they get pay raises based on only two factors: the number of college degrees and certificates they earn, and how many years they’ve been on the job. That makes a pretty lousy incentive structure… We keep hearing Colorado is 49th in the country for educational spending. That lie is repeated so often it becomes legend. Funding for Colorado schools are split between the local school district and the state. So, if you compare only the state funding part to states that have no local match, yep, ours looks low. But when you look at total funding, which can be counted in different ways, the picture doesn’t look so dire. …According to the Colorado Department of Education, the average salary for teachers here is $52,728. But that’s only one piece of the compensation. The school year is about 180 days, or 36 weeks. So, the pay is $1,465 for every week a teacher is teaching. Vacation time? Well, 52 weeks in a year, minus 36 weeks in the classroom, that’s 16 weeks off, roughly 4 months! Compare that to someone who only gets 2 weeks off but still gets paid $1,465 a week when working, that’s the equivalent of $73,233. And let’s count the present-cost value of their retirement benefits. …Not bad for a system where you can retire at 58.

Let’s close with some excerpts from Jason Riley’s column in the Wall Street Journal.

The nation’s K-12 schools are…turning into hotbeds of political activism. …teachers are demanding higher pay, better benefits and more education funding overall. …The American Federation of Teachers and the National Education Association have thousands of state and local affiliates. They are among the richest and best-organized pressure groups in the country. And they are on a roll.That’s good news for their members but not necessarily for children, parents and taxpayers. …Teachers unions support work rules that prevent the most capable teachers from being sent to low-performing schools, that shield teachers from meaningful evaluations, and that require instructors to be laid off based on seniority instead of performance. …those rules do nothing to address the needs of students. …politicians love to highlight education outlays. It helps them win votes and ward off union agitators. But the connection between school spending and educational outcomes is tenuous. …total spending per pupil at the state level rose, on average, by an inflation-adjusted 18%. During this period, it fell in Arizona… Yet on 2015 federal standardized exams, Arizona made more progress than any other state. New York, by contrast, boasts the highest spending per pupil and teacher pay in the country, but you wouldn’t know it from the test results.

For what it’s worth, the final few sentences in the above excerpt should be the main issue being discussed in state capitals. Lawmakers should be asking why more and more money never produces better outcomes.

But that’s really not the problem. It’s the symptom of the problem.

Our primary challenge in education is that we rely on government monopolies that are captured by special interests. We need school choice so that competitive forces can be unleashed to generate better results. There’s strong evidence that choice produces good outcomes in the limited instances where it is allowed in the United States.

And in that kind of system, we may actually wind up with better teachers that are paid just as much. Or maybe even more.

P.S. There’s also strong evidence for school choice from nations such as SwedenChile, and the Netherlands.

P.P.S. Needless to say, eliminating the Department of Education is part of the solution.

Two Heartening Responses to Seattle’s Self-Destructive Tax Grab

Fri, 05/04/2018 - 12:07pm

wrote last July about how greedy politicians in Seattle, Washington, were trying to impose a local income tax.

That effort has been stymied since there’s anti-income-tax language in the state constitution (Washington is one of nine states without that punitive levy), but that doesn’t mean the city’s tax-and-spend crowd has given up.

There’s a proposal for a new scheme to impose a “head tax” on successful companies.

The top three percent of the high grossing businesses in Seattle will carry the load of Seattle’s proposed employee head tax. Backers are calling it the “Progressive Tax on Business.” The tax will apply only to those companies with $20 million or more annually in taxable gross receipts as measured under the City’s Business and Occupation tax. The city estimates that will be 500 businesses. …the tax is based on total revenues and not net-income. …Councilmember Mike Obrien has been pushing to a head tax for two years and doesn’t believe businesses will leave Seattle because of it.

I suppose this might be a good opportunity to point out that this tax is bad for growth and that it will encourage out-migration from the city.

Or perhaps I could make a wonky point about how this tax is related to the income tax in the same way a gross receipts tax is related to a sales tax.

But I’m motivated instead to focus on the very heartening response to this tax grab by both business and labor.

Here’s how the city’s leading employer is responding.

Amazon is…making its opposition known to a proposed Seattle tax by bringing a halt to all planning on a massive project scheduled for construction in Downtown Seattle, and may tweak its plans to occupy a new downtown skyscraper. “I can confirm that pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainier Square building,” says Amazon Vice President Drew Herdener. …Jon Scholes, president of the Downtown Seattle Association, said the City Council should take heed of Amazon’s decision.

But some of the class-warfare politicians are oblivious to real-world concerns.

Two supporters of the tax, City Council members Kshama Sawant and Mike O’Brien, seemed unmoved by Amazon’s decision. “I understand Amazon doesn’t like it. I’m sure they would love to go to a city that has no taxes. And maybe they will find that place,” O’Brien said. …Added Sawant, “Amazon is perfectly capable of paying that, double, even four times that.” She also called Amazon’s tactic “extortion.”

I don’t know if Sawant is an idiot or a demagogue. What’s she’s basically arguing is that if a victim runs away from a mugger, the victim is an extortionist.

Wow, that’s a novel (and French) way of looking at the world.

That being said, there’s probably nothing surprising about the business community resisting a tax on business. So here’s the part of the story that really warms my heart.

Private-sector workers also are protesting.

Construction workers shouted down Seattle City Councilmember Kshama Sawant on Thursday as she attempted to speak in favor of Seattle ‘s proposed new “head tax” at an open-air news conference.The construction workers shouted “No head tax!” each time Sawant tried to speak in favor of the measure… The conference, held outside Amazon’s Spheres, was intended to show support for the head tax and opposition to Amazon’s announcement of a construction pause on a massive downtown construction project. But the group of about 20 construction workers showed up and drowned out Sawant’s message. …construction workers…praised Amazon for providing well-paying jobs to thousands of Seattle-area residents.

Unsurprisingly, Ms. Sawant doesn’t care about workers. She simply wants the money so she can buy votes.

Amazon would pay more than $20 million of that total under the proposal. …Sawant maintains that Amazon could easily afford to pay that amount.

Let’s close with some good news. Seattle isn’t normally considered a hotbed of free-market thinking (though a disproportionate share of my readers are in the state of Washington).

So I’m guessing Ms. Sawant and her greedy colleagues probably are not very happy about this (admittedly unscientific) polling data.

This is very encouraging. Hopefully, it’s a sign of the good things that can happen with private workers (unionized or not) and private employers join forces to protect themselves from politicians.

It will be interesting to see how the City Council responds. If they move forward with this tax grab, Seattle truly will be in the running to the Greece of America.

And if that trend continues, don’t be surprised if Amazon’s soon-to-be-announced second headquarters eventually morphs into its primary headquarters (hopefully without any cronyism).

P.S. It goes without saying (but I’ll say it anyhow) that the state of Washington should never, ever, allow a state income tax.

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