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In One Picture, Why Connecticut Is Going Downhill

Sun, 10/27/2019 - 12:39pm

In a column last week, I noted that Connecticut ranked near the bottom for state tax policy.

And if there was a contest for which state has gone downhill at the fastest pace, the Nutmeg State would likely prevail.

Less than 30 years ago, the state was reasonably competitive, largely because there was no state income tax. But ever since politicians in Hartford got access to that new source of revenue, the state’s finances have spiraled downward.

There are lots of interesting numbers (unfunded pensionsstate spending growth, etc) I could share to illustrate the state’s grim outlook.

But sometimes a picture can say 1,000 words.

Some Connecticut communities are having local elections this November. Apparently, based on this horrifying yard sign, Democrats in South Windsor are bragging about “only” imposing a small tax increase.

By the way, they’re not just bragging about a small tax increase rather than a large tax increase. If I read the sign correctly, there have been tax increases every single year for the past decade.

So local Democrats are basically telling voters, “hey, we’re confiscating ever-increasing amounts of your money every year, but you should be grateful since this year’s increase was comparatively small.”

And, given Connecticut’s awful political climate, that’s apparently a winning message!

By the way, I’m not naive. Or at least not hopelessly naive. When I first saw this sign, I thought it was fake. Sort of like this protest sign from the Occupy Wall Street movement.

And since I have been burned before (this doctored Justin Trudeau quote about Brexit), I did some additional research.

I found the Facebook page for the South Windsor Democrats. Lo and behold, there was a campaign video bragging about all the smaller-than-usual tax hike.

They also shared a letter-to-the-editor bragging about how taxes “only” increased 1.9 percent this year.

It’s possible, of course, that someone went through all the trouble of creating fake signs, fake Facebook pages, and fake letters-to-the-editor. But that doesn’t seem to be the case.

This is real. Connecticut is such a mess that candidates try to get votes by bragging about confiscating more money, but at a slower rate of increase.

The only possible advice I have for state residents is to move. Florida would be a good choice.

P.S. South Windsor Democrats might actually have a semi-compelling message if Republicans had been in charge for the previous nine years and had been increasing taxes every year by more than 1.9 percent (and there certainly are plenty of terrible Republicans). But if that was the case, I assume they would have mentioned that in their campaign literature.

P.P.S. Since I’m not partisan, here’s some advice for South Windsor Democrats. Adopt D.C.-type budgeting and build in a “baseline” showing 5 percent annual tax increases. Then, when you “only” raise taxes by 1.9 percent, you can tell voters you actually gave them a 3.1 percent tax cut. You may be thinking that’s ridiculously dishonest and beyond the pale (and it is), but that’s how they do budgeting in Washington.

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Image credit: mjr293 | Pixabay License.

In One Chart, Everything You Need to Know About New Budget Numbers from D.C.

Sat, 10/26/2019 - 12:26pm

This week featured lots of angst-ridden headlines about the annual budget deficit for the 2019 fiscal year (which ended on September 30) jumping to $984 billion, an increase of more than $200 billion.

For reasons I’ve previously outlined, I don’t lose too much sleep about the level of government borrowing. What’s far more important is the burden of government spending.

Whether the budget is financed by taxes or borrowing, the level of spending is what really matters. Simply stated, that number measures the amount of money that politicians divert from the economy’s productive sector.

That being said, it’s sometimes very illuminating to look at why red ink goes up and down.

So I went to the Treasury Department’s most-recent Monthly Treasury Statement and looked at the raw numbers. What did I find?

Lo and behold, the deficit jumped to $984 billion because outlays are increasing twice as fast as revenue.

Perhaps even more discouraging, the burden of spending is rising more than four times faster than needed to keep pace with inflation.

These are very discouraging numbers, especially when you keep in mind that this is the calm before the storm. Because of poorly designed entitlement programs and an ageing population, our fiscal situation will deteriorate even faster in the future.

Unless there’s much-needed reform.

But I’m not holding out much hope. Trump is a big spender and Congress is filled with big spenders.

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Image credit: Andy Withers | CC BY-NC-ND 2.0.

Elizabeth Warren: Fiscal Fraud

Fri, 10/25/2019 - 12:39pm

In a recent interview, I was asked whether all the new spending schemes proposed by Democratic candidates would lead (as has been the case in Europe) to enormous tax increases on the middle class.

The answer is yes, of course.

But most of the candidates are not honest on this issues (with the partial exception of Crazy Bernie). They’re promising – literally – trillions of dollars in added handouts, but their proposed tax increases only cover a tiny fraction of the cost.

Elizabeth Warren may be the most extreme example of this phenomenon.

She’s embraced every possible tax on higher-income taxpayers, including a sure-to-backfire wealth tax. But all of those tax increases wouldn’t come close to financing her spending agenda – even if one makes the heroic assumption that there’s no adverse economic impact and negative revenue feedback.

The Wall Street Journal opined on her absurd approach.

Tuesday’s Democratic debate…most important news was Senator Elizabeth Warren’s determined refusal to say if her plans would require taxes to increase on the middle class. …South Bend mayor Pete Buttigieg…added, accurately, that “no plan has been laid out to explain how a multi-trillion-dollar hole in this Medicare for All plan that Senator Warren is putting forward is supposed to get filled in.” …Senator Klobuchar…said “at least Bernie’s being honest here and saying how he’s going to pay for this and that taxes are going to go up. And I’m sorry, Elizabeth, but you have not said that, and I think we owe it to the American people to tell them where we’re going to send the invoice.” …this illuminates a problem with Ms. Warren’s agenda and her political character. On Medicare for All, everyone agrees that the cost will be at least $32 trillion over 10 years. Ms. Warren could impose her wealth tax, her higher taxes on capital gains, her higher income taxes on the affluent, and she still wouldn’t come close to paying for Medicare for All. And that’s before her plans for new spending entitlements on child care, pre-K education, free college and so much more. The only way to pay for this is to raise taxes on the middle class, which is where the real money is. That’s how government health care is financed in Europe.

But it’s not just the pro-market crowd at the Wall Street Journal that is raising the issue.

Even writers at Vox find it difficult to rationalize Sen. Warren’s evasive math.

Bernie Sanders…acknowledged that…middle-class taxes would have to go up… It was a rare moment when someone running for the Democratic presidential nomination admitted that their spending ambitions would have to be paid for by taxes that touch not just the wealthiest Americans but taxpayers further down the bracket. …Trying to sell a big progessive agenda on the backs of the rich may be popular. But the admission that middle-class taxes may have to go up is an admission that there may not be enough rich people in America to pay for it all. …Warren…indicated last week that she supports…Medicare-for-All… Such a plan would overhaul the entirety of the US health care system with a single-payer system funded through general revenue and debt. Here the promise of a vast welfare state solely funded by new taxes on the rich runs aground.

It’s gotten to the point that some left-leaning economists are scrambling to help square Warren’s circle.

Here are some excerpts from a report in today’s Washington Post, including some of the horrifying tax increases that her advisers are contemplating.

Internal and external economic policy advisers are trying to help Sen. Elizabeth Warren (D-Mass.) design a way to finance a single-payer Medicare-for-all health-care system…her team faces a challenge in crafting a plan that would bring in large amounts of revenue while not scaring off voters with big middle-class tax increases. The proposal could cost more than $30 trillion over 10 years. Complicating matters, she has already committed all of the money she would raise from a new wealth tax, close to $3 trillion over 10 years, to several other ideas… Robert Pollin, a left-leaning economist at the University of Massachusetts at Amherst who has worked with the Warren and Sen. Bernie Sanders (I-Vt.) teams, …suggests…a $600 billion annual “gross receipts” tax on businesses, …a 3.75 percent sales tax on “nonnecessities” that exempts low-income households, to raise an additional $200 billion; and a 0.38 percent tax on wealth above $1 million, which he says would raise the remaining $200 billion. Robert C. Hockett, a Cornell University professor who has also advised Warren and Sanders, said he has urged Warren’s team to propose financing Medicare-for-all in part with a “public premium” that would function similarly to a tax. …Warren’s team has also received recommendations to adopt a “progressive consumption tax”… This plan would raise trillions of dollars.

Wow, a smorgasbord of French-style tax ideas.

Let’s close with a chart from Brian Riedl of the Manhattan Institute.

As you can see, even if you combine all of the class-warfare taxes, they don’t come close to paying the $30 trillion price tag of Medicare for All.

The only good news, so to speak, is that Sen. Warren is a politician. She’s first and foremost interested in winning office and probably isn’t totally serious about actually creating all sorts of new entitlement schemes (just like I don’t particularly believe Republicans who put forth election-year plans for tax reform).

But that’s hardly a comforting observation since there would be “public choice” pressures to adopt at least some bad policy if she got to the White House.

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Image credit: DonkeyHotey | CC BY 2.0.

The New York Times vs. Chilean Prosperity

Thu, 10/24/2019 - 12:14pm

By every possible measure, Chile is the most successful country in Latin America.

Income has soared and poverty has plummeted thanks to market-based reforms.

It’s not perfect, of course. The nation’s economic freedom score – 7.89 on a 0-10 scale – is good enough for a #13 ranking, but there’s still room for improvement.

But there’s also plenty of room for economic decline, and that might be the unfortunate outcome if politicians respond in a misguided way to recent protests.

Especially if they take advice from the wrong sources. For instance, the New York Times opined yesterday about the supposed shortcomings of the Chilean model.

Chile is often praised as a capitalist oasis, a prospering and stable nation on a continent where both prosperity and stability have been in short supply. But that prosperity has accumulated mostly in the hands of a lucky few. As a result, Chile has one of the highest levels of economic inequality in the developed world. …Chileans live in a society of extraordinary economic disparities. …What makes Chile an outlier among those 36 nations is that the government does less than nearly any other developed nation to reduce economic inequality through taxes and transfers. As a result, Chile has the highest level of post-tax income inequality among O.E.C.D. members. …Even after increases in recent years, the Chilean government still spends a smaller share of total economic output than every other nation in the O.E.C.D. The obvious path for Chile is for the government to spend more money.

As is sometimes the case with the New York Times, parts of the editorial are downright false. Income in Chile has jumped significantly for all quintiles, not just a “lucky few.”

And even the parts that are technically accurate are very misleading.

Notice, for instance, what the NYT is doing with inequality numbers. It is comparing Chile with rich nations, mostly from Europe.

But what happens if Chile is compared to other countries from Latin America.

That tells an entirely different story, as you can see from this poverty map (dark red is bad, light yellow is good) produced by the Center for Distributive, Labor, and Social Studies in Argentina.

All of a sudden, Chile looks very good.

Even if you use U.N. numbers that rely on the left’s misleading definition of poverty (i.e., based on relative income), Chile is a success story compared to other nations in the region.

It’s especially important to understand that Chile is getting good results for the right reason.

Poverty is falling because of the private economy rather than coercive redistribution. Here are some excerpts from a recent U.N. release.

In an analysis of the countries with the greatest reductions in poverty in the 2012-2017 period, in Chile, El Salvador and the Dominican Republic, the increase in income from wages in lower-income households was the source that contributed the most to that reduction, while in Costa Rica, Panama and Uruguay, the main factor was pensions and transfers received by lower-income households.

Sadly, some people in Chile don’t have the fortitude to build on the market reforms that have boosted national prosperity.

Indeed, it appears there will be backsliding according to the aforementioned New York Times editorial

Sebastián Piñera, the billionaire elected president in 2017, …proposed a slate of reforms, including an increase in the top income tax rate, an increase in retirement benefits, and a guaranteed minimum monthly income. …Andrónico Luksic Craig, chairman of Quiñenco, a financial and industrial conglomerate, wrote on Saturday on Twitter that he was ready to pay higher taxes.

I’m disappointed but never surprised when politicians unravel progress.

But it’s always discouraging when guilt-ridden rich people embrace statist policies (sounds familiar, huh?).

For the sake of the Chilean people, let’s hope this is empty rhetoric.

P.S. Since we’re on the topic of Chile, here are some excerpts from the abstract of a study in the Journal of Development Economics that estimated the heavy economic cost of the nation’s detour to socialism in the 1970s.

…we look at share prices in the Santiago exchange during the tumultuous political events that characterized Chile in the early 1970s. …deploying previously unused daily data and exploiting two largely unexpected shocks which involved substantial variation in policies and institutions, providing a rare natural experiment. Allende’s election and subsequent socialist experiment decreased share values, while the military coup and dictatorship that replaced him boosted them, in both cases by magnitudes unprecedented in the literature. The most parsimonious interpretation of these share price changes is that they reflected, respectively, the perceived threat to private ownership of the means of production under a socialist government, and its subsequent reversal.

By the way, this in no way should be interpreted as support for the Pinochet dictatorship.

But what it does say is that dictatorships that allow economic freedom produce much better results than dictatorships impose totalitarian economic policies in addition to totalitarian political policies.

Which is basically the point Milton Friedman made when asked about his connection to Chile.

For what it’s worth, Pinochet eventually allowed a transition to democracy, which somewhat atones for his sins.

P.S. To be fair, the NYT editorial was merely misguided, which is better than the wild inaccuracy that has characterized some analyses.

P.P.S. If you want to learn about Chile’s reforms, here are columns about the private social security system and the national school choice system. And this World Bank comparison of Chile and Venezuela is very instructive as well.

America’s Best and Worst States for Taxes

Wed, 10/23/2019 - 12:08pm

Following their recent assessment of the best and worst countries, the Tax Foundation has published its annual State Business Tax Climate Index, which is an excellent gauge of which states welcome investment and job creation and which states are unfriendly to growth and prosperity.

Here’s the list of the best and worst states. Unsurprisingly, states with no income tax rank very high, as do states with flat taxes.

It’s also no surprise to see New Jersey in last place. The state has fallen dramatically, especially considering that it was like New Hampshire as recently as the 1960s, with no state income tax and no state sales tax.

And the bad scores for New YorkCalifornia, and Connecticut also are to be expected. The Nutmeg State is an especially sad story. There was no state income tax 30 years ago. Once politicians got that additional source of revenue, however, Connecticut suffered a big economic decline.

Here’s a description of the methodology, along with the table showing how different factors are weighted.

…the Index is designed to show how well states structure their tax systems and provides a road map for improvement.The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. …This does not mean, however, that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases.The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the second highest-rate corporate income tax in the country and a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.

For those who want to delve into the details, here are all the states, along with their rankings for the five major variables.

If you want to know which states are making big moves, Georgia enjoyed the biggest one-year jump (from #36 to #32) and Kansas suffered the biggest one-year decline (from #27 to #34). Keep in mind that it’s easier to climb if you’re near the bottom and easier to fall if you’re near the top.

Looking over a longer period of time, the states with the biggest increases since 2014 are North Carolina (+19, from #34 to #15), Wisconsin (+12, from #38 to #26), Kentucky (+9, from #35 to #24), Nebraska (+8, from #36 to #28), Delaware (+7, from #18 to #11), and Rhode Island (+6, from #45 to #39).

The states with the biggest declines are Kansas (-9, from #25 to #34), Hawaii (-8, from #29 to #37), Massachusetts (-8, from #28 to #36), and Idaho (-6, from #15 to #21).

We’ll close with the report’s map, showing the rankings of all the states.

P.S. My one quibble with the Index is that there’s no variable to measure the burden of government spending, which would give a better picture of overall economic liberty. This means that states that finance large public sectors with energy severance taxes (which also aren’t included in the Index) wind up scoring higher than they deserve. As such, I would drop Wyoming and Alaska in the rankings and instead put South Dakota at #1 and Florida at #2.

Andrew Yang’s Dependency Dividend

Tue, 10/22/2019 - 12:54pm

While he’s not as outwardly radical as Elizabeth WarrenBernie Sanders, and Kamala Harris, Andrew Yang has joined together two very bad ideas – universal handouts and a value-added tax.

Needless to say, I was not overflowing with praise when asked to comment.

At the risk of understatement, giving every adult a $12,000-per-year entitlement would be a recipe for bigger government and more dependency.

Even Joe Biden understands that this would erode societal capital.

And the ever-sensible Swiss, in a 2016 referendum, overwhelmingly rejected universal handouts.

Needless to say, it also would be a catastrophic mistake to give Washington several new sources of revenue to finance this scheme. A big value-added tax would be especially misguided.

Let’s take a closer look at Yang’s plan. As I noted in the interview, the Tax Foundation crunched the numbers.

Andrew Yang said he wants to provide each American adult $1,000 per month in a universal basic income (UBI) he calls a “Freedom Dividend.” He argued that this proposal could be paid for with…a combination of new revenue from a VAT, other taxes, spending cuts, and economic growth. …We estimate that his plan, as described, could only fund a little less than half the Freedom Dividend at $1,000 a month. A more realistic plan would require reducing the Freedom Dividend to $750 per month and raising the VAT to 22 percent.

If you’re interested, here are more details about his plan.

…individuals would need to choose between their current government benefits and the Freedom Dividend. As such, some individuals may decline the Freedom Dividend if they determine that their current government benefits are more valuable. The benefits that individuals would need to give up are Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needed Families (TANF), Supplemental Security Income (SSI), and SNAP for Women, Infants, and Child Program (WIC). To cover the additional cost of the Freedom Dividend, Yang would raise revenue in five ways: A 10 percent VAT…A tax on financial transactions…Taxing capital gains and carried interest at ordinary income rates…Remove the wage cap on the Social Security payroll tax…A $40 per metric ton carbon tax.

By the way, Yang has already waffled on some of his spending offsets, recently stating that the so-called Freedom Dividend wouldn’t replace existing programs.

In any event, the economic and budgetary effects would be bad news.

…his overall plan would reduce the long-run size of the economy and the tax base. The three major taxes in his plan (VAT, carbon tax, and payroll tax increase), while efficient sources of revenue, would tend to reduce labor force participation by reducing the after-tax returns to working. Using the Tax Foundation Model, we estimate that the weighted average marginal tax rate on labor income would increase by about 8.6 percentage points. The resulting reduction in hours worked would ultimately reduce output by 3 percent. We estimate that Yang would lose about $124 billion each year in revenue due to the lower output.

Here’s how the Tax Foundation scores the plan.

As you can see, the VAT, the financial transactions tax, the higher capital gains tax, and the increase in the payroll tax burden don’t even cover half the cost of the universal handout.

P.S. When the Tax Foundation say a tax is an “efficient source of revenue,” that means that it would result in a modest level of economic damage on a per-dollar-collected basis. This is why they show a rather modest amount of negative revenue feedback (-$124 billion).

I think they’re being too kind. Extending the Social Security payroll tax to all income would result in a huge increase in marginal tax rates on investors, entrepreneurs, and other high-income taxpayers. As explained a few days ago, those are the people who are very responsive to changes in tax rates.

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Image credit: DonkeyHotey | .

Coalition Opposes Granting Government Control Over Aluminum Reference Prices

Tue, 10/22/2019 - 4:20am

For Immediate Release
Tuesday, October 22, 2019
202-285-0244
www.freedomandprosperity.org

Coalition Opposes Government Control Over Aluminum Reference Prices

(Washington, D.C., Tuesday, October 22, 2019) Led by the Center for Freedom and Prosperity (CF&P), representatives from 17 free market organizations today released a coalition letter urging Congress to oppose The Aluminum Pricing Examination (APEX) Act. The APEX Act would grant the U.S. Commodity Futures Trading Commission expansive authority over the setting of references prices in the aluminum market, allowing political pressure potentially to distort the market by manipulating price signals.

The coalition letter reads, in part:

“By granting the government authority to arbitrarily alter market signals, supporters of the APEX Act—such as certain beer manufacturers with a history of working with politicians to distort the free market—are openly seeking to artificially deflate the price of aluminum. Such an outrageously crony abuse of government is unethical, and history shows that it will only worsen matters by further distorting the market and creating or exacerbating shortages. Domestic producers, faced with extensive government regulations and thinner profit margins, would find it increasingly difficult to survive and further erode domestic supply, a boon for foreign producers.”

CF&P President Andrew F. Quinlan said, “This effort is a clear cut case of shooting the messenger based on debunked claims of bias. Privately conducted independent assessments help commodity markets function efficiently. They are held accountable by their customers, who expect accurate, unbiased analysis of the prices agreed to by real buyers and sellers. Inserting the special-interest driven preferences of politicians into the reporting of reference prices would be a funny way of freeing the market from alleged manipulation.”

Representatives from the following 17 organizations joined the letter: Center for Freedom and Prosperity, Competitive Enterprise Institute, Taxpayers Protection Alliance, Less Government, American Consumer Institute, Tea Party Nation, Campaign for Liberty, Consumer Action for a Strong Economy, National Black Chamber of Commerce, American Encore, Market Institute, Citizen Outreach, Institute for Liberty, Institute for Policy Innovation, Frontiers of Freedom, National Tax Limitation Committee, and 60 Plus Association.

The full letter is available here.

For additional comments:
Andrew Quinlan can be reached at 202-285-0244, [email protected]

###

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Image credit: Library of Congress | Public Domain.

Coalition to Congress: Reject Aluminum Price Controls

Tue, 10/22/2019 - 2:47am

[PDF Version]

Representative Austin Scott
Rayburn House Office Building, 2417
Washington, D.C. 20500

Senator Mike Crapo
239 Dirksen Building
Washington, DC 20510

Dear Representative Scott and Senator Crapo:

The undersigned, dedicated to promoting free markets, limited government, and constitutional principles, write to express serious concerns about a piece of legislation known as the APEX Act. The Aluminum Pricing Examination (APEX) Act has been proposed for the express purpose of empowering the U.S. Commodity Futures Trading Commission (CFTC) to impose government controls on the pricing for aluminum. Such price controls represent an abuse of government that would threaten domestic aluminum production, strengthen foreign manufacturers and dangerously disrupt the aluminum commodities market.

This unnecessary bill is premised upon inaccurate information about the aluminum marketplace. Proponents of the APEX Act allege that the Midwest Premium, an independent assessment of aluminum prices in the Midwest, is being “artificially inflated” and therefore must be regulated via price controls. This claim has been thoroughly debunked by the CFTC itself, which testified before Congress that despite close monitoring they “have not found manipulation” in aluminum pricing.

The bill would give the CFTC sole jurisdiction over setting the price of aluminum. In doing so, the bill would dismantle the current system in which multiple companies with no financial interest in the pricing compete to transparently provide the most accurate assessments of the aluminum marketplace and replace it with an opaque government process vulnerable to political pressures from the same powerful industries that are currently pressing for passage of the APEX Act.

By granting the government authority to arbitrarily alter market signals, supporters of the APEX Act—such as certain beer manufacturers with a history of working with politicians to distort the free market—are openly seeking to artificially deflate the price of aluminum. Such an outrageously crony abuse of government is unethical, and history shows that it will only worsen matters by further distorting the market and creating or exacerbating shortages. Domestic producers, faced with extensive government regulations and thinner profit margins, would find it increasingly difficult to survive and further erode domestic supply, a boon for foreign producers.

Republicans and Democrats alike have voiced concerns regarding America’s competitiveness within the aluminum industry. There is wide agreement that the market for American metals must remain a vibrant aspect of the U.S. economy. The APEX Act is a dangerous piece of legislation, reflecting both a misunderstanding of industry pricing as well as a misapplication of government authority. We respectfully urge you to work with the House of Representatives and the Senate to ensure that this potentially devastating bill is never enacted.

Sincerely,

Andrew F. Quinlan ~ President, Center for Freedom and Prosperity
Iain Murray ~ Vice President, Competitive Enterprise Institute
David Williams ~ President, Taxpayers Protection Alliance
Seton Motley ~ President, Less Government
Steve Pociask ~ President/CEO, The American Consumer Institute
Judson Phillips ~ Founder, Tea Party Nation
Norm Singleton ~ Senior Vice President, Ron Paul’s Campaign for Liberty
Matthew Kandrach ~ President, Consumer Action for a Strong Economy
Harry C. Alford ~ President/CEO, National Black Chamber of Commerce
Sean Noble ~ President, American Encore
Charles Sauer ~ President, Market Institute
Chuck Muth ~ President, Citizen Outreach
Andrew Langer ~ President, Institute for Liberty
Tom Giovanetti ~ President, Institute for Policy Innovation
Peter Ferrara ~ Senior Adviser, National Tax-Limitation Committee
George Landrith ~ President, Frontiers of Freedom
James L. Martin ~ Founder/Chairman, 60 Plus Association

Note: Organizations are for identification purposes only.

Cc: Mitch McConnell, Senate Majority Leader
Cc: Kevin McCarthy, House Minority Leader

Adverse Consequences of California’s Class-Warfare Tax Policy

Mon, 10/21/2019 - 12:35pm

California is suffering a slow but steady decline.

Bad economic policy has made the Golden State less attractive for entrepreneurs, investors, and business owners.

Punitive tax laws deserve much of the blame, particularly the 2012 decision to impose a top tax rate of 13.3 percent.

I’ve already shared some anecdotal evidence that this tax increase backfired.

But now we have some scholarly evidence from two Stanford Professors. Here’s what they investigated.

In this paper we study the question of the elasticity of the tax base with respect to taxation using microdata from the California Franchise Tax Board on the universe of California taxpayers around the implementation of Proposition 30 in 2012. This ballot initiative increased marginal income tax rates… These increases came on top of the 9.3% rate that applied to income over $48,942 for singles and $97,884 for married couples, and also in addition to the 1% mental health tax that since 2004 had applied to incomes of over $1 million. The reform therefore brought the top marginal tax rate in California to 13.3% for incomes of over $1 million.

For those not familiar with economic jargon, “elasticity” is simply a term to describe how sensitive taxpayers are when there are changes in tax policy.

A high measure of elasticity means a large “deadweight loss” since taxpayers are choosing to earn and/or report less income.

And that’s what the two scholars discovered.

Some high-income taxpayers responded to the big tax increase by moving.

We first study the extensive margin response to taxation, and document a substantial one-time outflow of high-earning taxpayers from California in response to Proposition 30. Defining a departure as a taxpayer who went from resident to non-resident filing status, the rate of departures in 2013 over 2012 spiked from 1.5% after the 2011 tax year to 2.125% for those primary taxpayers earning over $5 million in 2012, with a similar effect among taxpayers earning $2-5 million in 2012.

By the way, you won’t be surprised to learn that California taxpayers increasingly opted to move to states with no income tax, such as Florida, Nevada, and Texas.

Other taxpayers stayed in California but they chose to earn and/or report less income.

We combine these results on the extensive margin behavioral response with conclusions of analysis of the intensive margin response to Proposition 30. …we use a differences-in-differences design in which we compare upper-income California resident taxpayers to a matched sample of non-resident California filers, for which there is relatively rich data… Our estimates show a substantial intensive margin response to Proposition 30, which appears in 2012 and persists… We find that California top-earners on average report $522,000 less in taxable income than their counterfactuals in 2012, $357,000 less in 2013, and $599,000 less in 2014; this is relative to a baseline mean income of $4.15 million amongst our defined group of California top-earners in 2011. …the estimates imply an elasticity of taxable income with respect to the marginal net of tax rate of 2.5-3.3.

In the world of public finance, that’s a very high measure of elasticity.

Wonky readers may be interested in these charts showing changes in income.

By the way, guess what happens when taxpayers move, or when they decide to earn less income?

The obvious answer is that politicians don’t collect as much revenue. Which is exactly what the study discovered.

A back of the envelope calculation based on our econometric estimates finds that the intensive and extensive margin responses to taxation combined to undo 45.2% of the revenue gains from taxation that otherwise would have accrued to California in the absence of behavioral responses. The intensive margin accounts for the majority of this effect, but the extensive margin comprises a non-trivial 9.5% of this total response.

We can call this the revenge of the Laffer Curve.

By the way, it’s quite likely that there has been a resurgence of both the “extensive” and “intensive” responses to California’s punitive tax regime because the 2017 tax reform restricted the deductibility of state and local taxes. This means that the federal government – for all intents and purposes – is no longer subsidizing California’s backwards fiscal system.

P.S. Makes me wonder if California politicians will turn Walter Williams’ joke into reality.

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Image credit: Tumisu | Pixabay License.

The Libertarian Paradise of…Germany?

Sun, 10/20/2019 - 12:14pm

Every so often, I share quirky examples of libertarian policy in places that generally are not associated with a laissez-faire approach to governance.

Today, we’re going to add Germany to our list.

According to a report by Car and Driver, the German Parliament voted – by an overwhelming margin – against a proposal by the Green Party to impose speed limits on the autobahn.

Auto enthusiasts in Germany scored a major victory yesterday as the country’s federal parliament, the Bundestag, overwhelmingly voted to to defy a motion by the Green Party that would have asked the government to install a speed limit on the famous autobahn. The 80-mph limit suggested by the Greens would have effectively closed down one of the last roads where drivers can freely select their preferred speed. The autobahn is a defining factor in the perception of Germany abroad, but the topic is highly contested and politically charged at home. …The vote was 126 for a speed limit, 498 against, with seven abstentions.

The vote basically reflected a right-left split, though the Social Democrats tried to have their cake and eat it too.

…Green Party big shot Cem Özdemir claimed that roads would be safer with a speed limit, and he asked for German’s “special way” to be ended. …The post-communist Left Party volunteered that “electric mobility” should mean more “trains and trams,” while the Social Democrats, who are in a ruling coalition with the Christian Democrats, argued that they would support a speed limit were it not for their obligations to the coalition. The centrist CDU, the center-liberal FDP, and the conservative AfD all argued against a speed limit.

For what it’s worth, the autobahn is actually quite safe.

The autobahn road system, situated in one of the most traveled places on earth, is extremely safe. Accident rates have fallen dramatically over the past few decades, and many of the remaining deaths can be attributed to factors other than speed. Today, the fatality rate is one of the lowest in the world. Those opposed to a speed limit argue that this could be due to the fact that due to the differences in velocity, drivers are alert, generally stay to the right when not passing, and tend to stay aware of their surroundings.

Having driven many times in Europe, I can state with confidence that they are better (and more polite) drivers.

Slow cars don’t loiter in the left lane on highways, and that’s true in France and Italy as well as Germany.

I’ll close with some good news.

…speed limits have gradually eased all over the globe. Austria’s limit has been provisionally raised to 87 mph on select stretches; Abu Dhabi allows 100 mph on sections of the road system, and many U.S. states are raising limits as well.

I’m old enough to remember the horror of a nationwide 55-mph speed limit (one of the many awful policies adopted during the Nixon years).

The limit was increased in 1987 and then – in a rare moment of federalism – the nationwide speed limit was repealed in the mid-1990s (among the many good policies of the Reagan and Clinton years).

Let’s hope Germany holds firm so they don’t ever have to worry about repealing bad policy.

P.S. The article also noted that, “It has been reported that in the summer of 1995, Germany chancellor Angela Merkel, then minister for environmental affairs, broke out in tears over Helmut Kohl’s refusal to mandate a speed limit on the autobahn.” Given Merkel’s statism, I’m not surprised.

P.P.S. Enviro-zealots want onerous speed limits because of their quasi-religious opposition to energy consumption. Politicians, by contrast, view speed limits as a tool for generating tax revenue (which is why I’ve applauded civil disobedience in Washington, DC, and Arizona).

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Image credit: Tarboosh | CC0 1.0.

Mises vs. Marx

Sat, 10/19/2019 - 12:35pm

John Papola has done it again. His video showing a Keynes v. Hayek rap contest was superb, and was followed by an equally enjoyable sequel featuring a boxing match between Keynes and Hayek.

Now he has a rap contest about capitalism and socialism featuring Ludwig von Mises and Karl Marx.

The video touches on three economic topics.

The obvious focus is the track record of capitalism vs. socialism. Given the wealth of evidence, that’s a slam-dunk victory for free markets.

But there are also two wonky issues referenced in the video.

  • The socialist calculation debate – As I’ve repeatedly noted, genuine socialism involves government ownershipcentral planning, and price controls. Economists from the Austrian school, such as Mises, were the ones who explained that governments were incapable of having either the information or knowledge to make such a system work.
  • The labor theory of value – Marxism is based on the strange notion that the value of a product is a function of the hours it took to produce. This overlooks the role of capital and entrepreneurship. Moreover, as explained in the video, value is subjective, determined by the preferences of consumers.

Let’s close with a nice compare-and-contrast image a reader sent to me.

Economics and Election Predictions

Fri, 10/18/2019 - 12:52pm

There’s an entire field of economics called “public choice” that analyzes the (largely perverse) incentive structures of politicians and bureaucrats.

But is economic analysis also helpful to understand voting and elections?

In the past, I’ve suggested that political betting markets are a useful place to start since “you are seeing estimates based on people defending their views with cold, hard cash.”

In his Bloomberg column, Professor Tyler Cowen takes a more rigorous look at the potential insights of political betting markets.

Prediction markets…are a quick way to get an overview of the state of the campaign. President Donald Trump is currently at about 0.40 to be re-elected… Under normal assumptions about the uncertainty of future economic growth, the markets rate Trump’s chances of winning at 40%. …it is a useful corrective to the argument that Trump is toast — or, alternatively, that he is a shoo-in.  The market incorporates the relevant uncertainties in both directions. (Interestingly, Trump’s re-election odds have stayed pretty steady over the last week or so of negative news.) In many cases, prediction markets…“see through” the day-to-day volatility that may buffet the polls but not affect the final outcome. …Prediction markets…also made me think that a possible Hillary Clinton candidacy…is perhaps an undercovered story. …It is not a valid criticism of prediction markets to say that they didn’t predict Trump, say, or Brexit. The purpose of prediction markets is not to foresee particular upsets. They can, however, tell you in advance what would be an upset — much like probability theory can tell you that getting three heads in a row is unlikely but is of no help in predicting exactly when it will happen.

There are also people who build models that predict elections based largely on economic factors.

The Washington Post just published a very interesting review of how three of these models show Trump comfortably winning.

President Trump is on a fast track to an easy reelection. That’s the conclusion reached by economic forecasters… Moody’s Analytics projects the president will win handily next year if the economy doesn’t badly stumble — and in fact, rack up a greater margin in the electoral college than the 304-to-227 victory he secured against Hillary Clinton in 2016. …The finding jibes with those of other forecasting models that rely on measures of the economy’s strength to predict which major party’s candidate will win the White House next. Oxford Economics sees Trump winning 55 percent of the popular vote next year barring a “significant downturn” in the economy. …by the reckoning of the firm’s model, three key economic indicators — unemployment, inflation and real disposable income growth — all favor Trump’s reelection. They outweigh a “negative exhaustion factor” with Trump that dents his support in the projection. …Another model, assembled by Trend Macrolytics, accurately predicts every presidential victor back to 1952 by focusing on the effects of the economy and incumbency on the electoral college, according to Donald Luskin, the firm’s chief investment officer. It projects Trump will win reelection next year with 354 electoral votes — a margin that seems staggering on its face.

Here’s the Moody’s electoral map, which doubtlessly will cause sleepless nights for the anti-Trump crowd.

Wow, not only do they show Trump winning every state he won in 2016, but they show him picking up New Hampshire, Virginia, and Minnesota.

So which approach is more accurate, betting markets of election models?

Given my inaccurate 2016 predictions, I’m probably not the right person to ask.

I’ll simply observe that both approaches have erred in the past.

And if you believe in guilt by association, some of the people who put together political prediction models also put together deeply flawed Keynesian economic models.

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Image credit: Kārlis Dambrāns | CC BY 2.0.

Ex-Im Bank Puts American Taxpayers in China’s Corner

Fri, 10/18/2019 - 9:39am

Originally published by Inside Sources on October 17, 2019.

A decision on whether to reauthorize the Export-Import Bank was delayed with the recent passage of a continuing resolution to provide funding for the government through November 21. Lobbyists for manufacturers and direct beneficiaries are pushing hard to renew Ex-Im, but taxpayers and the overall economy would be better served if Congress were to finally let the relic of the New Deal era expire.

The Ex-Im Bank provides taxpayer-backed loans to foreign buyers to facilitate U.S. exports, primarily of expensive goods such as capital equipment and airplanes. Exporters understandably love the agency, but just because certain industries like a policy doesn’t make it worthwhile.

The fundamental problem with the Ex-Im Bank is the same as with any instance of central planning: it injects political considerations into what — the allocation of capital — ought to be strictly market-based. The result is that a handful of large businesses receive the most benefits while taxpayers shoulder all the risk.

Another name for this arrangement is corporate welfare.

In 2015, sanity briefly prevailed when Ex-Im’s authorization was allowed to lapse. Unfortunately, a bipartisan coalition brought it back from the dead, only for Senate Republicans to refuse to confirm new nominees to the bank’s board and thereby deny it a quorum, which by rule meant that no new transactions above $10 million could be approved.

The board was filled earlier this year, but the four-year period from 2015-2018 where it operated in only a limited capacity provides reason to be skeptical about supporters’ claims regarding the bank’s critical economic role. George Will notes that the share of American exports subsidized by Ex-Im fell from less than 2 percent to 0.3 percent while Ex-Im was working at diminished capacity, but overall exports increased during that time.

The largest beneficiaries of Ex-Im similarly thrived during those years.

“Companies purchasing products from Boeing received 70 percent of all loan guarantees and 35 percent of all aid provided by the Ex-Im Bank” from FY 2007 through FY 2014, according to Veronique de Rugy and Justin Leventhal of the Mercatus Center. Without a quorum, the numbers changed dramatically, but it didn’t hurt Boeing’s bottom line. “Boeing’s profits and stock prices increased even though the company had to shop for export financing in the marketplace,” de Rugy and Leventhal reported in a study comparing Ex-Im’s financing before and after it lost its quorum.

Contrary to a common claim, there is apparently ample alternative financing available in the private market where taxpayers are not on the hook for potential losses. This is significant not only because private lending is preferable because it’s better for economic efficiency and not vulnerable to political corruption, but also because Ex-Im’s charter specifically requires that it not compete with the private sector. It supposedly provides financing only for transactions that would not otherwise occur were commercial lending the only option.

But Ex-Im doesn’t seem much concerned about its charter these days. The group Americans for Prosperity was recently forced to file a lawsuit against Ex-Im because it refused to respond to Freedom of Information Act requests regarding the seemingly ignored requirement in its charter that Ex-Im work “to reach international agreements to reduce government-subsidized export financing.”

In 2014, before the loss of its quorum and the cap on its lending, China was the top destination of Ex-Im deals, to the tune of $2.3 billion. A return to normal under a full board thus means more taxpayer-subsidized loans for Communist China.

Manufacturers are engaged in a lobbying blitz to reauthorize Ex-Im for an extended period. It’s thus easy to understand why cronyism is such a difficult habit to kick. However, there’s a growing consumer backlash against companies — the NBA, Apple, Activision Blizzard and ESPN, just in recent weeks — that are bending knee to China by censoring speech that is favorable toward Hong Kong’s protests or disparaging of Chinese authoritarianism.

Several members of Congress, such as senators Marco Rubio, R-Florida, and Ron Wyden, D-Oregon, criticized these U.S. companies for selling out American values to placate Chinese authorities. They would do well to remember that stance when it comes time to consider whether American taxpayers should be subsidizing the purchases of China’s state-owned enterprises.

 

Three Cheers for (Liberty-Minded) Rogue Jurors

Thu, 10/17/2019 - 12:47pm

I wrote a three-part series (herehere, and here) about “jury nullification,” which is the notion that jurors can declare defendants not guilty if they think the underlying law is unjust or immoral.

We have an example of this happening in New Orleans, though it occurred even before a trial.

All New Orleans prosecutors had to do was convince six people that a waiter at a famed French Quarter restaurant was guilty of a felony marijuana charge. But as it turned out, there weren’t enough people willing to consider that possibility on Tuesday. Potential jurors who said they don’t think marijuana should be illegal helped scotch the planned trial of Antoine’s server Jabar Kensey before he could face the music. …Call it a sign of the times. Ad hoc Criminal District Court Judge Dennis Waldron halted the selection process after 20 of 25 potential jurors were dropped and no more jurors remained in the day’s pool. …The right of jurors to voice their objections to criminal laws stretches back centuries, according to Texas defense attorney Clay Conrad. He said the courts have upheld the power of jurors to “nullify” charges with acquittals, despite overwhelming evidence of a defendant’s guilt, if they object to the underlying law.

It’s also been happening in Georgia, as J.D. Tuccille explains for Reason.

On July 12, a jury in Laurens County, Georgia, found Bernard’s client, Javonnie Mondrea McCoy, “not guilty” of the manufacture of marijuana and of possession of drug-related objects, despite his open admission that he had, in fact, grown the much-demonized plant. That follows on a similar victory last year in the case of Antonio Willis, who was lured into selling the equivalent of a few joints by an undercover cop. In both cases, Bernard emphasized the humanity of the defendants, of their roles as fallible, but decent people who didn’t deserve to be ground up by the wheels of the penal system. …”Hey, what’s going on here?” she wants jurors to ask themselves. “Does it reflect my values?” What Bernard doesn’t do is explicitly ask jurors to “nullify” the laws under which her clients are charged. …Instead, she emphasizes the role of the juror, which she describes as a “powerful and awesome position.” She insists that the very idea of jurors implicitly contains the idea of nullification, and she tries to help them realize how empowered they are.

In a column for the Foundation for Economic Education, Brittany Hunter cites the same heroic Georgia lawyer and examines some broader implications.

Jury Nullification has deep roots in our American legal system and allows jurors to “nullify” a law if they believe it to be unjust. While it is protected under the United States Constitution, it is also explicitly protected under Georgia law as well. Under Article 1, Section 1, Paragraph XI of the Georgia State Constitution, it reads, “the jury shall be the judges of the law and the facts.” …At the heart of jury nullification rests the belief that individuals and their unique circumstances should be taken into account before one is sentenced under an arbitrary or unjust law. And given the state of our criminal justice system, this right is absolutely important. …jury nullification would go on to be used in several important cases in American history. It was used when jurors refused to convict those charged with violating the Fugitive Slave Act and it was also responsible for bringing justice to Vietnam War protesters in the case of United States v. Moylan. Jury nullification was also largely responsible for ending alcohol prohibition.

To conclude, Kirsten Tynan of the Fully Informed Jury Association opines on the issue and highlights America’s long tradition of liberty-minded jurors.

Each year on September 5, we celebrate Jury Rights Day as our signature day of education. Jury Rights Day commemorates the 1670 trial of William Penn, which helped lay a solid foundation for jurors’ right of conscience acquittal by jury nullification. We also celebrate Constitution Day on September 17. …Though conscientious acquittal has roots in civil liberties such as freedoms of religion, speech, and association, did you know that it is also closely tied, in the history of the United States, to economic liberty? …British colonists in America did not simply grumble and then capitulate by paying their taxes. Often they actively resisted by breaking laws in order to evade taxes. It was difficult for the Crown to secure convictions when resisters were judged by juries composed of their sympathetic and similarly oppressed neighbors—many willing to vote not guilty despite the law having been broken.

In an ideal world, of course, we wouldn’t need rogue jurors.

There would be very few laws, and they would be designed to protect life, liberty, and property. And cops and prosecutors would all be fair and honest.

Needless to say, we don’t live in that world.

And since I doubt that ideal scenario will ever materialize, I’m glad many Americans still have a rebellious streak.

So the next time you get called for jury duty, you know what to do if the government is persecuting someone for owning a gundoing drugsselling sexgambling, or anything else that doesn’t involve an actual victim.

If all of us stop convicting people for victimless crimes, maybe politicians will jettison bad laws (yes, I’m fantasizing, but let me enjoy the moment).

More Child Abuse at Government Schools

Wed, 10/16/2019 - 12:10pm

I’ve shared examples of brain-dead behavior by bureaucrats at the Transportation Security Agency.

But the folks at the TSA may be paragons of wisdom and judgement compared to administrators at government schools.

Those bureaucrats seem incapable of improving test scores, even when they get showered with tax dollars, but they’re always ready to go overboard when kids…gasp…play with toy guns.

Or even when they pretend a stick is a gun. Or when they pretend their fingers are a gun.

Here’s a crazy example that just happened.

A 12-year-old Overland Park girl formed a gun with her fingers, pointed at four of her Westridge Middle School classmates one at a time, and then turned the pretend weapon toward herself. Police hauled her out of school in handcuffs, arrested her and charged the child with a felony for threatening. …according to Johnson County District Court documents, on Sept. 18, the girl “unlawfully and feloniously communicated a threat to commit violence, with the intent to place another, in fear, or with the intent to cause the evacuation, lock down or disruption in regular, ongoing activities …” or created just the risk of causing such fear. …“I think that this is something that probably could have been handled in the principal’s office and got completely out of hand,” said Jon Cavanaugh, the girl’s grandfather in California, where the girl is now living. He said his granddaughter has no access to a real gun and she had no intent of harming anyone. “She was just mouthing off,” he said.

School bureaucrats also over-react if students like a picture of a toy gun.

Here’s a story from two years ago.

An Edgewood Middle School student was handed a 10-day suspension for “liking” a picture of a gun on Instagram with the caption “ready.” The parents of Zachary Bowlin posted a picture of the intended suspension notice which read, “The reason for the intended suspension is as follows: Liking a post on social media that indicated potential school violence.” “I was livid, I mean, I’m sitting here thinking ‘you just suspended him for ten days for liking a picture of a gun on a social media site,” father Marty Bowlin said. “He never shared, he never commented, he never made a threatening post… anything on the site, just liked it.” The picture in question is of an airsoft gun, and according to the students’ parents, their child didn’t comment on the post but simply liked the picture.

We’ll wrap up with another bizarre case from this year.

School bureaucrats also don’t approve if students engage in legal behavior when they’re not at school.

Two male students at Lacey Township High School in New Jersey posted photos of guns on Snapchat. One of the boys captioned his photo with “hot stuff” and “if there’s ever a zombie apocalypse, you know where to go.” The photos were not taken at school. They were not taken during school hours. They did not reference a school. They auto-deleted after 24 hours, which was well before the school became aware of them. And yet, administrators at Lacey Township High School suspended the boys for three days, and also gave them weekend detention. This was a clear violation of the students’ First Amendment rights, and the American Civil Liberties Union has now filed suit. …The two students had visited a gun range owned by an older brother on Saturday, March 10, 2018. They practiced shooting with “legally purchased and properly permitted” guns, according to the lawsuit. They also took a few photos and posted them on Snapchat. None of the snaps were threatening, and none of them referenced a school. Nevertheless, a parent of another student heard about the photos and contacted school authorities. On Monday, the boys were forced to meet with an assistant principal and an anti-bullying specialist, who quickly decided to punish them for clearly constitutionally-protected speech.

Kudos to the ACLU for getting involved on the right side.

I wish it was because they supported the 2nd Amendment as well as the 1st Amendment, but their involvement is a plus regardless.

But that’s a separate issue.

For today, our topic is misbehavior by school bureaucrats. Is there a way of discouraging these ridiculous suspensions?

The good news is that schools often back down when these episodes of political correctness get exposed. And maybe legal action also could help.

But I suspect the only effective answer is busting up a hopelessly bad government school monopoly.

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Image credit: amboo who? | CC BY-SA 2.0.

Attractiveness, Income, Sex, and Inequality

Tue, 10/15/2019 - 12:03pm

Last year, I wrote a column that investigated why the left is fixated on the unequal distribution of income and wealth, yet doesn’t seem to care at all about unequal distribution of attractiveness.

The question becomes even more intriguing when you consider that attractiveness is oftentimes nothing more than luck, simply a matter of winning the genetic lottery.

People with lots of income and wealth, by contrast, generally work very hard to offer goods and services of value to society, so they actually earn their riches.

Let’s review some additional evidence about good luck for people with good looks.

The Economist shares data from a new book about the advantages enjoyed by attractive people.

Just why are pedestrians likelier (three times as likely, according to one study) to defy traffic laws to follow a man across the road when he is wearing a suit than the same man dressed in denim? Similarly motorists stuck at a traffic light are slower to honk their horn if the car in front has a prestige brand. …A further piece of research cited by the authors involved undergraduates who were shown photos of 50 chief executives from the Fortune 1000 list of big firms. Half of these bosses were from the most profitable groups and half from the least profitable. The undergraduates were asked to judge, on looks alone, which executives had qualities such as competence and dominance. Remarkably, the students tended to pick out those executives who led the most successful companies. …it seems more probable that people with a certain type of appearance are likely to get promoted than it is to believe they are innately more competent than everyone else. …When participants in a study were shown pictures of male employees of a business consultancy, with similar clothes and masked faces, they perceived the taller men more positively in terms of team leadership skills. Indeed, research has shown that taller and more attractive men earn more than their shorter and plainer colleagues. …Physical characteristics also affect recruitment at lower levels. A group of Italian researchers sent CVs to a range of employers, some with photos and some without. Applicants deemed attractive by independent scorers were 20% more likely to get an interview than the same application without a photo.

Being attractive doesn’t just help people get better jobs and earn more income.

Here’s some data that may be even more important to a lot of people.

This study was conducted to quantify the Tinder socio-economic prospects for males based on the percentage of females that will “like” them. Female Tinder usage data was collected and statistically analyzed to determine the inequality in the Tinder economy. It was determined that the bottom 80% of men (in terms of attractiveness) are competing for the bottom 22% of women and the top 78% of women are competing for the top 20% of men. The Gini coefficient for the Tinder economy based on “like” percentages was calculated to be 0.58. This means that the Tinder economy has more inequality than 95.1% of all the world’s national economies. In addition, it was determined that a man of average attractiveness would be “liked” by approximately 0.87% (1 in 115) of women on Tinder.

Here’s a chart showing that only the most attractive men have an advantage on the hook-up site.

Here’s an explanation of the chart, as well as some discussion of how the system is wildly unequal.

The area in blue represents the situations where women are more likely to “like” the men. The area in pink represents the situations where men are more likely to “like” women. The curve doesn’t go down linearly, but instead drops quickly after the top 20% of men. Comparing the blue area and the pink area we can see that for a random female/male Tinder interaction the male is likely to “like” the female 6.2 times more often than the female “likes” the male. …the wealth distribution for males in the Tinder economy is quite large. Most females only “like” the most attractive guys. …Figure 3 compares the income Gini coefficient distribution for 162 nations and adds the Tinder economy to the list. …The Tinder economy has a higher Gini coefficient than 95.1% of the countries in the world.

And here’s the chart from the article showing how Tinder inequality compares to economic inequality among nations.

Regular guys don’t do very well and unattractive guys get the short end of the stick.

…the most attractive men will be liked by only approximately 20% of all the females on Tinder. …Unfortunately, this percentage decreases rapidly as you go down the attractiveness scale. According to this analysis a man of average attractiveness can only expect to be liked by slightly less than 1% of females (0.87%). This equates to 1 “like” for every 115 females. …The bad news is that if you aren’t in the very upper echelons of Tinder wealth (i.e. attractiveness) you aren’t likely to have much success.

Whether your goal is income/wealth or sex/relationships, the bottom line is that it helps to be attractive.

And being attractive is largely the result of luck. Which brings us back to the issue of why leftists don’t try to address this very meaningful form of inequality. Where are their plans to prevent discrimination against those of us who didn’t win the looks lottery? And to imposes taxes on those who wound up with favorable genes?

P.S. Libertarians are sometimes accused of being autistic dorks, and you don’t find many females at libertarian events, all of which presumably means male libertarians might benefit from government redistribution of dating partners. But we are moral and don’t favor government coercion and intervention, even when we might gain an advantage.

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Image credit: Max Pixel | CC0 1.0.

Government Policy, Cost-Benefit Analysis, and Life Expectancy

Mon, 10/14/2019 - 12:56pm

For a multitude of reasons, I wasn’t a fan of Mitt Romney’s candidacy in 2012. But when supporters of Barack Obama accused him of somehow being responsible for a woman who died from cancer, I jumped to his defense by pointing out the link between unnecessary deaths and bad economic policy.

Simply stated, market-friendly policies produce more prosperity and wealthier societies enjoy longer lifespans. Indeed, even one of Obama’s top appointees openly acknowledged that wealthier is healthier.

Which is why folks on the left are failing to do proper cost-benefit analysis when they assert that we need redistribution and intervention to help people live longer.

This issue was hot in 2017 when Republicans briefly toyed with the idea of fulfilling a campaign promise and repealing Obamacare.

Defenders of the law said repeal would cause needless deaths.

In a column for National Review, Oren Cass debunked those assertions.

If you are going to claim that someone’s policy will cause upward of 200,000 deaths, I feel that you should have relevant supporting evidence. Maybe I’m just old-fashioned that way. Certainly, no such standards seem to hamper the editors at Vox. Instead, they’ve just published “208,500 additional deaths could occur by 2026 under the Senate health plan,” in which Ann Crawford-Roberts et al. assure readers that they are using “solid estimates firmly rooted in scientific evidence — unlike the dubious claim that the ACA has saved ‘zero’ lives.” Except here’s the thing: That claim about zero lives saved is supported by multiple independent lines of analysis. …There are the numerous studies showing that patients on Medicaid achieve worse health outcomes than those without any insurance. There is the “gold-standard” randomized controlled trial in Oregon that found no significant improvement in physical health from Medicaid coverage. …There is a paper from Yale researchers that found states achieve better health outcomes when they allocate less of their social spending toward health care. And now we even have data from the ACA itself. …the nation’s mortality rate stopped decreasing and actually increased when the ACA was implemented, and matters were worst in the states that accepted the ACA’s Medicaid expansion. …None of that makes Medicaid worthless. It does not mean that Medicaid, or the ACA generally, is killing people (though the evidence for that proposition looks as good as the evidence for the idea that it is saving many lives).

Max Bloom also wrote that year about the controversy for National Review.

Repealing Obamacare will kill 24,000 people a year! No, 36,000! No, 43,000! The tax cuts are blood money! There is more than a little hyperbole about the overhaul of Obamacare proposed by the House and the Senate, and the rhetoric about tens of thousands of deaths is not a bad example. …The only thing better than a natural experiment is a random experiment, in which people are randomly distributed into groups that, in this case, either receive health insurance or don’t. Exactly this happened in Oregon in 2008, when the state randomly selected 30,000 from a waiting list of 90,000 low-income adults to participate in a limited expansion of Medicaid. In theory, this should have produced a perfect test of the effects of insurance on health-care outcomes — indeed, as Peter Suderman notes, a bevy of liberal writers touted an early analysis of the experiment as a conclusive vindication of the effects of health insurance. Until they saw the final data, that is. The Oregon study found that “Medicaid coverage generated no significant improvements in measured physical health outcomes in the first two years.” …In short, the only problem with the estimate that Obamacare repeal will kill tens of thousands is that it cherry-picks one study out of several, ignores the limitations of that study, assumes that private insurance and Medicaid are equivalent, assumes that losing health insurance and gaining health insurance are precisely symmetric, uses implausible estimates of coverage loss, and relies on an idiosyncratic definition of the word “kill.” Otherwise, it’s fine.

By the way, these two articles didn’t even consider the “cost” side of cost-benefit analysis.

The columns simply noted that there’s no evidence for the notion that Obamacare-type subsidies help people live longer. In other words, the “benefit” side of cost-benefit equation is empty.

So imagine what we would discover about health outcomes if various Obamacare costs (job lossestax increases, lower income, etc) were added to the analysis.

A similar debate is happening on the other side of the ocean.

In a column for CapX, Guy Dampier addresses the silly claim that spending restraint kills people.

…a November 2017 paper in the British Medical Journal…found a link between restrictions on health and social care spending – austerity – and 120,000 additional deaths between 2010 and 2017. The paper’s authors..reached this by extrapolating from an estimated 45,000 “higher than expected” number of deaths between 2011 and 2014 and then projecting that to cover 2010 to 2017. …although even they had to admit they had only captured association and not discovered causation. …The medical community responded to the BMJ paper with scepticism. …Others pointed out the many issues in the methodology. …the IPPR, a think tank with close links to Labour, published a report in June this year with a similar claim: that if trends in mortality between 1990 and 2012 had continued there “could have been 130,000 deaths averted between 2012 and 2017”. …When pressed the IPPR admitted that the apparent spike in mortality had started two years before austerity began… The years of austerity have been tough for many people, without doubt. But these issues show that neither claim – of 120,000 or 130,000 deaths – stands up to scrutiny.

Once again, the left’s numbers only look at one side of the equation.

There’s no attempt to measure the health benefits of a faster-growing, less-encumbered economy.

Yet even using incomplete analysis, they don’t have any persuasive evidence for bigger government.

Let’s now close by looking at a global example.

Last year, the Washington Post published a fascinating article on pollution and life expectancy, and it included analysis on which parts of the world are getting cleaner and dirtier.

University of Chicago researchers wanted to make air quality measurements less abstract and more relatable — and what is more relatable than years of life? The pollution most responsible for shortening lives consists of the tiniest airborne particles, called PM2.5. They are small enough to penetrate deep into the lungs and bloodstream, causing breathing and cardiovascular problems, cancer and possibly even dementia. They’re bad for healthy people and terrible for young children, the elderly and anyone who already has heart or respiratory problems. …The Chicago team started with satellite data that mapped the annual PM2.5 concentration in air all over the world, from 1998 to 2016. …Then they calculated how much longer people would live if the air they breathe had fewer — or none — of these particles. The result of the project is the Air Quality Life Index.

Here’s the accompanying map, which shows good news for most parts of the world other than China, India, and Indonesia.

The obvious takeaway from this article is that nations should strive mightily to reduce this type of air pollution. Especially in Asia.

And maybe that’s actually true.

But let’s consider both sides of the equation. These Asian nations are in the process of industrialization, which means they are getting much richer and therefore have the ability to enjoy much better levels of food, housing, and health care.

We also know that life expectancy has significantly improved in China. So the bad impact of pollution obviously is being offset by something.

And the article notes that China is now working to curtail pollution, which makes sense since nations become more environmentally conscious as incomes increase.

By the way, I’m not trying to identify the right tradeoff between pollution and growth. Or the ideal trade-off between redistribution and growth.

Instead, I’m simply pointing out that tradeoffs exist, even if some of my friends on the left like to pretend otherwise.

If you’ve been diligent enough to get to this point, you deserve to enjoy this very topical Remy video.

Rather appropriate that Elizabeth Warren plays a starring role.

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Image credit: Senate Democrats | CC BY 2.0.

The “Opportunity Cost” of Trump’s Underwhelming Trade Deal with China

Sun, 10/13/2019 - 12:29pm

Because of Trump’s poor grasp of trade issues, I warned at the end of July that trade negotiations with China might yield “something gimmicky (like purchasing X tons of soybeans or importing Y number of cars).”

Well, Trump announced an agreement yesterday and I can pat myself of the back for being prescient.

The New York Times reports on the meager features of the purported deal.

President Trump said Friday that the United States had reached an interim deal with China… If completed, …Mr. Trump said the “substantial” agreement would involve China buying $40 billion to $50 billion worth of American agricultural products annually, along with guidelines on how it manages its currency, the renminbi. …The deal is far from the type of comprehensive agreement Mr. Trump has been pushing for, and it leaves some of the administration’s biggest concerns about China’s economic practices unresolved. …Mr. Trump’s defenders say China’s concessions will generate positive momentum for future talks… Mr. Trump and his advisers also did not mention any progress in areas that the American business community has identified as critical to its ability to compete with Chinese companies — including China’s subsidization of industries, the role of the government in the economy.

There are two things worth noting, one of them a minor point and the other a major point.

The minor point is that an agreement to buy $40-$50 billion of agricultural products is managed trade rather than free trade. Consumers in a competitive market should be determining how much is being purchased, not politicians.

The major point is that the Trump Administration has been following the wrong strategy. After nearly three years of bluster against China, we have a deal that is anemic at best. Just imagine, by contrast, where we would be if Trump had joined with our allies and used the World Trade Organization to go after China’s mercantilist policies. We’d be in much better shape today.

And with none of the collateral damage that Trump’s tariffs have caused for American farmers, exporters, consumers, manufacturers, and taxpayers!

To use a bit of economic jargon, failing to utilize the WTO is an “opportunity cost” – an approach that we overlooked and neglected because Trump preferred a trade war.

By the way, I realize that there are some people who viscerally oppose the WTO. I hope they can be persuaded to change their minds. But if that’s impossible, I want to point out that Trump’s approach is wrong even for those who advocate U.S. unilateralism.

There are things that the United States could do that specifically target China’s anti-market policies.

For instance, James Pethokoukis of the American Enterprise Institute, shares an exchange he had with Claude Barfield.

…there’s an alternative to the sweeping protectionism of the populists and progressives. …here is a podcast exchange from last April between AEI trade expert Claude Barfield and myself: Pethokoukis: As far as the enforcement mechanism, should the stick be tariffs? Should we be going after individual Chinese companies that we feel are breaking these rules, that are engaged in tech IP theft? What should be the punitive aspect? Barfield: In terms of intellectual property, if a Chinese company is found having participated in some sort of theft or — and here we have to be more vigilant in following this ourselves — using some technology or system that they’ve stolen, I would ban them from the US market. I would ban them and I would go after them in capital markets around the world. If the Chinese, for instance, continue to refuse to allow real competition and particular sectors are closed off for investment, I would ban the Chinese companies here and again, I would go after them in capital markets. In other words, I think it’s the investment side that is more productive and from the beginning has always been more productive, for me, than the tariffs.

And Derek Scissors, also from AEI, outlines additional options.

…there are many available actions which are more focused and, often, stronger than tariffs. But the Trump administration has neglected them… China’s centrally-controlled state-owned enterprises are very large and never allowed to fail due to commercial competition — the ultimate subsidy. It is thus impossible for the US to achieve balanced market access, much less free trade. …Chinese enterprises are not accidental recipients of protection from competition… These activities are orchestrated by the state. …The last step is what, exactly, to do. There are…many options.

Here’s the table he put together.

The bottom line is that there are plenty of tools available to specifically target anti-market interventionism (subsidies, cronyism, theft, etc) by China. Including options that are too onerous, or perhaps even not compliant with our WTO obligations.

Not that any of that matters. Trump wrongly thinks the bilateral trade deficit (i.e., investment surplus) with China is the problem. So we’ve wasted almost three years with a bad strategyhurt the U.S. economy, and failed to get pro-market reforms in China.

P.S. If successful, the right approach (i.e., using the WTO or unilateralism to go after China’s anti-market policies) would produce benefits for America, and it would produce even greater benefits for China.

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Image credit: The White House | Public Domain Mark 1.0.

The IMF Proposes a Giant Global Energy Tax

Sat, 10/12/2019 - 12:40pm

I’m not a big fan of the International Monetary Fund for the simple reason that the international bureaucracy undermines global prosperity by pushing for higher taxes, while also exacerbating moral hazard by providing bailouts to rich investors who foolishly lend money to dodgy and corrupt governments.

Six years ago, I complained that the bureaucrats wanted a giant energy tax, which would have diverted more than $5,000 from an average family’s budget.

That didn’t go anywhere, but the IMF hasn’t given up. Indeed, they’re now floating a new proposal for an enormous global energy tax.

To give credit to the IMF, the bureaucrats don’t mince words or disguise their agenda. The openly stated goal is to impose a giant tax increase.

Domestic policies are thus needed to give people and businesses greater incentives (through pricing or other means) to reduce emissions…international cooperation is key to ensure that all countries do their part. …The shift from fossil fuels will not only transform economic production processes, it will also profoundly change the lives of many people and communities. …Carbon taxes—charges on the carbon content of fossil fuels—and similar arrangements to increase the price of carbon, are the single most powerful and efficient tool… Even so, the global average carbon price is $2 a ton… To illustrate the extra effort needed by each country…, three scenarios are considered, with tax rates of $25, $50, and $75 a ton of CO2 in 2030.

The IMF asserts that the tax should be $75 per ton. At least based on alarmist predictions about climate warming.

What would that mean?

Under carbon taxation on a scale needed…, the price of essential items in household budgets, such as electricity and gasoline, would rise considerably… With a $75 a ton carbon tax, coal prices would typically rise by more than 200 percent above baseline levels in 2030… The price of natural gas…would also rise significantly, by 70 percent on average…carbon taxes would undoubtedly add to the cost of living for all households… In most countries, one-third to one-half of the burden of increased energy prices on households comes indirectly through higher general prices for consumer products.

Here’s a table from the publication showing how various prices would increase.

The bureaucrats recognize that huge tax increases on energy will lead to opposition (remember the Yellow Vest protests in France?).

So the article proposes various ways of using the revenues from a carbon tax, in hopes of creating constituencies that will support the tax.

Here’s the table from the report that outlines the various options.

To be fair, the microeconomic analysis for the various options is reasonably sound.

And if the bureaucrats embraced a complete revenue swap, meaning no net increase in money for politicians, there might be a basis for compromise.

However, it seems clear that the IMF favors a big energy tax combined with universal handouts (i.e., something akin to a “basic income“).

A political consideration in favor of combining carbon taxation with equal dividends is that such an approach creates a large constituency in favor of enacting and keeping the plan (because about 40 percent of the population gains, and those gains rise if the carbon price increases over time).

And other supporters of carbon taxes also want to use the revenue to finance a bigger burden of government.

Last but not least, it’s worth noting that the IMF wants to get poor nations to participate in this scheme by offering more foreign aid. That may be good for the bank accounts of corrupt politicians, but it won’t be good news for those countries.

And rich nations would be threatened with protectionism.

Turning an international carbon price floor into reality would require agreement among participants…participation in the agreement among emerging market economies might be encouraged through side payments, technology transfers…nonparticipants could be coerced into joining the agreement through trade sanctions…or border carbon adjustments (levying charges on the unpriced carbon emissions embodied in imports from nonparticipant countries to match the domestic carbon tax).

I’m amused, by the way, that the IMF has a creative euphemism (“border carbon adjustments”) for protectionism. I’m surprised Trump doesn’t do something similar (perhaps “border wage adjustment”).

For what it’s worth, the bureaucracy criticized Trump for being a protectionist, but I guess trade taxes are okay when the IMF proposes them.

But let’s not digress. The bottom line is that a massive global energy tax is bad news, particularly since politicians will use the windfall to expand the burden of government.

P.S. Proponents sometimes claim that a carbon tax is a neutral and non-destructive form of tax. That’s inaccurate. Such levies may not do as much damage as income taxes, on a per-dollar-collected basis, but that doesn’t magically mean there’s no economic harm (the same is true for consumption taxes and payroll taxes).

Time to Worry about U.K. Fiscal Policy?

Fri, 10/11/2019 - 12:33pm

I’m glad that Boris Johnson is Prime Minister for the simple reason that “Brexit” is far and away the most important issue for the United Kingdom.

Whether it’s called a Clean Brexit or Hard Brexit, leaving the European Union is vital. It means escaping the transfer union that inevitably will be imposed as more EU nations suffer Greek-style fiscal chaos. And a real Brexit gives the UK leeway to adopt market-friendly policies that currently are impossible under the dirigiste rules imposed by Brussels.

But just because Johnson appears to be good on Brexit, this doesn’t mean he deserves good grades in other areas. For instance, the UK-based Times reports that the Prime Minister is on a spending spree.

Boris Johnson is planning to spend as much on public services as Jeremy Corbyn promised at the last election and cannot afford the tax cuts he pledged in the Tory leadership campaign, a think tank has warned. The prime minister’s proposed spending spree would mean Sajid Javid, the chancellor, overshooting the government’s borrowing limit by £5 billion in 2020-21, according to the Institute for Fiscal Studies, which said that the government was “adrift without any fiscal anchor”.

Ugh, sounds like he may be the British version of Trump. Or Bush, or Nixon.

In a column for CapX, Ben Ramanauskas warns that more spending is bad policy.

…with Sajid Javid making a raft of spending announcements, it would seem as though the age of austerity really is over. …So it would be useful to look back over the past decade and answer a few questions. Does austerity work? …As explained in the excellent new book Austerity: When it Works and When it Doesn’t  by Alberto Alesina, Carlo Favero, and Francesco Giavazzi, it depends what you mean by austerity. …The authors analyse thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, and assess the relative effectiveness of tax increases and spending cuts at reducing debt. They show that…spending cuts are much more successful than tax increases at reducing the growth of debt, and can sometimes even result in output gains, such as in the case of expansionary austerity. …Which brings us onto our next question: did the UK actually experience austerity? …the government’s programme was a mild form of austerity. …Then there is the politics of it all. It’s important to remember that fiscal conservatism can be popular with the electorate and it worked well in 2015 and to a lesser extent in 2010. The Conservatives should not expect to win the next election by promising massive increases in public spending.

Moreover, good spending policy facilitates better tax policy.

Or, in this case, the issue is that bad spending policy makes good tax policy far more difficult.

And that isn’t good news since the U.K. needs to improve its tax system, as John Ashmore explains in another CapX article.

…the Tax Foundation…released its annual International Tax Competitiveness Index. The UK came 25th out of 36 major industrialised nations. For a country that aims to have one of the world’s most dynamic economies, that simply will not do. …Conservatives…should produce a comprehensive plan for a simpler, unashamedly pro-growth tax system. And it should be steeped in a political narrative about freedom… Rates are important, but so is overall structure and efficiency. …a more generous set of allowances for investment, coupled with a reform of business rates would be a great place to start. We know the UK has a productivity problem, so it seems perverse that we actively discourages investment. …As for simplicity, …it’s possible to drastically reduce the number of taxes paid by small businesses without having any effect on revenue. Accountants PwC estimate it takes 105 hours for the average UK business to file their taxes… Another area the UK falls down is property taxes, of which Stamp Duty Land Tax is the most egregious example. It’s hard to find anyone who thinks charging a tax on people moving house is a good idea…in the longer term there’s no substitute for good, old-fashioned economic growth – creating the world’s most competitive tax system would be a fine way to help deliver it.

To elaborate, a “more generous set of allowances for investment” is the British way of saying that the tax code should shift from depreciation to expensing, which is very good for growth.

And simplicity is also a good goal (we could use some of that on this side of the Atlantic).

The problem, of course, is that good reforms won’t be easy to achieve if there’s no plan to limit the burden of government spending.

It’s too early to know if Boris Johnson is genuinely weak on fiscal issues. Indeed, friends in the UK have tried to put my mind at ease by asserting that he’s simply throwing around money to facilitate Brexit.

Given the importance of that issue, even I’m willing to forgive a bit of profligacy if that’s the price of escaping the European Union.

But, if that’s the case, Johnson needs to get serious as soon as Brexit is delivered.

Let’s close by looking at recent fiscal history in the UK. Here’s a chart, based on numbers from the IMF, showing the burden of spending relative to economic output.

Margaret Thatcher did a good job, unsurprisingly.

And it’s not a shock to see that Tony Blair and Gordon Brown frittered away that progress.

But what is surprising is to see how David Cameron was very prudent.

Indeed, if you compared spending growth during the Blair-Brown era with spending growth in the Cameron-May era, you can see a huge difference.

Cameron may not have been very good on tax issues, but he definitely complied with fiscal policy’s golden rule for spending.

Let’s hope Boris Johnson is similarly prudent with other people’s money.

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Image credit: Chatham House | CC BY 2.0.

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