The Worst Tax Cut

There's been an interesting debate in Washington (at least among tax nerds) about whether all tax cuts are a good idea. I'm largely sympathetic to cutting taxes anytime and anywhere, though I certainly agree with those who argue that supply-side tax-rate reductions are far better than tax credits and other forms of social engineering through the internal revenue code. But perhaps the debate can now be settled. The home-buyer tax credit, much beloved by politicians from both parties, is absolutely horrible policy. The Wall Street Journal's editorial is a great summary of this corrupt and wasteful tax preference:

It's hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury's inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn't purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren't first-time buyers. Among those claiming bogus credits, at least some of them were definitely first-timers. The credit has already been claimed by 500 people under the age of 18, including a four-year-old. ...As a "refundable" tax credit, it guarantees the claimants will get cash back even if they paid no taxes. A lack of documentation requirements also makes this program a slow pitch in the middle of the strike zone for scammers. The Internal Revenue Service and the Justice Department are pursuing more than 100 criminal investigations related to the credit, and the IRS is reportedly trying to audit almost everyone who claims it this year. Speaking of the IRS, apparently its own staff couldn't help but notice this opportunity to snag an easy $8,000. ...Mr. George said his staff has found at least 53 cases of IRS employees filing "illegal or inappropriate" claims for the credit. "In all honesty this is an interim report. I expect that the number would be much larger than that number," he said. The program is set to expire at the end of November, so naturally given its record of abuse, Congress is preparing to extend it. Republican Senator Johnny Isakson of Georgia is so pleased with the results that he wants to expand the program beyond first-time buyers and double the income limits. ...Meanwhile, the credit continues to distort the housing market and postpone the day when home prices can find a floor that is a basis for a stable recovery. More than two years into the housing bust, trillions of dollars in taxpayer losses or guarantees via Fannie Mae and Freddie Mac, and amid an ongoing plague of redefaults in federal programs to prevent foreclosures, politicians are still trying to manipulate housing prices. And leave it to Congress to design a program that even a four-year-old can scam.

Politicians Fiddle While America's Corporate Tax System Burns

KPMG has released its annual global survey of corporate tax systems. For the 10th-consecutive year, the average corporate tax rate fell, and it is now down to 25.5 percent (just 23.2 percent in the European Union!).

In the United States, unfortunately, the corporate tax rates remains stuck at about 40 percent. Only one developed nation, Japan, has a more punitive regime.

Something to keep in mind the next time a politician complains that jobs are going to China (corporate tax rate of 25 percent).

Prince Michael of Liechtenstein Discusses the Human Right of Financial Privacy

Here's a Cato Institute podcast with H.S.H. Prince Michael v. Liechtenstein. It would be nice if America has business and political leaders with a commitment to individual liberty and personal freedom.

Soviet-Style Tax Collection Tactics in the Windy City

During the Cold War, Americans often would use dark humor to mock the totalitarian nature of the Soviet regime, and it was not uncommon to joke about children turning in their parents for anti-Soviet behavior in exchange for a pair of Western blue jeans. In the real world, of course, these things are not funny, and folks in places such as Cuba still live in fear that neighborhood informants will get them in trouble with the secret police. So it is particularly nauseating to see that the City of Chicago is encouraging some taxpayers to snitch on others:

Chicago and Cook County residents aren’t the only ones about to get shocking tax news; the city is debuting a “tax whistle-blower” plan that could turn neighbor against neighbor in Chicago's business community. The folks at city hall will pay cash bounties to informants who turn in business tax cheats around the city. The reward would amount to some sort of percentage of the tax money that the city recovers. "It's just another way of bringing people into compliance," Revenue Department spokesman Ed Walsh told the Sun-Times .

Global Prosperity Index Ranks America 9th, Behind Nations Such As Finland, Australia, and Canada

According to the Legatum Institute, Finland is the world's most prosperous nation, based on material well-being and certain social indicators. Other Nordic nations, as well as Switzerland and the Netherlands also rank above the United States. The variables that determined the ranking leave something to be desired from a libertarian perspective, but a column in the Wall Street Journal Europe, authored by the heads of the Legatum Institute and America Enterprise Institute, makes a valuable point about the the fact that the Nordic nations have very laissez-faire policies with the exception of large welfare states. This commitment to unfettered markets enables them to retain some dynamism, thus offsetting to some degree the negative impact of too much taxes and spending. As the column notes, this has important lessons - especially for the United States, which is moving toward bigger government and more intervention in private markets:

...free enterprise has come under attack with the global economic crisis, the perceived threat of climate change, and a broader concern—most recently promoted by French President Nicolas Sarkozy—that growth alone does not indicate prosperity. ...Many people—especially Americans—think of wealth as the basis of health and happiness, too. In other words, market economies with good economic fundamentals drive us to more fulfilling lives. Europeans often counter that a narrow pecuniary viewpoint gives a distorted picture of the human experience. Worse yet, it can lead to the tyranny of materialism. Who is right? ...While free enterprise is not the only important factor explaining national differences in well-being, it probably does explain most of it. This means subverting the mechanisms of free enterprise would not just lead to lower economic growth but also lower social scores. The fact that the Nordic countries do so well in the Prosperity Index has largely to do with the fact that apart from their welfare policies, they also encourage entrepreneurship, free trade, and have stable monetary policies—even as they employ strong rhetoric against capitalism. Finland, Sweden and Denmark all score higher than Switzerland and nearly all of their southern European counterparts on their capacity to commercialize innovation, through factors such as business start-up procedures, business registration rates, and royalties on patents. All of this drives dynamic entrepreneurship, and spurs people to innovate and take risks, as they are more reassured that good ideas will pay off. U.S. policy makers would do well to note this fact as they contemplate more "European" policies. And as the West contemplates ever tighter regulations on how and where money can be spent, lent and invested, their leaders should remember that economic and political liberty—while not the whole story—play a key role in prosperity. They are the engine driving much of what makes life worthwhile.

Weekly Political Humor

This is another classic for the picture-tells-a-thousand-words category. It is especially appropriate since the clowns in Washington want to take over our health care system.

German Masochists

A handful of guilt-ridden wealthy Germans are asking to pay more tax according to a BBC report. They could just give their money to the state, of course, but they want to impose their self-loathing policies on all successful Germans. The amusing part of the story is that these dilettantes were puzzled that so few people showed up to their protest. Maybe next time they could do some real redistribution and announce that they will be tossing real banknotes in the air:

A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes. The group say they have more money than they need, and the extra revenue could fund economic and social programmes... Simply donating money to deal with the problems is not enough, they want a change in the whole approach. ...The man behind the petition, Dieter Lehmkuhl, told Berlin's Tagesspiegel that there were 2.2 million people in Germany with a fortune of more than 500,000 euros. If they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said the retired doctor and heir to a brewery. Signatory Peter Vollmer told AFP news agency he was supporting the proposal because he had inherited "a lot of money I do not need". He said the tax would be "a viable and socially acceptable way out of the flagrant budget crisis". The group held a demonstration in Berlin on Wednesday to draw attention to their plans, throwing fake banknotes into the air. Mr Vollmer said it was "really strange that so few people came".

Greetings from Switzerland

I'm in Switzerland for a couple of speeches in Geneva and one speech in Zurich. I'd like to say I'm also visiting my money, but that would only be true if I had enough money for a Swiss account. Alas.

Switzerland is an admirable nation for many reasons, especially its strong human rights policy in defense of financial privacy. But I also admire its fealty to federalism. Indeed, unlike the United States, it has largely kept the central government from becoming a dominant force in the nation's fiscal policy. As this study from the Center for Freedom and Prosperity (authored by a Swiss expert) explains, more than two-thirds of taxing and spending takes place at the canton and municipal level. In America, by contrast, the federal government dominates, with two-thirds of taxing and spending coming from Washington.

One final observation. I'm staying in what might be called the United Nations district of Geneva, and one can't help but notice all the urbane foreigners - particularly from the developing world - wandering the town and patronizing the tony restaurants. Maybe I'm just a cranky libertarian, but I can't stop thinking about the tremendous misallocation of human capital this represents (not to mention the huge waste of money). Many of these people are probably the "best and brightest" from their various homelands, and they presumably could contribute to their nations' prosperity by being back home doing something productive. But thanks to the proliferation of international bureaucracies, few of which can make even an implausible claim of doing anything worthwhile, these people are net liabilities rather than net assets.

The Good Guys Win One

The past nine years have been discouraging, with Bush and Obama both being big-government interventionists. But it's nice to know that the other side still has a hard time imposing higher taxes. The Wall Street Journal's editorial page celebrates the death of a terrible tax proposal that would have increased double taxation on American companies trying to earn market share while competing abroad:

Raising taxes on the overseas profits of American firms has been a central plank of Barack Obama's agenda since his campaign for President in 2008. The proposal was featured in the President's budget in February and was the focus of a May speech in which he said that corporations were "shirking" their responsibility to support his huge increases in federal spending through higher tax payments. But as this newspaper reported Tuesday, the Administration appears to have shelved the plan to limit business use of the current deferral of taxes on profits earned overseas. This climbdown comes after a full-court press by U.S. multinationals, notably including some of Mr. Obama's Silicon Valley supporters, which argued that raising taxes on U.S. companies abroad would do nothing to create jobs in the U.S. while undermining American competitiveness overseas. The U.S. is one of the few developed countries that even tries to tax corporate overseas profits. Most operate on a territorial system, in which business profits are taxed in the country in which they are earned. The U.S. taxes world-wide income but then allows a deferral of overseas taxes until those profits are repatriated. It also allows companies to take a tax credit for corporate taxes paid in other countries, although this tax credit system is cumbersome and only partially offsets the burden of double taxation. The idea that raising corporate taxes would promote job creation never made sense, and the mere threat of higher taxes is one factor depressing business investment and slowing any recovery. So it's good news that the Administration seems to have set this job-killer aside, at least for now.

Hopefully, the Center for Freedom and Prosperity's video played at least a small role in educating policy makers about the foolishness of the President's proposal.

Weekly Economics Lesson

While doing research for an upcoming video, I found an excellent study from the National Center for Policy Analysis that explains how "third-party payer" is largely preventing markets from operating in health care. Government policies (including tax distortions) are the cause of the problem, yet the polticians want to expand third-party payments. Here's an excerpt from the paper, and I also reprint below a key chart from the paper that shows how most medical prices rise faster than the overall price level, but the opposite result occurs when consumes are in control (for things such as cosmetic surgery):

Long before a patient enters a doctor’s office, third- party bureaucracies have determined which medical services they will pay for, which ones they will not and how much they will pay. The result is a highly artificial market plagued by problems of high costs, inconsistent quality and poor access. ...Can the market for medical care be different? Interestingly, in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. And because they are not trapped in a system that pays for predetermined tasks at predetermined rates, providers are free to repackage and reprice their services — just like vendors in other markets. It is primarily in these direct-pay markets that entrepreneurs are creating many innovative services to solve the very prob-lems about which critics of the health care system complain. ...Cosmetic surgery is rarely covered by insurance. Because providers know their patients must pay out of pocket and are price sensitive, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery, and (c) pay a price that has been falling over time in real terms — despite a huge increase in volume and considerable technical innovation (which is blamed for increas- ing costs for every other type of surgery). ...In 1960, consumers paid about 47 percent of overall health care costs out of pocket. ...In 2006, consumers paid only 12 cents out of their own pockets every time they spent a dollar on health care.

Bruce Bartlett's VAT Delusions

I've known and liked Bruce Bartlett for more than 20 years, so you can imagine my dismay that he is now pimping for a value-added tax (VAT). I'm not sure whether his mind has been captured as part of a remake of Invasion of the Body Snatchers or if he's just been hanging around Washington for too long, but his implication that it is possible to be a pro-market conservative while supporting a huge new tax to finance bigger government is absurd. Conservatives (not counting the big spenders who call themselves "compassionate conservatives") share the libertarian goal of smaller government. And trying to achieve smaller government by raising taxes is akin to treating alcoholics by giving them keys to a liquor store. The VAT is a particularly bad idea because it would be a huge new source of revenue, as Bruce acknowledges in an article for Forbes.com:

Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe's average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.

Bruce makes the point that a VAT does not do as much damage, per dollar raised, as the personal or corporate income tax, but so what? That would only be a compelling argument if the VAT was used to eliminate other taxes. At the risk of pointing out the obvious, that's not what Bruce is proposing. Interestingly, even though his core argument is that we should adopt a VAT to give the government additional revenue, Bruce tries to be all things to all people by mentioning that a VAT could replace other taxes:

Replacing the corporate tax with a VAT would unquestionably improve the competitiveness of all U.S. exporters.

Even here, though, Bruce's argument is misleading. A VAT would have no impact on US exporters. All the benefits would occur only because the corporate income tax would disappear. Not that this matters since Bruce is not advocating for that position. He then continues to muddy the waters by citing Senator DeMint's legislation, presumably to make it seem as if his plan is good by association.

Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.

There is a gigantic difference, of course, between Bartlett and DeMint. The Senator proposes to replace the internal revenue code, whereas Bruce wants to augment it. Bruce then whines that supporters of limited government atack his plan for facilitating bigger government, but he offers no refutation. But that is no surprise since Bruce is throwing in the towel, saying we should have a VAT since it is hopeless to fight against growing government.

...whenever I suggest the idea of a VAT for the U.S., I am attacked by supply-siders and assorted right-wingers. The other day my friend Larry Kudlow criticized me for wanting to "Europeanize the American economy." Their concern is that the VAT is a money machine that will lead to higher taxes and bigger government precisely because it is such a "good" tax. I myself held this same view for many years. But eventually I decided that it was stupid to oppose something because of its virtues. Opposing a VAT because it's too good is like breaking up with your girlfriend because she is too beautiful.

The last line is clever, but ridiculous. The more appropriate analogy is that you are married to the Creature from the Black Lagoon, and Bruce wants you to take the Wicked Witch of the West as a second wife.

Weekly Political Humor

A cowboy named Bud was overseeing his herd in a remote mountainous pasture in California when suddenly a brand-new BMW advanced toward him out of a cloud of dust.

The driver, a man in a Brioni suit, Gucci shoes, RayBan sunglasses and YSL tie, leaned out the window and asked the cowboy, "If I tell you exactly how many cows and calves you have in your herd, Will you give me a calf?"

Bud looks at the man, then looks at his peacefully grazing herd and calmly answers, "Sure, Why not?"

The man parks his car, whips out his Dell notebook computer, connects it to his Cingular RAZR V3 cell phone, and surfs to a NASA page on the Internet, where he calls up a GPS satellite to get an exact fix on his location which he then feeds to another NASA satellite that scans the area in an ultra-high-resolution photo.

The man then opens the digital photo in Adobe Photoshop and exports it to an image processing facility.

Within seconds, he receives an email on his Palm Pilot that the image has been processed and the data stored. He then accesses an MS-SQL database through an ODBC connected Excel spreadsheet with email on his Blackberry and, after a few minutes, receives a response.

Finally, he prints out a full-color, 150-page report on his hi-tech, miniaturized HP LaserJet printer, turns to the cowboy and says, "You have exactly 1,586 cows and calves."

"That's right. Well, I guess you can take one of my calves," says Bud.

He watches the man select one of the animals and looks on with amusement as the man stuffs it into the trunk of his car.

Then the Bud says to the man, "Hey, if I can tell you exactly what your business is, will you give me back my calf?"

The man thinks about it for a second and then says, "Okay, why not?"

"You're a Congressman for the U.S. Government", says Bud.

"Wow! That's correct," says the yuppie, "but how did you guess that?"

"No guessing required.." answered the cowboy. "You showed up here even though nobody called you; you want to get paid for an answer I already knew, to a question I never asked. You used millions of dollars worth of equipment trying to show me how much smarter than me you are; and you don't know a thing about how working people make a living - or about cows, for that matter. This is a herd of sheep. ...

Now give me back my dog.

Talking about Executive Pay on ABC's Good Morning America and the CBS Early Show

Not many people are willing to defend generous pay packages for CEOs, so I got tapped to appear on both the ABC and CBS morning shows. I prefer the CBS clip, in part because they had a nice set, but it is always frustrating to do interviews for the network shows because you talk for 10 minutes and they use 10 seconds. I understand why they have to use that approach, but it means there is not much ability to make a thorough argument.

I recommend this post at the Cato-at-Liberty blog for those who want a more complete analysis of the issue.

A Wishy-Washy Dan Mitchell?

I rarely feel conflicted on issues, but I'm not sure what to think about compensation limits for executives at banks that have received bailouts.

On one hand, it is incredibly destructive for the incompetent and venal politicians and bureaucrats in Washington to interfere with private compensation decisions.

On the other hand, companies that are sticking their snouts in the public trough are no longer real private entities. And if we want to discourage more firms from trying to fleece taxpayers, I suspect there are few things more effective than threatening the salary of the CEOs and other top executives.

I've been doing a lot of media on this topic. As you can see from this CNBC clip, this is a tough issue to handle, though I always try to make the one clear point that the entire problem could have been averted by not doing bailouts in the first place.

Politicians vs. the Constitution

With characteristic bluntness, Walter Williams explains that much of what is happening in Washington is eroding American exceptionalism by underming the Constitution's restraints on the power of the federal government:

At the heart of the American idea is the deep distrust and suspicion the founders of our nation had for government, distrust and suspicion not shared as much by today’s Americans. Some of the founders’ distrust is seen in our Constitution’s language such as Congress shall not: abridge, infringe, deny, disparage, violate and deny. If the founders did not believe Congress would abuse our God-given rights, they would not have provided those protections. After all, one would not expect to find a Bill of Rights in Heaven; it would be an affront to God. Other founder distrust for government is found in the Constitution’s separation of powers, checks and balances and the several anti-majoritarian provisions such as the Electoral College and the requirement that three-quarters of state legislatures ratify changes in the Constitution. The three branches of our federal government are no longer bound by the Constitution as the framers envisioned and what is worse is American ignorance and acceptance of such rogue behavior. Look at the current debate over government involvement in health, business bailouts and stimulus packages. The debate centers around questions as whether such involvement is a good idea or a bad idea and whether one program is more costly than another. Those questions are entirely irrelevant to what should be debated, namely: Is such government involvement in our lives permissible under the U.S. Constitution?

The Politicians and Bureaucrats Are Lying about the Cost of Government-Run Healthcare

The Wall Street Journal issues a devastating indictment against the absurd claim that the Senate plan for socialized health care will reduce the deficit:

Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. ...Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. ...Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing. Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched—after adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries. Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion. The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected.

Good News: Obama Is not Repeating all of Bush's Mistakes

Bush was a big spender. Obama is a big spender. Bush supported bailouts. Obama supports bailouts. Bush created a new healthcare entitlement. Obama is trying to create a new healthcare entitlement. But President Obama may not be a lost cause. According to the Associated Press, the Administration is reversing the old policy of persecuting people who use or provide medical marijuana in states where it is legal. This is a victory for federalism and common sense. People should be free to make dumb decisions with their own lives, and prohibition is both futile and expensive. And there certainly is no reason for the federal government to be involved:

Federal drug agents won't pursue pot-smoking patients or their sanctioned suppliers in states that allow medical marijuana, under new legal guidelines to be issued Monday by the Obama administration. Two Justice Department officials described the new policy to The Associated Press, saying prosecutors will be told it is not a good use of their time to arrest people who use or provide medical marijuana in strict compliance with state law. ...The new policy is a significant departure from the Bush administration, which insisted it would continue to enforce federal anti-pot laws regardless of state codes. ...A three-page memo spelling out the policy is expected to be sent Monday to federal prosecutors in the 14 states, and also to top officials at the FBI and Drug Enforcement Administration. The memo, the officials said, emphasizes that prosecutors have wide discretion in choosing which cases to pursue, and says it is not a good use of federal manpower to prosecute those who are without a doubt in compliance with state law.

If You Live or Work in or Near Washington...

...then you are invited to tomorrow's tax competition conference at the Cato Institute. Featured speakers, other than yours truly, include Prince Michael of Liechtenstein and the Chairman of the Cayman Islands Financial Services Association. Click here for more info and free registration.

The Three Musketeers of Small Government

Or is it the Three Stooges? In any event, Richard Rahn, Steve Moore, and I take turns bashing taxes and spending while appearing on Dennis McCuiston's television program. You can watch here.

Government-Mandated "Fairness" Means Unaffordable Health Insurance

As part of so-called reform, the crowd in Washington is seeking to impose policies to bring "fairness" to the market for people who purchase their own health insurance. Yet these policies - community rating and guaranteed issue - have led to a disaster for families seeking health covereage in New York. The obvious lesson is that the government should not interfere with markets in hopes of creating fairness - though the politicians in Washington have decided that this disastrous approach should be imposed on the entire country. A column in the Wall Street Journal provides the gory details:

One of the biggest things Mr. Cuomo did was to impose government mandates called community rating (CR) and guaranteed issue (GI). The former prevents insurers from charging people more based on their health or age, and the latter forbids denying coverage to anyone who wants to buy it. These two mandates are now a central part of reforms advancing in Congress. In New York, enacting them has been a mistake. One of the biggest proponents of community rating and guaranteed issue in the early 1990s was Empire Blue Cross and Blue Shield. With more than eight million customers, Empire was the state's largest insurer. It was also the state's "insurer of last resort" because, as a nonprofit organization, it already had to comply with both mandates. It lobbied to extend CR and GI to every insurer in the name of fair competition. But New Yorkers didn't get a more competitive insurance market. ...Within a few years, Empire and others stopped selling insurance in the individual market in the state. A 2007 report by the respected Seattle-based actuarial consulting firm Milliman surveyed the damage. It noted that "by 1996 GI and CR requirements effectively eliminated the commercial individual indemnity market in New York." While the reforms were supposed to help keep insurance affordable, "premiums for the two [remaining] standard plans increased rapidly," with one researcher noting "insurers increased premium rates 35%-40% in this period." Today, New York's private individual insurance market is among the nation's most expensive and highly regulated. New York City residents buying private, unsubsidized individual insurance coverage pay at least $9,036 a year for individual coverage and $26,460 for family coverage. New York's average premiums in the individual market are more than twice the national average, according to a 2007 eHealth Insurance survey. ...Partly because of the high costs of private coverage, nearly one in four New Yorkers is enrolled in Medicaid. New York's Medicaid program is the nation's most expensive, requiring high local and state taxes to support it. Policy makers rarely mention that state mandates such as CR and GI can drive up prices and drive millions of people away from private insurance. New York has 51 mandates dictating coverage for a wide range of things including hormone replacement therapy (one of four states with this mandate) and drug abuse counseling (one of seven states). Each adds to the cost of insurance. William Congdon at the Brookings Institution and Michael New from the Heritage Foundation have separately done studies that suggest that 40 of the costliest state mandates in the country add as much as 20% to the cost of basic insurance coverage. In 1994, about 4.5% (10.45 million) of the U.S. nonelderly population was covered by individual insurance. Today, that number has grown to 5.5% (14.35 million), a 20% increase. In California, 8% of the nonelderly population has individual insurance. But New York's individual insurance market represents a paltry 0.2% of its nonelderly population. Before Mr. Cuomo's reforms it was 4.7%. ...market-based reforms could make insurance much more affordable, especially if the CR and GI mandates were repealed. Doing that would reduce the number of uninsured by 18% and 19%, respectively (37% combined), and would lower premiums by 42%. We also found that if the state allowed New Yorkers to buy health insurance sold in Connecticut and Pennsylvania, as much as 26% of the uninsured would purchase private policies costing 25% less than similar policies in New York.

Thoughts about Singapore

Got back yesterday from a quick trip to Singapore (though anything that involves 18 hours in a plane - one way - is not exactly quick). I don't really have any profound personal observations about the country since I spent every spare moment working on a healthcare paper and never left my hotel, but this was my third or fourth trip so I can make two big-picture observations.

1. Small government works - Singapore is not a truly laissez-faire nation since government consumes more than 20 percent of GDP and there is a back-door form of industrial policy thanks to government control of the allocation of the money generated by private saving for retirement and health care. But it still is one of the world's most free-market jurisdictions according to Economic Freedom of the World and the Index of Economic Freedom. It started as a poor jurisdiction and is now a rich one. The tax code is progressive, but the top tax rate is just 20 percent, so people are not punished for creating wealth.

2. Diversity works when government does not create hostility and resentment - Singapore is one of the most ethnically diverse places in the world. The population is comprised of Chinese, Malays, Indians, and Whites. To my knowledge, there are no significant racial or ethnic problems. Everyone is too busy making money and government doesn't create resentments by favoring one group over the other. Seems like other nations could learn something.

Last but not least, a general gripe about government. Why is there a requirement, at least in some airports, to go through security when arriving on one flight before going on another? After flying 7 hours from Singapore to Tokyo (which, of course, required going through security), I then had to shuffle for 30 minutes in a line to get my laptop X-rayed again. Did the bureaucrats think I somehow acquired a bomb on the flight? This happens, for reasons that are not clear, at a few other airports. Does anyone know why, other than to provide jobs for more bureaucrats?

Weekly Political Humor

This is another one of those a-picture-tells-a-thousand-words images. Reminds me of the old line about Democrats must like poor people because their policies create more of them.

Orwell Award for Reprehensible and Dishonest Use of Language

Although it gets scant attention in America, the proposed EU Constitution (somethimes called the Lisbon Treaty) is a significant threat to economic freedom and national sovereignty (in this case, these are related concepts). One of the few heroes in this battle is the President of the Czech Republic, who is doing everything possible to avoide signing the treaty. This is irritating the pro-centralization, pro-harmonization, pro-bureaucratization apparatchiks in Brussels, who are afraid that Klaus' refusal to surrender may destroy their dreams of a socialist superstate governed by Brussels. The UK-based Times reports:

In faraway Brussels furious diplomats were calling for his impeachment and even his country’s expulsion from the European Union because of his obstinate refusal to sign the Lisbon treaty. Klaus, now the only European leader holding out against ratifying the document, made it clear he did not give a damn. ...On Klaus’s return to Prague he dropped a political bombshell. At a press conference in his official residence the Czech leader announced that he would sign the treaty only if his government negotiated an opt-out from the Charter of Fundamental Rights, which is incorporated in the treaty. ...“I have always considered this treaty a step in the wrong direction,” Klaus said. As he is well aware, the slightest change to the treaty, which was first proposed in 2001, would require all 27 EU member countries to agree. His remarks were greeted with outrage in Europe. German and French diplomats, in talks with their Czech counterparts, explored two ways of removing the Klaus obstacle: impeach him or change the Czech constitution to take away his right of veto. “If the president is obstructing the democratic process and opposing the decision of parliament as well as the will of the people, he is moving beyond the law and will need to face the consequences,” a German diplomat told The Sunday Times. ...Opponents of the treaty hope that Klaus will be able to stall ratification until the British general election in May. David Cameron, the Tory leader, has promised a referendum if his party wins and the treaty is still unsigned. Klaus is unlikely to give in without at least some concessions. He is said to want to be seen as the leader who derailed the European project. A comparison is being drawn in Prague with Edvard Benes, the pre-war Czech leader who in 1938 had to flee to Britain after refusing to cede territory to Hitler under the Munich agreement.

A Picture Is Worth a Thousand Words

This chart, put together by my Cato colleague Andrew Coulson, is a devastating indictment of the government monopoly education establishment. They've received huge amounts of money in recent decades, and dramatically expanded the bureaucracy, but student achievement is stagnant.

A VAT Would Finance the Road to Serfdom

This blog has been warning about the danger of a value-added tax. We've cited the salivating comments of Speaker Pelosi. We've noted the favorable comments by Obama insiders like the former Co-Chairman of his transition team. We know the battle is coming. Now we need to fight. This newly-released video from the Center for Freedom and Prosperity provides the data showing that this is a do-or-die fight. If we lose, there is no hope of stopping statism. Blocking a VAT is not a sufficient condition to protect America from becoming a French-style welfare state, but it is a necessary condition.

The Left-Wing Drumbeat for a Value-Added Tax Gets Louder

Every so often, the other side tells the truth. They want higher taxes to make government bigger, and they're not being shy about their goals anymore. In recent weeks, many senior Democrats and close Obama allies have called for a value-added tax. Now two senior people at the Brookings Institution have echoed that message. We can't say we haven't been warned what they have in mind:

Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. ...Congress should link revenue from the new tax and other sources directly to public health-care spending through a newly created health-care trust fund. The trust fund would pay for all federal health-care spending.

Senate Healthcare Proposal is a Fiscal Fraud

The indispensable editorial page of the Wall Street Journal blasts the phony spending "cuts" that are supposed to offset some of the new spending in the Senate health care bill. Sadly, the Congressional Budget Office has compromised its independence to help the left foist a fiscal fraud on the nation:

Washington spent the week waiting for the Congressional Budget Office to roll in with its new cost estimates of the Senate health-care bill, and what a carnival. Behold: a new $829 billion entitlement that will subsidize insurance for tens of millions of people—and reduce deficits by $81 billion at the same time. In the next tent, see the mermaid and a two-headed cow. ...The irony is that the CBO's guesstimate exposes the fraudulence and fiscal sleight-of-hand underlying this whole exercise. Anyone who reads beyond the top-line numbers will find that the bill creates massive new spending commitments that will inevitably explode over time, and that this is "paid for" with huge tax increases plus phantom spending cuts that will never happen in practice. ...Liberals are demanding heftier subsidies, and once people see the deal their neighbors are getting on "free" health care, they too will want in. Even CBO seems to find this unrealistic, noting "These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation." Scratch "often." Then there are the many budget gimmicks. Take the "failsafe budgeting mechanism" that would require automatic cuts in exchange spending if it increases the deficit. CBO expects 15% reductions in exchange subsidies each year from 2015 to 2018, even though the exchanges don't open until 2014. That kind of re-gifting should have been laughed out of the committee room, but the ruse helps to move future spending off the current budget "score." Mr. Baucus spends $10.9 billion to eliminate the scheduled Medicare cuts to physician payments—but only for next year. In 2011, he assumes they'll be reduced by 25%, with even deeper cuts later. Congress has overridden this "sustainable growth rate" every year since 2003 and will continue to do so because deeper cuts in Medicare's price controls will cause many doctors to quit the program. Fixing this alone would add $245 billion to the bill's costs, according to an earlier CBO estimate. The Baucus bill also expands ailing Medicaid by $345 billion—even as it busts state budgets by imposing an additional $33 billion unfunded mandate. ...the bill piles on new taxes, albeit on health-care businesses so the costs are hidden from customers. Insurance companies offering policies that cost more than $8,000 for individuals and $21,000 for families will pay $201 billion per a 40% excise tax, which will be passed down to all policy holders in higher premiums. Another $180 billion will hit the likes of drug and device makers, including $29 billion because companies won't be allowed to deduct these "fees" from their corporate income taxes. Then there's the $4 billion in penalty payments on those who don't buy insurance because all of ObamaCare's other new taxes and mandates have made it more expensive.

The Hidden Cost of Government Intervention

Alex Pollack of the American Enterprise Institute explains how even supposedly benign interventions have negative effects. Using deposit insurance as an example, he explains how the benefits of intervention are often obvious, but the costs are usually hidden and indirect - and generally of a greater magnitude. The politicians get applause for the supposed benefit (in this case, peace-of-mind for despositors) while avoiding any blame for the hidden costs (moral hazard, financial crisis, malinvestment, etc):

On one hand, there is the fervent political desire to make deposits riskless for the public, so that depositors do not need to know anything about or care about the soundness of their bank. But their deposits fund businesses that are inherently very risky, highly leveraged and cyclically subject to much greater losses than anyone imagined possible. The combination of riskless funding with risky businesses is inherently impossible. The attempt is made to achieve the combination through regulation, but this inevitably fails. Governments are therefore periodically put in the position of desperately wanting to transfer losses from the banks to the public, as once again in this cycle. An alternative is to prefund the losses through deposit insurance. But because the losses can get bigger than the fund, it ends up needing a government guarantee, thus bringing the risk back to the public. ...Has government deposit insurance "put a premium on bad banking," as Sen. Bulkley warned it would? Certainly in some cases it did, especially when risky, rapidly expanding real estate-lending banks could fund themselves by rapidly expanding brokered deposits. More generally, did deposit insurance help inflate the real estate bubble, especially in commercial real estate? Without doubt, it did. Leveraged real estate has been the cause of many banking busts. Over the past several years real estate loans of all commercial banks have grown to represent 56% of their total loans. For the 6,500 smaller banks, with assets under $1 billion, this ratio is a whopping 74%. This expansion of real estate risk could not have happened without deposit insurance.

"Adding More Bureaucrats Won't Solve the Problem"

I explain to a CNBC audience that government mistakes largely caused the financial crisis and that more government is not the answer. My debating opponent, Christian Weller, makes a jaw-dropping argument that Fannie Mae and Freddie Mac were not a problem, which is somewhat akin to saying Hitler had nothing to do with World War II.

The So-Called Stimulus Is Creating Jobs - for Bureaucrats and Lobbyists

Every so often, Republicans actually put forth a good argument, and the minority staff of the Ways & Means Committee earned their pay recently. They assembled a chart showing that the White House promised that wasting $800 billion supposedly was going to create nearly 3.5 million jobs, but the result so far is a loss of 2.3 million jobs. But the real clincher is that the jurisdiction that actually is on track to meet its job-creation target is Washington, DC.

A Weak Currency Does Not Lead to a Strong Economy, Part II

Appearing on MSNBC, I engage in some wholesome Fed-bashing.

In my research before appearing on the program, the most shocking factoid I discovered is that the dollar has lost 95 percent of its value since the Fed was created in 1913.

But let's not forget that the Fed's accelerate-too-fast/brake-too-hard approach to monetary policy (with the first part generally being the result of trying to artificially goose the economy to help politicians get reelected) is largely responsible for disasters ranging from the Great Depression to the current financial crisis.

And now the Fed is turning the dollar into the Argentine peso by running the printing presses 24/7. What's not to love?

Ranting and Raving Against Big Government

Here's my speech at the Steamboat Institute conference, where I say that government spending is our top fiscal challenge.



In the Q&A session, I was poetic about everything from the financial crisis to Keynesian economics.

More Government Intervention in Health Care Will Be a Budget Buster

The Senate Finance Committee has proposed $829 billion of new spending over the next ten years, yet this giant expansion in the burden of government somehow is supposed to be good news since the politicians are matching that huge pile of new spending with big tax increases and promised savings from Medicare. In other words, the crowd in Washington wants us to believe they are being frugal because the cumulative tax hikes and Medicare savings, at least on paper, are $81 billion more than the $829 billion of handouts and subsidies in the proposal.

But why are we supposed to think that it is responsible to have more spending and more taxes? Frugality and fiscal responsibility should be defined by limiting the size of government, not by whether the amount of money the politicians take out of our pockets is larger than the amount of money they distribute to their political supporters and campaign contributors. I address the fiscal aspects of the health care debate in this appearance on Fox Business News.

A Weak Currency Does Not Lead to a Strong Economy

Writing in the Wall Street Journal, David Malpass explains why the Fed's weak-dollar policy (supported by both Bush and Obama) is a recipe for economic decline:

Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency terms to win manufacturing jobs back. In practice, however, capital outflows overwhelm the trade flows, causing more job losses than cheap real wages create. This was the lesson of the British malaise, the Carter malaise, the Mexican malaise of the 1990s, Yeltsin's Russian malaise through 1999 and the rest. No countries have devalued their way into prosperity, while many—Hong Kong, China, Australia today—have used stable money to invite capital and jobs. ...If stocks double but the dollar loses half its value, who beyond Wall Street are the winners and losers? There's been a clear demonstration this decade. The S&P nearly doubled from 2003 through 2007. Those who borrowed to buy won big-time. Rich people got richer, seeing their equity bottom line double. At the same time, the dollar's value was cut nearly in half versus the euro and other stable measures. Capital fled, undercutting job growth. Rent, gasoline and food prices rose more than wages. ...The solution is a strong U.S. jobs and wealth program. It has to include stable money, a flatter, more competitive tax structure, spending restraint, and common-sense bank regulation so small business lending can restart. ...Instead, Washington's current economic program pushes capital away by weakening the dollar, threatening higher tax rates, borrowing short (the Fed's near trillion-dollar overnight debt, Treasury's mounds of bill and note issuance) to lend long (mortgages, student loans, entitlements), doubling down on government subsidies, and rechanneling bank loans to governments and big businesses instead of the small business job-growth engine.

A Funny Joke, but Future Retirees Won't Think it's Very Amusing

Young Chuck, moved to Texas and bought a Donkey from a farmer for $100.00. The farmer agreed to deliver the Donkey the next day. The next day he drove up and said, "Sorry son, but I have some bad news, the donkey died."

Chuck replied, "Well, then just give me my money back."

The farmer said, "Can't do that. I spent it already."

Chuck said, "Ok, then, just bring me the dead donkey."

The farmer asked, "What ya gonna do with him?"

Chuck said, "I'm going to raffle him off."

The farmer said, "You can't raffle off a dead donkey!"

Chuck said, "Sure I can Watch me.. I just won't tell anybody he's dead."

A month later, the farmer met up with Chuck and asked, "What happened with that dead donkey?"

Chuck said, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."

The farmer said, "Didn't anyone complain?"

Chuck said, "Just the guy who won. So I gave him his two dollars back."

Chuck now works for the government, in the Social Security Administration.

The VAT Threat Is Real...and Growing

Less than two weeks ago, this blog discussed how one of Obama's main political allies was arguing for a value-added tax Now Nancy Pelosi is adding her shrill voice to the mix. The left's agenda is rather clear. They need this giant new consumption tax if they want to keep making government bigger. This is a serious threat - especially since there are a handful of Republicans who would be tempted to go along with the idea because they foolishly think that a VAT will help exports (I explained why this is preposterous in a Wall Street Journal column, which can be read here). Here's a story from The Hill with some of the details:

A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night. ...The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product. Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes. "They get a tax off of that and they use that money to pay the healthcare for their own workers," Pelosi said, using the example of auto manufacturers. "So their cars coming into our country don't have a healthcare component cost. "Somewhere along the way, a value-added tax plays into this. Of course, we want to take down the healthcare cost, that's one part of it," the Speaker added. "But in the scheme of things, I think it's fair look at a value-added tax as well."

America Ranks as 13th Best Place to Live According to United Nations Report

I've been to Norway, Australia, and Iceland and they are all among my favorite nations, but are they really the three best places to live, as is implied by the latest Human Development Report from the United Nations? Here's a brief blurb from the U.K.'s Daily Mail:

The UN list, which saw Norway retain its status as the world’s most desirable place to live, ranks sub-Saharan African states afflicted by war and Aids as the worst. Data collected prior to the global economic crisis showed people in Norway, Australia and Iceland had the best living standards... The United Nations Development Programme (UNDP) index was compiled using 2007 data on GDP per capita, education, and life expectancy, and showed marked differences between the developed and developing world. ...Liechtenstein has the highest GDP per capita at $85,383 in a tiny principality home to 35,000 people, 15 banks and more than 100 wealth management companies. People were poorest in the Democratic Republic of Congo, where average income per person was $298 per year. Five countries - China, Venezuela, Peru, Colombia and France - climbed three or more places from the previous year, driven by greater earnings and longer life expectancy. China, Colombia and Venezuela also scored better due to improvements in education.

I'm very skeptical of the U.N. report. I strongly suspect migration patterns would show more Norwegians, Australians, and Icelanders emigrating to the United States rather than vice-versa. And the ratio presumably would be even more lopsided if it included unsuccessful residency requests. Isn't that a more accurate measure of the best place to live? In any event, the U.N. report actually does have some interesting pieces of information. It turns out that two tax havens, Liechtenstein and Luxembourg, are the two richest nations. This suggests these places are doing something right, but in the upside-down world of international economic policy, low-tax jurisdictions are being pressured by high-tax nations to adopt bad policy (see here for more information).

Brains and Common Sense Are Not the Same Thing

Thomas Sowell makes a very good point about the ostensibly brilliant advisers working for President Obama. If these smart people think that a high IQ somehow entitles them to "plan" the economy, then history shows the results will not be pretty. This is the difference between intellect and wisdom. Unfortunately, Obama's people have very little of the latter. The late Nobel Laureate, Friedrich Hayek, referred to this trait among certain intellectuals as the "fatal conceit" and it is an especially common affliction in Washington as Sowell opines:

Many people, including some conservatives, have been very impressed with how brainy the president and his advisers are. But that is not quite as reassuring as it might seem. It was, after all, Franklin D. Roosevelt's brilliant "brains trust" advisers whose policies are now increasingly recognized as having prolonged the Great Depression of the 1930s, while claiming credit for ending it. ...Brainy folks were also present in Lyndon Johnson's administration, especially in the Pentagon, where Secretary of Defense Robert McNamara's brilliant "whiz kids" tried to micro-manage the Vietnam war, with disastrous results. There is usually only a limited amount of damage that can be done by dull or stupid people. For creating a truly monumental disaster, you need people with high IQs. Such people have been told all their lives how brilliant they are, until finally they feel forced to admit it, with all due modesty. But they not only tend to over-estimate their own brilliance, more fundamentally they tend to over-estimate how important brilliance itself is when dealing with real world problems. ...Argentina began that century as one of the 10 richest nations in the world-- ahead of France and Germany-- and ended it as such an economic disaster that no one would even compare it to France or Germany. Politically brilliant and charismatic leaders, promoting reckless government spending-- of whom Juan Peron was the most prominent, but by no means alone-- managed to create an economic disaster in a country with an abundance of natural resources and a country that was spared the stresses that wars inflicted on other nations in the 20th century.

Bad News from Ireland

There's no sugar-coating the election results. Irish voters, hit hard by the global recession and plunging property values, inexplicably decided that these factors somehow justified voting for the Lisbon Treaty (a.k.a., the EU Constitution) and giving more power to the statist bureaucracy in Brussels. The Wall Street Journal Europe is appropriately skeptical about whether this was the right decision:

The people of Ireland approved the treaty 67.1% to 32.9%, with a 59% turnout—higher participation and wider margins than the "No" camp had been able to muster when the Irish rejected the same charter last year. ...Brussels now tells us the vote was a resounding Yes for further centralization of power in the EU's 27 member states, and represented satisfaction that Ireland had secured guarantees for its neutrality and abortion laws. A more convincing explanation is the global recession, which has hit the Celtic Tiger particularly hard. Irish unemployment now runs to 12.6%. Standard & Poor's has yanked the country's triple-A credit rating, which in turn has ratcheted up borrowing costs. All this made voters more susceptible to the argument that another "No" could have jeopardized Ireland's membership in the euro club and its access to the EU's single market—a baseless scenario that nonetheless was bound to have an effect on an electorate with pocketbook worries. ...one wonders how much economic authority the Irish are really prepared to hand over to Brussels, especially if that means giving it an effective veto (in the name of eradicating "unfair tax competition") over Dublin's pro-growth tax policies. It was those policies—and not membership in the EU, which dates to the early 1970s—that were chiefly responsible for transforming Ireland from one of the poorest countries in Europe in the early 1990s to one of the richest. All the more remarkable is that Ireland did this in the teeth of resistance from the same Brussels bureaucracy in which it now puts its trust.

This means President Klaus of the Czech Republic is the only meaningful barrier standing in the way of further centralization of the European Union. This is the man who has resisted the fanatics on global warming hysteria, so he has backbone. On behalf of the 26 nations that were denied a vote, let's hope he holds firm.

France Wants to Move the Goal Posts to Hide Dismal Economic Performance

A column in the Wall Street Journal mocks President Sarkozy for suggesting that gross domestic product, which is how economic growth is measured, be changed to include subjective variables such as happiness. This is a transparent attempt to paper over France's sluggish economic performance. Happiness is important, of course, but it comes about by allowing people to make voluntary choices in a free society, not by creating involuntary leisure with stifling tax rates and welfare dependency:

French President Nicolas Sarkozy recently said he wanted the nations of the world to stop using GDP, or gross domestic product, as the main measure of their economic performance. He wants them instead to work up another metric that takes into account not only economic production but such things as environmental quality and even time not spent in traffic—a sort of gross national satisfaction index. France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth. In the quarter century following 1982, France's GDP growth rate was a mere 2.1% per year in comparison to the U.S.'s 3.3%. Thus the U.S. grew at more than a 50% premium to France per year during that span. When the quarter century elapsed, Americans were one-third richer than the French. ...countries of "old Europe" such as France and Italy that were content to stand pat with an overregulated private sector and tax rates well above 50% were left in the dust. In 2003, as the Iraq war got going, France complained that the U.S. was the world's "hyperpower." Yet France itself was partly responsible for this fate. ...If Mr. Sarkozy's statisticians ever come up with their new economic index, they should be sure it includes leisure time—because that is one thing the French economy excels at producing. In 2004, the year he won the Nobel Prize, economist Edward Prescott asked, in the title of a journal article, "Why Do Americans Work So Much More Than Europeans?" The answer, he found, was tax rates. Tax rates had fallen so much in the U.S. by that year that the American workforce couldn't wait to get on the job—or start a business—because you got to keep so much of what you earned. In contrast, high and progressive French taxes left over from the 1970s lured people away from work, especially as they started doing well. So people came to take seven-hour days and six-week vacations, as well as not show any particular interest in striking out on their own in a work-intensive small business. The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the U.S., Britain and East Asia. Mr. Sarkozy's gambit to paper over this real difference will be lucky to find any takers.

A Good and Bad Sports Weekend

I'm in mourning because my Bulldogs lost a heartbreaker to LSU (aided by a terrible call, but also because the team is unable to return kickoffs or defend kickoffs).

In more positive news, I played in the Winter Nationals softball tourney in Virginia Beach and was named to the All-Tournament Team after going 6-9 with two home runs and two doubles.

All things considered, though, I would have prefered the Bulldogs winning and me striking out every at-bat.

Revenge of the Laffer Curve, Part II

It seems New York politicians are running into a problem with the Laffer Curve. According to an AP report, the state's 100 richest taxpayers have paid $1 billion less than expected following a big tax hike. The story notes that several rich people have left the state, and all three examples are about people who have redomiciled in Florida, which has no state income tax:

Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth. ...Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20 percent less than anticipated. The concern about millionaire flight has prompted some states, including New York, New Jersey and California, to increase the highest tax rates only temporarily. ..."People aren't wedded to a geographic place as they once were. It's a different world," said New York Lt. Gov. Richard Ravitch. He said last year's surcharge on income taxes, set to last three years, won't likely meet expectations. So far this year, half of about $1 billion in expected revenue from New York's 100 richest taxpayers is missing. ...State officials say they don't know how much of the missing revenue is because any wealthy New Yorkers simply left. But at least two high-profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes, and radio talk-show host Rush Limbaugh. Golisano changed his official address to Florida, and Limbaugh, who also has a Florida home, announced earlier this year that he was relinquishing his home in Manhattan. Donald Trump told Fox News earlier this year that several of his millionaire friends were talking about leaving the state over the latest taxes. ...And it's not just the well-known leaving. Nancy Bell is moving her Science First manufacturer of scientific products from the Buffalo site her father founded in 1960 to Florida... "It was the higher tax brackets, the so-called millionaire's tax" that forced the move, she said. "We feel we have to look to the future ... I'm leaving wonderful, wonderful friends. It's not our first choice. It's our 100th." Maryland enacted higher tax rates for wealthier residents in 2008 to boost revenues but income from those taxes is down 6.7 percent so far this year.

For more background information on why higher taxes on the rich do not necessarily raise revenue, see this three-part Laffer Curve video series:

Real Story on Minimum Wage Is that Unions Are Intentionally Harming Teenagers

The Wall Street Journal rightfully complains about government-imposed minimum wage laws, which are causing higher levels of teenage unemployment. But an underappreciated aspect of this story is the role of union bosses. The unions are big advocates of higher minimum wages, ostensibly because they want to help the working poor, but the real reason is that unions want to somehow acheive above-market wages for their members, and it is difficult to achieve that goal if employers have other options. But if unions can increase the cost of hiriing other workers - or if they can price them out of the market with minimum-wage laws, then that helps the union bosses negotiate favorable deals. Regardless, the real victims are the hundreds of thousands of teenagers who are now jobless:

Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage. Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers. The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July. The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. ...The current Congress has spent billions of dollars—including $1.5 billion in the stimulus bill—on summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create. Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. ...State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008.

An Astounding 52 Percent of French Citizens Interested in Fleeing to Capitalist America

The French love to complain about the unfettered capitalism (if only that was true) and social Darwinism of America's "Anglo-Saxon" system. Yet a Reader's Digest poll found that more than one-half of the French people would be interested in moving to America if they had the opportunity.

Time to Kill the Death Tax

I like USA Today for the sports section, but today's editorial page has a piece by yours truly arguing (contrary to the statist position of USA Today) that the death tax shold be completely reprealed. While this tax is grossly immoral, my main points were about 1) the damage to economic growth because of reduced saving and investment, and 2) the loss of national competitiveness since other nation's are getting rid of this absurd levy:

The politicians in Washington impose double taxation on interest, dividends and capital gains, but the "death tax" wins the prize for being the most self-destructive part of the internal revenue code. Adding an extra layer of tax when someone dies is an unsavory combination of bad economics and immoral grave robbing. ...Economists warn that the death tax reduces the capital stock. That sounds like jargon, but it means all of us have lower living standards because of less investment, fewer machines, less technology and diminished innovation. Ironically, other nations have figured out that the death tax does a lot of damage in a competitive global economy. Many people will not be surprised to know that a free-market paradise such as Hong Kong has eliminated its death tax, but it is certainly newsworthy that European welfare states such as Austria and Sweden also have repealed this unfair tax. Australia, Russia and New Zealand are among the other nations that have figured out how senseless it is to penalize wealth creation.

But I also noted that we are going to conduct an interesting social-science experiment in 2010. How many investors, entrepreneurs, and business owners are willing to hasten their own death to protect their assets from the IRS grave robbers?

There may be a bit of good news on the horizon. Assuming Congress does not change the law, the death tax disappears in 2010. But since the death tax comes roaring back to life in 2011 (with an even higher tax rate of 55%), this creates a bit of a quandary. I'm sure the successful people affected by the death tax love their children, but how many of them are willing to jump off a bridge before the end of next year to keep the IRS from seizing the lion's share of their wealth?