International Liberty

David Cameron's Foolish (or Cynical) Naivete about the Laffer Curve

2010-10-08T21:04:00.000-07:00

Even though he's allowing the budget to grow twice as fast as inflation, some people seem to think the new U.K. Prime Minster is a fiscal conservative. I'm skeptical. Not only is spending rising much too fast (there are promises of more restraint in the future, but I'll believe it when it happens), but Cameron and the Tory/Liberal coalition government are increasing the value-added tax and increasing the capital gains tax. Perhaps worst of all, they are leaving in place the new 50 percent tax rate that former Labor Prime Minister Gordon Brown imposed in hopes that class-warfare policy would help him get elected. But as this Daily Telegraph story suggests, it is quite likely that the higher tax rate will lose revenue as productive people escape to Switzerland and other jurisdictions not influenced by the politics of hate and envy.

One-in-four hedge fund employees has already left London to move to Switzerland, which is said to have a more stable tax regime, according to consultancy Kinetic partners. Calculations by the company claim the UK could have already forgone about £500m in tax revenues, based on the 1,000 or so hedge fund managers it says have already left the country. ...High-profile departures this year include Alan Howard, founder of Brevan Howard, and Mike Platt, founder of BlueCrest Capital.

This story shows both the power of the Laffer Curve and the importance of tax competition. The greedy politicians in England doubtlessly resent the "brain drain" to Switzerland. Like their U.S. counterparts, politicians view taxpayers as serfs who are supposed to blindly produce more income for the ruling class to expropriate and redistribute.

While I'm obviously not a big fan of British fiscal policy, America is worse in one important way. At least British taxpayers have the liberty to leave without being raped by the U.K. tax authority. Once they leave the United Kingdom and make their home in Switzerland, they are no longer British taxpayers. Americans who want to move, by contrast, are unable to escape the punitive internal revenue code. Indeed, the United States is one of the few nations in the world to have exit taxes, an odious approach generally associated with loathsome regimes such as the Soviet Union and Nazi Germany.

First Class Bureaucrats, Coach Class Taxpayers

2010-10-08T20:42:00.000-07:00

Here's a story I got from the Advice Goddess twitter feed. It seems airlines are upset that federal air marshals almost always grab first class seats. This isn't good for airlines, since it uses up seats that they need for paying customers. It's not good for security since the main threat in on-board explosives carried by terrorists who want to sit over the wings. And it's not good for Dan Mitchell since it means he's less likely to get upgraded when the good seats are occupied by bureaucrats. Since I'm waiting for a flight to Australia, you can guess which upsets me the most. Here's a blurb from the Wall Street Journal story.

To protect the nation's air travelers, federal air marshals deployed after the 2001 terrorist attacks try to travel incognito, often in pairs, and choose flights identified with the potential to fall under threat. And they almost always fly first class—something some airlines would like to change. With cockpit doors fortified and a history of attackers choosing coach seats, some airline executives and security experts question whether the first-class practice is really necessary—or even a good idea. It could weaken security by isolating marshals or making them easier for terrorists to identify, airline executives say. With more threats in the coach cabin now, first-class clustering may not make as much security sense. Security experts say bombers are a bigger threat today than knife-wielding attackers trying to get through secure cockpit doors, and Transportation Security Administration checkpoints are heavily focused on explosives, whether hidden in shoes, liquids or under clothes. Some believe bombers try to target areas over the wing—a structurally critical location and also the site of fuel storage—to cause the most damage to the aircraft. ...By law, airlines must provide seats to marshals at no cost in any cabin requested. With first-class and business-class seats in particular, the revenue loss to airlines can be substantial because they can't sell last-minute tickets or upgrades, and travelers sometimes get bumped to the back or lose out on upgrade opportunities. When travelers do get bumped, airlines are barred from divulging why the first-class seat was unexpectedly taken away.

Political Humor

2010-10-07T14:17:00.000-07:00

I received this joke today. It's definitely worth passing on. I don't want to spoil the punch line, so I'll just say it would be more amusing if there actually was a choice two yeas ago.

Guy goes into a bar, there's a robot bartender.

The robot says, "What will you have?"

The guy says, "Martini."

The robot brings back the best martini ever and says to the man, "What's your IQ.

The guy says, "168."

The robot then proceeds to talk about physics, space exploration and medical technology.

The guy leaves, but he is curious... So he goes back into the bar.

The robot bartender says, "What will you have?"

The guy says, "Martini."

Again, the robot makes a great martini gives it to the man and says, "What's your IQ?"

The guy says, "100."

The robot then starts to talk about Nascar, Budweiser and John Deere tractors.

The guy leaves, but finds it very interesting, so he thinks he will try it one more time.

He goes back into the bar.

The robot says, "What will you have?"

The guy says, "Martini," and the robot brings him another great martini.

The robot then says, "What's your IQ?"

The guy says, "Uh, about 50."

The robot leans in real close and says, "So, are you still happy you voted for Obama?"

Should Food Stamps Be Restricted to "Healthy Foods"?

2010-10-07T12:01:00.000-07:00

As indicated by my post on how to handle prisoners with AIDS, I periodically run into issues where I'm not sure about the right answer. Here's another case. Politicians in New York have a proposal to prohibit people from using food stamps to buy sugary drinks. Part of me is irritated by paternalistic, nanny-state busybodies who want to tell other people how to live. On the other hand, maybe this proposal will make people less willing to mooch off taxpayers by accepting food stamps (though I suspect they'll just bring two carts to the checkout line, one with things that can be purchased with food stamps, and the other filled with sodas, booze, and other items that would require cash). The ideal answer, of course, is to get rid of the federal food stamp program and let states and communities experiment with the best way of handling these issues. Here's an excerpt from the AP report.

New Yorkers on food stamps would not be allowed to spend them on sugar-sweetened drinks under an obesity-fighting proposal being floated by Mayor Michael Bloomberg and Gov. David Paterson. ...If approved, it would be the first time an item would be banned from the federal program based solely on nutritional value. The idea has been suggested previously, including in 2008 in Maine, where it drew criticism from advocates for the poor who argued it unfairly singled out low-income people and risked scaring off potential needy recipients. And in 2004 the USDA rejected Minnesota's plan to ban junk food, including soda and candy, from food stamp purchases, saying it would violate the Food Stamp Act's definition of what is food and could create "confusion and embarrassment" at the register. The food stamp system...does not currently restrict any other foods based on nutrition. Recipients can essentially buy any food for the household, although there are some limits on hot or prepared foods. Food stamps also cannot be used to buy alcohol, cigarettes or items such as pet food, vitamins or household goods. ...There still are many unhealthful products New Yorkers could purchase with food stamps, including potato chips, ice cream and candy.

Where are the '60s Hippies Now that They're Needed to Fight Keynesianism?

2010-10-06T09:09:00.000-07:00

Keynesian economic theory is the social-science version of a perpetual motion machine. It assumes that you can increase your prosperity by taking money out of your left pocket and putting it in your right pocket. Not surprisingly, nations that adopt this approach do not succeed. Deficit spending did not work for Hoover and Roosevelt is the 1930s. It did not work for Japan in the 1990s. And it hasn't worked for Bush or Obama.

The Keynesians invariably respond by arguing that these failures simply show that politicians didn't spend enough money. I don't know whether to be amused or horrified, but some Keynesians even say that a war would be the best way of boosting economic growth. Here's a blurb from a story in National Journal.

America's economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today. Nobelist Paul Krugman, a New York Times columnist, and Harvard's Martin Feldstein, the former chairman of President Reagan's Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. ...Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact "exogenous" shock like a major war -- something similar to what Krugman called the "coordinated fiscal expansion known as World War II" -- would be enough to break the cycle. ...Both reiterated their previously argued views that the Obama administration's stimulus was far too small to fill the output gap.

Two additional comments. First, if Martin Feldstein's views on this issue represent what it means to be a conservative, then I'm especially glad I'm a libertarian. Second, Alan Reynolds has a good piece eviscerating Keynesianism, including a section dealing with Krugman's World-War-II-was-good-for-the-economy assertion.

Retirees Are the Third Victims of Obamacare

2010-10-06T07:13:00.000-07:00

We've already identified kids and low-income workers as groups that are being hurt by the new scheme for government-run healthcare. Now we can add retirees to the list. Gee, I wonder what happened to that promise about being able to keep your existing health plan? Here's an excerpt from a story in the Wall Street Journal.

3M Co. confirmed it would eventually stop offering its health-insurance plan to retirees, citing the federal health overhaul as a factor. The changes won't start to phase in until 2013. But they show how companies are beginning to respond to the new law... 3M illustrates that others may not opt to retain such plans over the next few years... The company didn't specify how many workers would be impacted. It currently has 23,000 U.S. retirees. ...Sen. Charles Grassley, an Iowa Republican, said that "for all the employees who were promised they'd be able to keep their current benefits after the health-care law passed, I'm worried that the recent changes we've heard about...are just the beginning."

Taxpayers vs Bureaucrats, Part XLI

2010-10-05T11:30:00.000-07:00

I've avoided this topic in recent weeks because it's too depressing, but this story is too outrageous to ignore. The County of Los Angeles has 199 bureaucrats who "earned" more than $250,000 last year. According to Census Bureau data for 2008, the median household income in the county was 55,000, Here's a blurb from the L.A.Times about incomes of the bureaucratic gilded class.

Nearly 200 Los Angeles County employees earned more than a quarter of a million dollars in 2009, according to a list of the county's top earners released late Monday in response to a Public Records Act request from The Times. The highest earners list was dominated by physicians and other medical personnel, but also included county firefighters and a handful of top sheriff's employees. Some of the best-known names on the list belong to elected officials — although none of the five county supervisors, who make $178,789 a year, qualified. ...The Times requested the base salary, overtime and "other earnings" for county employees whose total annual pay exceeded $250,000. "Other earnings" can include bonuses for special skills or responsibilities or unused benefits cashed out as taxable income, among other things. ...Overtime played a big role, with only 65 people making the list on base salary alone. Thirty workers made more than $80,000 in overtime. Twenty-two of them work for the county Fire Department, four work for public hospitals, two were psychiatrists for the Mental Health Department, and two were physician specialists for the Sheriff's Department.

Obama's Policy Failure, Part I

2010-10-04T13:00:00.000-07:00

Former Senator Phil Gramm had a column last week in the Wall Street Journal that deserves two blog posts. This first post highlights Gramm's analysis showing that the U.S. has been very Keynesian compared to Europe, with numerous efforts to jump start the economy with deficit spending. But Senator Gramm hits the nail on the head, comparing America's tepid recovery with the better performance across the Atlantic.

During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007. The economy is growing at only about a third of the rate of previous postwar recoveries from major recessions. Obama administration officials such as Treasury Secretary Tim Geithner have argued that without their policies the economy would be worse, and we might have fallen "off a cliff." While this assertion cannot be tested, we can compare the recent experience of other countries to our own. ...There are 4.6% fewer people employed in the U.S. today than at the start of the recession. Euro zone countries have lost 1.7% of their jobs. ...This simple comparison suggests...that American economic policy has been less effective in increasing employment than the policies of other developed nations. ...While the most recent quarterly growth figures are just a snapshot in time, it is hardly encouraging that economic growth in the U.S. (1.7%) is lower than in the euro zone (4%), U.K. (4.8%), G-7 (2.8%) and OECD (2%).

Here's How to Balance the Budget

2010-10-04T09:55:00.000-07:00

Our fiscal policy goal should be smaller government, but here's a video for folks who think that balancing the budget should be the main objective.

The main message is that restraining the growth of government is the right way to get rid of red ink, so there is no conflict between advocates of limited government and supporters of fiscal balance.

More specifically, the video shows that it is possible to quickly balance the budget while also making all the 2001 and 2003 tax cuts permanent and protecting taxpayers from the alternative minimum tax. All these good things can happen if politicians simply limit annual spending growth to 2 percent each year. And they'll happen even faster if spending grows at an even slower rate.

This debunks the statist argument that there is no choice but to raise taxes.

There Is No Libertarian or Conservative Argument for Higher Taxes

2010-10-02T11:39:00.000-07:00

Eli Lehrer has an article on the FrumForum entitled "Five Revenue Raisers the GOP Should Back." He argues it would be good to get rid of preferences such as the state and local tax deduction and the mortgage interest deduction, and he also asserts that there should be "user fees" for things such as transportation.

As an avid supporter of a flat tax and market pricing, I have no objection to these policies. Indeed, I would love to get rid of the state and local tax deduction so that taxpayers in Texas and Florida no longer have to subsidize the fiscal profligacy of politicians in California and New York.

But there is a giant difference between getting rid of certain tax preferences as part of revenue-neutral (or even better, tax-cutting) tax reform and getting rid of tax preferences in order to give politicians more revenue to spend.

The former is a noble goal. Who can argue, after all, with the idea of getting rid of the corrupt and punitive internal revenue code and replacing it with a simple and fair flat tax? Lots of loopholes are eliminated, so there are plenty of tax-raising provisions in tax reform. But every one of those provisions is offset by provisions that lower tax rates and get rid of double taxation of saving and investment.

The latter, by contrast, is an exercise in trying to lose with minimal damage - sort of the "French Army Theory" of taxation, surrender gracefully and hope that your new masters give you a few crumbs after their celebratory feast.

What is especially strange about this approach is that the Republicans who advocate higher taxes claim that they are political realists. Yet if we look at real-world evidence, the moment Republicans show their "realism" by putting taxes on the table, the entire debate shifts.

Instead of the debate being tax-hikes vs. no-tax-hikes, it becomes a debate over who-should-pay-more-tax. Republicans win the first debate. They get slaughtered in the second debate.

Remember when the first President Bush agreed to enter into tax-hike negotiations in 1990? He set out two conditions - that there should be a reduction in the capital gains tax and that there should be no increase in income tax rates. So what happened? As everyone with an IQ above room temperature predicted, the capital gains tax stayed the same and income tax rates increased.

Last but not least, this conversation only exists because some people have thrown in the towel, acquiescing to the idea that there is no way to balance the budget without higher taxes. Yet the Congressional Budget Office data shows that the budget can be balanced by 2020 simply by limiting annual spending growth to 2 percent.

Low-Income Workers Are the Second Victims of Obamacare

2010-10-02T07:34:00.000-07:00

This blog already has noted that Obamacare has crippled the market for "kids only" health insurance policies. Unsurprisingly, that is just the beginning of the bad news. The latest development is that health policies designed to provide insurance to low-income workers may no longer be economically feasible. The Wall Street Journal comments.

Among President Obama's core health-care promises was that Americans can keep their current coverage if they like it. Among the reasons that a new ObamaCare squall blows in every other day is that this claim simply is not true, as people are discovering. The latest fracas was incited by Janet Adamy's scoop in the Journal this week that McDonald's Corp. may be forced to cancel its current coverage for 29,500 employees as a result of ObamaCare. McDonald's told Health and Human Services regulators that new mandates will make its plans "economically prohibitive" and cause "a huge disruption" unless it gets a waiver. ...The entire philosophical and policy architecture of ObamaCare is explicitly designed to standardize health benefits and how those benefits should be paid for. Those choices and tradeoffs will be made for everyone by Ms. Sebelius's regulators. ...Around 2.5 million consumers are covered by "mini-med" policies, most of them concentrated in low-wage industries like fast food, hospitality and retail that have large numbers of part-time or temporary workers. In the case of the restaurants, 75% of the workforce turns over every year and nearly half are under age 25. Mini-med plans are a temporary stopgap for businesses that have low margins and face high labor and health costs. But Democrats hate mini-med and other skinny-benefit plans, calling them "underinsurance." ObamaCare is meant to run them out of the market by mandating benefits, eliminating coverage caps and certain technical rules about how premiums must be spent. ...In other words, the choice is between relatively affordable coverage that isn't as generous as Democrats think it should be and dumping coverage entirely. McDonald's may eventually offer the high-cost plans that Ms. Sebelius favors, or get its waiver, but many of its less profitable or smaller competitors won't. While subsidized ObamaCare options will be available in 2014, those costs will merely be transferred to taxpayers.

Talking Taxes on Freedom Watch with Judge Napolitano

2010-09-29T11:45:00.000-07:00

I'm not a big fan of multi-guest panels, but I think this interview went well.

Halfway Around the World, Fighting for Freedom, Low Taxes, and Sovereignty

2010-09-29T05:19:00.000-07:00

I'm in Singapore for two days to help fight the Organization for Economic Cooperation and Development, a statist international bureaucracy based in Paris. The OECD has something called a global tax forum, the purpose of which is to harass so-called tax haven in hopes of coercing them into acting as tax collectors for Europe's decrepit welfare states. Here's the executive summary from the memo I wrote, which warns low-tax jurisdictions that the OECD may push even harder to undermine fiscal sovereignty because of fears that a GOP takeover of Congress will make it more difficult to push for tax harmonization policies in the future.

The Paris-based Organization for Economic Cooperation and Development has an ongoing project to prop up Europe’s inefficient welfare states by attacking tax competition in hopes of enabling governments to impose heavier tax burdens. This project received a boost when the Obama Administration joined forces with countries such as France and Germany, but the tide is now turning against high-tax nations – particularly as more people understand that such an approach inevitably leads to Greek-style fiscal collapse. Looming political changes in the United States will further complicate the OECD's ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially wary of schemes to rush through new anti-tax competition initiatives at the Singapore Global Forum.

The good news is that nothing dramatic took place on the first day of the two-day conference. the OECD continued to bully low-tax jurisdictions to sign information-sharing agreements and the low-tax jurisdictions kept asking for double-taxation agreements so they could get some benefit in exchange for weakening their human rights/financial privacy laws. The OECD and high-tax nations have been ignoring these requests for a two-way street, thus continuing their bad-faith behavior.

For more information on this issue, here's a link to my video on tax competition, and here are a handful of TV appearances where I discuss the issue. This is a challenging issue to debate, so I'd welcome feedback on which arguments you think are most effective.

Obama Tax Plan: Putting Demagoguery Before Jobs

2010-09-28T12:28:00.000-07:00

I've already commented on the Democrats deciding to wait until after the election before figuring out what to do about the 2001 and 2003 tax cuts. This was a remarkable development since failure to extend these pieces of legislation means a big tax increase next January. But this doesn't mean the Democrats are sitting on their hands. The President has a proposal to significantly increase the tax burden on American companies that compete in world markets, and Democrats on Capitol Hill think this is a winning political issue. They think higher taxes will encourage companies to keep more jobs in America, and they hope voters agree. But as the Wall Street Journal opines, this is a recipe for undermining the competitiveness f American companies. This means fewer jobs, and probably less tax revenue.

...the President's plan reveals how out of touch Democrats are with the real world of tax competition. The U.S. already has one of the most punitive corporate tax regimes in the world and this tax increase would make that competitive disadvantage much worse, accelerating the very outsourcing of jobs that Mr. Obama says he wants to reverse. At issue is how the government taxes American firms that make money overseas. Under current tax law, American companies pay the corporate tax rate in the host country where the subsidiary is located and then pay the difference between the U.S. rate (35%) and the foreign rate when they bring profits back to the U.S. This is called deferral—i.e., the U.S. tax is deferred until the money comes back to these shores. Most countries do not tax the overseas profits of their domestic companies. Mr. Obama's plan would apply the U.S. corporate tax on overseas profits as soon as they are earned. This is intended to discourage firms from moving operations out of the U.S. ...Mr. Obama believes that by increasing the U.S. tax on overseas profits, some companies may be less likely to invest abroad in the first place. In some cases that will be true. But the more frequent result will be that U.S. companies lose business to foreign rivals, U.S. firms are bought by tax-advantaged foreign companies, and some U.S. multinational firms move their headquarters overseas. They can move to Ireland (where the corporate tax rate is 12.5%) or Germany or Taiwan, or dozens of countries with less hostile tax climates. We know this will happen because we've seen it before. The 1986 tax reform abolished deferral of foreign shipping income earned by U.S. controlled firms. No other country taxed foreign shipping income. Did this lead to more business for U.S. shippers? Precisely the opposite. According to a 2007 study in Tax Notes by former Joint Committee on Taxation director Ken Kies, "Over the 1985-2004 period, the U.S.-flag fleet declined from 737 to 412 vessels, causing U.S.-flag shipping capacity, measured in deadweight tonnage, to drop by more than 50%." ...Now the White House wants to repeat this experience with all U.S. companies. Two industries that would be most harmed would be financial services and technology, and their emphasis on human capital makes them especially able to pack up and move their operations abroad. CEO Steve Ballmer has warned that if the President's plan is enacted, Microsoft would move facilities and jobs out of the U.S.

I've commented on this issue before, but I think the best explanation is in this video, which makes the key observation that American tax law may be able to discourage U.S. firms from building factories in other nations, but that simply means that companies from other countries will be able to take advantage of those opportunities.

A lot of Democrats, at least in private, admit that going after "deferral" is bad policy. But this makes the current proposal especially disgusting. People in the White House and on Capitol Hill know it will hurt jobs and reduce competitiveness, but they don't care. Or at least they put political ambition before doing what's right for the American people.

If they really cared, the would fix what's wrong with the current system. A very effective way to encourage more jobs and investment in America is to lower the corporate tax rate, which is the point I made in the Center for Freedom and Prosperity's first video.

Are the Germans and French Really More Hostile to Big Government than Americans?!?

2010-09-28T09:51:00.000-07:00

I always view polling data with a bit of skepticism, but I'm nonetheless embarrassed by new data from a 22-nation poll showing that German and French respondents are even more opposed to so-called stimulus spending than American respondents. If Americans are to the left of Europeans on size-of-government issues, that does not bode well for our future. On the other had, at least we're not as naive and/or stupid as Egyptians, Mexicans, Russians, Indonesians, and Nigerians. Here's a blurb from the summary.

In 14 of 22 countries most people--on average 56 per cent--favour an increase in government spending to stimulate the economy. This includes large majorities of Egyptians (91%), Mexicans (80%), Russians and Indonesians (both 78%), and Nigerians (73%). But majorities are opposed in a number of industrialised countries that had large stimulus programmes--Germany (66%), France (63%) and the US (58%).

The good news from the poll is that a majority of people around the world recognize that governments waste money at alarming rates. Americans think that 55 percent of their taxes are squandered. The Spanish, for inexplicable reasons, are most likely to think money is not wasted (perhaps because most of them have their snouts in the pubic trough?).

People believe that their government misspends more than half the money they pay in tax, according to the findings of a new BBC World Service global poll across 22 countries--but many are still looking to government to play a more active economic role. The poll of more than 22,000 people, conducted by GlobeScan/PIPA, found that people estimated on average that 52 per cent of the money they pay in tax is not used in ways that serve the interests and values of the people of their country. ...The countries with the lowest average estimate of misspent tax money were Spain (average 34% misspent), Indonesia (40%), Azerbaijan and Egypt (both 42%). The highest were in Columbia (74% misspent) and Pakistan (69%). In the world's two largest economies, Americans estimate on average that 55 per cent of their taxes are misspent, while in China the figure is 46 per cent. ...As well as being less likely to support action to address the deficit, those who have the highest estimates of tax misspending are less likely to support government stimulus spending--among those who think that more than three-quarters of their tax money is misspent, only 47 per cent believe the government should spend to stimulate the economy.

The full report can be read here.

Some Monday Humor

2010-09-27T12:19:00.000-07:00

I don't know if this is true, but it's been circulating for so long that there's probably some fire under all the smoke. Does anybody know if this is for real, or an urban legend?

Why Are We Paying $100 Million to International Bureaucrats in Paris so They Can Endorse Obama's Statist Agenda?

2010-09-26T22:54:00.000-07:00

There's a wise old saying about "don't bite the hand that feeds you." But perhaps we need a new saying along the lines of "don't subsidize the foot that kicks you." Here's a good example: American taxpayers finance the biggest share of the budget for the Organization for Economic Cooperation and Development, which is an international bureaucracy based in Paris. The OECD is not as costly as the United Nations, but it still soaks up about $100 million of American tax dollars each year. And what do we get in exchange for all this money? Sadly, the answer is lots of bad policy. The bureaucrats (who, by the way, get tax-free salaries) just released their "Economic Survey of the United States, 2010" and it contains a wide range of statist analysis and big-government recommendations.

The Survey endorses Obama's failed Keynesian spending bill and the Fed's easy-money policy, stating, "The substantial fiscal and monetary stimulus successfully turned the economy around." If 9.6 percent unemployment and economic stagnation is the OECD's idea of success, I'd hate to see what they consider a failure. Then again, the OECD is based in Paris, so even America's anemic economy may seem vibrant from that perspective.

The Survey also targets some very prominent tax loopholes, asserting that, "The mortgage interest deduction should be reduced or eliminated" and "the government should reduce further this [health care exclusion] tax expenditure." If the entire tax code was being ripped up and replaced with a simple and fair flat tax, these would be good policies. Unfortunately (but predictably), the OECD supports these policies as a means of increasing the overall tax burden and giving politicians more money to spend.

Speaking of tax increases, the OECD is in love with higher taxes. The Paris-based bureaucrats endorse Obama's soak-the-rich tax agenda, including higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and a reinstated death tax. Perhaps because they don't pay tax and are clueless about how the real world operates, the bureaucrats state that "...the Administration’s fiscal plan is ambitious...and should therefore be implemented in full."

But even that's not enough. The OECD then puts together a menu of additional taxes and even gives political advice on how to get away with foisting these harsh burdens on innocent American taxpayers. According to the Survey, "A variety of options is available to raise tax revenue, some of which are discussed below. Combined, they have the potential to raise considerably more revenue... The advantage of relying on a package of measures is that the increase in taxation faced by individual groups is more limited than otherwise, reducing incentives to mobilise to oppose the tax increase.

The biggest kick in the teeth, though, is the OECD's support for a value-added tax. The bureaucrats wrote that, "Raising consumption taxes, notably by introducing a federal value-added tax (VAT), could therefore be another approach... A national VAT would be easier to enforce than other taxes, as each firm in the production chain pays only a fraction of the tax and must report the sales of other firms."

But just in case you think the OECD is myopically focused on tax increases, you'll be happy to know it is a full-service generator of bad ideas. The Paris-based bureaucracy also is a rabid supporter of the global-warming/climate-change/whatever-they're-calling-it-now agenda. There's an entire chapter in the survey on the issue, but the key passages is, "The current Administration is endeavouring to establish a comprehensive climate-change policy, the main planks of which are pricing GHG emissions and supporting the development of innovative technologies to reduce GHG emissions. As discussed above and emphasized in the OECD (2009), this is the right approach... Congress should pass comprehensive climate-change legislation."

You won't be surprised to learn that the OECD's reflexive support for higher taxes appears even in this section. The bureaucrats urge that "such regulation should be complemented by increases in gasoline and other fossil-fuel taxes."

If you're still not convinced the OECD is a giant waste of money for American taxpayers, I suggest you watch this video released by the Center for Freedom and Prosperity about two months ago. It's a damning indictment of the OECD's statist agenda (and this was before the bureaucrats released the horrid new "Economic Survey of the United States").

Kids Are the First Victims of Obamacare

2010-09-26T14:56:00.000-07:00

In the real world, rational people know that companies will stop selling products if they are forced to lose money. In the political world, though, common sense doesn't matter. Or at least it ranks far below other considerations, such as power, polling, fundraising, and spite. If you think I'm being too harsh, just look at what's happened since Obamacare. As the Wall Street Journal notes, the "child-only" insurance market has been decimated by a new law that allows parents to wait until children get sick before buying insurance. Needless to say, that is an open invitation to lose money, and no business (other than crony capitalism entities such as Fannie Mae and Freddie Mac) exists to throw away shareholder funds. Obama, Pelosi, and Reid probably think this is a good development, however, since they can demagogue against "greedy" insurance companies and claim that government should fully take over the health care system.

This week, almost every big insurance company in America—including Aetna, Cigna, UnitedHealth Group, WellPoint, Humana, Coventry, some Blue Cross Blue Shield affiliates and others—stopped writing "child-only" policies in the individual market. This is a niche product that parents typically buy when their employer health plan doesn't cover dependents. The exact plans vary company to company and state to state, and the insurers will still offer family policies and make good on the child-only policies that they've already sold. But most won't be writing new ones. In other words, for-profit businesses are refusing to sell products that consumers want to buy. Exact data aren't available, but the child-only market covers roughly a million kids a year. The reason is a regulation that President Obama mentions every time he talks about health care, as he did recently in Falls Church, Virginia: "Children who have pre-existing conditions are going to be covered." Insurers are now required to cover everyone under 19 when their parents apply for coverage, regardless of health status. The problem with this kind of "guaranteed issue" is that it encourages people, in this case parents, to wait until their kids are sick before seeking coverage. This drives up premiums for the healthy, encouraging consumers in turn to drop coverage, and eventually it leads to what's known as a "death spiral," the industry term for an insurer with rapidly increasing costs as a result of population changes in its coverage pool. The child-only market is a particular death-spiral risk because it is so small and unstable, which explains why so many insurers left in a stroke. The collapse of the child-only market is a preview of what will happen when guaranteed issue and the rest of ObamaCare comes on line in 2014 for adults, except then insurers will have nowhere to flee. Exiting the market will mean going out of business.

Every Patriotic American Should Support the President

2010-09-26T08:24:00.000-07:00

I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving "global governance" powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use "global governance" as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here's a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.

Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy." "On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said. ...Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis. "The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said. Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.

A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe's inefficient welfare states.

Warren Buffett: Good Investor, Crummy Economist

2010-09-25T13:07:00.000-07:00

Warren Buffett once said that it wasn't right for his secretary to have a higher tax rate than he faced, leading me to point out that he didn't understand tax policy. The 15 percent tax rates on dividends and capital gains to which he presumably was referring represents double taxation, and when added to the tax that already was paid on the income he invested (and the tax that one imagines will be imposed on that same income when he dies), it is quite obvious that his effective marginal tax rates is much higher than anything his secretary pays. Though he is right that his secretary's tax rate is much too high.

Well, it turns out that Warren Buffett also doesn't understand much about other areas of fiscal policy. Like a lot of ultra-rich liberals who have lost touch with the lives of regular people, he thinks taxpayer anger is misguided. Not only does he scold people for being upset, but he regurgitates the most simplistic Keynesian talking points to justify Obama's spending spree. Here's an excerpt from his hometown paper.

Taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy, billionaire investor Warren Buffett told CNBC. ...“I hope we get over it pretty soon, because it’s not productive,’’ Buffett said. “We will come back regardless of how people feel about Washington, but it is not helpful to have people as unhappy as they are about what’s going on in Washington.” ...“The truth is we’re running a federal deficit that’s 9 percent of gross domestic product,” Buffett said. “That’s stimulative as all get out. It’s more stimulative than any policy we’ve followed since World War II.”

About the only positive thing one can say about Buffett's fiscal policy track record is that he is nowhere close to being the most inaccurate person in the United States, a title that Mark Zandi surely will own for the indefinite future.

The Democrats Unfurl the White Flag on Taxes and Class Warfare

2010-09-25T04:55:00.000-07:00

I'm dumbfounded and amazed. When Democrats and Republicans have a game of chicken, the GOP blinks 99 percent of the time. And I thought for sure this was going to happen in the fight about whether to extend all the 2001 and 2003 tax cuts (the GOP position), or whether to impose a big, class-warfare tax increase on investors entrepreneurs (the Obama position to punsih the so-called rich). Democrats simply needed to get one Republican senator to surrender and they would have 60 votes in the Senate to overcome any procedural objection. But, to my astonishment, this didn't happen. Democrats threw in the towel. Not totally, the issue is simply being postponed to a "lame duck" session after the election, but it's hard to see how the left will feel any more emboldened after being kicked in the teeth by voters. But there is a very dark lining to this silver cloud. As the Wall Street Journal warns, many statists actually want a big tax increase on everybody, and they can make this happen by simply sitting on their hands.

Only a week ago, President Obama and his media supporters were asserting that they had Republicans caught in their class-war pincers: They'd lure the GOP into opposing an extension of lower tax rates for the middle class in order to defend lower tax rates for those making more than $200,000 a year. ...[but] the Democrats have cut and run, lest they get blamed for voting for a tax increase in a slow-growth economy. This is how legislative majorities behave when they've lost the political argument and can sense their days are numbered. ...Democrats will now enter the campaign's home stretch with the threat that all of the Bush-era tax rates could expire on January 1. That means the lowest tax bracket would revert to 15% from 10%, the per child tax credit would revert to $500 from $1,000, and millions of middle class families would pay thousands of dollars more in federal taxes. Keep in mind that this is the not-so-secret desire of many on the left who think the country "can't afford" to let Americans keep so much of their own money. Peter Orszag has already admitted this since leaving his post as White House budget director. What these Democrats really mean is that they think the only way to pay for their spending plans is by soaking the middle class—because that's where the real money is. ...Liberals pretend they can finance a European-style entitlement state by taxing only the rich because they know that soaking the middle class is unpopular.

A Contest: Which Story Is More Upsetting?

2010-09-24T13:15:00.000-07:00

Here's a change of pace. Instead of doing separate blog posts on the following two stories, I'm curious to see which one generates the most irritation/anger/disgust from you readers. The first option comes from the Wall Street Journal's editorial page, which is appropriately upset that Government Motors...oops, I mean General Motors...is back in the business of lobbying and dishing out campaign contributions. I don't think there's anything wrong with petitioning government and participating in the political process, but I don't think individuals or companies should be doing it with money taken from me by a coercive government.

General Motors is 61%-owned by American taxpayers, who were less than thrilled when forced to buy GM by Presidents Bush and Obama. We can only imagine how M's unwilling owners will react now that the company is once again spending freely on lobbying and political campaigns. The Journal reports that the company has been particularly kind lately to Midwestern Democratic incumbents while shovelling out a total of $90,500 in campaign donations so far in the current election cycle. On the lobbying side, The Hill newspaper reports that GM has spent $7 million in the four quarters since exiting bankruptcy, retaining a who's who of Washington hired guns. This may sound like the business model of Fannie Mae and Freddie Mac all over again, but remember that the failed mortgage giants at least had to shut down most of their Beltway influence operation once they explicitly became wards of the state. GM has your money and now it apparently has the license to use it to lobby Congress and support its political friends. ...There's also the intriguing legal matter of the United Auto Workers union still lobbying Congress and supporting political campaigns even after becoming a partner with the government in the automobile business.

The second option embarrasses me greatly, because it is a sign of bureaucratic nonsense from my beloved University of Georgia. A student got in trouble for sending an email to the Parking Services division to gripe about the lack of scooter parking. The snot-nosed bureaucrat who received the email apparently got the vapors because of this sentence: "Did you guys just throw darts at a map to decide where to put scooter corrals? Can I expect you guys to get off your asses and put in a corral near there some point before I fucking graduate and/or the sun runs out of hydrogen?" This led to the student being subjected to real threats and potential disciplinary action. Fortunately, the great folks at the Foundation for Individual Rights in Education came to the rescue and the craven bureaucrats at UGA backed down.

The University of Georgia (UGA) has withdrawn charges of "disorderly conduct" and "disruption" filed against a student after he sent a mocking e-mail to UGA Parking Services to complain about the lack of parking spaces for scooters on campus. Although Parking Services specifically asks students for both "negative & positive" comments on its performance, student Jacob Lovell spent nearly a month under the threat of punishment after submitting his e-mail. UGA backed down after Lovell came to the Foundation for Individual Rights in Education (FIRE) for help. "Jacob Lovell just wanted to park his scooter on campus, and when he found it a frustrating experience he sent a joking e-mail to the department that had asked for his feedback. But when it received his e-mail, he was threatened with punishment!" said FIRE President Greg Lukianoff. "Only on a college campus could a clearly flippant response to requests for complaints about parking on campus be turned into a judicial investigation for disorderly conduct." ...On August 17, 2010, Lovell e-mailed Parking Services with his complaint about its service. His flippant and joking e-mail mused, "Did you guys just throw darts at a map to decide where to put scooter corrals?" and otherwise made fun of the department for what he perceived to be its poor job of providing parking for scooters. Four hours later, Parking Services replied, "Your e-mail was sent to student judiciary." On September 3, 2010, Associate Dean of Students Kimberly Ellis sent Lovell a letter charging him with two violations of UGA's University Conduct Regulations, stating, "Specifically, it is alleged that Mr. Lovell engaged in disorderly conduct and disrupted parking services when he sent an email to them that was threatening." ...The letter required Lovell to make a disciplinary appointment by September 13. Ellis informed Lovell that failure to do so would result in his record being "flagged," rendering him unable to add, drop, or register for classes. Lovell complied with this requirement on September 13. Meanwhile, on September 10, FIRE wrote UGA President Michael F. Adams, explaining that Lovell's grievance was protected by the First Amendment. FIRE also repeated to President Adams that UGA maintains unconstitutional speech codes in addition to the regulations used against Lovell's protected speech, and that administrators could be held personally liable by a court for the violation of students' constitutional rights, as a federal judge in Georgia ruled recently. On September 14, Ellis informed Lovell that she "did not find sufficient evidence to move forward" with the charges and that the matter was now "closed."

So which story is more nauseating? In the grand scheme of things, the General Motors story is more meaningful because the company is stealing our money and then using our money to lobby for more handouts. Yet I can't help but think the UGA story is very symbolic of arrogant and stupid bureaucracy. as many of us have experienced on our trips to a DMV or our efforts to get through security at airports. Every encounter creates the risk that a job-for-life bureaucrat may decide to make your life miserable.

Wages Should Be Determined by Markets, not Quota-Driven Bureaucrats

2010-09-24T10:25:00.000-07:00

Christina Hoff Sommers of the American Enterprise Institute decimates the bean-counting feminist "paycheck fairness" legislation being considered by the Senate. Republicans presumably know this is a bad idea, but one can only wonder whether they will do the right thing and block this initiative that at best will be a boon for trial lawyers and at worst will lead to massive government intervention in employment markets. Here's an excerpt from her New York Times column.

...on the Senate's to-do list before the November elections is a "paycheck fairness" bill, which would make it easier for women to file class-action, punitive-damages suits against employers they accuse of sex-based pay discrimination. ...the bill...overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women, and it threatens to impose onerous requirements on employers to correct gaps over which they have little control. ...proponents point out that for every dollar men earn, women earn just 77 cents. ...there are lots of...reasons men might earn more than women, including differences in education, experience and job tenure. When these factors are taken into account the gap narrows considerably - in some studies, to the point of vanishing. A recent survey found that young, childless, single urban women earn 8 percent more than their male counterparts, mostly because more of them earn college degrees. Moreover, a 2009 analysis of wage-gap studies commissioned by the Labor Department evaluated more than 50 peer-reviewed papers and concluded that the aggregate wage gap "may be almost entirely the result of the individual choices being made by both male and female workers." ...The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism.

The GOP "Pledge" Doesn't Go Far Enough: There Should Be No Federal Government Role in Housing

2010-09-23T12:53:00.000-07:00

Considering they could have sat on their hands and relied on unhappy voters to give them big gains in November, I'm not too unhappy about the House GOP's "Pledge to America." Yes, it's mostly filled with inoffensive motherhood-and-apple-pie language, but at least there's some rhetoric about reining in excessive government. After eight years of fiscal profligacy under Bush, maybe this is a small sign that Republicans won't screw up again if they wind up back in power. That being said, I was a bit disappointed that the GOP couldn't even muster the courage to shut down Fannie Mae and Freddie Mac, the two corrupt government-created entities that bear so much responsibility for the housing mess and subsequent financial crisis. The best the GOP could do was to say "Since taking over Fannie Mae and Freddie Mac, the mortgage companies that triggered the financial meltdown by giving too many high risk loans to people who couldn’t afford them, taxpayers were billed more than $145 billion to save the two companies. We will reform Fannie Mae and Freddie Mac by ending their government takeover, shrinking their portfolios, and establishing minimum capital standards." Is it really asking too much for Republicans to simply say "The federal government has no role in housing and Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development should be eliminated." Heck, the GOP's Pledge doesn't even mention a penny's worth of budget cuts for HUD. Here's an excerpt from Peter Wallison's Bloomberg column, which explains why Fannie and Freddie should be decapitated.

In a year when angry voters are demanding a reduced government role in the economy, it is remarkable that most of the ideas for supplanting Fannie Mae and Freddie Mac are just imaginative ways of keeping government in the business of housing finance. ...This is pretty astonishing. One would think that something might have been learned from the recent past, when two New Deal ideas for government housing support--the savings and loan industry and the government sponsored enterprises, Fannie Mae and Freddie Mac--failed spectacularly. It cost taxpayers $150 billion to clean up the first and may cost more than $400 billion to resolve the second. ...government policy that deliberately degrades loan quality or creates moral hazard will eventually cause devastation in the housing market. ...Government involvement in housing finance is an invitation to disaster. As illustrated by the S&Ls and GSEs, no matter how such a system is structured, government support will hide the real risks.

Bashing Bailouts and Inflexible Unions

2010-09-23T03:54:00.000-07:00

No CAP bedwetter to debate in this segment.

Strangling Entrepreneurship and Job Creation with $1.75 Trillion of Regulation and Red Tape

2010-09-22T13:48:00.000-07:00

A new study from the Small Business Administration's Office of Advocacy concludes that annual regulatory costs jumped by nearly $600 billion between 2005 and 2008. Thanks to the Obama Administration's big-government agenda, the burden of red tape today doubtlessly is much higher, but the 2008 estimate is enough to generate some very sobering numbers. A $1.75 trillion regulatory cost works out to be more than $15,500 for every household and more than $8,000 for every employee in the country. Red tape is especially challenging for smaller firms, as noted in these key findings from the summary:

The research finds that the total costs of federal regulations have further increased from the level established in the 2005 study, as have the costs per employee. More specifically, the total cost of federal regulations has increased to $1.75 trillion, while the updated cost per employee for firms with fewer than 20 employees is now $10,585 (a 36 percent difference between the costs incurred by small firms when compared with their larger counterparts).

To be sure, some forms of regulation, such as environmental protection, generate benefits. There generally are not good estimates needed to produce cost-benefit analyses, but it is quite likely that the costs are much higher than necessary - particularly for economic regulation, the burden of which is more than three times larger than the costs of environmental regulation.

It's Simple to Balance the Budget without Higher Taxes

2010-09-22T08:06:00.000-07:00

John Podesta of the Center for American Progress had a column in Politico yesterday asserting that "closing the budget gap entirely on the spending side would require draconian programmatic cuts." He went on to complain that there are some people who "refuse to look at the revenue side of the ledger – while insisting that we dig the hole $830 billion deeper over the next decade by extending the Bush tax cuts."

Not surprisingly, Mr. Podesta is totally wrong. It's actually not that challenging to balance the budget. And it doesn't even require any spending cuts, though it would be a very good idea to dramatically downsize the federal government. Here's a chart showing this year's spending and revenue totals. It then shows the Congressional Budget Office's estimate of how much revenues will grow, assuming all the 2001 and 2003 tax cuts are made permanent and assuming that the alternative minimum tax is adjusted for inflation. As you can see, balancing the budget is a simple matter of limiting the annual growth of federal spending.

So how is it that Mr. Podesta can spout sky-is-falling rhetoric about "draconian" cuts when all that's needed is fiscal restraint? The answer is that politicians in Washington have concocted a self-serving budget process that automatically assumes that all previously-planned spending increases should occur. So if the politicians put us on a path to make government 8 percent bigger next year and there is a proposal to instead limit spending growth to 3 percent, that 3 percent increase gets portrayed as a 5 percent cut.

This is a great scam, at least for the political class. They get to buy more votes by boosting the burden of government spending, but they get to tell voters that they're being fiscally responsible. And they get to claim that they have no choice but to raise taxes because there's no other way to balance the budget. In the real world, though, this translates into bigger government and puts us on a path to a Greek-style fiscal nightmare.

The goal of fiscal policy should be smaller government, not fiscal balance. Deficits are just a symptom of a government that is too large, as I have explained elsewhere. But the good news is that spending discipline is the right answer, regardless of the objective. I explained this in more detail for a piece in today's Philadelphia Inquirer. Here's an excerpt.

According to the Congressional Budget Office, the federal government this year is spending almost $3.5 trillion. Tax receipts are estimated to be less than $2.2 trillion, which means a projected deficit of about $1.35 trillion. So can we balance the budget when there is that much red ink? And is it possible to eliminate deficits while also extending the 2001 and 2003 tax cuts? The answer is yes. ...It's a simple matter of mathematics. The Congressional Budget Office estimates that tax revenue will grow by an average of 7.3 percent annually over the next 10 years. Reducing the budget deficit is easy - so long as politicians increase overall spending by less than that amount. And with inflation projected to be about 2 percent over the same period, this is an ideal environment for some long-overdue fiscal discipline. If spending is simply capped at the current level with a hard freeze, the budget is balanced by 2016. If we limit spending growth to 1 percent each year, the budget is balanced in 2017. And if we allow 2 percent annual spending growth - letting the budget keep pace with inflation, the budget balances in 2020. ...Interest groups that are used to big budget increases will be upset if spending growth is limited to 1 or 2 percent each year. It means entitlements will need to be reformed. It means we might need to get rid of programs and departments that are not legitimate functions of the federal government. You better believe that these changes will cause a lot of squealing by lobbyists and other insiders. But that complaining will be a sign that fiscal policy is finally heading in the right direction. The key thing to understand is that there is no need for tax increases. Politicians might not balance the budget if we say no to all tax increases. But the experience in Europe shows that oppressive tax burdens are not a recipe for fiscal balance either. Milton Friedman was correct many years ago when he warned that, "In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with."

New Orwellian Tax Scheme in England Would Require all Paychecks Go Directly to the Tax Authority

2010-09-21T11:52:00.000-07:00

Our tax system in America is an absurd nightmare, but at least we have some ability to monitor what is happening. We can't get too aggressive (nobody wants the ogres at the IRS breathing down their necks), but at least we can adjust our withholding levels and control what gets put on our annual tax returns. The serfs in the United Kingdom are in much worse shape. To a large degree, the tax authority (Inland Revenue) decides everyone's tax liability, and taxpayers have no role other than to meekly acquiesce. But now the statists over in London have decided to go one step farther and have proposed to require employers to send all paychecks directly to the government. The politicians and bureaucrats that comprise the ruling class then would decide how much to pass along to the people actually earning the money. Here's a CNBC report on the issue.

The UK's tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer. The proposal by Her Majesty's Revenue and Customs (HMRC) stresses the need for employers to provide real-time information to the government so that it can monitor all payments and make a better assessment of whether the correct tax is being paid. ...George Bull, head of Tax at Baker Tilly, told CNBC.com. "If HMRC has direct access to employees' bank accounts and makes a mistake, people are going to feel very exposed and vulnerable," Bull said. And the chance of widespread mistakes could be high, according to Bull. HMRC does not have a good track record of handling large computer systems and has suffered high-profile errors with data, he said. ...the cost of implementing the new system would be "phenomenal," Bull pointed out. ...The Institute of Directors (IoD), a UK organization created to promote the business agenda of directors and entreprenuers, said in a press release it had major concerns about the proposal to allow employees' pay to be paid directly to HMRC.

This is withholding on steroids. Politicians love pay-as-you-earn (as it's called on the other side of the ocean), largely because it disguises the burden of government. Many workers never realize how much of their paychecks are confiscated by politicians. Indeed, they probably think greedy companies are to blame when higher tax burdens result in less take-home pay. This new system could have an even more corrosive effect. It presumably would become more difficult for taxpayers to know how much government is costing them, and some people might even begin to think that their pay is the result of political kindness. After all, zoo animals often feel gratitude to the keepers that feed (and enslave) them.

Russian Government Announces 20 Percent Reduction in Number of Bureaucrats

2010-09-21T07:12:00.000-07:00

I've already commented on Cuba's surprising announcement to slash the number of government workers. And I've complained about the federal workforce expanding in the United States. Russia wisely is following the Cuban approach on this issue (I never thought I would type those words!) and plans to get rid of 100,000 bureaucrats over the next three years.

Russia will cut its army of bureaucrats by more than 100,000 within the next three years, saving 43 billion rubles ($1.5 billion), Finance Minister Alexei Kudrin said on Monday. "We assume more than 100,000 federal state civil jobs will be cut within three years. The government has already included a schedule for cutting the number of federal civil servants in the draft budget for the next three years and coordinated it with ministries and agencies," Kudrin told President Dmitry Medvedev, who in June ordered a 20 percent cut in the number of bureaucrats. Under the government plan, ministries and agencies will have to sack five percent of their staff in 2011 and 2012, and 10 percent in 2013. ...In the last three years, the number of bureaucrats in the federal government had increased by nearly 20,000, in regional governments by 60,000 and at municipalities by 50,000, he said.

Giving Cops Bad Incentives to Harass Victimless Behavior

2010-09-20T06:45:00.000-07:00

The Washington Post has an interesting report about the huge amount of money that Fairfax County spends to go after gambling. The story cites critics who ask "why law enforcement spends valuable time and money on combating sports gambling. The answer is obvious - and explicit in the story: "...police in Virginia are allowed to keep 100 percent of the assets they seize in state gambling cases." In other words, harassing the gambling business is a profit-making endeavor for police. And it also can be deadly since cops killed an optometrist during a SWAT arrest. The Institute for Justice has a powerful video on the dangers of "policing for profit," and Fairfax County is just one bad example of how this lures cops into misallocating resources to fight behaviors that shouldn't even be illegal.

It's football season, and for millions of Americans that means betting season. ...It's a crime that Fairfax County police take seriously. So seriously that in one recent gambling investigation, they spent -- and lost -- more than $300,000 in cash to take down a Las Vegas-based online bookie and his group of Fairfax-based associates. ...Police critics have long wondered why law enforcement spends valuable time and money on combating sports gambling. In Fairfax, the police rarely publicize their arrests, and the details of their investigations are little known outside the small corps of detectives in the money laundering unit. Unlike drug cases, police in Virginia are allowed to keep 100 percent of the assets they seize in state gambling cases, so other agencies or divisions receive no benefit. And the vast majority of those arrested are placed on probation. "What a waste," said Nicholas Beltrante, founder of the Virginia Citizens Coalition for Police Accountability, a group formed earlier this year in part to combat unnecessary police spending. "The police should be utilizing their resources for more serious crimes." Fairfax's most notorious gambling investigation ended in disaster. In 2006, an undercover detective lost more than $5,000 while betting on NFL games with optometrist Salvatore J. Culosi -- and when the detective called in a SWAT team to make the arrest, an officer shot Culosi once in the heart and killed him. ...Since 2004, the squad has seized about $1 million in cash and assets annually, but some of those cases landed in federal court, where money is divided among various agencies, Schaible said. ...One case from 2006, that of admitted bookmaker Kyle Peters, resulted in police seizing and keeping $566,940 from his bank accounts. Schaible said such funds are recycled "back into investigating cases. It's helping us resolve these and fight further crime."

The Recycling Scam

2010-09-19T11:59:00.000-07:00

Jeff Jacoby analyzes the absurd tendency of local governments to coerce residents into costly - and inefficient - recycling programs. As a resident of Fairfascist...oops, I mean Fairfax...County in Virginia, I already am painfully aware of this bureaucratic impulse.

....recyclables will all go into 64-gallon “toters,’’ which will be emptied at curbside on trash day. ...Then I start reading the fine print. It turns out that when the town says it is “eliminating sorting,’’ what it means is that glass bottles and jars can be recycled, but not drinking glasses or window glass. It means plastic tubs are OK to toss in the toter, but plastic bags aren’t. It means that while cardboard boxes must be flattened, milk and juice cartons must not be flattened. Reams of office paper are fine, but not the wrappers they came in. Tinfoil should be crushed into balls of 2 inches or larger; tin cans shouldn’t be crushed at all. I don’t think the green police will haul me off in handcuffs if I try to recycle an ice cream carton or a pizza box, but the town has warned that “there will be fines’’ for residents whose “recycling protocols’’ don’t measure up to “basic community standards.’’ ...To be fair, things could be worse. Clevelanders will soon have to use recycling carts equipped with radio-frequency ID chips, the Plain Dealer reported last month. These will enable the city to remotely monitor residents’ compliance with recycling regulations. “If a chip shows a recyclable cart hasn’t been brought to the curb in weeks, a trash supervisor will sort through the trash for recyclables. Trash carts containing more than 10 percent recyclable material could lead to a $100 fine.’’ In Britain, where a similar system is already in place, fines can reach as high as $1,500. ...Does any of this make sense? It certainly isn’t economically rational. Unlike commercial and industrial recycling — a thriving voluntary market that annually salvages tens of millions of tons of metal, paper, glass, and plastic — mandatory household recycling is a money loser. Cost studies show that curbside recycling can cost, on average, 60 percent more per ton than conventional garbage disposal. In 2004, an analysis by New York’s Independent Budget Office concluded, according to the New York Times, that “it cost anywhere from $34 to $48 a ton more to recycle material, than to send it off to landfills or incinerators.’’ “There is not a community curbside recycling program in the United States that covers its cost,’’ says Jay Lehr, science director at the Heartland Institute and author of a handbook on environmental science. They exist primarily to make people “feel warm and fuzzy about what they are doing for the environment.’’ But if recycling household trash makes everyone feel warm and fuzzy, why does it have to be compulsory? Mandatory recycling programs “force people to squander valuable resources in a quixotic quest to save what they would sensibly discard,’’ writes Clemson University economist Daniel K. Benjamin. "On balance, recycling programs lower our wealth." Now whose idea of exciting is that?

The Environmentalist Death Toll

2010-09-19T06:30:00.000-07:00

National Review has a column reviewing a new book, 3 Billion and Counting, that dissects the harsh human cost of banning DDT. There are things that should be banned, of course, but such decisions should be based on sound science and cost-benefit analysis. Sadly, that's not what happened with the politically-motivated decision to ban this particular pesticide.

3 Billion and Counting, which premieres this Friday in Manhattan, was produced by Dr. Rutledge Taylor, a California physician who specializes in preventive medicine. His film will both shock and anger you. DDT was first synthesized in 1877, but it was not until 1940 that a Swiss chemist demonstrated that it could kill insects without any harm to humans. It was introduced into widespread use during World War II and became the single most important pesticide in maintaining human health for the next two decades. The scientist who discovered the insecticidal properties of DDT, Dr. Paul Müller, was awarded the 1948 Nobel Prize in Physiology or Medicine for his work on DDT. (In the 1940s and 1950s the chemical was the “secret” ingredient in a popular new cocktail, the Mickey Slim: gin, with a pinch of DDT.) In 1962, Rachel Carson’s lyrical but scientifically flawed book, Silent Spring, argued eloquently, but erroneously, that pesticides, especially DDT, were poisoning both wildlife and the environment – and also endangering human health. ...In Ceylon (now Sri Lanka), DDT spraying had reduced malaria cases from 2.8 million in 1948 to 17 in 1963. After spraying stopped, malaria cases rose sharply, reaching 2.5 million over the next decade. Scientists have never found an effective substitute for DDT — and so the malaria death rate has kept on soaring.

Protecting Good Cops with Oversight to Deter Bad Cops

2010-09-18T06:45:00.000-07:00

Here's a great video on the issue of whether police can and should be videotaped. Put together by my Cato colleagues, the answer is yes, of course. The only thing I'll add is that this actually is a great way to protect the reputation of the vast majority of cops who do their jobs honorably.

The "Tea Party's Already Won"

2010-09-18T04:23:00.000-07:00

That's the tile of an insightful column at Thehill.com, which points out that Tea Party activism has succeeded in shifting the debate from making government bigger to making government smaller. The columnist also is correct in explaining how the Tea Party, by dethroning some entrenched incumbents, is forcing the GOP to at least pretend to be on the side of taxpayers.

The Tea Party insurgency will not only cost Democrats dozens of seats in Congress, and likely their majority — it will define the coming GOP presidential nominating process, determine the direction of the GOP for years to come and threaten any remaining plans Obama has for sweeping reforms of education, energy policy or our immigration system. Last March, Republicans joined Democrats in calling on Sen. Jim Bunning (R-Ky.) to end his filibuster against the extension of unemployment benefits paid for by deficit spending, embarrassed he was blocking aid to the jobless. But it took just three months for the grassroots pressure to reach the Capitol — Bunning was a Tea Party hero. By the time the $30 billion expired on June 2, Senate Republicans had united behind a nearly two-month filibuster of the next round of $34 billion in “emergency spending” for unemployment insurance. They were joined by Sen. Ben Nelson (D-Neb.), and some House Democrats warned their own leaders at the time that the days of votes on “emergency spending” would soon have to come to an end. ...The Tea Party candidates themselves — like O’Donnell, whom Karl Rove called “nutty,” — matter little. Only a few will actually get elected this fall. Yet the Tea Party has won without them. There are no tea leaves left to read. Democrats have been spooked and Republicans threatened, cajoled or cleansed. The results are already in.

Idiotic Moments in Political Correctness

2010-09-17T11:02:00.000-07:00

Imagine having your child suspended for two years because he took a toy gun to school. Sounds absurd, right? Well, it's real life in Broward County, Florida.

Samuel Burgos has fond memories of his friends at school, but he only gets to see them in pictures now. The 8-year-old boy hasn't been in school for a year and will likely miss another year if the Broward County School Board has its way. Burgos was suspended from school in November after a teacher found a toy gun in his backpack. But when the boy went to register to go back to Pembroke Pines Charter School, he was told he will be expelled for this school year, too, as part of the county's zero tolerance weapons policy. ...School board officials said the rules are quite clear and that the toy gun constituted a weapon. A school board report on the incident mentions that Samuel showed the toy gun to another student and it was capable of firing projectiles. That's all it takes for it to be considered a weapon. "This is in his backpack and it's a toy. It's not a real gun. It's a toy," said Magdiel Burgos, twirling a plastic gun. The school board said they would admit Samuel into a correctional school for problem children who have been expelled located in Hallandale Beach. ..."I can't sit here and allow them to send my kid to a school where students have committed actual crimes," Burgos said. "He hasn't committed a crime."

More Evidence of the Failed Stimulus

2010-09-17T05:11:00.000-07:00

Not that we need more evidence, but here are two new items confirming the absurdity of thinking that bigger government is stimulus. First, we have a story from Los Angeles revealing that the city only created 55 jobs with $111 million of stimulus funds. This translates to a per-job cost of $2 million, which is a grossly inefficient rate of return. But this calculation is incomplete because it doesn't measure how many jobs would have been created if the money was left in the productive sector of the economy. Moreover, it's also important to consider long-term costs such as the fact that Los Angeles now has more overhead, which will exacerbate the city's fiscal problems.

The Los Angeles City Controller said on Thursday the city's use of its share of the $800 billion federal stimulus find has been disappointing. The city received $111 million in stimulus under American Recovery and Reinvestment Act (ARRA) approved by the Congress more than year ago. "I'm disappointed that we've only created or retained 55 jobs after receiving $111 million," says Wendy Greuel, the city's controller, while releasing an audit report. ...The audit says the numbers were disappointing due to bureaucratic red tape, absence of competitive bidding for projects in private sectors, inappropriate tracking of stimulus money and a laxity in bringing out timely job reports.

Our second item is a new study from two scholars who find that the cash-for-clunkers program was a total failure. Just as anybody with an IQ above room temperature could have predicted, the overwhelming effect of the program was to encourage people to change when they purchased cars. There was no long-term positive impact on any economic variable.

A key rationale for fiscal stimulus is to boost consumption when aggregate demand is perceived to be inefficiently low. We examine the ability of the government to increase consumption by evaluating the impact of the 2009 “Cash for Clunkers” program on short and medium run auto purchases. Our empirical strategy exploits variation across U.S. cities in ex-ante exposure to the program as measured by the number of “clunkers” in the city as of the summer of 2008. We find that the program induced the purchase of an additional 360,000 cars in July and August of 2009. However, almost all of the additional purchases under the program were pulled forward from the very near future; the effect of the program on auto purchases is almost completely reversed by as early as March 2010 – only seven months after the program ended. ...We also find no evidence of an effect on employment, house prices, or household default rates in cities with higher exposure to the program.

The lesson from the cash-for-clunkers program also can be applied to other temporary programs. Good tax cuts, for instance, become gimmicks when they are temporary. This doesn't mean there is no positive effect on incentives from a payroll tax holiday, temporary expensing, or a two-year extension of the 2001/2003 tax cuts, but the overwhelming impact is to alter the timing of economic activity rather than the level of economic activity.

The Cato Institute - America's Best Think Tank

2010-09-16T11:03:00.001-07:00

Okay, I'm biased, but Cato stood up against the so-called stimulus when others were quiet. Cato was against Obamacare, even back when it was called Romneycare. Now, we're leading the fight on restraining Leviathan. The image below is our full page ad on cutting wasteful programs, agencies, and departments - and asking Obama to fulfill his promise on reducing needless spending. Click here for a full-size version.

Is the Tea Party Movement a Net Plus for America?

2010-09-16T08:52:00.000-07:00

Steve Chapman points out that the Tea Party movement (like any other large group of people) has a few odd characters, but he is delighted that there is a growing mass of citizens who think it's important to restrain government and not impose burdens of future generations.

Here's my first impression of the tea party movement: It's a rabidly right-wing phenomenon with a shaky grasp of history, a strain of intolerance and xenophobia, a paranoia about Barack Obama, and an unhealthy reverence for Fox News. Any movement that doesn't firmly exclude Birchers, birthers, and Islamaphobes is not a movement for me. Here's my second impression of the tea party movement: We are lucky to have it. That's because the tea partiers, who may not all agree on gay marriage or birthright citizenship, are united behind a couple of sound goals: curtailing the cost of government and refusing to live at the expense of future generations. Those are goals that, for eight years, had many rhetorical supporters in Washington, but few authentic champions. Blame that on George W. Bush, who arrived billing himself as a compassionate conservative, a description that was accurate except for the adjective and the noun. Whatever his ideology, his policy was to expand federal spending at a rate unseen since President Lyndon Johnson, the architect of the Great Society. He didn't do it alone, though. Had Bush been a Democrat, Republicans would have fought his budget plans at every turn. But since he was one of theirs, they joined in the spree with gusto, even as they cut taxes and piled up deficits. The prevailing attitude was: Live it up now, and let someone else worry about paying for it later. Budget hawks were left wondering what happened to Republican tightwads, who thought every dollar spent by the government was a dollar that had to be justified as a vital necessity. The tea partiers were dismayed to see these penny-pinchers replaced by poll-driven insiders with an appetite for earmarks. That's one big reason hard-right candidates have scored so many upsets in recent GOP Senate primaries—including Rand Paul in Kentucky, Sharron Angle in Nevada, Joe Miller in Alaska, and Christine O'Donnell in Delaware. They didn't get nominated because they look and sound like the popular image of a savvy, experienced, well-informed, practical-minded U.S. senator. They got nominated because they don't.

Another Measure of American Decline

2010-09-16T05:05:00.000-07:00

I don't know if this is hope or change, but the United States fell from 2nd to 9th in the Forbes index of "Best Countries for Business." Denmark is first, which may be a surprise, but the Scandinavian country is very free market other than fiscal policy. Hong Kong, meanwhile, enjoyed the biggest increase.

The U.S. economy is teetering on the edge of a double-dip recession. High unemployment and a weak housing market are dragging down economic growth. But there's another major issue that isn't getting much attention these days: The business climate for entrepreneurs and investors in the U.S. is starting to lag behind other countries'. The U.S. dropped from No. 2 to No. 9 in our fifth annual ranking of the Best Countries for Business. Blame the high tax burden and a poor showing on trade and monetary freedom compared with many other developed nations. The 35% federal corporate tax rate is the highest of any OECD country according to the Tax Foundation. Meanwhile the government’s significant intervention in the economy during the economic downturn has weakened economic freedom in the U.S. ...A big mover up the rankings is Hong Kong, which swapped places with the U.S., moving up to No. 2 from No. 9. It scored in the top three for taxes, investor protection and both trade and monetary freedom.

The Top 10

1. Denmark
2. Hong Kong
3. New Zealand
4. Canada
5. Singapore
6. Ireland
7. Sweden
8. Norway
9. United States
10. United Kingdom

The Laughable German Version of a Conservative

2010-09-15T09:20:00.000-07:00

By choosing not to use the economic downturn as an excuse for more wasteful spending, Germany may have avoided Obama's big mistake, but that does not mean German conservatives and Angela Merkel are supporters of economic liberty and individual freedom. Not even close. A good (or should I say "bad") example of Merkel's statist mindset is her push for a tax on financial transactions. And not just a German tax. She wants a global tax. And not just for the typical political reason of wanting more of other people's money. Merkel has a megalomaniacal view that "every product, every actor, every financial market participant should be regulated." Ludwig Erhard must be spinning in his grave.

"We will continue to work for a tax on the financial markets," Merkel said in a stormy debate in parliament on her government's 2011 budget. "The finance minister is doing this in several discussions and we are going to try to persuade as many countries as possible. Unfortunately, the world is not always as we would wish ... but we are not going to give up," she added. At a meeting of European Union finance ministers earlier this month, members of the 27-country bloc clashed over the idea of imposing a tax of financial market transactions in Europe. The proposal, driven by France and Germany..., has run into stiff resistance from several countries, notably Sweden and Britain. At the level of the Group of 20 developed and developing nations, there is still more discord, with Canada and emerging market economies leading the battle against it. A G20 summit takes place in South Korea in November. "We are sticking to the principle that every product, every actor, every financial market participant should be regulated so that we have an overview of what is happening on the financial markets," Merkel said.

Overwhelming Evidence for Less Government Spending

2010-09-15T05:00:00.000-07:00

Alberto Alesina of Harvard's economics department summarizes some of his research in a column for today's Wall Street Journal. He and a colleague looked at fiscal policy changes in developed nations and found very strong evidence that spending reductions boost growth. This, of course, contrasts with the lack of evidence for the Keynesian notion that growth is stimulated by a bigger burden of government spending.

Politicians argue for increased stimulus spending, as opposed to spending cuts, on the grounds that it would speed up economic recovery. This argument might have it exactly backward. Indeed, history shows that cutting spending in order to reduce deficits may be the key to promoting economic recovery. ...recent stimulus packages have proven that the "multiplier"—the effect on GDP per one dollar of increased government spending—is small. Stimulus spending also means that tax increases are coming in the future; such increases will further threaten economic growth. Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary. My colleague Silvia Ardagna and I recently co-authored a paper examining this pattern, as have many studies over the past 20 years. Our paper looks at the 107 large fiscal adjustments—defined as a cyclically adjusted deficit reduction of at least 1.5% in one year—that took place in 21 Organization for Economic Cooperation and Development (OECD) countries between 1970 and 2007. ...Our results were striking: Over nearly 40 years, expansionary adjustments were based mostly on spending cuts, while recessionary adjustments were based mostly on tax increases. ...In the same paper we also examined years of large fiscal expansions, defined as increases in the cyclically adjusted deficit by at least 1.5% of GDP. Over 91 such cases, we found that tax cuts were much more expansionary than spending increases. How can spending cuts be expansionary? First, they signal that tax increases will not occur in the future, or that if they do they will be smaller. A credible plan to reduce government outlays significantly changes expectations of future tax liabilities. This, in turn, shifts people's behavior. Consumers and especially investors are more willing to spend if they expect that spending and taxes will remain limited over a sustained period of time. On the other hand, fiscal adjustments based on tax increases reduce consumers' disposable income and reduce incentives for productivity. ...Europe seems to have learned the lessons of the past decades: In fact, all the countries currently adjusting their fiscal policy are focusing on spending cuts, not tax hikes. Yet fiscal policy in the U.S. will sooner or later imply higher taxes if spending is not soon reduced. The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.

Alesina's research echoes the findings in dozens of other studies, a few of which are cited in this Center for Freedom and Prosperity video I narrated.

More than Two-to-One Support for Personal Retirement Accounts

2010-09-14T15:46:00.000-07:00

I am pleasantly shocked to see that a healthy majority of respondents favor partial privatization of Social Security. I knew support was reasonably strong several years ago, but I feared that the financial crisis would have made Americans more leery of financial markets. I also wondered whether the idea was discredited by its association with the Bush Administration. But a new Pew survey shows very good results, so maybe Republicans will feel more comfortable about developing a "secret plan" for Social Security reform.

...a majority favors a proposal to allow some private investments in Social Security... The latest Pew Research/National Journal Congressional Connection poll, sponsored by SHRM, conducted Sept. 9-12 among 1,001 adults, finds that 58% favor a proposal that would allow workers younger than age 55 to invest a portion of their Social Security taxes in personal retirement accounts that would rise and fall with the markets; 28% oppose this proposal. Majorities across all age groups -- except for those ages 65 and older -- favor this proposal. ...Support for the general concept is comparable to support for a similar plan advocated by former President George W. Bush in 2004. As he sought reelection in the fall of 2004, 58% of registered voters that September favored allowing younger workers to invest a portion of their Social Security; 26% said they opposed this change. However, after Bush won reelection and debate about the proposal began, support weakened. By March 2005, the public was largely split (44% favor, 40% oppose) and the proposal was not enacted.

P.S. The same poll shows that people are not sympathetic, however, to reforming Medicare, however, so the Social Security silver cloud does have a dark lining.

Does the War on Poverty Fight Destitution or Subsidize It?

2010-09-14T08:52:00.000-07:00

The Census Bureau will be releasing new poverty-rate numbers on Thursday and the numbers are expected to show a big move in the wrong direction. Much of the coverage will be on how much the poverty rate increases, with 15 percent being a likely amount according to some estimate. There also will be lots of discussion about the political implications, as this Associated Press story illustrates.

The number of people in the U.S. who are in poverty is on track for a record increase on President Barack Obama's watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty. Census figures for 2009 — the recession-ravaged first year of the Democrat's presidency — are to be released in the coming week, and demographers expect grim findings. It's unfortunate timing for Obama and his party just seven weeks before important elections when control of Congress is at stake. The anticipated poverty rate increase — from 13.2 percent to about 15 percent — would be another blow to Democrats struggling to persuade voters to keep them in power.

But the real story should be the degree to which the federal government's War on Poverty has been a complete failure. Taxpayers have poured trillions of dollars into means-tested programs, yet the data show no positive results. Indeed, it's quite likely that the programs have backfired. As shown in the chart, Census Bureau data reveal that the poverty rate was steadily falling in the 1950s and early 1960s, but then stagnated once the War on Poverty began. It's possible that there are alternative and/or additional explanations for this shocking development, but government intervention may be encouraging poverty by making indolence more attractive than work.

Fannie, Freddie, Basel, and the Fed

2010-09-14T05:45:00.000-07:00

George Melloan's column in the Wall Street Journal discusses the new Basel capital standards and correctly observes that 22 years of global banking regulations have not generated good results. This is not because requiring reserves is a bad thing, but rather because such policies do nothing to fix the real problem. In the case of the United States, easy money policy by the Fed and a corrupt system of Fannie Mae/Freddie Mac subsidies caused the housing bubble and resulting financial crisis. Yet these problems have not been addressed, either in the Dodd-Frank bailout bill or the new Basel rules. Indeed, Melloan points out that Fannie and Freddie were exempted from the Dood-Frank legislation.

There's something to be said for holding banks to higher capital standards, even at the cost of more constrained lending and slower economic growth. But the much-bruited idea that Basel rules will make the world freer of financial crises is highly doubtful, given current political circumstances. The 2008 financial meltdown was not primarily the result of lax regulation but of co-option and abuse of the U.S. financial system by the political class in Washington. The federal government's "affordable housing" endeavors, beginning in the 1990s, allowed and even forced banks to make highly risky mortgage loans. Those loans were folded into mortgage-backed securities (MBS) sold in vast numbers throughout the world, most promiscuously by two government-sponsored enterprises, Fannie Mae and Freddie Mac. The Federal Reserve contributed a credit bubble that caused house prices to soar, a classic asset inflation. When the bubble began to deflate in 2007, the bad loans in mortgage securities became poisonous. The MBS market seized up, and financial institutions holding them became illiquid and began to crash. The Lehman Brothers collapse was the biggest shock. The only way Basel standards might have helped prevent this would have been if they had been applied to Fannie and Freddie as well as to banks. They weren't. President Bill Clinton exempted the two giants from Basel capitalization rules because they were the primary instruments of a federal policy aimed at helping more lower-income people become homeowners. This was a laudable goal that ultimately wrecked the housing and banking industries. Washington has learned nothing from this debacle, which is why the next financial crisis is likely to have federal policy origins and may come sooner than we think. Fannie and Freddie—now fully controlled by Uncle Sam and exempt from the Dodd-Frank financial "reform" legislation—are still going strong, guaranteeing and restructuring loans while they continue to rack up huge losses for taxpayers. ...The record since the Basel process began 22 years ago doesn't generate faith in banking regulation either. Basel rules didn't prevent the collapse of Japanese banking in 1990, they didn't prevent the 2008 meltdown, and they are not preventing the banking failures that plague the financial system even today.

P.S. The bureaucrats and regulators who put together the Basel capital standards were the ones who decided that mortgage-backed securities were very safe assets and required less capital. That was a common assumption at the time, so the point is not that the Basel folks are particularly incompetent, but rather that regulation is a very poor substitute for market discipline. Letting financial firms go bankrupt instead of bailing them out would be a far better way of encouraging prudence.

Cuba Announces Plan to Eliminate 500,000 Bureaucrats

2010-09-13T13:09:00.000-07:00

Since we're talking about a totalitarian nation, I suppose I should make clear that Raul Castro is getting rid of 500,000 government jobs, not executing a half-million bureaucrats. This is a remarkable development, particularly since the entire workforce is only 5 million people. What's ironic, though, is that Cuba is trying to reverse its mistakes while politicians in the United States keep adding more bureaucrats. In other words, Obama wants more people in the wagon and fewer people pulling the wagon. That's not a good trend line. Here's a CNN story about the Cuban reforms.

Cuba announced on Monday it would lay off "at least" half a million state workers over the next six months and simultaneously allow more jobs to be created in the private sector as the socialist economy struggles to get back on its feet. The plan announced in state media confirms that President Raul Castro is following through on his pledge to shed some one million state jobs, a full fifth of the official workforce -- but in a shorter timeframe than initially anticipated. "Our state cannot and should not continue maintaining companies, productive entities and services with inflated payrolls and losses that damage our economy and result counterproductive, create bad habits and distort workers' conduct," the CTC, Cuba's official labor union, said in newspapers. ...The state currently controls more than 90 percent of the economy, running everything from ice cream parlors and gas stations to factories and scientific laboratories. Traditionally independent professions, such as carpenters, plumbers and shoe repairmen, are also employed by the state. ...The announcement avoided the word "private," but said alternative forms of employment to be allowed included renting or borrowing state-owned facilities, cooperatives and self employment and that "hundreds of thousands of workers" would find jobs outside of the state sector over the next few years. Castro has launched a few, small free-market reforms since taking over from his brother Fidel Castro in 2006. In April, for example, barbershops were handed over to employees, who pay rent and tax but charge what they want. Licenses have also been granted to private taxis. For a couple of years, fallow land in the countryside has been turned over to private farmers. The more they produce, the more they earn.

Keynes Was Wrong on Stimulus, but the Keynesians Are Wrong on Just about Everything

2010-09-13T09:24:00.000-07:00

Dana Milbank of the Washington Post wrote this weekend that critics of Keynesianism are somewhat akin to those who believe the earth is flat. He specifically cites the presumably malignant influence of the Cato Institute.

Keynes was right, and in this case it's probably for the better: Keynes didn't live to see the Republicans of 2010 portray him as some sort of Marxist revolutionary. ...These men get their economic firepower from conservative think tanks such as the Cato Institute... What's with the hate for Maynard? Perhaps these Republicans don't realize that some of their tax-cut proposals are as "Keynesian" as Obama's program. There's a fierce dispute about how best to respond to the economic crisis -- Tax cuts? Deficit spending? Monetary intervention? -- but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession. ...With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. ...There is an alternative to such "Keynesian experiments," however. The government could do nothing, and let the human misery continue. By rejecting the "Keynesian playbook," this is what Republicans are really proposing.

Milbank makes some good points, particularly when noting the hypocrisy of Republicans. Bush's 2001 tax cuts were largely Keynesian in their design, which is also one of the reasons why the economy was sluggish until the supply-side tax cuts were implemented in 2003. Bush also pushed through another Keynesian package in 2008, and many GOPers on Capitol Hill often erroneously use Keynesian logic even when talking about good policies such as lower marginal tax rates.

But the thrust of Milbank's column is wrong. He is wrong in claiming that Keynesian economics works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn't work for Hoover and Roosevelt in the 1930s. It didn't work for Japan in the 1990s. It didn't work for Bush in 2001 or 2008, and it didn't work for Obama. The reason, as explained in this video, is that Keynesian economic seeks to transform saving into consumption. But a recession or depression exists when national income is falling. Shifting how some of that income is used does not solve the problem.

This is why free market policies are the best response to an economic downturn. Lower marginal tax rates. Reductions in the burden of government spending. Eliminating needless regulations and red tape. Getting rid of trade barriers. These are the policies that work when the economy is weak. But they're also desirable policies when the economy is strong. In other words, there is no magic formula for dealing with a downturn. But there are policies that improve the economy's performance, regardless of short-term economic conditions. Equally important, supporters of economic liberalization also point out that misguided government policies (especially bad monetary policy by the Federal Reserve) almost always are responsible for causing downturns. And wouldn't it be better to adopt reforms that prevent downturns rather than engage in futile stimulus schemes once downturns begin?

None of this means that Keynes was a bad economist. Indeed, it's very important to draw a distinction between Keynes, who was wrong on a couple of things, and today's Keynesians, who are wrong about almost everything. Keynes, for instance, was an early proponent of the Laffer Curve, writing that, "Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget."

Keynes also seemed to understand the importance of limiting the size of government. He wrote that, "25 percent taxation is about the limit of what is easily borne." It's not clear whether he was referring to marginal tax rates or the tax burden as a share of economic output, but in either case it obviously implies an upper limit to the size of government (especially since he did not believe in permanent deficits).

If modern Keynesians had the same insights, government policy today would not be nearly as destructive.

Gangster Government in Action

2010-09-13T05:50:00.000-07:00

Even though I've been in Washington for 25 years, I still get nauseated by the predatory behavior of the looters and moochers. The latest example of disgusting behavior is from the Secretary of Health and Human Services, who is engaging in Hugo Chavez-style threats to block insurance companies from raising rates in response to the new costs imposed by Obamacare. Michael Barone's column and a Wall Street Journal editorial capture the odious nature of this banana republic stunt. Here's part of what Barone wrote:

"There will be zero tolerance for this type of misinformation and unjustified rate increases." ...Secretary Sebelius objects to claims by health insurers that they are raising premiums because of increased costs imposed by the Obamacare law passed by Congress last March. ...Sebelius has "zero tolerance" for that kind of thing. She promises to issue regulations to require "state or federal review of all potentially unreasonable rate increases" (which would presumably mean all rate increases). And there's a threat. "We will also keep track of insurers with a record of unjustified rate increases: Those plans may be excluded from health insurance Exchanges in 2014." That's a significant date, the first year in which state insurance exchanges are slated to get a monopoly on the issuance of individual health insurance policies. Sebelius is threatening to put health insurers out of business in a substantial portion of the market if they state that Obamacare is boosting their costs. "Congress shall make no law," reads the First Amendment, "abridging the freedom of speech, or of the press." Sebelius' approach is different: "zero tolerance" for dissent. The threat to use government regulation to destroy or harm someone's business because they disagree with government officials is thuggery. Like the Obama administration's transfer of money from Chrysler bondholders to its political allies in the United Auto Workers, it is a form of gangster government. ...Sebelius and the Obama administration...want to stamp out negative speech about Obamacare. "Zero tolerance" means they are ready to use the powers of government to threaten economic harm on those who dissent.

Here's a blurb from the WSJ:

The White House was always going to blame insurance companies for any cost increases, even when its own policies cause them. Witness Kathleen Sebelius's Thursday letter to America's Health Insurance Plans, the industry trade group—a thuggish message even by her standards. The Health and Human Services secretary wrote that some insurers have been attributing part of their 2011 premium increases to ObamaCare and warned that "there will be zero tolerance for this type of misinformation and unjustified rate increases." Zero tolerance for expressing an opinion, or offering an explanation to policyholders? They're more subtle than this in Caracas. ...This is nasty stuff and an obvious attempt to shift political blame for rising insurance costs before the election. It's also an early sign of life under ObamaCare, when all health-care decisions are political and the bureaucrats decide who can charge how much for a service or product.

End of the Road for the "Green Jobs" Scam?

2010-09-12T17:24:00.000-07:00

Like other forms of so-called stimulus spending, the money devoted to supposed "green" energy programs has been a net drain on the economy. This is hardly a surprise, particular since the much-trumpeted Spanish experiment turned out to be a flop, destroying two jobs elsewhere in the economy for every green job created. But what is surprising is that the political crowd in Washington seems to be getting the message. The Washington Times reports that even the left if backing away from flushing more money down this hole.

Noticeably absent from President Obama's latest economic-stimulus package are any further attempts to create jobs through "green" energy projects, reflecting a year in which the administration's original, loudly trumpeted efforts proved largely unfruitful. The long delays typical with environmentally friendly projects - combined with reports of green stimulus funds being used to create jobs in China and other countries, rather than in the U.S. - appear to have killed the administration's appetite for pushing green projects as an economic cure. ...Peter Morici, a business professor at the University of Maryland, said much of the green stimulus funding was "squandered." "Large grants to build green buildings don't generate many new jobs, except for a few architects," he said. "Subsidies for windmills and solar panels created lots of jobs in China," but few at home. ...Despite the massive infusion of government funding in recent years, renewable technologies have captured only a tiny share of the energy market and remain heavily dependent on government funding to be viable. Because of the need to constantly renew government funding, private investors remain skittish about committing to new projects.

First Fidel Castro, Now Congressman Tom Periello

2010-09-12T10:27:00.000-07:00

It must be the time of year for confessions. Cuba's former dictator recently confessed that the Cuban model is a failure. That was a surprise, but now we have a remarkable admission from a Democrat member of Congress, who admits that "if you don't tie our hands, we will keep stealing." But since this looter voted for the faux stimulus, cap and trade, and Obamacare, it's obvious that he is a proficient kleptomaniac. But if this Washington Examiner column is correct, Congressman Periello may need to find a new career in a couple of months.

On March 16, when confronted by members of the Jefferson Area Tea Party, Rep. Tom Periello, D-Va., made a startling confession: “If there’s one thing I’ve learned up here (in Washington) and I didn’t really need to come up here to learn it, is the only way to get Congress to balance the budget is to give them no choice, and the only way to keep them out of the cookie jar is to give them no choice, which is why – whether it’s balanced budget acts or pay as you go legislation or any of that – is the only thing. If you don’t tie our hands, we will keep stealing” ...Perriello unwittingly gives voters in the Fifth District the most compelling reason to throw him – and the rest of his fellow Democrats, who have been in charge of Congress since 2006 – out of office in November. ... Perriello – who rode into office on President Obama’s triumphant coattails – is now one of the most endangered Democrats in the country. A SurveyUSA poll has him running 26 points behind Republican state Sen. Rob Hurt, hanks to his liberal voting record – and his mouth. Perriello voted against the bank bailout (TARP), but he’s been House Speaker Nancy Pelosi’s loyal foot soldier ever since. He voted for the stimulus, for cap and trade, and for Obamacare, backing the House leadership 90 percent of the time. All that party loyalty is now backfiring on him big time.

Why Is the Left so Sensitive about Cuba?

2010-09-12T04:56:00.000-07:00

I touched a raw nerve with my post about Fidel Castro admitting that the Cuban model is a failure. Matthew Yglesias and Brad DeLong both attacked me. DeLong's post was nothing more than a link to the Yglesias post with a snarky comment about "why can't we have better think tanks?" Yglesias, to his credit, tried to explain his objections.

This leads Daniel Mitchell to post the following chart which he deems “a good illustration of the human cost of excessive government.”...this mostly illustrates the difficulty of having a rational conversation with Cato Institute employees about economic policy in the developed world. Cuba is poor, but it’s much richer than Somalia. Is Somalia’s poor performance an illustration of the human costs of inadequate taxation? Or maybe we can act like reasonable people and note that these illustrations of the cost of Communist dictatorship and anarchy have little bearing on the optimal location on the Korea-Sweden axis of mixed economies?

I'm actually not sure what argument Yglesias is making, but I think he assumed I was focusing only about fiscal policy when I commented about Cuba's failure being "a good illustration of the human cost of excessive government." At least I think this is what he means, because he then tries to use Somalia as an example of limited government, solely because the government there is so dysfunctional that it is unable to maintain a working tax system.

Regardless of what he's really trying to say, my post was about the consequences of excessive government, not just the consequences of excessive government spending. I'm not a fan of high taxes and wasteful spending, to be sure, but fiscal policy is only one of many policies that influence economic performance. Indeed, according to both Economic Freedom of the World and Index of Economic Freedom, taxes and spending are only 20 percent of a nation's grade. So nations such as Sweden and Denmark are ranked very high because the adverse impact of their fiscal policies is more than offset by their very laissez-faire policies in just about all other areas. Likewise, many nations in the developing world have modest fiscal burdens, but their overall scores are low because they get poor grades on variables such as monetary policy, regulation, trade, rule of law, and property rights.

So, yes, Cuba is an example of "the human cost of excessive government." And so is Somalia.

Sweden and Denmark, meanwhile, are both good and bad examples. Optimists can cite them as great examples of the benefits of laissez-faire markets. Pessimists can cite them as unfortunate examples of bloated public sectors.

P.S. Castro has since tried to recant, claiming he was misquoted. He's finding out, though, that it's not easy putting toothpaste back in the tube.

Is Obama the Next Hoover or the Next FDR?

2010-09-11T06:43:00.000-07:00

Jonah Goldberg writes in National Review that President Obama is beginning to look like the next Herbert Hoover. This is rather ironic since the left wanted him to become the next Franklin Delano Roosevelt, ushering in a new era of politically-popular statism.

...the Great Depression discredited laissez-faire economics for a generation or more. Hoover, who was hardly the "market fundamentalist" FDR made him out to be, suffered largely from the (bad) luck of the draw, giving Democrats a chance to argue for a new deal of the cards. For reasons fair and unfair, Obama, who inherited a bad recession and made it worse, every day looks more like a modern-day Hoover, whining about his problems, rather than an FDR cheerily getting things done. Inadequate to the task, Obama is discrediting the statism he was elected to restore.

Jonah makes a compelling case, particularly from a political perspective. But if we look just at economic policy, the Obama-as-FDR analogy is more accurate. Hoover was a big-government interventionist with failed policies. That's a pretty good description of Bush. FDR got elected in 1932 by promising to fix the mess, which is akin to Obama's hope and change message in 2008. And, just like FDR, Obama then continued the big-government interventionist policies of his predecessor. The only difference is that Roosevelt somehow was able to remain popular even though his policies kept the nation mired in depression for another decade. Obama, by contrast, is veering dangerously close to becoming another Jimmy Carter. Tom Sowell has some key details about the timing and impact of the Hoover-Roosevelt policies.

The history of the United States is full of evidence on the negative effects of government intervention. For the first 150 years of this country's existence, the federal government did not think it was its business to intervene when the economy turned down. All of those downturns ended faster than the first downturn where the federal government intervened big time-- the Great Depression of the 1930s. ...if you look at the facts, they go like this: Unemployment never hit double digits in any of the 12 months following the big stock market crash of 1929 that is often blamed for the massive unemployment of the 1930s. Unemployment peaked at 9 percent, two months after the October 1929 crash, and then began drifting downward. Unemployment was down to 6.3 percent by June 1930, when the first big federal intervention occurred. Within six months, the downward trend in unemployment reversed and hit double digits for the first time in December 1930. What were politicians to do? Say "We messed up"? Or keep trying one huge intervention after another? The record shows what they did: President Hoover's interventions were followed by President Roosevelt's bigger interventions-- and unemployment remained in double digits in every month for the entire remainder of the decade. There is another set of facts: The record that was set in 1929 for the biggest stock market decline in one day was broken in 1987. But Ronald Reagan did nothing-- and the media clobbered him for it. Then the economy rebounded and there were 20 years of sustained economic growth with low inflation and low unemployment. Can you imagine Barack Obama doing another Ronald Reagan?

A Competent Republican? It's a Miracle

2010-09-10T16:08:00.000-07:00

I wish GOPers in DC could make persuasive arguments like this. One has to wonder whether Governor Christie will be a player in 2012.

America Drops to Fourth Place in Global Competitiveness Ranking

2010-09-10T08:19:00.000-07:00

After being in 1st place in 2007 and 2008, America dropped behind Switzerland in the World Economic Forum's Global Competitiveness Report in 2009. The 2010 ranking was just released, and the United States has tumbled two more spots to 4th place, behind Switzerland, Sweden, and Singapore. I'm not a complete fan of the World Economic Forum's methodology (the Economic Freedom of the World rankings are the best measure of sound economic policy), but it's almost surely a bad sign when a country moves down in the rankings. The timing of the fall will lead some to blame Barack Obama, and I certainly agree that his policies are making America less competitive, but Bush also deserves blame for increasing the burden of government and compromising America's economic vitality. Here's a blurb from the Associated Press.

The U.S. has slipped down the ranks of competitive economies, falling behind Sweden and Singapore due to huge deficits and pessimism about government, a global economic group said Thursday. Switzerland retained the top spot for the second year in the annual ranking by the Geneva-based World Economic Forum. It combines economic data and a survey of more than 13,500 business executives. Sweden moved up to second place while Singapore stayed at No. 3. The United States was in second place last year after falling from No. 1 in 2008.

Overpaid and Undertaxed

2010-09-09T10:35:00.000-07:00

I sympathize with almost all taxpayers, but it's difficult to feel sorry for government workers who get in trouble with the IRS. Compensation packages for federal bureaucrats are twice as lucrative as those for workers in the productive sector of the economy and their pensions are similarly extravagant. Yet they often can't be bothered to fully pay their taxes, owing billions of dollars to the IRS according to a Washington Post report. Among the biggest scofflaws are the folks at the Postal Service, who have accumulated more than $283 million of unpaid taxes. Retired bureaucrats, meanwhile, have amassed nearly $455 million of back taxes. Even tax collectors sometimes fall behind. Treasury Department bureaucrats owe $7.7 million. How hard can it be for them to walk down the hallway and cough up? Or do they think they're exempt since their boss barely got a slap on the wrist after "forgetting" to declare $80,000? The most startling part of the story, though, is the degree of tax dodging on Capitol Hill. Here's an excerpt from the story.

Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year... The debt among Hill employees has risen at a faster rate than the overall tax debt on the government's books, according to Internal Revenue Service data. ...The IRS data...shows 638 employees, or about 4 percent, of the 18,000 Hill workers owe money, a slightly higher percentage than the 3 percent delinquency rate among all returns filed nationwide. ..."If you're on the federal payroll and you're not paying your taxes, you should be fired," [Congressman] Chaffetz said in an interview. He said the policy should apply across the board and "there should be no special exemptions."

The shocking part about this blurb, at least to me, is not the 638 staffers who owe money to the IRS. It's the fact that there are 18,000 bureaucrats working for Congress. Do 100 Senators and 435 Representatives really need that many attendants? How I long for the good ol' days, when each politician had about two staffers. I suspect it's no coincidence that the federal government was a much smaller burden back when there were far fewer staff.

A Secret Plan to Block Obama's Tax Hikes?

2010-09-09T10:30:00.000-07:00

In the battle against higher taxes and wasteful spending, I've never thought that witches would be an ally, but Romanian politicians apparently voted down a proposed tax because they were afraid of being cursed. We curse politicians in America all the time, of course, but in a different way. And since that milder approach doesn't seem to work very well, maybe it's time to up the ante?

Lawmakers Alin Popoviciu and Cristi Dugulescu of the ruling Democratic Liberal Party drafted a law where witches and fortune tellers would have to produce receipts, and would also be held liable for wrong predictions, a measure which was part of the government's drive to increase revenue. Romania's Senate voted down the proposal Tuesday. Popoviciu claimed lawmakers were frightened of being cursed. It's unclear if Popoviciu and Dugulescu will try to redraft the law.

Now He Tells Us...

2010-09-09T07:20:00.000-07:00

Here's a story for the better-late-than-never file. Former Cuban dictator Fidel Castro confessed that communism doesn't work and that his nation's economic system should not be emulated.

Fidel Castro told a visiting American journalist that Cuba's communist economic model doesn't work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago. The fact that things are not working efficiently on this cash-strapped Caribbean island is hardly news. Fidel's brother Raul, the country's president, has said the same thing repeatedly. But the blunt assessment by the father of Cuba's 1959 revolution is sure to raise eyebrows. Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba's economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn't even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

Too bad Castro didn't have this epiphany 50 years ago. The Cuban people languish in abject poverty as a result of Castro's oppressive policies. Food is harshly rationed and other basic amenities are largely unavailable (except, of course, to the party elite). This chart, comparing inflation-adjusted per-capita GDP in Chile and Cuba, is a good illustration of the human cost of excessive government. Living standards in Cuba have languished. In Chile, by contrast, the embrace of market-friendly policies has resulted in a huge increase in prosperity. Chileans were twice as rich as Cubans when Castro seized control of the island. After 50 years of communism in Cuba and 30 years of liberalization in Chile, the gap is now much larger.

A Debate Between John F. Kennedy and Barack Obama

2010-09-08T09:33:00.000-07:00

Here's a clever video produced by the Winston Group, comparing the tax policies of two Democratic Presidents. Having previously highlighted Kennedy's tax-cutting approach, it is painful for me to observe the class warfare approach of the Obama Administration.

What's especially fascinating is that JFK intuitively understood the Laffer Curve, particularly the insight that deficits usually are the result of slow growth, not the cause of slow growth.

Two More Reasons to Hate Taxes

2010-09-08T08:10:00.000-07:00

When all you have is a hammer, everything begins to look like a nail. That old saying makes a lot of sense. As a tax economist, I'm sometimes guilty of looking at all sorts of issues based on their relationship with the tax code. In my defense, however, the tentacles of the IRS now reach into almost every nook and cranny of our society. And greedy tax collectors on the state and local level make a bad situation even worse. Two things from today's inbox illustrate my point.

First, you may remember that the IRS is going to be a chief enforcer of Obamacare. Well, our friends at the tax collection agency have just released a draft form for the "credit for small employer health insurance premiums." We already have a tax system that takes up 72,000 pages and requires more than 1,000 different forms and publications, but now we can add 25 more lines of mind-numbing, eye-glazing bureaucratese, all of which doubtlessly will lead to innocent mistakes that cause many more taxpayers to have nightmarish interactions with the IRS. (click here to see a full-size version of the form)

Second, Hiwa Alaghebandian at the American Enterprise Institute has an article on telecommuting which largely focuses on the environmental and quality-of-live advantages of people working from home. What does this have to do with taxes, you ask? It turns out that greedy state politicians have an annoying tendency of trying to tax people who live elsewhere. This form of taxation without representation imposes both bureaucratic and economic barriers that hinder an otherwise desirable development.

Possibly the biggest barrier to telework are state tax laws. Many states implement some form of double taxation on out-of-state teleworkers. For example, New York applies a “convenience of the employer” doctrine on out-of-state teleworkers who work for a New York–based organization, which requires them to pay income tax to New York for telework days outside of the state. All work done outside of New York is subject to New York income tax, unless the work is done outside of New York out of necessity to the employer . In 2005, the New York State Court of Appeals upheld the “convenience of the employer” doctrine in Huckaby vs. New York State Division of Tax Appeals. Thomas Huckaby, a Tennessee resident, worked for a New York–based company, but teleworked 75 percent of the time. On his New York State nonresident tax returns, Huckaby allocated 25 percent of his income to New York, and 75 percent to Tennessee; however, the New York State tax department determined that Huckaby should have paid New York income tax on 100 percent of his income. The court sided with the New York State tax department, stating that the doctrine was constitutionally applied. As many as 35 states have some form of double taxation for teleworkers.

Cops Arrest Homeowner for Crime of Self-Defense

2010-09-08T06:49:00.000-07:00

A man in New York recently scared off some gang members by firing a couple of warning shots into the ground. When the cops arrived, did they congratulate the man for protecting his family and start looking for the thugs? That's what would happen in a logical and just society, but the anti-gun mentality in New York is so pervasive that the cops actually arrested the homeowner. Needless to say, I can't imagine this happening in Georgia or Wyoming - places where both the law and cops seem to be more rational. Some day, I hope to be on a jury and have a case like this so I can vote not guilty and engage in the noble tradition of jury nullification. Here's an excerpt from the story I found on Drudge.

He was arrested for protecting his property and family. But it’s how the Long Island man did it that police say crossed the line. ...George Grier said he had to use his rifle on Sunday night to stop what he thought was going to be an invasion of his Uniondale home by a gang he thought might have been the vicious “MS-13.” He said the whole deal happened as he was about to drive his cousin home. “I went around and went into the house, ran upstairs and told my wife to call the police. I get the gun and I go outside and I come into the doorway and now, by this time, they are in the driveway, back here near the house. I tell them, you know, ‘Can you please leave?’ Grier said. Grier said the five men dared him to use the gun; and that their shouts brought another larger group of gang members in front of his house. “He starts threatening my family, my life. ‘Oh you’re dead. I’m gonna kill your family and your babies. You’re dead.’ So when he says that, 20 others guys come rushing around the corner. And so I fired four warning shots into the grass,” Grier said. ...You may think a person has the right to defend their home. But the law says you can only use physical force to deter physical force. Grier said he never saw anyone pull out a gun, so a court would have to decide on firing the gun. Police determined Grier had the gun legally. He has no criminal record. And so he was not charged for the weapon.

Obama's Stimulus Means Redistribution from Poor to Rich

2010-09-07T13:42:00.000-07:00

This New York Post chart shows that the already-bloated federal workforce expanded since the downturn began. And since compensation for federal bureaucrats is twice the average for other workers, it certainly seems like Obama is playing a perverse game of class warfare - particularly since ordinary Americans pay the price when so-called stimulus spending drains money from private capital markets and misallocates resources.

The World's Biggest Political Clown?

2010-09-07T08:49:00.000-07:00

I'm working on a serious blog post about European fiscal developments, but my research on that issue has alerted me to a couple of stories about President Jose Manuel Barroso that cry out for immediate mockery and abuse. Mr. Barroso, for those that don't follow the exciting world of international bureaucracy, is the President of the European Commission. This is not an elected position (perish the thought of letting voters have a say in such matters!). Instead, he's the chief bureaucrat of the sprawling Brussels-based euro-bureaucracy. The first story is from the EU Observer, which reports that the European Parliament actually wanted to fine members that didn't suffer through Barroso's Castro-esque three-hour speech on the state of the European Union. Amazingly, the MEPs didn't file a human rights protest against this proposed form of torture, but they did stage an internal revolt and the authorities backed down.

European parliament authorities have bid a hasty retreat from a tentative proposal to fine for non-attendance of today's State of the Union speech after the idea was met with derision and anger by MEPs. A meeting yesterday (6 September) evening of parliament president Jerzy Buzek and the 14 vice presidents of the EU assembly abandoned an idea to check up on just who was listening to European Commission president Jose Manuel Barroso's speech and the ensuing debate. ...The original proposal agreed by the assembly's political groups late last week envisioned three electronic checks over the three hour slot and a small fine for MEPs whose absence was registered twice. A short debate on the issue before the presidential meeting already showed the way the wind was blowing. UK Liberal MEP Baroness Sarah Ludford called the idea a "massive own goal" adding: "You have damaged the reputation of the European Union and indeed President Barroso."

Mr. Barroso obviously is not happy about the fact that nobody knows who he is or cares what he has to say, because the next story is from the Telegraph, which reports that Barroso's staff is being dramatically expanded in an effort to "boost his media and political profile." But this is not just an example of how international bureaucrats waste taxpayer money. There's also a very offensive and reprehensible plan to corrupt journalists by paying the expenses of reporters traveling with Europe's deservedly-invisible chief bureaucrat.

Jose Manuel Barroso, the former Portuguese prime minister, will also have a photographer and television producer available 24 hours a day, as well as the services of a team of four speechwriters to call on at all times, under the new strategy to boost his media and political profile. The new measures to "personalise" his image were revealed in a leaked letter written by Viviane Reding, the Justice Commissioner, who is in charge of EU communications. ....The EU has already come under fire for spending more than €8 million euros on entertaining, "training" and "informing" individual journalists last year, and devoted particular attention to those from Ireland in the run up to that country's referendum on the Lisbon Treaty. ...The package of measures include a team of eight staff to update his website, monitoring and rebuttal of blogs criticising the EU, rapid verbatim transcripts of all the Commission president's public remarks - and, from next month, a plan to pay the costs of reporters travelling with Mr Barroso or other commissioners to "important meetings abroad".

Encouraging School Choice News from Pennsylvania

2010-09-07T04:48:00.000-07:00

When Democrat and Republican candidates for governor in a large state both endorse school vouchers, that doesn't necessarily mean genuine educational reform will take place, but it surely is a positive sign. If a state like Pennsylvania breaks the grip of the teacher unions and ends the state school monopoly, the impact would be powerful - and nationwide. The Wall Street Journal opines about the meaning of this development and also take a much-deserved shot at Obama, who is phasing out a school choice program in Washington, DC, because he cares more about appeasing unions than helping poor kids get a good education.

Last month, and to widespread surprise, Democratic gubernatorial candidate Dan Onorato came out in support of school vouchers for underprivileged kids. Mr. Onorato said that education "grants"—he avoided the term vouchers—"would give low-income families in academically distressed communities direct choices about which schools their children should attend." Mr. Onorato's Republican opponent, state Attorney General Tom Corbett, is also a strong backer of education choice, which means that come November Pennsylvania voters will get to choose between two candidates who are on record in support of a statewide school voucher program. Mr. Onorato, the Allegheny County Executive, adopted his new position at the urging of state lawmaker Tony Williams, a voucher proponent whom he defeated in a May primary. The speculation is that Mr. Onorato, who trails Mr. Corbett in the polls, is looking to attract financial support from pro-voucher businessmen who backed Mr. Williams in the primary. Mr. Onorato could also be responding to the public education reality in Pennsylvania. On state tests last year, only 56% of 11th graders scored proficient in math, and 65% in reading. In Philadelphia, only 48% of public school students read at grade level and 52% reach the standard in math. Clearly, the status quo isn't working. The Obama Administration, which is phasing out a popular and successful school voucher program in Washington, D.C., at the insistence of teachers unions, refuses to acknowledge that vouchers can play a role in reforming K-12 education.

IRS Pencil Sharpener

2010-09-06T12:49:00.000-07:00

This is just a rumor, but some of the "stimulus" money has been spent to buy new pencil sharpeners for the IRS. Apparently, the new equipment puts agents in the right frame of mind before auditing taxpayers.

Obama's New Stimulus Schemes: Same Song, Umpteenth Verse

2010-09-06T08:29:00.000-07:00

Like a terrible remake of Groundhog Day, the White House has unveiled yet another so-called stimulus scheme. Actually, they have two new proposals to buy votes with our money. One plan is focused on more infrastructure spending, as reported by Politico.

Seeking to bolster the sluggish economy, President Barack Obama is using a Labor Day appearance in Milwaukee to announce he will ask Congress for $50 billion to kick off a new infrastructure plan designed to expand and renew the nation’s roads, railways and runways. ...The measures include the “establishment of an Infrastructure Bank to leverage federal dollars and focus on investments of national and regional significance that often fall through the cracks in the current siloed transportation programs," and “the integration of high-speed rail on an equal footing into the surface transportation program.”

The other plan would make permanent the research and development tax credit. The Washington Post has some of the details.

Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week... The business proposal - what one aide called a key part of a limited economic package - would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs. It would be paid for by closing other corporate tax loopholes, said the official, speaking on condition of anonymity because the policy has not yet been unveiled.

These two proposals are in addition to the other stimulus/job-creation/whatever-they're-calling-them-now proposals that have been adopted in the past 20 months. And Obama's stimulus schemes were preceded by Bush's Keynesian fiasco in 2008. And by the time you read this, the Administration may have unveiled a few more plans. But all of these proposals suffer from the same flaw in that they assume growth is sluggish because government is not big enough and not intervening enough. Keynesian politicians don't realize (or pretend not to realize) that economic growth occurs when there is an increase in national income. Redistribution plans, by contrast, simply change who is spending an existing amount of income. If the crowd in Washington really wants more growth, they should reduce the burden of government, as explained in this video.

The best that can be said about the new White House proposals is that they're probably not as poorly designed as previous stimulus schemes. Federal infrastructure spending almost surely fails a cost-benefit test, but even bridges to nowhere carry some traffic. The money would generate more jobs and more output if left in the private sector, so the macroeconomic impact is still negative, but presumably not as negative as bailouts for profligate state and local governments or subsidies to encourage unemployment - which were key parts of previous stimulus proposals. Likewise, a permanent research and development tax credit is not ideal tax policy, but at least the provision is tied to doing something productive, as opposed to tax breaks and rebates that don't boost work, saving, and investment. We don't know, however, what's behind the curtain. According to the article, the White House will finance this proposal by "closing other corporate tax loopholes." In theory, that could mean a better tax code. But this Administration has a very confused understanding of tax policy, so it's quite likely that they will raise taxes in a way that makes the overall tax code even worse. They've already done this in previous stimulus plans by increasing the tax bias against American companies competing in world markets, so there's little reason to be optimistic now. And don't forget that the President has not changed his mind about imposing higher income tax rates, higher capital gains tax rates, higher death tax rates, and higher dividend tax rates beginning next January.

All that we can say for sure is that the politicians in Washington are very nervous now that the midterm elections are just two months away. This means their normal tendencies to waste money will morph into a pathological form of profligacy.

Labor Day, Unions, and the Role of Government

2010-09-06T05:49:00.000-07:00

In a free society, people obviously should be free to join unions and companies should be free to negotiate with unions. But that also means that companies should be free to resist union demands and hire non-union workers. There is no right or wrong in these battles, just as there is no right or wrong when McDonald's decides to sell french fries for a particular price. The market will reward good decisions and penalize bad choices. The only appropriate role for policy in this area is to enforce contracts and protect public safety. The government should not attempt to tip the scales either in favor of unions or in favor of employers. Our friends on the left, however, want the rules rigged in favor of unions, in part because of a reflexive desire for coerced equality. E.J. Dionne waxes nostalgic in the Washington Post for the good ol' days, when unions held significant power in the American economy.

Only 12.3 percent of American wage and salary workers belong to unions, according to the Bureau of Labor Statistics, down from a peak of about one-third of the work force in 1955. A movement historically associated with the brawny workers in auto, steel, rubber, construction, rail and the ports now represents more employees in the public sector (7.9 million) than in the private sector (7.4 million). Even worse than the falling membership numbers is the extent to which the ethos animating organized labor is increasingly foreign to American culture. The union movement has always been attached to a set of values -- solidarity being the most important, the sense that each should look out for the interests of all. This promoted other commitments: to mutual assistance, to a rough-and-ready sense of equality, to a disdain for elitism, to a belief that democracy and individual rights did not stop at the plant gate or the office reception room. You might accuse me of being a union romantic, and in some ways I am, having grown up in a union town, loved the great union songs, and imbibed such novels about labor's struggles as John Steinbeck's fine and underrated "In Dubious Battle."

There would be nothing wrong with Dionne's love letter to big labor - but only if he also agreed that the government should not take sides. Unfortunately (and predictably), that's not the case. Like other statists, he wants a thumb on the scales to help unions. He thinks he is being pro-worker, but his mistake is failing to understand that above-market wages (at least in the private sector) are not sustainable in the long run. Workers ultimately get paid on the basis of what they produce and if it costs $25 per hour to employ a worker and that worker produces $23 per hour of output, that ultimately is a recipe for unemployment. A good example is the American auto industry, which has declined in part because of a compensation system that is not matched by productivity. This does not necessarily mean that wages are too high. It could mean that productivity is too low. Some of that, to be sure, is the fault of government policies such as a corporate tax system that penalizes investment (thus making it more difficult for workers to boost productivity). But unions also have used their government-granted power to insist on absurd workforce practices. The picture below, taken from Mark Perry's excellent blog, compares union contracts in 1941 and 2007. With all the bureaucracy that is buried in those pages, is it a surprise that American auto workers don't produce as many cars per hours as their main foreign competitors?

Heads, They Win; Tails, We Lose

2010-09-05T10:50:00.000-07:00

State and local politicians have rigged the property tax system so they always come out ahead. When home values are rising (even if incomes are flat), they automatically collect more revenue. Sometimes they even decide to reduce the tax rate, though rarely if ever by enough to compensate for the rise in home values. But when home values are falling, that's almost always an excuse to impose a higher tax rate so that the bureaucrats don't have to worry about tightening their belts (that's a role reserved for us peons). The Tax Foundation has a new report showing that politicians collected more than 4 percent more money from property taxes even though home values dropped by 16 percent.

The recession that began in December 2007 was precipitated by a financial crisis which in turn was triggered by the popping of a real estate bubble, particularly in residential property. And indeed, property values did decline dramatically. The Case-Shiller index, a popular measure of residential home values, shows a drop of almost 16 percent in home values across the country between 2007 and 2008. As property values fell, one might expect property tax collections to have fallen commensurately, but in most cases they did not. Data on state and local taxes from the U.S. Census Bureau show that most states' property owners paid more in FY 2008 (July 1, 2007, through June 30, 2008) than they had the year before (see Table 1). Nationwide, property tax collections increased by more than 4 percent.

Venezuela's Evil Government

2010-09-04T19:53:00.000-07:00

Hugo Chavez is a palpably evil thug, and he confirms this status with a new proposal to issue cards that almost certainly will be used to ration food. Left-wing despots claim that their policies put "people above profits," but they never can explain why people (especially the masses) have much higher living standards in countries where "capitalist greed" runs rampant.

Presented by President Hugo Chávez as an instrument to make shopping for groceries easier, the ``Good Life Card'' is making various segments of the population wary because they see it as a furtive attempt to introduce a rationing card similar to the one in Cuba. The measure could easily become a mechanism to control the population, according to civil society groups. ``We see that in short-term this could become a rationing card probably similar to the one used in Cuba,'' Roberto León Parilli, president of the National Association of Users and Consumers, told El Nuevo Herald. ``It would use more advanced technological means [than those used in Cuba], but when they tell you where to buy and what the limits of what you can buy are, they are conditioning your purchases.'' Chávez said Tuesday that the card could be used to buy groceries at the government chain of markets and supplies. ...In theory, the government could begin to favor the import of products to be sold through the government chains and have more control over the type of products purchased and the people buying them. Jaime Suchlicki, director of the University of Miami's Institute for Cuban and Cuban-American Studies, said that Venezuela's current problems of scarce supplies are very similar to those Cuba faced when Fidel Castro introduced the rationing card. ``The card emerged when goods began to become scarce,'' Suchlicki said. ``The government had seized many companies that did not work because the government managed them poorly. Then they decided to distribute groceries through those cards.'' And although the cards were introduced as a mechanism to deal with scarcities, Suchlicki said, they later became an instrument of control.

The Joy of Government-Run Healthcare

2010-09-04T08:08:00.000-07:00

Here's some horrifying news from the United Kingdom, where the government-run healthcare system allowed 239 patients to die of malnutrition in 2007. Another 8,000-plus entered the system for malnutrition and actually deteriorated.

In 2007, 239 patients died of malnutrition in British hospitals, the latest year for which figures are available. A wag might say it must be the English cuisine. But the real roots of this tragedy lie in Britain's government-run medical system, which tells us something about what we might expect from ObamaCare in the years ahead. A British charity, Age U.K., has been seeking for years to raise awareness of the issue. Yet despite increases in screening, training and inspection programs, the problem has only gotten worse. The charity reports that in 2007-2008 148,946 Britons entered hospitals suffering from malnutrition and 157,175 left in that state, meaning that hospitals released 8,229 people worse-off nutritionally than when they entered. In 2008-2009, that figure was up to 10,443. The problem is not a lack of food. Hospital malnutrition mostly affects the elderly or otherwise frail, who often need individualized mealtime assistance. Spoon-feeding the elderly may not seem like the best use of a nurse's time, but for some it may literally be a matter of life and death. Yet the constant scarcities created by government medicine, along with the never-ending drive to trim costs, has led the National Health Service to give nurses additional responsibilities and powers in recent years. Inevitably, this leaves them with less time to make sure patients are getting fed.

No system is perfect, so the point of this post is not to assert that there is something especially inhumane and/or incompetent about the British system. Instead, the real lesson is that doctors and hospitals generally try to please the people paying the bills. In government-run systems, that means appeasing politicians. This doesn't preclude good patient care, but it does mean that other factors may have too much of an impact on decisions. In a market-based system, though, medical professionals have a greater incentive to focus on patients.

I should also say that this is not an endorsement of the American system, which also suffers from the third-party payer problem. In part, this is because of direct government financing, but also because of excessive use of insurance caused by government-created distortions.

If Professors Really Believe in Socialism, Why Don't They Try this Classroom Experiment?

2010-09-04T06:06:00.000-07:00

This little story appeared in my inbox. It's obviously meant to illustrate the perverse incentive structure created by redistribution, but one wonders why statists in the academic world don't follow through on their convictions and use this grading system.

A professor said he had never failed a single student before but had, once, failed an entire class. The class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer. The professor then said ok, we will have an experiment in this class on socialism.

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A.

After the first test the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. But, as the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too, so they studied little.

The second test average was a D. No one was happy.

When the third test rolled around, the average was an F.

The scores never increased as bickering, blame, and name calling all resulted in hard feelings and no one would study for anyone else.

To their great surprise, all failed. The professor told them that socialism would ultimately fail because the harder it is to succeed the greater the reward, but when a government takes all the reward away, no one will try so no one will succeed.

Obama's Class-Warfare Tax Policy Will Hit Small Business

2010-09-03T11:02:00.000-07:00

Kevin Hassett and Alan VIard of the American Enterprise Institute have a column in the Wall Street Journal showing how Obama's proposed tax hikes will impose significant harm on small business owners and other entrepreneurs. Higher tax rates are damaging for the obvious reason that business cash flow gets diverted to the IRS, but also because they alter the price (or tradeoff) between work and leisure and between consumption and investment. This means less productive activity, which is just another way of saying reduced national income.

Vice President Joe Biden harshly rejected House Minority Leader John Boehner's assertion that the hikes would harm small businesses, saying that "he has created this myth that a tax cut for millionaires is actually a tax cut for small business. There aren't 3% of small businesses in America that would qualify for that tax cut." House Speaker Nancy Pelosi flipped the number around, saying that the planned tax increases would exempt "98% of American families and about 97% of small businesses." ...The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes. The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That's the number to look at, not the 3%. ...A pair of papers by economists Robert Carroll, Douglas Holtz-Eakin, Harvey Rosen and Mark Rider that were published in 1998 and 2000 by the National Bureau of Economic Research analyzed tax return data and uncovered high responsiveness of sole proprietors' business activity to tax rates. Their estimates imply that increasing the top rate to 40.8% from 35% (an official rate of 39.6% plus another 1.2 percentage points from the restoration of a stealth provision that phases out deductions), as in Mr. Obama's plan, would reduce gross receipts by more than 7% for sole proprietors subject to the higher rate. These results imply a similar effect on proprietors' investment expenditures. A paper published by R. Glenn Hubbard of Columbia University and William M. Gentry of Williams College in the American Economic Review in 2000 also found that increasing progressivity of the tax code discourages entrepreneurs from starting new businesses.

Get the Government Out of the Business of Embryonic Stem-Cell Research

2010-09-02T13:01:00.000-07:00

As is so often the case, Jeff Jacoby of the Boston Globe hits the nail on the head, asking why taxpayers should be forced to fund embryonic stem-cell research. The moral issues in this debate are very important, to be sure, but Jacoby's column takes a different approach and uses economic arguments to thoroughly debunk those who claimed that taxpayer funding is the only hope for people suffering from a wide range of ailments. After all, if stem-cell research is expected to yield medical miracles, it should go without saying that the private sector will jump in with both feet. Which is exactly what has happened.

James Thomson, an embryologist at the University of Wisconsin, cultivated the first embryonic stem cell lines in 1998. By then the prohibition on using federal funds for scientific research in which human embryos are destroyed was already on the books; President Bill Clinton had signed it nearly three years earlier. So how did Thomson secure a government grant to finance his landmark achievement? He didn’t. His work was funded by the Geron Corporation, a California biotechnology company that develops treatments for cancer, spinal cord injuries, and degenerative diseases. ...this a good moment to ask a threshold question: Why should the federal government be funding controversial medical research in the first place? As Thomson’s 1998 discovery proved, pathbreaking accomplishments in stem-cell science are possible even when the government isn’t footing the bill. That was no anomaly. If the feds didn’t fund the search for embryonic stem-cell therapies, the private sector would. ...For-profit corporations and their shareholders aren’t the only source of private-sector stem-cell funding. The Washington Post reported in 2006 on the private philanthropy that was building new stem-cell labs in academia. “Los Angeles philanthropist Eli Broad gave $25 million to the University of Southern California for a stem cell institute, sound-technology pioneer Ray Dolby gave $16 million to the University of California at San Francisco, and local donors are contributing to a $75 million expansion at the University of California at Davis. . . Early this year, New York Mayor Michael R. Bloomberg quietly donated $100 million to Johns Hopkins University, largely for stem-cell research.’’ ...Imagine those that would do so if the federal government stopped underwriting research that so many taxpayers find problematic. Douglas Melton, the co-director of Harvard’s Stem Cell Institute, told the Boston Globe last week that private support is “the only durable and consistent source’’ of funding for embryonic stem-cell research. He’s right. Medical research would not wither away if the government took a back seat to the private sector. In this as in so many other areas, perhaps it's time to re-think Washington’s role.

Crocodile Dundee vs Australia's Tax Police

2010-09-02T06:49:00.000-07:00

Here's a Reuters story about the Australian Tax Office harassing Paul Hogan, better known to Americans as Crocodile Dundee, because of a tax dispute. The grinches at the tax office took advantage of Hogan's return for his mother's funeral to hold him hostage, refusing to let him leave the country until he coughs up some cash. It appears that the tax police in Australia are just as politicized and above the law as the IRS. Hogan has never been charged with tax evasion and there are plenty of signs that the bureaucrats want to make him a high-profile victim to justify the amount of money that has been squandered in a probe of supposed offshore evasion.

Actor Paul Hogan, star of the "Crocodile Dundee" movies, has vowed to continue fighting the Australian tax office which has barred him from leaving Australia until he pays a massive bill, saying he's victim of a witch hunt. Hogan, 70, was served with a departure prohibition order 10 days ago while in Australia to attend his 101-year-old mother's funeral which has prevented him from leaving to return to Los Angeles where he lives with his wife and son. The Australian Tax Office refused to comment on reports of seeking tax on A$38 million ($34 million) of allegedly undeclared income from Hogan, saying it cannot give details of individual taxpayers. But the actor went public in the Australian media this week to put forward his side in his five-year row with the tax office, saying he had done nothing wrong and the tax office was on a witch hunt for a high-profile case. ..."If I was a tax evader, which I'm not, I must be the dumbest one in the world to keep coming back here instead of fleeing to a tax haven ... I know they're absolutely desperate to nail some high-profile character with money to justify the expense to the taxpayer." Hogan, who was once a painter on the Sydney Harbour Bridge, is under investigation as part of Australia's biggest probe into offshore tax evasion, Operation Wickenby. The operation is budgeted to cost at least $300 million. The tax office has claimed he put tens of millions of dollars in film royalties in offshore tax havens, a claim that he has denied. He has never been charged with tax evasion.

This story is symbolic of a bigger issue, which is the the unfortunate tendency of governments to create ever-more oppressive and misguided laws in response to failures of existing policy. We see this in the failed War on Drugs, which leads to trampling of civil liberties and erosion of privacy. We see it in the failed War on Poverty, which leads to more redistribution that further traps people in dependency. We see it in the failed government-run education system, which wastes more money every year as outcomes remain stagnant and children from poor and minority communities suffer.

In the case of tax policy, politicians impose high tax rates and punitive forms of double taxation. As anybody with a modicum of common sense could predict, this bad tax policy undermines economic performance and drives economic activity to jurisdictions with better tax law. The politicians then have two ways to respond. They can lower tax rates and reform tax systems, an approach that simultaneously would boost growth and improve compliance. Or they can tighten the thumbscrews on taxpayers, trample their rights, and conspire with other high-tax nations to punish the jurisdictions that do have good policy.

Not surprisingly, most politicians choose the latter approach. And the attack on low-tax jurisdictions is a particularly loathsome part of their response. As this video explains, tax competition is a liberalizing force in the world economy and the effort by high-tax nations to penalize so-called tax havens is driven by a statist impulse to prop up decrepit and inefficient welfare states.

More Arguments Against a Value-Added Tax

2010-09-01T08:34:00.000-07:00

The biggest long-term threat to fiscal responsibility is a value-added tax, as I've explained here, here, here, here, and here. So I'm delighted to see a growing amount of research showing that a VAT is bad news. Jim Powell has an excellent column at Investor's Business Daily that makes a rather obvious point about the wisdom (or lack thereof) of copying the tax policy of nations that are teetering on the edge of fiscal collapse (this cartoon has the same message in a more amusing fashion).

Drums are beating in Washington for a value-added tax in addition to the "stimulus" taxes, health care taxes, energy taxes and other taxes President Obama has imposed and wants to impose on hard-pressed taxpayers. Supposedly a value-added tax is a magic elixir for curing budget deficits and excessive debt. Quack remedy would be more like it. If it worked, you'd observe that countries with a VAT had budget surpluses and no debt problems. But almost every country that has a VAT is plagued with budget deficits and excessive debt. ... No surprise that the worst financial basket cases all have a VAT. Iceland has the highest VAT rates, but this didn't prevent its financial crisis and the near bankruptcy of its government. Italy's VAT rates are almost as high, and its debt exceeds its GDP. Financial crises are looming in Spain and Portugal, and of course they have a VAT. Greece has a VAT, too, and when politicians ran out of money to pay government employees for more than a year's worth of work every year, they rioted in the streets. Great Britain has a VAT, and its government finances are in the worst shape since World War II — its budget deficit is expected to be bigger than that of Greece. Moreover, the OECD has acknowledged that "(VAT) tax and transfer wedges have discouraged firms from offering employment and individuals from taking it, reduced employment and increased inequality."

And a new study by Douglas Holtz-Eakin and Cameron Smith finds evidence that a VAT would lead to bigger government.

VATs provide a significant amount of revenue. ...But do these significant revenues cause government spending to grow larger? Or is it the case that adoption of a VAT is evidence of the desire for a larger government so that the causal arrow runs from a taste for Leviathan to a VAT, and not the reverse? ...we find a statistically significant dynamic relationship between the rate of VAT taxation and the size of government. Although no single study is definitive, this is the first rigorous evidence that a VAT causes government to grow larger. ...countries that adopted a VAT did in fact experience, on average, a 29 percent increase in the size of government. ...The estimated coefficient of 0.262 indicates that adopting a VAT is associated with larger government. This estimate is statistically significant. ...our results shift the burden of proof to those who deny that VATs fuel increases in the size of the public sector.

This study jumps into a long-running chicken-or-egg debate in the academic literature about whether higher taxes lead to higher spending or whether higher spending leads to higher taxes. This causality debate is interesting, but I'm not sure it really matters. A VAT is a terrible idea if it triggers bigger government, and a VAT is a bad idea if it merely finances bigger government. But I suspect this study is correct. The key thing to remember is that Milton Friedman was right when he warned that "In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with." This means that a VAT will allow more government spending and no reduction in deficits and debt, which is exactly what we see in Europe (and as Jim Powell noted in his column).

For those who like to watch rather than read, this video summarizes the arguments against a VAT.

Should America Pay Mexico to Reduce Illegal Immigration?

2010-09-01T05:00:00.000-07:00

I've never focused much on immigration issues, but this EU Observer story caught my eye. Libya's dictator is asking the European Union to give his country €5 billion (more than $6 billion) each year as a price for stopping illegal migration across the Mediterranean.

Mr Gaddafi suggested Monday during his speech to business representatives in Italy the EU should pay his country "at least €5 billion a year" to stop African migrants crossing the Mediterranean and avoid Europe becoming "black." "Gaddafi is thinking what all north African leaders are thinking: they can't and don't want to be the keepers of Europe," Mr Frattini said, adding that: "Europe needs to finally get a migration policy, giving plenty of funds to the migrants' countries of origin and helping transitory countries face a huge burden." While a European Commission spokesman declined on Tuesday to react to the Libyan leader's comments, France said the immigration issue would be included in a broader accord with Libya, on the negotiating table since November 2008.

This floors me. I'm not surprised a kleptocrat like Gaddafi made the request, but I'm stunned that European politicians seem to be taking it seriously. It's possible, I suppose, that I'm misinterpreting the article and the Europeans are merely being diplomatic, but why be polite? Won't that encourage other North African nations to make similar demands? And if European nations actually agree to such payments, are they really dumb enough to think that North African governments have the ability (or desire) to block individuals from seeking a better life in Europe?

Since bad ideas have a nasty habit of migrating across the Atlantic, my next thought is to wonder whether politicians from Mexico and other Latin American nations will decide to make similar demands of the U.S. government. Given the rampant corruption and political greed in places such as Mexico, I'm sure the ruling classes would love an additional excuse to shake down the American taxpayers. The unanswered question, of course, is whether U.S. politicians would make the same mistake as their European counterparts and respond with genuine interest rather than derisive laughter.

A Wide-Ranging Interview Covering Everything from the Gold Standard to the Value-Added Tax

2010-08-31T12:55:00.000-07:00

The Free Market Mojo site asked me a number of interesting questions about public policy. I'm not sure all of my answers were interesting, but here are some snippets that capture my curmudgeonly outlook.

I think it’s important to divide the topic into two issues, the policies that cause short-run fluctuations and the policies that impact long-run growth. Generally speaking, I try to avoid guessing games about what is happening today and tomorrow (or even yesterday), and instead focus on the policies that will boost the economy’s underlying productive capacity. ...the Fed’s easy-money policy was a mistake. If the central bank had behaved appropriately, we presumably would not have suffered a financial crisis and recession. And if we go back in history, we find the Fed’s fingerprints whenever there is an economic meltdown. ...I would not want the government to impose a gold standard. Competitive markets should determine the form of money and/or what backs up that money. Perhaps gold would emerge in such a competitive system, but a gold standard should not be imposed. ...I don’t trust politicians. They would pass a bill to impose a VAT while simultaneously phasing out the income tax over a five-year period. But inevitably there would be some sort of “emergency” in year three and the income tax would be “temporarily” extended. When the dust settled, temporary would become permanent and we would be a decrepit European-style welfare state. ...There are many great economists, but for my line of work, Milton Friedman has to be at the top of the list. He had an incredible ability to explain the benefits of liberty and the costs of statism in a way that reached average people.

Lifestyles of the Rich and Shameless

2010-08-31T11:01:00.000-07:00

The gilded nobility otherwise known as politicians get lavish compensation packages, particularly when fringe benefits are part of the equation. But that doesn't include their first class travel to exotic overseas locations. And even that doesn't count the walking-around money they get - sometimes as much as $300 per day. But they're supposed to actually spend their "per diem" money, not keep it, and this has gotten some of them in trouble. Here's an excerpt from a Wall Street Journal report on the issue.

Congressional investigators are questioning a half-dozen lawmakers for possibly misspending government funds meant to pay for overseas travel, according to people familiar with the matter. ...Congressional rules say the daily travel funds, called a per diem, must be spent on meals, cabs and other travel expenses. But when lawmakers travel, many of their meals and expenses are picked up by other people, such as foreign government officials or U.S. ambassadors. That can leave lawmakers with leftover money. Lawmakers routinely keep the extra funds or spend it on gifts, shopping or to cover their spouses' travel expenses, according to dozens of current and former lawmakers. The cash payments vary according to the cost of living and range from about $25 a day in Kabul to more than $250 a day in one part of Japan. Lawmakers also usually request and receive an additional $50 a day. Leftover funds can add up to more than $1,000 a trip for longer visits to expensive regions. ...The travel inquiry is the latest in a string of ethics investigations in the House that could hurt Democrats at the polls in November by undermining the party's message that it has "drained the swamp" of ethics abuses in Washington. The House ethics committee is also pursuing high-profile cases against Democratic Reps. Charles Rangel of New York and Maxine Waters of California. Both lawmakers could face public proceedings in coming weeks that would be the congressional equivalent of a trial.

Record Levels of Dependency Are Nothing to Celebrate

2010-08-31T07:11:00.000-07:00

One of the big problems with statists is that they define compassion incorrectly. They think they are being compassionate when they take other people's money and give it to somebody that they define as being less fortunate. But genuine compassion occurs when you spend your own money. Another problem is that they define compassion by the number of people getting handouts from the government. A truly compassionate person, however, should strive for a society where the less fortunate are able to climb the economic ladder and no longer are dependent on redistribution programs. So it is definitely bad news that a record number of people - one out of six - now are on the dole in some form or fashion. Part of this growth in dependency is due to the economic downturn, but USA Today also notes that politicians have expanded eligibility and lured more people into dependency.

Government anti-poverty programs that have grown to meet the needs of recession victims now serve a record one in six Americans and are continuing to expand. More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007. ...More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years. Caseloads have risen as more people become eligible. The economic stimulus law signed by President Obama last year also boosted benefits. ...Close to 10 million receive unemployment insurance, nearly four times the number from 2007. Benefits have been extended by Congress eight times beyond the basic 26-week program, enabling the long-term unemployed to get up to 99 weeks of benefits. ...As caseloads for all the programs have soared, so have costs. The federal price tag for Medicaid has jumped 36% in two years, to $273 billion. Jobless benefits have soared from $43 billion to $160 billion. The food stamps program has risen 80%, to $70 billion. Welfare is up 24%, to $22 billion. ...The steady climb in safety-net program caseloads and costs has come as a result of two factors: The recession has boosted the number who qualify under existing rules. And the White House, Congress and states have expanded eligibility and benefits.

Great Moments in Regulation

2010-08-30T12:23:00.000-07:00

This story from St. Louis, which my Cato colleague Walter Olson cites in a post about OSHA, is a typical example of bureaucratic stupidity and absurd "safety" laws. My favorite part is that the bureaucrat actually thought it would be reasonable to rent a lift for $750 per day just to attach a harness for somebody working only 11 feet off the ground. I'm sure the consumer would have been happy to swallow that additional cost. Reminds me of the classic Dave Barry column I cited in this post. Good to see that the Occupational Safety and Health Administration is just as incompetent today as it was decades ago.

In April, Heffernan and his nephew were working on a house in the 6400 block of January Avenue. Heffernan had finished rebuilding the chimney and his nephew was finishing up the job when Heffernan left to bid a job in West County. While he was looking at the prospective new job, he got a call from his nephew. There was some kind of a problem with an inspector. Heffernan returned to the site on January Avenue and found that an inspector for the Occupational Safety and Health Administration had shut down the site. In other words, she had told Heffernan's nephew to stop working. Heffernan was taken back. ...He said the inspector had written several citations. The first thing she told him was his scaffold wasn't level. He said he pulled out his level and put it on the scaffold to show that the scaffold was level. He said the inspector then wrote down the brand name of the level, as if there might be something wrong with his equipment. ...He said he offered to let the inspector walk on the scaffold, but she declined and said she was afraid of heights. The inspector told him his nephew needed a helmet and a safety harness. "We have safety harnesses. If the job requires it, we wear them," Heffernan said. "But my nephew was only about 11 feet off the ground. I told the inspector I didn't know what I was supposed to attach the harness to. She told me I could rent a lift and run the main pole above the chimney and have the safety line from that hooked to my nephew. A lift costs about $750 a day. It made no sense." ...Heffernan received notice in the mail that he had been cited for three violations. ...Heff's Tuckpointing is a successful operation, but it cannot afford $3,600 in fines. ...So Heffernan requested a meeting to contest the violations. He said he spoke with an OSHA compliance officer who offered to drop the first violation and reduce the fines of the other two by 40 percent. Heffernan refused the offer. He has now requested a formal hearing.

Dishonest British Budgeting...Just Like We Do It in America

2010-08-30T08:39:00.000-07:00

According to news coverage, United Kingdom Prime Minister Cameron is imposing deep and savage budget cuts. I was interviewed by the BBC recently, for instance, and asked whether 25 percent spending reductions were too harsh. And here's an excerpt from a New York Times story that is very representative of the news coverage.

Like a shipwrecked sailor on a starvation diet, the new British coalition government is preparing to shrink down to its bare bones as it cuts expenditures by $130 billion over the next five years and drastically scales back its responsibilities. The result, said the Institute for Fiscal Studies, a research group, will be “the longest, deepest sustained period of cuts to public services spending” since World War II. ...Public-sector unions are planning a series of strikes. Charities — which Mr. Cameron has said should take over some of the responsibilities now held by the state — say that they are at risk of collapse because they are so dependent on government money. And the chief executive of the Supreme Court, the country’s highest, said she did not know whether the court would be able to function at all if its budget were cut by 40 percent.

To be blunt, this type of analysis is completely false. There are no budget cuts in the United Kingdom, at least in terms of total government spending. Instead, the politicians are measuring cuts against some imaginary baseline, which is the same scam that happens in Washington. So if spending increases by 4 percent instead of 7 percent, that is characterized as a 3 percent budget reduction. The chart shows what is happening with overall government spending in the United Kingdom. Notwithstanding phony stories about budget cuts, spending in Prime Minister Cameron's first year is climbing by more than 4 percent - twice as fast as needed to keep pace with inflation.

This doesn't mean that Cameron isn't doing anything right. There is a two-year pay freeze for bureaucrats, for instance, which is at least a small step in the right direction. But the Tory-Liberal Democrat coalition is not a good role model for those who want limited government and fiscal responsibility. There are promises of spending restraint in future years, but those belong in the I'll-believe-it-when-I-see-it category. Spending is supposed to increase by less than 1 percent in next year's budget, for instance, but politicians are very good with tough talk of fiscal discipline in future years. But if we judge them by what they're doing today rather than what they're claiming will happen in the future, Cameron's policies leave much to be desired.

The tax side of the fiscal equation is even more depressing. There is small reduction in the corporate tax rate, but otherwise there is considerable bad news. The new government is leaving in place the new 50 percent top tax rate imposed by Gordon Brown as an election-year class-warfare gimmick. It is boosting the capital gains tax rate from 18 percent to 28 percent. And it increased the VAT rate from 17.5 percent to 20 percent.

Should the FDA Get More Power after Salmonella Egg Scare?

2010-08-30T05:44:00.000-07:00

Steve Chapman of the Chicago Tribune makes several excellent points in his column on the recent salmonella scare, commenting on the absurd tendency to reward government bureaucracies that screw up. But more important, he explains that there are very strong incentives for safety in an unfettered marketplace. The fundamental issue, though, is that there is no way of completely eliminating risk in society, so the responsible approach is finding the best ways to minimize risk without imposing excessive costs. Relying on free markets is surely the best answer, though the government does have a role. As Chapman notes, a well-functioning tort system ensures that companies can be punished by people who suffer damages. Command-and-control regulation, by contrast, is a very expensive and inflexible approach.

In the private sector, entities that fall short of doing their jobs find themselves forced to shrink. In the public sector, the opposite is typically true. Failure is an option, and often a beneficial one. The Federal Reserve Board and Treasury facilitated the 2008 financial crisis? Then obviously we have no choice but to give them even more responsibility. The Securities and Exchange Commission let Bernie Madoff rob investors? A bigger SEC will be a smarter SEC. Just once, I'd like to see a government official say, "We blew it, and you know what? If you give us another chance, we'll probably blow it again." But so far, my hope has not availed. It's true that the FDA is charged with assuring food safety. But really, the government can't do that. The task is too big and too complex. Fortunately, it doesn't have to do it, because the pressures of competition force producers to make sure their goods are clean and wholesome. What goes curiously unnoticed is that egg suppliers and grocery stores have nothing to gain from sickening their customers -- and a lot to lose. It doesn't take many obvious hygiene lapses for a company to get a bad reputation, and a bad reputation can be catastrophic. In 1971, a New York man died of botulism after eating a can of Bon Vivant soup. If you've never heard of Bon Vivant soup, there's a simple explanation: In no time at all, the company was bankrupt and the brand was as defunct as William McKinley. The farms implicated in this episode are likely to find themselves oddly short of buyers in the coming months, if not years -- unless they can prove they have taken drastic steps to clean up their act. But the burden of proof will be on them. They can also expect to be sued for huge sums of money. Meanwhile, there are plenty of other companies that didn't screw up, whose wares will be more attractive going forward.

The Laffer Curve Strikes Again

2010-08-29T13:17:00.000-07:00

In the private sector, no business owner would be dumb enough to assume that higher prices automatically translate into proportionately higher revenues. If McDonald's boosted hamburger prices by 30 percent, for instance, the experts at the company would fully expect that sales would decline. Depending on the magnitude of the drop, total revenue might still climb, but by far less than 30 percent. And it's quite possible that the company would lose revenue. In the public sector, however, there is very little understanding of how the real world works. Here's a Reuters story I saw on Tim Worstall's blog, which reveals that Bulgaria and Romania both are losing revenue after increasing tobacco taxes.

Cash-strapped Bulgaria and Romania hoped taxing cigarettes would be an easy way to raise money but the hikes are driving smokers to a growing black market instead. Criminal gangs and impoverished Roma communities near borders with countries where prices are lower -- Serbia, Macedonia, Moldova and Ukraine -- have taken to smuggling which has wiped out gains from higher excise duties. Bulgaria increased taxes by nearly half this year and stepped up customs controls and police checks at shops and markets. Customs office data, however, shows tax revenues from cigarette sales so far in 2010 have fallen by nearly a third. ...Overall losses from smuggling will probably outweigh tax gains as Bulgaria struggle to fight the growing black market, which has risen to over 30 percent of all cigarette sales and could cost 500 million levs in lost revenues this year, said Bezlov at the Center for the Study of Democracy. While the government expected higher income from taxes in 2010 it has already revised that to the same level as last year. "However, this (too) looks unlikely at present," Bezlov added. Romania, desperately trying to keep a 20 billion-euro International Monetary Fund-led bailout deal on track, has a similar problem after nearly doubling cigarette prices in 2009 then hiking value added tax. Romania's top three cigarette makers -- units of British American Tobacco, Japan Tobacco International and Philip Morris -- contributed roughly 2 billion euros to the budget in taxes in 2009, or just under 2 percent of GDP. They estimate about a third of cigarettes in Romania are smuggled and say this could cost the state over 1 billion euros.

Greetings from Colorado

2010-08-29T11:45:00.000-07:00

Heading back to Washington after a couple of days at the High Lonesome Ranch and a couple of days at the Steamboat Institute Freedom Conference. The High Lonesome Ranch is a great example of private conservation, with some of the nation's highest concentrations of black bears and mountain lions. The Steamboat Institute conference was a great gathering of free-market people. I spoke on (what a surprise) fiscal policy. The most amusing part of the conference was during Karl Rove's speech, when he remarked that "Dan Mitchell thinks I'm a dangerous liberal." I actually think he's an operational statist, but read this, this, and this and you be the judge.

A Victory for the Second Amendment

2010-08-29T06:28:00.000-07:00

U.S. News & World Report reports that the Environmental Protection Agency has rejected a scheme from left-wing organizations to ban the use of ammunition containing lead. This is a welcome decision, particularly since the EPA is a very radical organization that traditionally is willing to bend the law to advance ideological goals (proposing carbon dioxide regulations to push the global warming agenda through the back door, for instance, as well as regulating swampy land even though its jurisdiction applies only to navigable waterways). Kudos to the National Rifle Association and other groups that flexed enough muscle to scare off the bureaucrats at the EPA.

In a swift and unexpected decision, the Environmental Protection Agency today rejected a petition from environmental groups to ban the use of lead in bullets and shotgun shells, claiming it doesn't have jurisdiction to weigh on the controversial Second Amendment issue. The decision came just hours after the Drudge Report posted stories from Washington Whispers and the Weekly Standard about how gun groups were fighting the lead bullet ban. The EPA had planned to solicit public responses to the petition for two months, but this afternoon issued a statement rejecting a 100-page request from the Center for Biological Diversity, the American Bird Conservancy, and three other groups for a ban on lead bullets, shot, and fishing sinkers. The agency is still considering what to do about sinkers. The decision was a huge victory for the National Rifle Association which just seven days ago asked that the EPA reject the petition, suggesting that it was a back door attempt to limit hunting and impose gun control. It also was a politically savvy move to take gun control off the table as the Democrats ready for a very difficult midterm election.

Higher Tax Rates on the Rich Will Backfire

2010-08-28T18:44:00.000-07:00

I know I've beaten this drum several times before, but the Wall Street Journal today has a very good explanation of why class-warfare tax policy will backfire. The Journal's editorial focuses on what happened after the 2003 tax rate reductions. And below the excerpt, you'll find a table I prepared showing what happened with tax revenues from the rich following the Reagan tax cuts. The simple message is that lower tax rates are the best way to soak the rich.

Congress's Joint Committee on Taxation recently dropped a study claiming that millionaires will pay $31 billion of the $36 billion in revenue that it expects will be raised next year if tax rates rise as scheduled on January 1. ...If you believe that, you probably also believed Joint Tax when it predicted that the rich would gain a huge tax windfall when tax rates were cut in 2003. Let's go to the videotape. According to the most recent IRS data on actual tax payments, total revenues collected over the period 2003-07 were about $350 billion higher than Joint Tax and the Congressional Budget Office predicted when the 2003 tax cuts were enacted. Moreover, the wealthiest taxpayers paid a larger share of all income taxes from the beginning to the end of this period. The IRS data show that in 2003 those with incomes above $200,000 paid $313 billion in income tax. By 2007 they paid $610 billion. ...Guess what income group paid the most in higher taxes after tax rates were cut? Millionaires. From 2003 to 2008, millionaires increased their tax payments to $249 billion from $132 billion. One reason for the big increase in payments: the number of returns declaring $1 million or more in income increased 76% to 319,000 from 181,000 as the economy expanded. The IRS data are a useful reminder of how dependent Uncle Sam is on the rich to pay the government's bills. ...We're not saying that tax cuts "pay for themselves." What we are saying is that the 2003 tax cuts proved again, as we should have learned in the 1960s and 1980s, that rich people are the most responsive to changes in tax rates. When tax rates are high, the wealthy invest less, hire accountants to protect more of their income from the IRS, and park more of their money in tax shelters, such as municipal bonds. ...That's why it's a fantasy to think that raising income and capital gains and dividend tax rates on the rich is going to pry $31 billion out of millionaire households. History teaches that the best way to soak the rich and reduce the deficit is to promote rapid economic growth. But that's less likely to happen in 2011 if the economy is rear-ended with the biggest tax increase in at least 16 years.

Gross Abuse of Police Power

2010-08-27T16:50:00.000-07:00

Here's a very disturbing story I saw on Instapundit. A cop arrested a woman for the supposed crime of not getting off her own front porch. Apparently, the cop didn't like the fact that she was observing - and perhaps even filming on her cell phone camera - a traffic stop. If there is any justification for what the cop did, it certainly is not apparent from the full story. What's particularly disturbing is not just that the cop made a seemingly abusive arrest, but that a judge then convicted the woman. Libertarians instinctively will be skeptical of the government in this case, but I hope that viewed is widely share. Our Founding Fathers gave us a Constitution that limited the power of government, and there should be a clear and compelling reason before an individual is stepped on by the police power of the state. If you rob, rape, and murder, those are good reasons. Standing on your court and filming a traffic stop doesn't pass that test.

The resisting-arrest conviction last week of Felicia Gibson has left a lot of people wondering. Can a person be charged with resisting arrest while observing a traffic stop from his or her own front porch? Salisbury Police Officer Mark Hunter thought so, and last week District Court Judge Beth Dixon agreed. Because Gibson did not at first comply when the officer told her and others to go inside, the judge found Gibson guilty of resisting, delaying or obstructing an officer. Gibson was not the only bystander watching the action on the street. She was the only one holding up a cell-phone video camera. But court testimony never indicated that Hunter told her to stop the camera; he just told her to go inside.

Great Moments in Local Government

2010-08-27T10:58:00.000-07:00

Here's another remarkable story illustrating the incompetence of government. A bureaucrat in Norfolk, VA, got paid for 12 years (including benefits) without ever showing up for work. Depending on the agency, this may actually have been a good thing (I wish IRS bureaucrats did this), but it certainly shows how taxpayer money gets wasted when nobody is accountable and there is no bottom-line incentive to use money effectively.

A Community Services Board employee collected a salary with benefits for 12 years and never showed up for work, several City Council members said Wednesday. The head of the agency refused to identify the employee but acknowledged in response to inquiries from The Virginian-Pilot that an employee was "on the board's payroll who had not reported to work in years." Maureen Womack, the agency's executive director, said she fired the employee, informed the board that governs her agency and asked City Attorney Bernard A. Pishko to investigate the matter earlier this summer. Pishko's investigation is nearly complete and will soon be turned over to the Norfolk police, she said. Womack also refused to divulge the employee's salary. The council also was told in a recent closed meeting that at least one other staffer, a Community Services Board supervisor, is being investigated for alleged complicity. ...Councilman Tommy Smigiel said recent revelations about the Community Services Board employee and other matters, including the profligate use of a city credit card by the Commissioner of Revenue and the purchase of a cell phone with city funds for a gang member by an assistant to the city manager, are doing "serious damage" to Norfolk's image.

Where Can I Get this T-Shirt?

2010-08-26T16:02:00.000-07:00

Time to Shut Down the Congressional Budget Office?

2010-08-26T12:42:00.000-07:00

One of the many disappointing things about Republicans is that they fail to correct problems when they get power. After the 1994 "Gingrich Revolution," the GOP had complete control of Capitol Hill. This meant complete authority over the Congressional Budget Office and Joint Committee on Taxation. Did Republicans use this power to fire the old staff and put in people who understood economics? Of course not. I don't know if this is because Republicans are stupid or if it's because they're too timid to take steps that would generate complaints from their enemies. Regardless, what really matters is that CBO and JCT are just as biased today as they were 20 years ago. Diana Furchtgott-Roth of the Hudson Institute exposes CBO's latest shoddy Keynesian analysis. She is correct, and the people making these same arguments 20 years ago were correct. And I'm afraid people will be saying the same things 20 years from now. Which leads me to think that maybe the best approach is to get rid of these bureaucracies.

...on Tuesday the nonpartisan Congressional Budget Office issued a report showing that the American Recovery and Reinvestment Act of 2009 increased the number of people employed by between 1.4 and 3.3 million people in the second quarter of 2010 and lowered unemployment by 0.7 to 1.8 percentage points. CBO concludes that without the Recovery Act unemployment, which stood at 9.5% in July, might exceed 10% and possibly be above 11%. There's just one problem. CBO's latest figures are inconsistent with its claims of the effects of the stimulus bill when it was passed in February 2009. If its models failed to accurately predict the effects of the stimulus bill then, why should we believe the models now? This is important because some are taking the CBO report as proof that the stimulus bill is working and so we need...more stimulus. ...After passage of the stimulus bill, in a March 2009 letter to Iowa Senator Chuck Grassley, CBO predicted that the unemployment rate in the last quarter of 2009 would rise to 9% without the stimulus package, from its then-current level of 8.2%. With the stimulus, CBO said, the unemployment rate would range from 7.8% to 8.5%. The actual rate in December, 11 months after enactment of the stimulus, was 10%, far higher than CBO said it would be absent the stimulus. ...If Americans had known in February of 2009 that the $787 billion stimulus package (whose cost CBO later raised to $862 billion) would not lead to declines in unemployment, but instead a substantial increase in the unemployment rate to 9.5%, opposition to the spending would have been practically universal. Put it another way - if Americans were asked now whether they would prefer today to have back the February 2009 unemployment rate of 8.2% and the $862 billion spent on stimulus, they would say yes. Some say things would have been worse if the stimulus funds had not been spent. They assume that more government spending, including the $862 billion stimulus, must be good for the economy. This form of Keynesian economics fell out of fashion decades ago everywhere, except in the halls of power in Washington. If more government spending always helped the economy, why stop at $862 billion? Why not give each American an unlimited bank account? Then the unemployment rate would likely rise to 100%. But some economists would still offer unverifiable models to "prove" the benefit to the American public.

Another Shot Across the RINO Bow

2010-08-26T07:06:00.000-07:00

I thought it was shocking when Senator Bennett of Utah was denied renomination, but I'm even more stunned that Senator Murkowski of Alaska is trailing her opponent in preliminary results from Tuesday's primary. As the Wall Street Journal explained in an editorial this morning, this is a big sign that voters are not merely interested in electing big-government Republicans instead of big-government Democrats. They actually want leaders who will fight to limit government and expand freedom. After nearly 10 years of Bush-Obama statism, I'm very happy to see the American people still value liberty.

GOP Members of Congress who think they can return to business as usual if they regain the majority should pay attention. The biggest shock came in Alaska, with incumbent Senator Lisa Murkowski trailing unheralded challenger Joe Miller by roughly 1,700 votes with as many as 16,000 absentee ballots still to be counted. ...Though heavily outspent, Mr. Miller was helped by former Governor Sarah Palin's endorsement and especially by Ms. Murkowski's failure to understand the anti-Washington mood. When he asked Senator Murkowski in a debate which part of the Constitution permitted Roe v. Wade and bank bailouts, she responded that the nation might suffer if the government only funded things explicitly authorized by the Constitution. Bad answer. Ms. Murkowski opposed ObamaCare but Alaskans punished her for her 2009 refusal to rule out a government-run health-care plan. She is learning the lesson that ousted Utah Senator Bob Bennett did: GOP voters don't want their representatives to negotiate with President Obama. They're looking for people who can defeat his agenda.

Chile's Private Social Security System a Big Success

2010-08-25T04:23:00.000-07:00

Unlike the United States and most European nations, Chile does not face a long-term Social Security crisis. This is because lawmakers shifted to a system of personal accounts almost 30 years ago. As a result, Chile's economy is much stronger, the financial system is healthy, workers are better off, and taxpayers are protected. It also turns out that a system of personal accounts has a positive impact on the labor supply of older workers. Instead of getting lured into retirement by a punitive tax-and-transfer government system, they remain active to reap the rewards of a system that rewards them (rather than tax collectors) for continued work. A former World Bank expert has the details in a new report from the National Center for Policy Analysis.

American workers live longer each decade but they continue to retire early. They often begin receiving Social Security benefits, quit working and stop contributing to national output well before age 65. Reversing these trends must be an important objective when designing long-term reforms to balance revenues and expenditures on elderly entitlements. Chile faced similar problems prior to 1981. It had a traditional pay-as-you-go defined benefit system, like Social Security in the United States. Workers had strong incentives to start their retirement benefits as soon as possible, because postponing pensions and adding contributions did not increase benefits commensurately. Labor force participation dropped dramatically when workers became eligible for pensions. This changed with reforms in 1981 that replaced the defined benefit system with a defined contribution system. All new workers were required to join the defined contribution system while existing workers had a choice. Most workers are now in the new system and are required to contribute 10 percent of their wages to an individual account. Contributions are invested in a pension fund chosen by the worker and accumulate a market rate of return. Payouts take the form of inflation-protected annuities or gradual withdrawals during retirement. The new system increased incentives for older workers to postpone retirement and continue working. The response was dramatic....Following the 1981 policy changes and reforms, and after controlling for other sources of change in retirement behavior, the percentage of individuals receiving early benefits fell significantly: The proportion who received benefits before age 65 decreased by about 8 percentage points. The proportion of individuals who started receiving retirement benefits by their early 60s fell by about a quarter. The proportion who started receiving benefits by their 50s was cut in half. Postponing the commencement of benefits could be due to market returns on additional contributions, which made workers more willing to continue working in order to save more money for retirement. Or it could be due to tighter preconditions on early retirement, which required more individuals to continue working until age 65. Tighter preconditions seem to dominate, as the percentage of individuals who receive benefits after 65 has not changed. More older workers kept working following the reform, after controlling for other factors: Labor force participation rates for individuals in their 50s rose 12 percentage points. Labor force rates rose 13 percentage points for those aged 65-70. Individuals aged 60-64 increased their labor force participation the most - by 19 percentage points. The biggest change in labor force participation was for individuals who had started receiving benefits from their retirement accounts: Participation rates rose by 15 percentage points for pension recipients in their late 60s. Rates rose by 28 percentage points for those in their 50s and early 60s. Among all pension recipients under age 70, the proportion who continued working more than doubled.

Taxpayer-Funded Sex Trips to Amsterdam?!?

2010-08-24T14:34:00.000-07:00

I think Viagra subsidies for sex offenders are an absurd example of government stupidity in America. I'm also amazed that European taxpayers are forced to pay for penile implants for bureaucrats at the European Commission. But I'm almost speechless to learn that British taxpayers are financing hanky-panky with prostitutes in Amsterdam for some disabled citizens. According to the Daily Mail, taxpayers across the pond also are paying for lap dances, though it's unclear why some beneficiaries are allowed to travel to foreign countries while others stay home. I have great sympathy for people who are disabled, and I certainly have no problem with them purchasing sexual services, but I agree with the guy from the Disability Alliance that this is not an appropriate role for government.

A 'man of 21 with learning disabilities has been granted taxpayers' money to fly to Amsterdam and have sex with a prostitute. His social worker says sex is a 'human right' for the unnamed individual - described as a frustrated virgin. His trip to a brothel in the Dutch capital's red light district next month is being funded through a £520million scheme introduced by the last government to empower those with disabilities. They are given a personal budget and can choose what services this is spent on. The man's social worker, who spoke on the condition of anonymity, said his client was an 'angry, frustrated and anxious young man' who had a need for sex. ...The trip emerged in data from Freedom of Information requests which revealed that many councils are using the money from the government's Putting People First scheme to pay for prostitutes, visits to lap dancing clubs and exotic holidays. ...Critics yesterday said the use of taxpayers' money to fund sex trips abroad as 'deeply worrying'. In Greater Manchester and Norfolk, social care clients have used their payments for internet dating subscriptions. ...Neil Coyle, director of policy at Disability Alliance, said most people with disabilities did not want or expect the state to pay for sexual services. 'Public bodies don't exist to find people sexual partners,' he said.

Great Moments in Government Incompetence

2010-08-24T12:03:00.000-07:00

I take second place to nobody in my view that government is horribly incompetent, but I even I'm shocked by this story I saw linked on Drudge. According to a news report out of Indiana, students who take the government's driver's ed class are four times more likely to crash than those who don't take the classes. There almost certainly must be other factors that account for this surprising difference, as suggested in the excerpt below. After all, even I don't believe bureaucrats can turn people into more dangerous drivers. At the very least, though, this presumably shows that government classes have no positive impact. Maybe the right way to deal with young drivers is to put parents back in charge, backed up by the discipline of auto insurance rates determined by market forces. How's that for a radical idea?

Indiana lawmakers say they are puzzled by a study that shows teenagers who take driver's education classes are more likely to crash than those who do not take the classes. The Indiana BMV released the study that it says shows current drivers under 18 who took driver's ed had nearly four times the crashes than those without the training. Some lawmakers say it might be time for an overhaul. The state's drivers ed program has not changed in the past 30 years. But the BMV says the numbers might be skewed by the fact that teens with driver's ed get their permits earlier and have more time on the road.

New York Times Seeks Higher Taxes on the "Rich" as Prelude to Higher Taxes on the Middle Class

2010-08-24T05:44:00.000-07:00

In a very predictable editorial this morning, the New York Times pontificated in favor of higher taxes. Compared to Paul Krugman's rant earlier in the week, which featured the laughable assertion that letting people keep more of the money they earn is akin to sending them a check from the government, the piece seemed rational. But that is damning with faint praise. There are several points in the editorial that deserve some unfriendly commentary.

First, let's give the editors credit for being somewhat honest about their bad intentions. Unlike other statists, they openly admit that they want higher taxes on the middle class, stating that "more Americans — and not just the rich — are going to have to pay more taxes." This is a noteworthy admission, though it doesn't reveal the real strategy on the left. Most advocates of big government understand that it will be impossible to turn America into a European-style welfare state without a value-added tax, but they don't want to publicly associate themselves with that view until the political environment is more conducive to success. Most important, they realize that it will be very difficult to impose a VAT without seducing some gullible Republicans into giving them political cover. And one way of getting GOPers to sign up for a VAT is by convincing them that they have to choose a VAT if they don't want a return to the confiscatory 70 percent tax rates of the 1960s and 1970s. Any moves in that direction, such as raising the top tax rate from 35 percent to 39.6 percent next January, are part of this long-term strategy to pressure Republicans (as well as naive members of the business community) into a VAT trap.

Shifting to other assertions, the editorial claims that "more revenue will be needed in years to come to keep rebuilding the economy." That's obviously a novel assertion, and the editors never bother to explain how and why more tax revenue will lead to a stronger economy. Are the folks at the New York Times not aware that both economic growth and living standards are lower in European nations that have imposed higher tax burdens? Heck, even the Keynesians agree (albeit for flawed reasons) that higher taxes stunt growth.

The editorial also asserts that, "Since 2002, the federal budget has been chronically short of revenue." I suppose if revenues are compared to the spending desires of politicians, then tax collections are - and always will be - inadequate. The same is true in Greece, France, and Sweden. It doesn't matter whether revenues are 20 percent of GDP or 50 percent of GDP. The political class always wants more. But let's actually use an objective measure to determine whether revenues are "chronically short." The Democrat-controlled Congressional Budget Office stated in its newly-released update to the Economic and Budget Outlook that federal tax revenues historically have averaged 18 percent of GDP. They are below that level now because of the economic downturn, but CBO projects that revenues will climb above that level in a few years - even if all of the 2001 and 2003 tax cuts are made permanent. Moreover, OMB's historical data shows that revenues were actually above the long-run average in 2006 and 2007, so even the "since 2002" part of the assertion in the editorial is incorrect.

On the issue of temporary tax relief for the non-rich, the editorial is right but for the wrong reason. The editors rely on the Keynesian rationale, writing that, "low-, middle- and upper-middle-income taxpayers...tend to spend most of their income and the economy needs consumer spending" whereas "Tax cuts for the rich can safely be allowed to expire because wealthy taxpayers tend to save rather than spend their tax savings." I've debunked Keynesian analysis so often that I feel that I deserve some sort of lifetime exemption from dealing with this nonsense, but I'll give it another try. Borrowing money from some people in the economy and giving it to some other people in the economy is not a recipe for better economic performance. Economic growth means we are increasing national income. Keynesian policy simply changes who is spending national income, guided by a myopic belief that consumer spending somehow is better than investment spending. The Keynesian approach didn't work for Hoover and Roosevelt in the 1930s, it didn't work for Japan in the 1990s, and it hasn't worked for Obama. And it doesn't matter if the Keynesian stimulus is in the form of tax rebates. Gerald Ford's rebate in the 1970s was a flop, and George W. Bush's 2001 rebate also failed to boost growth. Tax cuts can lead to more national income, but only if marginal tax rates on productive behavior are reduced so that people have more incentive to work, save, and invest. This is an argument for extending the lower tax rates for all income classes, but it's important to point out that the economic benefits will be much greater if the lower tax rates are made permanent.

Last but not least, the editorial asserts that, "The revenue from letting [tax cuts for the rich] expire — nearly $40 billion next year — would be better spent on job-creating measures." Not surprisingly, there is no effort to justify this claim. They could have cited the infamous White House study claiming that the so-called stimulus would keep unemployment under 8 percent, but even people at the New York Times presumably understand that might not be very convincing since the actual unemployment rate is two percentage points higher than what the Obama Administration claimed it would be at this point.

Why Is Keynesian Economics Like a Freddy Krueger Movie?

2010-08-23T12:33:00.000-07:00

Working in Washington is a frustrating experience for many reasons, but my personal nightmare is that bad ideas refuse to die. Keynesian economics is a perfect example. It doesn't matter that Keynesian deficit spending didn't work for Hoover and Roosevelt. It doesn't matter that it didn't work for the Japanese all through the 1990s. It doesn't matter that it didn't work for Bush in 2008. And it doesn't matter that it hasn't worked for Obama. The statists simply shrug their shoulders and say there wasn't enough spending. Or that the economy would have been even worse with all the so-called stimulus. With this in mind, I was initially excited to read Kevin Hassett's obituary for Keynesianism, but then I sobered up and realized that evidence is not enough to win this debate. Like a vampire or a Freddy Krueger movie, the bad guy (or bad idea) keeps getting resurrected. So while Kevin's article is very compelling, I don't expect that it will stop politicians from doing the wrong thing in the future.

...some Keynesians who supported Barack Obama's $862 billion stimulus now claim it fell short of their goals not because the idea was flawed, but because the spending package was too small. Christina Romer, the departing chairman of Obama's Council of Economic Advisers, has become a minor cult hero to the Keynesians, thanks to news reports that said her analysis in 2009 suggested the stimulus should be in the range of $1.2 trillion, or 40 percent larger than it turned out to be. The notion that a much-larger U.S. stimulus would have been more successful isn't backed up by evidence. Maybe there would be an argument if some countries were now booming because their stimulus packages were larger. Or if some previous U.S. administration had tried a bigger stimulus and had better luck. The fact is, the U.S. stimulus was the largest among members of the Organization for Economic Cooperation and Development, and the biggest ever tried in the U.S. Nor does the academic literature support what we might call these Not-Enough Keynesians. A 2002 study by economists Richard Hemming, Selma Mahfouz and Axel Schimmelpfennig of recessions in 27 developed economies from 1971 to 1998 found that increased spending by government had, in almost all cases, a barely noticeable impact, and sometimes a negative one. Heavily indebted countries that spent more in recessions grew about 0.5 percent less, relative to trend, than countries that didn't, the study found. ...Supporters of this type of stimulus are either unfamiliar with the literature or willing to ignore it. The result is policy that is harmful to our country and inconsistent with modern economic science. If the Obama economic team were medical doctors, they would be pushing the use of medicine not approved by the Food and Drug Administration. As the economic data again head south, it will be much harder to devise successful economic policies because of the budgetary hole that the Keynesians have dug for us. In all likelihood, the data will soon be so convincingly bad that we'll again debate the need for an economic stimulus. Let's hope that when that begins, all will finally concede that the ideas of John Maynard Keynes are as dead as the man himself, and that Keynesianism is the real voodoo economics.

Taxpayers vs Bureaucrats, the Foreign Edition

2010-08-23T09:02:00.000-07:00

If misery loves company, we can be very happy about these two stories about over-compensated bureaucrats from outside our borders. The first story comes from Europe, where the Daily Telegraph reports that pension costs are skyrocketing for bureaucrats with the European Commission and other European Union entities. With the average pension being more than $88,000 per year, that's hardly a surprise. This adds injury to injury since EU bureaucrats already get paid much more than workers in the productive sector of the economy.

Internal estimates, seen by The Daily Telegraph, show huge cost increases as growing numbers of officials in an expanded EU qualify for retirement, often at a younger age than the taxpayers who fund their generous pensions. Over the next three years alone, the cost of EU civil service pensions is expected to rise by 16 per cent to an annual bill for taxpayers of £1.3 billion. ... EU officials are allowed to retire at the age of 63, younger than Britons who have just had their retirement age increased from 65 to 66 by 2016. ...According to unpublished Commission figures, the pension bill will by 2040 risen 97 per cent to over £2 billion, with a British contribution of over £350 million. ...The average annual pension pocketed by the 17,471 retired eurocrats benefiting from the scheme is £57,194, while the highest ranking officials can pocket pensions of over £102,000.

Our second story comes from the Cayman Islands, where bureaucrats (as well as some politicians) have figured out the double-dipping scam, getting a lucrative pension while still receiving a salary. But the Cayman Islands at least deserve credit for limiting the damage. All bureaucrats hired after 1999 participate in a mandatory savings system, thus limiting the long-run risk for taxpayers.

A significant number of employees in the Cayman Islands Civil Service receive a monthly pension as well as a salary, according to records obtained by the Caymanian Compass. There are 65 people who have retired from the civil service under the defined benefit pension programme - which means they are receiving a monthly pension while continuing to work in government, according to information from a Freedom of Information request made by the Compass. Those workers are typically employed on a fixed-term contract and, therefore, also receive a salary. ...There were 171 employees working in the civil service who were age 60 or over at the date the Compass made its open records request. The ability of civil servants and Cayman Islands legislators to ‘double dip’ is not to the liking of at least one lawmaker, who raised the issue in the Legislative Assembly in June. North Side MLA Ezzard Miller told the assembly that a change in the parliamentary pensions law in recent years has allowed elected officials to receive the same benefit as civil servants - to retire while continuing to serve in the assembly. In essence, Mr. Miller said, those lawmakers can “get a double dip” – continue to receive their salaries while earning a pension at the same time. ...Cayman Islands civil servants who joined the service after mid-April 1999 no longer receive defined benefit pension payments. In other words, the newer civil service employees will receive a lump sum payment from their pension funds rather than a monthly pension.

Great Moments in Government Stupidity and Incompetence

2010-08-23T04:57:00.000-07:00

For those who favor truth in labeling, the housing meltdown and related financial crisis and economic downturn should be brightly stamped with the phrase, "Made in Washington." Here are two good pieces of evidence. First, this paper from the American Enterprise Institute is one of the best big-picture analyses on the issue. It identifies how "affordable lending" policies are at the heart of the problem. Here's an excerpt from the abstract.

Government policies forced a systematic industry-wide loosening of underwriting standards in an effort to promote affordable housing. This paper documents how policies over a period of decades were responsible for causing a material increase in homeowner leverage through the use of low or no down payments, increased debt ratios, no loan amortization, low credit scores and other weakened underwriting standards associated with NTMs. These policies were legislated by Congress, promoted by HUD and other regulators responsible for their enforcement, and broadly adopted by Fannie Mae and Freddie Mac (the GSEs) and the much of the rest mortgage finance industry by the early 2000s. Federal policies also promoted the growth of overleveraged loan funding institutions, led by the GSEs, along with highly leveraged private mortgage backed securities and structured finance transactions. HUD’s policy of continually and disproportionately increasing the GSEs’ goals for low- and very-low income borrowers led to further loosening of lending standards causing most industry participants to reach further down the demand curve and originate even more NTMs. As prices rose at a faster pace, an affordability gap developed, leading to further increases in leverage and home prices. Once the price boom slowed, loan defaults on NTMs quickly increased leading to a freeze-up of the private MBS market. A broad collapse of home prices followed.

Then, to show a good example of Mitchell's Law, which is how bad government policy leads to more government policy, here's a story about the fiasco surrounding President Obama's mortgage subsidy program. The government is so bloody incompetent, it can't even give away money effectively.

Nearly half of the 1.3 million homeowners who enrolled in the Obama administration's flagship mortgage-relief program have fallen out. The program is intended to help those at risk of foreclosure by lowering their monthly mortgage payments. Friday's report from the Treasury Department suggests the $75 billion government effort is failing to slow the tide of foreclosures in the United States, economists say. More than 2.3 million homes have been repossessed by lenders since the recession began in December 2007, according to foreclosure listing service RealtyTrac Inc. Economists expect the number of foreclosures to grow well into next year. "The government program as currently structured is petering out. It is taking in fewer homeowners, more are dropping out and fewer people are ending up in permanent modifications," said Mark Zandi, chief economist at Moody's Analytics. ...Many borrowers have complained that the government program is a bureaucratic nightmare. They say banks often lose their documents and then claim borrowers did not send back the necessary paperwork. The banking industry said borrowers weren't sending back their paperwork. They also have accused the Obama administration of initially pressuring them to sign up borrowers without insisting first on proof of their income. When banks later moved to collect the information, many troubled homeowners were disqualified or dropped out. Obama officials dispute that they pressured banks. They have defended the program, saying lenders are making more significant cuts to borrowers' monthly payments than before the program was launched. And some of the largest mortgage companies in the program have offered alternative programs to those who fell out.

America's Greediest State and Local Governments

2010-08-22T14:15:00.000-07:00

I ran across two interesting lists showing how politicians at the state and local level are often just as bad as the ones in Washington, DC. First, Forbes has an article identifying the 10 states with the highest income tax rates. The top rate is a big deterrent to entrepreneurs and investors, but it's also important to look at the income level where the top tax rate takes effect. Yes, Hawaii, Oregon, and California have terrible tax policy, but Iowa, Maine, and Washington, DC, deserve special scorn for raping the middle class.

Hawaii: 11% (income over $400,000 (couple), $200,000 (single))
Oregon: 11% (income over $500,000 (couple), $250,000 (single))
California: 10.55% (income over $1 million)
Rhode Island: 9.9% (income over $373,650)
Iowa: 8.98% (income over $64,261)
New Jersey 8.97% (income over $500,000)
New York: 8.97% (income over $500,000)
Vermont: 8.95% (income over $373,650)
Maine: 8.5% (income over $39,549 (couple), $19,749 (single))
Washington, D.C.: 8.5% (income over $40,000)

Looking at the other major source of revenue for state and local governments, the Tax Foundation identifies the cities with the highest total sales tax rate - a number that often includes three separate levies by state, county, and city governments. Here are the top 10. Or should I say worst 10?

Birmingham AL 10.000%
Montgomery AL 10.000%
Long Beach CA 9.750%
Los Angeles CA 9.750%
Oakland CA 9.750%
Fremont CA 9.750%
Chicago IL 9.750%
Glendale AZ 9.600%
Seattle WA 9.500%
San Francisco CA 9.500%

One thing that stands out is that California is on both lists, which helps explain why the state is such a basket case. Seattle deserves a special mention because at least there is no state income tax in Washington.

Last but not least, it's worth mentioning that there's no sales tax or income tax in New Hampshire. Live Free or Die!

Barack Obama Named "Man of the Year" by Libertarian Party

2010-08-22T11:34:00.000-07:00

The title of this post is tongue-in-cheek, but the Obama presidency certainly has sparked a resurgence in the limited-government movement. Professor John J. Pitney, Jr., explores this issue for Reason TV.

I actually wanted Obama to win in 2008 for precisely this reason. Yes, Obama is giving us bigger government, but a McCain victory also would have meant bigger government. Some people will argue, quite correctly, that we wouldn't have been saddled with Obamacare if McCain had won. My response is that McCain's healthcare plan also was bad, and surely would have become even worse as it meandered through a legislative process controlled by Harry Reid and Nancy Pelosi. Moreover, cap-n-trade and a value-added tax would have been much more likely under a McCain Administration.

With Obama in the White House, the free-market movement is enjoying a renaissance. That would not have happened under a McCain Administration. Moreover, Republicans on Capitol Hill are at least pretending they now believe in small government. That's only happening because Obama is in the White House.

In short, a McCain victory would have meant continued growth of government with no prospect of a conservative/libertarian renewal. Obama's victory has been giving us bad policy, of course, but at least there's now a backlash for freedom.

For what it's worth, I've always been a fan of this one-step-backwards-two-steps-forward strategy. I wanted Carter to win in 1976, Clinton to win in 1992, and Kerry to win in 2004. If we're going to have someone in the White House who is doing the wrong thing, it's better for it to be a Democrat. After all, Carter paved the way for Reagan in 1980 and Clinton set the stage for the 1994 GOP revolution. I suspect something equally interesting will happen this November.

Reaganomics, Obamanomics, and Carternomics

2010-08-22T03:27:00.000-07:00

National Review captures a key difference between Reagan and Obama, writing that Reagan was willing to incur short-run political pain to make America healthier and stronger. Obama, by contrast, has pursued the free-lunch Keynesian approach. Only time will tell whether Obama becomes another Jimmy Carter, but he certainly isn't doing himself any favors by continuously pushing to expand the burden of government.

Both men faced seemingly intractable economic problems with no easy solution, but Reagan understood that curing the nation’s debilitating inflation was going to involve a good deal of short-term economic pain and political unpopularity, and he was prepared to endure that. By contrast, Obama has done everything in his power to avoid painful corrections — at great cost to future taxpayers. It is increasingly evident that his policies have merely put off these corrections or dragged them out, and that we have not avoided them at all. Reagan’s willingness to accept painful and unpopular but necessary economic adjustments — and Obama’s lack of the same fortitude — is the essence of what separates the two men. ...The blowback that resulted from Volcker’s decision to put the economy into a coma was swift and severe. The sharp recession that ensued once Volcker started shrinking the money supply prompted Democrats and Republicans alike to introduce legislation to rein in the Fed. But Reagan refused to back any such action or even criticize Volcker in public. In private, Reagan was candid about what needed to be done, according to the late Bob Novak’s reporting on the subject: “I’m afraid this country is just going to have to suffer two, three years of hard times to pay for the [inflationary] binge we’ve been on,” Reagan said. It is impossible to imagine Obama speaking such unpopular truths in public or in private after having so often expressed the opinion that a massive debt-fueled government-spending program would create millions of jobs and reconstruct an economy torn asunder by years of binging on debt. ...his unpopular moves laid the groundwork for three decades of unprecedented economic expansion. So far, we have seen no evidence that Obama’s unpopular policies will pay those kinds of dividends. Like Reagan, Obama inherited an economy with structural problems requiring painful adjustments. Unlike Reagan, he has tried to put off those adjustments or cover them up with feel-good stimulus programs. Reaganomics worked. Obamanomics? Let’s just say it will be interesting to see how much longer those trend lines overlap.

Environmental Humor

2010-08-21T15:14:00.000-07:00

I don't know if this exchange of letters is real, but what's amusing (and sad) is that it could be real. Enjoy.

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Mr. Ryan DeVries, 2088 Dagget Pierson, MI 49339

SUBJECT: DEQ File No. 97-59-0023; T11N; R10W, Sec. 20; Montcalm County

Dear Mr. DeVries:

It has come to the attention of the Department of Environmental Quality that there has been recent unauthorized activity on the above referenced parcel of property. You have been certified as the legal landowner and/or contractor who did the following unauthorized activity:

Construction and maintenance of two wood debris dams across the outlet stream of Spring Pond. A permit must be issued prior to the start of this type of activity. A review of the Department's files shows that no permits have been issued. Therefore, the Department has determined that this activity is in violation of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Michigan Compiled Laws, annotated.

The Department has been informed that one or both of the dams partially failed during a recent rain event, causing debris and flooding at downstream locations. We find that dams of this nature are inherently hazardous and cannot be permitted. The Department therefore orders you to cease and desist all activities at this location, and to restore the stream to a free-flow condition by removing all wood and brush forming the dams from the stream channel. All restoration work shall be completed no later than January 31, 2002.

Please notify this office when the restoration has been completed so that a follow-up site inspection may be scheduled by our staff. Failure to comply with this request or any further unauthorized activity on the site may result in this case being referred for elevated enforcement action.

We anticipate and would appreciate your full cooperation in this matter. Please feel free to contact me at this office if you have any questions.

Sincerely, David L. Price

District Representative Land and Water Management Division

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This is the actual response sent back........

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Dear Mr. Price,

Re: DEQ File No. 97-59-0023; T11N; R10W, Sec. 20; Montcalm County.

Your certified letter dated 12/17/01 has been handed to me to respond to.

First of all, Mr. Ryan DeVries is not the legal Landowner and/or Contractor at 2088 Dagget, Pierson, Michigan. I am the legal owner and a couple of beavers are in the (State unauthorized) process of constructing and maintaining two wood "debris" dams across the outlet stream of my Spring Pond.

While I did not pay for, authorize, nor supervise their dam project, I think they would be highly offended that you call their skillful use of natures building materials "debris."

I would like to challenge your department to attempt to emulate their dam project any time and/or any place you choose. I believe I can safely state there is no way you could ever match their dam skills, their dam resourcefulness, their dam ingenuity, their dam persistence, their dam determination and/or their dam work ethic.

As to your request, I do not think the beavers are aware that they must first fill out a dam permit prior to the start of this type of dam activity.

My first dam question to you is: (1) Are you trying to discriminate against my Spring Pond Beavers or (2) do you require all beavers throughout this State to conform to said dam request?

If you are not discriminating against these particular beavers, through the Freedom of Information Act, I request completed copies of all those other applicable beaver dam permits that have been issued. Perhaps we will see if there really is a dam violation of Part 301, Inland Lakes and Streams, of the Natural Resource and Environmental Protection Act, Act 451 of the Public Acts of 1994, being sections 324.30101 to 324.30113 of the Michigan Compiled Laws, annotated.

I have several concerns. My first concern is - aren't the beavers entitled to legal representation? The Spring Pond Beavers are financially destitute and are unable to pay for said representation - so the State will have to provide them with a dam lawyer. The Department's dam concern that either one or both of the dams failed during a recent rain event causing flooding is proof that this is a natural occurrence, which the Department is required to protect.

In other words, we should leave the Spring Pond Beavers alone rather than harassing them and calling their dam names. If you want the stream "restored" to a dam free-flow condition please contact the beavers - but if you are going to arrest them, they obviously did not pay any attention to your dam letter, they being unable to read English.

In my humble opinion, the Spring Pond Beavers have a right to build their unauthorized dams as long as the sky is blue, the grass is green and water flows downstream. They have more dam rights than I do to live and enjoy Spring Pond. If the Department of Natural Resources and Environmental Protection lives up to its name, it should protect the natural resources (Beavers) and the environment (Beavers' Dams.).

So, as far as the beavers and I are concerned, this dam case can be referred for more elevated enforcement action right now. Why wait until 1/31/2002? The Spring Pond Beavers may be under the dam ice then and there will be no way for you or your dam staff to contact/harass them then.

In conclusion, I would like to bring to your attention to a real environmental quality (health) problem in the area. It is the bears! Bears are actually defecating in our woods. I definitely believe you should be persecuting the defecating bears and leave the beavers alone. If you are going to investigate the beaver dam, watch your step! (The bears are not careful where they dump!)

Being unable to comply with your dam request, and being unable to contact you on your dam answering machine, I am sending this response to your dam office.

Sincerely,

Stephen L.Tvedten