What will the economy look like in 2013? A great deal depends on what Congress decides to do at the end of this year. Remember, the Bush tax cuts are expiring, the payroll tax holiday will sunset, and a bunch of new spending cuts under the debt-deal “sequester” are scheduled to kick in. Coming all at once, that’s a potentially big drag on growth.
[. . .]
To put this in perspective, the Federal Reserve expects the economy to grow at a roughly 2.9 percent pace in 2013. If Congress does nothing at the end of this year, much of that growth could be wiped out, and there’s a strong possibility that the United States could lurch back into recession. (Granted, a lot could depend on how the Fed reacts in this situation.)
On the flip side, as Ezra discussed in Thursday’s Wonkbook, letting all of the tax cuts expire and spending cuts kick in would also cut the U.S. deficit considerably: “Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022.”
In the Telegraph, Philip Johnston recounts the story of the 10 beer-drinking men and uses it to discuss the morality of taxes. Although the details are British, the story applies equally to Canada or the United States:
No discussion of the morality of taxation can be divorced from what is done with the money. It is not enough to say we must all contribute according to our means without at the same time questioning where it all goes. Tax has become the new immigration: a taboo subject for politicians who fear being derided as friends of the rich or denounced for immoral policies.
Yet, even with the parlous state of the nation’s finances, an argument can be made for low taxation that speaks to both a desire for smaller government and for greater personal freedom. The last Labour government took too much in taxes not merely because it believed that ever-increasing amounts of public spending were the only way to achieve better services. It did so because socialists think they know best how to spend people’s money and should be entrusted to do so. That is the essence of the Left’s worldview; and it is the principal reason why the state has grown so much in the past 50 years.
Where is the morality in taking money from people so that politicians can feel good about themselves? How is it ethical of a government to remove 40 per cent of an individual’s income with the purpose of engineering society the way it sees fit, rather than ensuring that people have the means to get on, by and large, with their own lives? Our system of governance has become characterised by grotesque waste, unfulfilled promises, incompetent delivery and excessive red tape. It has over-reached itself and seems incapable of retrenching, even under a Tory prime minister.
The moral, and Conservative, case for lower taxes is that they allow people to make their own decisions, to save when they wish, to give if they choose and to spend on what matters to them. Tory politicians should not be ashamed to talk about cutting taxes, because high taxation removes the need for individuals to take responsibility for their own lives and heightens cynicism about the ability of the government to deliver.
It’s been an open secret for years that some organizations with charitable status under the Canada Revenue Agency’s rules are stepping over the line with regard to partisan political activities. A complaint has been lodged with the CRA over the David Suzuki Foundation on these grounds:
The David Suzuki Foundation on Tuesday became the target of a complaint to the Canada Revenue Agency, just days after its namesake co-founder stepped down amid heightened tensions between environmental charities and the Conservative government.
EthicalOil.org, a non-profit organization that promotes oil from Canada and other democracies, sent a letter to the agency asking it to investigate whether the David Suzuki Foundation is breaking rules that pertain to political activity. Registered charities are allowed to devote only a small fraction of their resources to political activity, although they can never be partisan.
“If you find the Suzuki Foundation is in contravention of the CRA rules, then we request that you consider whether the Suzuki Foundation should have its charitable status revoked or otherwise be sanctioned,” EthicalOil.org said in its 44-page letter, which was drafted by Calgary-based JSS Barristers and obtained by the National Post.
It’s been a big issue in Minnesota for the entire off-season, but I haven’t been following too closely (not living in the state, I don’t know anything about the issue other than what the StarTribune and the Pioneer Press have been reporting, leavened with some angst and bile from the various Viking fan blogs).
In a nutshell, the Vikings have been playing at the Hubert H. Humphrey Metrodome in Minneapolis for 30 years. Their lease on the building expired at the end of the 2011 season and they’ve been trying to get political support for a new stadium for the last ten years. The stadium debate has gone over the same ground repeatedly, but even when the site is agreed upon and the team and the city appear to be happy with the compromise, it still required the state to provide additional funding … lots of additional funding.
That’s where what appeared to be a done deal went off the rails earlier this week. The state legislature voted down the state’s share of the funding for the stadium, which appears to have been a rude surprise to both Minneapolis and the team.
The NFL is now warning Minnesota that the Vikings could move out of state (Los Angeles has been hoping for a team for years now, although given California’s dire financial straits, it’s hard to imagine them putting up any more money than Minnesota might be willing to offer).
The Vikings are hoping to get a new stadium built, and the state legislature has been doing what they can to kick the issue down the road every time it’s come up. I don’t have a say in the matter, as I’m not located in Minnesota and I’d probably still cheer for the team even if it moved elsewhere (though it would be a sad thing to see it move after half a century in Minnesota).
In general, I don’t think governments should build stadiums for professional sports teams, as it’s using tax money to subsidize private profits. If a new stadium is going to generate a profit, the team’s ownership should bear the costs themselves. The fact that they generally don’t — mostly because politicians don’t want to deal with angry sports fans after the team leaves town — doesn’t make it right.
It is quite noteworthy that the question has never actually been asked of the voters — the folks whose taxes will have to subsidize the team’s new stadium — if they are willing to pay. I have to assume that this is because they have indicated in other ways that they are not willing. If that’s the case (and I can’t blame them in the slightest if that’s true), then the Vikings should either pony up enough money to build a stadium without taxpayer assistance, or go looking for a city or a state foolish enough to pour more money into the pockets of the team’s ownership. Here once again are Nick Gillespie and Matt Welch on why public funding for professional sports facilities are a bad idea:
That the rich should contribute more than their current share to the common good is a proposal with popularity. From Paris and London to Nova Scotia and Alberta, “tax the rich” has become a dominant theme in budget debates and elections around the world.
In Ontario, for example, NDP leader Andrea Horwath’s proposal to create a new tax bracket for people who make more than half-a-million dollars a year, illustrates the persistent attraction of such schemes for governments in deficit.
“The issue really is one of perceived fairness,” said Robin Boadway, a taxation expert and professor of economics at Queen’s University, who notes that the income of the highest earners has been increasing much faster than the middle and lower ranks. Taxation, to a great degree, relies on the goodwill and trust of citizens, he said, and inequality in tax codes can violate that trust.
Governments acting like Robin Hood, however, have tended to provoke unforeseen problems, most recently in Britain, where an effort to tax the rich ended up — quite literally — costing the government deeply.
It always seems to be a surprise when people respond to incentives in creative ways … and this applies especially to creative ways to avoid paying higher taxes. People will adjust their behaviour to minimize their tax burden — both legally and not-as-legally. This is after all one of the reasons that there are so many tax provisions: the government wants to encourage certain kinds of behaviour (and so gives a tax credit) and discourage other kinds of behaviour (and so levies a specific tax on it). Flexibility occurs on both the tax-levying and tax-paying sides of the fence.
One of the complaints of middle-class taxpayers is that there are few mechanisms they can use to legally reduce their tax burden, while the wealthy have lots of ways to do this. This isn’t going to change if the government increases the top rate of tax — in fact it will encourage more creative use of the tax-lowering provisions of the law (and lawyers and accountants will benefit by helping their wealthy clients ot take advantage of those provisions).
The first question to ask of any budget announcement is whether the dollars are recurring or one-time only. If we change a tax that brings in $1-billion a year, the budget changes not just this year but in future years as well. [...] Politicians and commentators often choose the time frame that suits their current argument. Confusion results. A good economist keeps her eye open to these tricks and tries to ensure we compare numbers on similar time-frames.
Next up is properly adjusting future dollars to account for inflation and our ability to pay. Dollars spent in the future are different than dollars spent now. Imagine that inflation averages 2 per cent a year, and inflation-adjusted economic growth is 1.5 per cent a year on top of that. In just 20 years, prices will increase by 50 per cent and the size of our economy — and our ability to pay for programs priced in nominal dollars — will double.
[. . .]
As a final note, it is always useful when crunching the numbers to keep in mind what the Government of Canada actually does with our tax dollars. Transfers to individuals for insurance programs (such as Employment Insurance and Old Age Security) are 25 per cent of spending. Transfers to provinces and territories (health and other transfers) are another 20 per cent. Interest takes a further 11 per cent. The best way to think of the Government of Canada is a big national insurance company with a side business as a tax collector for the provinces. (This is only slightly different from the US Government, which has been called by Ezra Klein an insurance company with a standing army.) Everything else the Government of Canada does — from fisheries management to culture to the military — takes the remaining 44 per cent. Making any change to the trajectory of total spending when insurance and inter-government transfers are both projected to grow rapidly requires very large changes to that residual 44 per cent.
I belong to a lucky generation: too young to have experienced the Depression, or the second world war, or postwar austerity. The first political figure I recognised was Harold Macmillan, who told voters they had never had it so good.
His statement was true, if foolish, and my contemporaries and I benefited. The government paid us to go to university. We took for granted we would choose between attractive job offers. I was quickly appointed to a post from which it was practically impossible to be fired and which offered a pension scheme with generous, index-linked benefits. I bought a flat with a mortgage whose value was wiped out by inflation. By the time I was paying a higher rate of income tax, the level had been cut from 83 per cent to 40 per cent. My life expectancy is several years longer than my father’s, and I have already considerably exceeded the age at which his father died.
If young people today want to attend university, they will have to pay for tuition and borrow to meet living expenses. When they graduate, they face a much more competitive job market. Few careers will offer the job security once characteristic of middle-class employment. Defined benefit schemes have almost disappeared from the private sector, and public sector pensions are to be substantially less generous. Tax rates must rise, partly to pay for the care and medical treatment I will demand as senility advances. The only financial consolation for the next generation is the windfall when we leave them our houses.
The first half of the baby boom generation certainly were the luckiest cohort in human history. The second half of that generation didn’t do quite as well, the Gen X kids and the Millennials are going to be stuck with most of the bill for all the government-provided goodies that the early boomers have arranged for themselves. Pensions and healthcare, in particular, will have to be reined in for younger workers … just as the bulk of the early boomers have squeezed all the juice out of the system.
Aside from retroactively cutting back the benefits to baby boomers, the only other way to mitigate the financial burden is growth, but most governments in the west are pursuing goals that will not help and in many cases will retard economic growth.
In the Guardian, Patrick Collinson looks at the media’s response to the British government’s recent “granny tax” moves:
In case you missed every newspaper front page (the Telegraph went for “Granny tax hits 5m pensioners”, the Daily Mail said “Osborne picks the pockets of pensioners”, but Metro won with “Gran theft auto”), at issue is the decision to freeze and then scrap the higher personal allowances for people over 65.
But let’s first ask why people in retirement are awarded better income tax breaks than those who are working? There was a fascinating analysis in the Financial Times last weekend of the economically “jinxed generation” — and they’re not pensioners. It found that today’s adults in their 20s will be the first generation who won’t be better off than their parents. What’s more, the disposable income of people in their 60s is now higher than people in their 20s, for the first time ever. We’ve created a society where the non-working retired earn more than working people — and that’s before adding up the largely unearned wealth tied up in the houses of those in their 60s.
It wasn’t like this when the welfare state started. Before the second world war, retirement was for most people short and miserable. It was entirely right that as a rich society we found a way to improve the lot of the elderly with better state pensions and free healthcare. Along the way, we added better personal allowances, fuel payments, free bus passes, free TV licences, free prescriptions and so on.
Sam Bowman discusses the injustice of minimum alcohol pricing at the Adam Smith Institute blog:
I’ve struggled to write something about minimum alcohol pricing today. It’s a hugely important issue, and one I care deeply about. But I can’t help but be angry at the people who’ve proposed it, and the government made up of supposed “conservatives” and “liberals” who plan on implementing it. It’s anti-individualism at its worst.
The “evidence-based” arguments made for minimum alcohol pricing are, in fact, based on distortion and bad science. The policy is paternalistic, indiscriminate, and only hits people who are frugal or on lower incomes. Slippery slope arguments are common, for good reason. But they’re especially appropriate here.
The idea that there should be a price floor for alcohol is well-loved by public health types, and often supported unthinkingly by middle class voters, often due to the media coverage of “binge drinking” among the young. It disproportionally hurts the poor, by increasing the cost of buying the cheapest forms of alcohol (which the poor are more likely to buy). To many, this is seen as a feature rather than a bug, as they assume that it will act to decrease alcohol consumption. Instead, it’s more likely to force poor drinkers to pay less for other things (like food and clothing) and will not measurably decrease alcohol consumption — how is it compassionate to make poor people even more poor?
The politics of this are straightforward but effective: target the most marginal, “problem” group – in this case, binge drinkers – with a low minimum price to pass an apparently-trivial law.
[. . .]
The justifications for this are completely, utterly bogus. Britain does not have a drinking problem: as ASI fellow Chris Snowdon has pointed out, we drink less today than ten years ago, less than a hundred years ago, and far less than we did before that.
Internationally, we are in the middle of the table in the European rankings, behind France, Germany and Spain, and far behind the Czech Republic and Luxemburg.
But what about binge drinking? In fact, the definition of “binge drinking” has been warped beyond all recognition. Four pints in a day counts as a “binge” for an adult man, according to official definitions. A woman drinking three standard (175ml) glasses of wine is “binging” as well.
As Chris points out, the number of diseases defined as “alcohol related” has tripled in the last 25 years. When you change the meaning of words to suit your purposes, you can “prove” anything.
It’s amazing to me how many people think that voting to have government take money by force through taxes to give money to poor people is compassion. Helping poor and suffering people is compassion. Voting for our government to use guns to give money to help poor and suffering people is immoral, self righteous, bullying laziness. People need to be fed, medicated, educated clothed, and sheltered, and if we’re compassionate we’ll help them, but you get no moral credit for forcing other people to do what you think is right. There is great joy in helping people, but no joy in doing it at gun point.
Penn Jillette, God No!: Signs You May Already Be an Atheist and Other Magical Tales, 2011
It’s because he’s not only requiring the middle classes to take a hit for the team, but he’s also trying to get rid of all the custom-crafted deductions, loopholes, shelters, and special favours in the tax code. Middle class voters have been sending their elected representatives to Washington to add to the special tax “tweaks” that disproportionally benefit the middle class. That’s how politicians ensure their re-election chances.
Unveiling his new budget proposal, Paul Ryan once again reminds us that he is one of the few men in Washington with guts and brains operating in harmony. His budget asks the big question in American politics: What is the middle class willing to give up in order to save the country?
I am afraid that the answer will be: Not very much.
[. . .]
The reaction to Ryan’s tax plan will be the truly telling thing. He proposes to create two relatively low tax brackets but to do so in a way that achieves revenue neutrality by eliminating most deductions and exclusions. Almost certainly this will mean reducing or eliminating the mortgage-interest deduction, deductions for state and local taxes, and deductions for charitable giving. (Ramesh’s beloved child tax credit probably will survive, unfortunately.) The Committee to Reinflate the Bubble will fight tooth and talon to defend the mortgage-interest deduction, and they’ll have a great many middle-class homeowners behind them.
Update: Nick Gillespie thinks that the Ryan budget proposal is merely an echo of Obama’s plan, not a serious attempt to get the government’s finances in order:
In brief, the Ryan plan is not as bad as [President Obama's] budget, which wants to spend $3.8 trillion in FY2013 and envisions spending $5.8 trillion in FY2022. Over the next 10 years, Obama assumes that federal spending would amount to 22.5 percent of GDP while revenues would average just 19.2 percent of GDP. That ain’t no way to run a country.
In this sense, Ryan’s plan is slightly better but still doesn’t pass the laugh test. He would spend $3.5 trillion in 2013 and $4.9 trillion in 2022 (all figures in the post are in current dollars unless otherwise noted). Spending as an average of GDP would average 20 percent of GDP and revenue would amount to just 18.3 percent.
[. . .]
Yet Ryan’s plan is weak tea. Here we are, years into a governmental deficit situation that shows no sign of ending. How is it that Ryan and the Republican leadership cannot even dream of balancing a budget over 10 years’ time? All of the discussion of reforming entitlements and the tax code and everything else is really great and necessary — I mean that sincerely — but when you cannot envision a way of reducing government spending after a decade-plus of an unrestrained spending binge, then you are not serious about cutting government. If Milton Friedman was right that spending is the proper measure of the government’s size and scope in everybody’s life, then the establishment GOP is signaling what we knew all along: They are simply an echo of the Democratic Party.
If you assume that there’s no behavioural response, then each percentage point added to the federal CIT will generate roughly $2b in new revenues. So you’d conclude that the January 1, 2012 reduction in the CIT rate from 16.5% to 15% would reduce revenues by about $3b, and increasing the federal rate from 16.5% back to (say) 24% would increase CIT revenues by some $15b — almost one per cent of GDP.
This is the the sort of answer ‘static analysis’ gives. In a world in which multinationals file 57,000-page tax returns, one can only marvel at the faith in human nature among those who would make policy based on the belief that the only behavioural change on the part of corporations to an increase in CIT rates will be to put larger numbers on the cheques they send to the Receiver-General.
What I believe in are a set of principles having to do with the freedom of the individual, the usefulness but not infallibility of markets, and the legitimate but limited role of the state. There are, in brief, a few things we need government to do, based on well-established criteria on which there is a high degree of expert consensus. The task is simply to get government to stick to those things, rather than waste scarce resources on things that could be done as well or better by other means: that is, government should only do what only government can do.
As I say, these ideas are not novel, or controversial. Indeed, you would find support for them, to a greater or lesser degree, across the political spectrum.
Nevertheless, there was a party, once, that believed in these things, to a somewhat greater extent than the other parties. That party called itself conservative, whether with a small or a large C, so I suppose you could call the things it believed conservatism. But you are no longer that party.
For example, that party favoured balanced budgets. But you are not that party. In fact, you boast of how your decision to add $150-billion to the national debt saved the economy.
That party favoured cutting or at least controlling spending, after the massive spree of the Liberals’ last years. But you are not that party. In fact, you boast of how you have increased spending by 7% per year — $37-billion in one year!
That party favoured a simpler, flatter tax system, that left people free to decide how to spend, save or invest their money for themselves. But you are not that party. In fact, you boast of the many gimmicks and gew-gaws with which you have festooned the tax code.
That party favoured abolishing corporate welfare. But you are not that party. In fact you boast of the handouts you make, often accompanied by ministers or indeed MPs bearing outsized novelty cheques. In some cases, you even put the Conservative logo on them.
The story of the last decade is how the rock-ribbed small-c conservatives of the old Reform Party were tamed, neutered, and blinkered into becoming a blue-painted Liberal Party. It worked, in the sense of getting their hands on the levers of power, but their souls were tainted, corrupted, and eventually disposed of in the process.
A post at Coyote Blog from last month looks at the eye-popping financial arrangements keeping the New Mexico “Railrunner” passenger service in operation:
Of course, as is typical, the Republic article had absolutely no information on costs or revenues, as for some reason the media has adopted an attitude that such things don’t matter for rail projects — all that matters is finding a few people to interview who “like it.” So I attempted to run some numbers based on some guesses from other similar rail lines, and made an educated guess that it had revenues of about $1.8 million and operating costs of at least $20 million, excluding capital charges. I got a lot of grief for making up numbers — surely it could not be that bad. Hang on for a few paragraphs, because we are going to see that its actually worse.
The equipment used in the New Mexico Railrunner operation looks remarkably similar to what GO Transit runs in the GTA:
Anyway, I got interested in checking back on the line to see how it was doing. I actually respected them somewhat for not running mid-day trains that would lose money, but my guess is that only running a few trains a day made the initial capital costs of the line unsustainable. After all, high fixed cost projects like rail require that one run the hell out of them to cover the original capital costs.
As it turns out, I no longer have to guess at revenues and expenses, they now seem to have crept into the public domain. Here is a recent article from the Albuquerque Journal. Initially, my eye was attracted to an excerpt that said the line was $4 million in the black.
[. . .]
Now it looks like taxes are covering over half the rail’s costs. But this implies that perhaps $10 million might be coming from users, right? Nope, keep reading all the way down to paragraph 11
The Rail Runner collects about $3.2 million a year in fares and has an annual operating budget of about $23.6 million. That does not include about $41.7 million a year in debt service on the bonds — a figure that include eventual balloon payments.
So it turns out that I was actually pretty close, particularly since my guess was four years ago and they have had some ridership increases and fare increases since.
At the end of the day, riders are paying $3.2 million of the total $65.3 million annual cost. Again, I repeat my reaction from four years ago to hearing that riders really loved the train. Of course they do — taxpayers (read: non-riders) are subsidizing 95.1% of the service they get. I wonder if they paid the full cost of the train ride — ie if their ticket prices were increased 20x — how they would feel about the service?
If all of that wasn’t enough, the financing arrangement has a nasty sting in the tail: in the mid 2020′s, the state will owe two separate payments of over $200 million. Enjoy the subsidized rides now, folks … the payment comes due just in time for your kids to face as they graduate.
Michael Geist on the representatives of the Canadian music industry and their breathtaking demands for modifications to Bill C-11:
The steady procession of Canadian music industry representatives to the Bill C-11 committee continues today with the Canadian Independent Music Association (CIMA) ready to add to an already long list of industry demands to completely overhaul the bill. The music industry demands keep growing, but CIMA’s list is the most radical to date as it would create liability risk for social networking sites, search engines, blogging platforms, video sites, aggregators, and many other websites featuring third party contributions. If that were not enough, the industry is also calling for a new iPod tax, an extension in the term of copyright, a removal of protections for user generated content, parody, and satire, as well as an increase in statutory damage awards. Taken together, the music industry demands make SOPA look like some minor tinkering with the law.
Note that industry had already called for SOPA-style reforms such as website blocking and expanded liability that could extend to sites such as YouTube before the hearings began. This week has seen an industry lawyer inaccurately portray global approaches to digital lock rules and a musician association demand full statutory damages of up to $20,000 per infringement for non-commercial infringements by individuals.
Those demands are nothing compared to what CIMA has in mind, however. Topping the list is a massive expansion of the enabler provision. The music industry wants to remove a requirement that the so-called pirate sites be “designed primarily” to enable copyright infringement.
[. . .]
There is virtually no limit to prima facie liability under this provision as most sites can be said to enable some infringement, particularly if they allow for users to post or interact with the site. This includes sites like Google, Facebook, Reddit, and Youtube. All of these sites — indeed virtually any blogging platform, social network, search engine, or website that offers third party contributions — would face the risk of a prima facie claim under the music industry’s vision of the enabler provision.
It’s been a big issue in Minnesota for the entire off-season, but I haven’t been following too closely (not living in the state, I don’t know anything about the issue other than what the StarTribune and the Pioneer Press have been reporting, leavened with some angst and bile from the various Viking fan blogs).
Click to see original image at Coyote Blog
