The governments of these United States, from the federal to the local level, have managed to insinuate themselves between citizens and their property at every point of significance. In that, our governments are very much like most other governments, liberal and illiberal, democratic and undemocratic. We have allowed ourselves to be in effect converted from a nation of owners to a nation of renters. But while medieval serfs had only the one landlord, we have a rogue’s gallery of them: the local school board, the criminals at the IRS, the vehicle-registry office, etc. Never-ending property taxes ensure that as a matter of economic function, you never really own your house — you rent it from the government. Vehicle registration fees and, in some jurisdiction, outright taxes on automobile ownership ensure in precisely the same way that you never really own your car: You rent it from the government. Stock portfolio? Held at the sufferance of politicians. A profitable business? You’ll keep what income they decide you can keep. Your own body? Not yours — not if you use it for profitable labor.
A Who down in Whoville? You should be so lucky: Welcome to Whomville, peon.
Kevin D. Williamson, “Property and Peace”, National Review, 2014-07-20.
May 16, 2015
May 12, 2015
Published on 27 Jan 2015
Why do taxes exist? What are the effects of taxes? We discuss how taxes affect consumer surplus and producer surplus and discuss the concept of deadweight loss at length. We’ll also look at a real-world example of deadweight loss: taxing luxury yachts in the 1990s.
May 11, 2015
Published on 27 Jan 2015
Who bears the burden of a tax? Buyers or sellers? Why is it that the more elastic side of the market pays a smaller share of a tax? Again, we’ll apply what we know to the example of Social Security taxes and also look at the health insurance mandate as a part of the Affordable Care Act. Who pays for the mandate? The employers or the workers? We’ll also look at supply and demand of labor. Is the demand for labor more elastic than the supply?
May 7, 2015
Published on 27 Jan 2015
In this video we cover taxes and tax revenue and subsidies on goods. We discuss commodity taxes, including who pays the tax and lost gains from trade, also called deadweight loss. We’ll take a look at the tax wedge and apply what we learn to the example of Social Security taxes.
April 28, 2015
Last week, Michael Geist pointed out that the tax credits and other inducements offered by state and provincial governments to attract TV and movie business are a bad deal for everyone except the media companies:
The widespread use of film and television production tax subsidies dates back more than two decades as states and provinces used them to lure productions with the promise of new jobs and increased economic activity. The proliferation of subsidies and tax credits created a race to the bottom, where ever-increasing incentives were required to distinguish one province or state from the other.
In recent years, governments have begun to rethink the strategy. States such as Arizona, Michigan, New Mexico, and Iowa suspended or capped their programs. Louisiana found that it lost $170 million in tax revenue in a single year. In Canada, the Quebec government’s taxation review committee recently admitted that its provincial film production tax credit was not profitable and that numerous studies find that there is little economic spinoff activity.
But the most notable Canadian study on the issue has never been publicly released and is rarely discussed. The Ontario government’s Ministry of Finance conducted a detailed review of the issue in 2011, delivering a sharply negative verdict on the benefits associated with spending hundreds of millions of dollars each year in tax credits. It recommended eliminating a 25 per cent tax credit for foreign and non-certified domestic productions that would have saved $155 million per year.
April 12, 2015
It’s coming up to the deadline for getting our tax returns in to the CRA, so I’d asked my friend Clive to come over this weekend to do my books in preparation for taking all the paperwork in to my accountant. It seemed like a pretty straight-forward thing — all I had to do was to print off all my various invoices and other documents for which I didn’t already have a hard-copy.
But I had somehow forgotten about the Satanic nature of printers.
Elizabeth and I each have a printer attached to our respective computers, so even if one failed to co-operate, we have the other one to fall back on. And this turned out to be a good thing, as the HP Officejet 6310 printer I use with my laptop started having paper feed issues on Saturday. As in, it couldn’t manage to pull even a single sheet of paper out of the stack. Well, damn, but at least there’s Elizabeth’s Canon printer I can use instead.
I disconnected the HP and moved her printer over to my workspace (the kitchen table, actually). But first I had to download the drivers for it. Having downloaded the drivers, I prepared to print the first of the documents I needed … and the damned Canon developed a similar paper feed problem. It just would not feed paper from the paper bin to the print-head.
A couple of hours go by, as I frantically try to fix one or the other of the two busted printers. It’s now after 5, and I’m running out of options and patience. I decide to go down to our local Staples and buy a new printer because that tax return deadline is looming.
In Staples, I vent a bit of my frustration over printers to a staff member, and she agrees that one of the few genuine pleasures in life is hoofing a printer out the window. After we compared notes on distance and impact zones, I asked for her recommendation for a cheap printer that would at least let me print off what I need for Clive to work with today. She warned me against my first choice, as it only came with “starter” ink cartridges, while a slightly older model using the same cartridges comes with full-sized ones instead … and was $30 cheaper, to boot. She made the sale.
I got the printer home, set it up and … discovered that the printer’s display panel didn’t work. And it was now too late to get the unit back to the store for a replacement. So, early Sunday, as soon as the store opens I’ll be on their doorstep with the faulty printer. I hope the next one will at least print something.
April 8, 2015
At Forbes, Tim Worstall reports on a staggering misconception among Americans about what corporate profits amount to:
A wonderful little find by Mark Perry. Something that helps to explain quite why so many completely ridiculous economic ideas and public policies manage to gain traction. The problem is that the average person just doesn’t understand the economy at all. No, I don’t mean economics, or the abstruse arguments about whether we should use monetary or fiscal policy. But just the basic raw numbers of what’s actually going on out there. As Perry goes on to point out this, well, let’s not beat about the bush here, let’s call it what it is, this ignorance of the universe they’re inhabiting by the average person out there is what keeps the economic demagogues in business.
Here’s what Perry found:
When a random sample of American adults were asked the question “Just a rough guess, what percent profit on each dollar of sales do you think the average company makes after taxes?” for the Reason-Rupe poll in May 2013, the average response was 36%! That response was very close to historical results from the polling organization ORC’s polls for a slightly different, but related question: What percent profit on each dollar of sales do you think the average manufacturer makes after taxes? Responses to that question in 9 different polls between 1971 and 1987 ranged from 28% to 37% and averaged 31.6%.
That’s simply a ridiculous belief. Plain howling at the Moon crazy. The capital share of the economy isn’t that high and the capital share is made up of a great deal more than just profits (depreciation, rent, interest and so on as well as profits). There’s just no way that this is anywhere near true. As Perry goes on to point out:
According to this Yahoo!Finance database for 212 different industries, the average profit margin for the most recent quarter was 7.5% and the median profit margin was 6.5%.
March 6, 2015
At Coyote Blog, Warren Meyer wonders why so many states and cities are so eager to throw taxpayer money at movie and TV productions:
I am always amazed that the media will credulously run stories against “corporate welfare” for oil companies (which usually mostly includes things like LIFO accounting and investment tax credits that are not oil industry specific) but then beg and plead for us taxpayers to subsidize movie producers.
I wish I understood the reason for the proliferation of government subsidies for film production. Is it as simple as politicians wanting to hobnob with Hollywood types? Our local papers often go into full sales mode for sports team subsidies, but that is understandable from a bottom-line perspective — sports are about the only thing that sells dead-tree papers any more, and so more local sports has a direct benefit on local newspapers. Is it the same reasoning for proposed subsidies for Hollywood moguls?
Whatever the reason, our local paper made yet another pitch for throwing tax dollars at movie producers
Notwithstanding a recent flurry of Super Bowl-related documentaries and commercials that got 2015 off to a good start, Arizona appears to be falling behind in a competitive and lucrative business. The entertainment industry pays well, supports considerable indirect employment and offers the chance for cities and states to shine on a global stage.
Seriously? I am sure setting up the craft table pays better than catering a party at my home, but it is a job that lasts 2 months and is then gone. Ditto everything else on the production. And I am sick of the “shines on the world stage thing.” Who cares? And is this really even true? The movie Chicago was filmed in Toronto — did everyone who watched Chicago suddenly want to go to Toronto? The TV animated series Archer gets a big subsidy from the state of Georgia. Have they even mentioned Georgia in the series? Given the tone of the show, would they even want to be mentioned?
When government subsidizes an industry, it is explicitly saying that resources are better and more productively invested in the subsidized industry than in other industries in which the money would have been spent in a free market. Does the author really have evidence that the money I would have spent to improve the campgrounds we operate in Arizona is better taken from me and spent to get a Hollywood movie shot here instead? Which investment will still be here 6 months from now?
March 5, 2015
At Worthwhile Canadian Initiative, Livio Di Matteo talks about tax free savings accounts (TFSAs), registered retirement savings plans (RRSPs), and why some people are getting upset that some Canadians benefit more from these financial tools than others do:
A major theme running under most of these arguments goes something like this — Registered Retirement Savings Plans (RRSPs) at least leave “a legacy of tax revenue to future governments” whereas TFSAs may generate “supernormal” returns that will escape taxation and on top of it will accrue primarily to the well-off.
However, when I think of RRSPs and TFSAs, I see them both as essentially the same. They are both “tax expenditures” that are designed to encourage saving by promising some type of tax incentive. The broader debate should really be about how we want to encourage more saving and then about “tax expenditures” in general rather than how much we should allow as limits to either RRSP or TFSA contributions.
However, if we are going to argue about RRSPs and TFSAs, to my mind what differs is the timing of the break. For an RRSP, you are getting the tax incentive upfront and deferring the taxes until you withdraw the money. For a TFSA, you are making the contribution with after tax dollars and allowing the contribution to accumulate tax free — the tax benefit comes down the road as the money grows.
Young households with children who face more cash constraints might find the RRSP more attractive while older households would probably find the TFSA more attractive. All other things given, both vehicles are of greater advantage to higher rather than low income earners because higher incomes are more likely to be able to save — period. If you are going to make the argument that TFSAs are somehow favouring the wealthy or higher income earners, you need to acknowledge that the same argument applies to RRSPs.
Update, 7 March: It kinda helps when I remember to include the correct link to an article…
February 17, 2015
Dan Mitchell explains why there’s a need to change the way the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) “keep score” on how proposed legislative changes will impact the US economy:
The CBO, for instance, puts together economic analysis and baseline forecasts of revenue and spending, while also estimating what will happen if there are changes to spending programs. Seems like a straightforward task, but what if the bureaucrats assume that government spending “stimulates” the economy and they fail to measure the harmful impact of diverting resources from the productive sector of the economy to Washington?
The JCT, by contrast, prepares estimates of what will happen to revenue if politicians make various changes in tax policy. Sounds like a simple task, but what if the bureaucrats make the ridiculous assumption that tax policy has no measurable impact on jobs, growth, or competitiveness, which leads to the preposterous conclusion that you maximize revenue with 100 percent tax rates?
Writing for Investor’s Business Daily, former Treasury Department officials Ernie Christian and Gary Robbins explain why the controversy over these topics – sometimes referred to as “static scoring” vs “dynamic scoring” – is so important.
It is Economics 101 that many federal taxes, regulations and spending programs create powerful incentives for people not to work, save, invest or otherwise efficiently perform the functions essential to their own well-being. These government-induced changes in behavior set off a chain reaction of macroeconomic effects that impair GDP growth, kill jobs, lower incomes and restrict upward mobility, especially among lower- and middle-income families. …Such measurements are de rigueur among credible academic and private-sector researchers who seek to determine the true size of the tax and regulatory burden on the economy and the true value of government spending, taking into account the economic damage it often causes.
But not all supposed experts look at these second-order or indirect effects of government policy.
And what’s amazing is that the official scorekeepers in Washington are the ones who refuse to recognize the real-world impact of changes in government policy.
These indirect costs of government, in particular or in total, have not been calculated and disclosed in the Budget of the United States or in analyses by the Congressional Budget Office. The result of this deliberate omission by Washington has been to understate many costs of government, often by more than 100%, and grossly overstate its benefits. …It is on this foundation of disinformation that the highly disrespected, overly expensive and too often destructive federal government in Washington has been built.
February 12, 2015
Megan McArdle on the incredibly regressive way that American municipalities are raising money through fines and other costs imposed disproportionally on the poorest members of the community:
During last summer’s riots in Ferguson, Missouri, reporters began to highlight one reason that relations between the town’s police and its citizens are so fraught: heavy reliance on tickets and fines to cover the town’s budget. The city gets more than $3 million of its $20 million budget from “fines and public safety,” with almost $2 million more coming from various other user fees.
The problem with using your police force as a stealth tax-collection agency is that this functions as a highly regressive tax on people who are already having a hard time of things. Financially marginal people who can’t afford to, say, renew their auto registration get caught up in a cascading nightmare of fees piled upon fees that often ends in bench warrants and nights spent in jail … not for posing a threat to the public order, but for lacking the ready funds to legally operate a motor vehicle in our car-dependent society.
So why do municipalities go this route? The glib answer is “racism and hatred of the poor.” And, quite possibly, that plays a large part, if only in the sense that voters tend to discount costs that fall on other people. But having spent some time plowing through town budgets and reading up on the subject this afternoon, I don’t think that’s the only reason. I suspect that Ferguson is leaning so heavily on fines because it doesn’t have a lot of other terrific options.
January 17, 2015
Colby Cosh explains why this is unlikely, at least in the short term:
Yeah, look, guys. I realize that Jim Prentice is talking about the possibility of a provincial sales tax for Alberta. I think he’s just trying to make sure he has our FULL ATTENTION before he passes a very austere budget, because I do not see a clear path toward us actually having a PST.
Under current Alberta statute — the Alberta Taxpayer Protection Act (ATPA) — Albertans would have to vote “yes” in a province-wide referendum before a PST could be introduced. The government gets to write the referendum question, which as we all know is a big advantage, but the economists who support a PST have not done anything like the necessary public outreach and education to soften up superstitious, PST-averse voters. The PCs are obviously hell-bent on a spring election, and spring seems far too soon for that sort of gamble, although the referendum could be held on the date of the general election.
It is more likely that if Prentice sincerely wanted a sales tax, he would try for repeal of the ATPA without an official referendum. Prentice could make that a centrepiece of the upcoming election campaign — a “no me without a PST” kinda offer — but then opposition parties and troublemaking journalists might ask why there is no formal referendum being held in parallel with the election. The whole point of the ATPA was to prevent premiers from forcing package deals of that sort onto voters.
And, of course, Albertans might actually take the “no me” option, rejecting a Conservative government in favour of … Stop laughing! It could totally happen!
January 16, 2015
In a column explaining why he’s terrified that the “Modern Monetary Theory” folks might get anywhere near the levers of power, Tim Worstall fits in the best reason to cut taxes:
Given that we are discussing monetary policy it seems appropriate to bring Milton Friedman in here. And he pointed out that if you ever have a chance to cut taxes just do so. On the basis that politicians, any group of politicians, will spend the bottom out of the Treasury and more however much there is. So, the only way to stop ever increasing amounts of the the entire economy flowing through government is simply to constrain the resources they can get their sticky little mits on. We could, for example, possibly imagine a Republican from the Neanderthal wing of the party arguing that what the US really needs is another 7 carrier battle groups. And one from the even more confused than usual Progressive end of the Democratic Party arguing that each college student needs her own personal carrier battle group to protect her from the microaggressions of being asked out for a coffee. You know. Sometime. Maybe. If you want to?
When oil prices are high there is a rush of investment into oil based enterprises from multi-nationals to frackers. No bad thing but there is always a real danger of over investment leading to the exploitation of very marginal resources. A lower oil price will strand some of that investment and, just as importantly, postpone a great deal of it. Which frees up investment for other, potentially more useful, purposes.
The second thing which happens is that governments become addicted to the joys of relatively painless oil royalties. This looks like revenue but, because it is drawn from a diminishing resource, is actually a rather dangerous drawing down of capital. A lot of oil “revenue” is seen as general revenue and is spent on non-capital expenditures. With a booming oil sector governments are tempted to think the exaggerated revenues are available for general expenses and will continue to be. Which means that government budgets are set based on a purely extractive draw down of a province’s or nation’s capital. This is a poor idea.
Not to take anything away from the bright guys who are fracking and mining their way to oil fortunes, the reality is that extracting oil does not leave much in the way of useful, secondary industry, much less innovation. Which, in turn, means that when the oil is no longer profitable to extract there is no residual, non-oil, economy left behind. If a government spends the oil revenue as it comes in, or worse uses it to secure loans, when the oil revenue dries up there is nothing to cover the spending or the debt.
The golden lining of additional pressures on nasty states like Russia, Iran and Venezuela is likely not as significant as the prevention of malinvestment and governmental squander. In time, as various emerging economies continue to grow, demand will drive the price of oil upwards again. With luck investors and governments will not make the same mistakes twice.
(One unalloyed good arising from the collapse of the price of oil is that so called clean energy renewables like wind and solar look even sillier with their present technology. I suspect wind will always make zero economic sense; I have more hope for photo voltaic solar as new materials promise significantly higher efficiency. And those same materials in a different configuration promise radical gains in battery efficiency for that daily occurrence known as darkness. Again, a low oil price will dampen the insane over investment in these marginal technologies.)
Jay Currie, “Oil Wars”, Jay Currie, 2014-01-03
January 13, 2015
In the New York Post, Kyle Smith has a go at de-smugging one of the smuggest countries in the world … no, it’s not Canada (but we’re pretty damned smug ourselves):
Want proof that the liberal social-democratic society works?
Look to Denmark, the country that routinely leads the world in happiness surveys. It’s also notable for having the highest taxes on Earth, plus a comfy social-safety net: Child care is mostly free, as is public school and even private school, and you can stay on unemployment benefits for a long time. Everyone is on an equal footing, both income-wise and socially: Go to a party and you wouldn’t be surprised to see a TV star talking to a roofer.
The combination of massive taxes and benefits for the unsuccessful means top and bottom get shaved off: Pretty much everyone is proudly middle class. Danes belong to more civic associations and clubs than anyone else; they love performing in large groups. At Christmas they do wacky things like hold hands and run around the house together, singing festive songs. They’re a real-life Whoville.
In the American liberal compass, the needle is always pointing to places like Denmark. Everything they most fervently hope for here has already happened there.
So: Why does no one seem particularly interested in visiting Denmark? (“Honey, on our European trip, I want to see Tuscany, Paris, Berlin and … Jutland!”) Visitors say Danes are joyless to be around. Denmark suffers from high rates of alcoholism. In its use of antidepressants it ranks fourth in the world. (Its fellow Nordics the Icelanders are in front by a wide margin.) Some 5% of Danish men have had sex with an animal. Denmark’s productivity is in decline, its workers put in only 28 hours a week, and everybody you meet seems to have a government job. Oh, and as The Telegraph put it, it’s “the cancer capital of the world.”
So how happy can these drunk, depressed, lazy, tumor-ridden, pig-bonking bureaucrats really be?