For decades I have observed an abuse of charities that I am not sure has a name. I call it the “lifestyle” charity or non-profit. These are charities more known for the glittering fundraisers than their actual charitable works, and are often typified by having only a tiny percentage of their total budget flowing to projects that actually help anyone except their administrators. These charities seem to be run primarily for the financial maintenance and public image enhancement of their leaders and administrators. Most of their funds flow to the salaries, first-class travel, and lifestyle maintenance of their principals.
I know people first hand who live quite nicely as leaders of such charities — having gone to two different Ivy League schools, it is almost impossible not to encounter such folks among our alumni. They live quite well, and appear from time to time in media puff pieces that help polish their egos and reinforce their self-righteous virtue-signaling. I have frequently attended my university alumni events where these folks are held out as exemplars for folks working on a higher plane than grubby business people like myself. They drive me crazy. They are an insult to the millions of Americans who do volunteer work every day, and wealthy donors who work hard to make sure their money is really making a difference.
Warren Meyer, “The Lifestyle Charity Fraud”, Coyote Blog, 2016-08-04.
August 17, 2016
August 12, 2016
The bad news? It’s more expensive to consume than ever before, thanks to the way the Ontario government has manipulated the market:
You may be surprised to learn that electricity is now cheaper to generate in Ontario than it has been for decades. The wholesale price, called the Hourly Ontario Electricity Price or HOEP, used to bounce around between five and eight cents per kilowatt hour (kWh), but over the last decade, thanks in large part to the shale gas revolution, it has trended down to below three cents, and on a typical day is now as low as two cents per kWh. Good news, right?
It would be, except that this is Ontario. A hidden tax on Ontario’s electricity has pushed the actual purchase price in the opposite direction, to the highest it’s ever been. The tax, called the Global Adjustment (GA), is levied on electricity purchases to cover a massive provincial slush fund for green energy, conservation programs, nuclear plant repairs and other central planning boondoggles. As these spending commitments soar, so does the GA.
In the latter part of the last decade when the HOEP was around five cents per kWh and the government had not yet begun tinkering, the GA was negligible, so it hardly affected the price. In 2009, when the Green Energy Act kicked in with massive revenue guarantees for wind and solar generators, the GA jumped to about 3.5 cents per kWh, and has been trending up since — now it is regularly above 9.5 cents. In April it even topped 11 cents, triple the average HOEP.
The only people doing well out of this are the lucky cronies of the government who signed up for provincial subsidies on alternative energy (primarily wind and solar), who reap rents of well over 100% thanks to guaranteed minimum prices for electricity from non-traditional sources.
August 2, 2016
All taxes have something called a “deadweight cost”. This is simply economic activity that doesn’t happen because of the simple fact that we’re levying a tax. If we tax the purchase of apples then fewer apples will be purchased. This is entirely divorced, by the way, from any good that might be achieved by how we spend that revenue collected. We also know that different taxes have different deadweight costs. We even have a ranking of them. At the top, with the highest costs for the revenue collected, we’ve transactions taxes like the financial transactions tax under consideration. This is so expensive that it’s a really, really, bad idea to tax in this manner. Then come capital and corporate taxes, then with lower again deadweights incomes taxes, then consumption and then finally repeated taxes on real property, or land value taxation. If we were interested only in efficiency (we’re not, equity is important too) then we would collect as much as we could from a land value tax, then from Pigou and sin taxes (carbon emissions, cigarettes, booze) then general consumption taxes and so on. Perhaps leaving corporates and capital entirely untaxed. And there’s a whole field of study, optimal taxation theory, that suggests that we really should do that and the general prescription is the progressive consumption tax. There’s general agreement that on purely those efficiency grounds this is about the best we can do with a tax system.
Tim Worstall, “Surprisingly Perhaps, State Republicans Are Actually Correct On The Economics Of This”, Forbes, 2015-02-14.
July 29, 2016
Curiously, as a man of the thirteenth century, I “believe” in the price mechanism. (You know: wheat crop fails, price goes up; too much wheat, price goes down.) As a visitor to the twenty-first, I believe it is no longer working. Nearly one full century into the experiment of unlinking money from things, and linking it to “policy” instead, not one person is left on the whole planet with the fondest idea how our system works.
Some years ago I assembled a little team to study what had gone into the price of a loaf of bread. We had to give up. It was too complicated. Bread was officially “untaxed” in the jurisdiction; yet about the only thing we could establish with any confidence, after looking through the production process, was that more than half the price was cumulative direct and indirect taxes.
David Warren, “Deflationary asides”, Essays in Idleness, 2015-01-27.
June 25, 2016
At (of all places) the CBC, Neil Macdonald explains why the Canadian government maintains a ridiculously low limit on what Canadians can purchase from other countries without packages being subject to duty, tax, delay, and possible damage:
As any Canadian who’s ever naively bought anything on the American version of eBay (or, for that matter, any U.S. retail website) must by now know, Ottawa is determined to spoil your bargain.
If the purchase is a penny over $20 Cdn, a federal customs agent can intercept it, open it, delay it, add federal and provincial sales taxes, and, depending on the origin of the merchandise, perhaps pile on some duty charges — basically protectionist taxes.
By the time the government is done, the price of the package can easily rise by 50 per cent. And of course customs brokers usually have to wet their beaks, inflating the final cost of the average package by another 20, 30 or 40 per cent.
Basically, Ottawa has ensured that shipping across our border is such an expensive, paperwork-heavy pain that a lot of American merchants and eBay sellers simply don’t bother shipping to Canada.
The system actually seems designed to be burdensome and sclerotic.
Normally, you’d assume it’s all about increasing the federal government’s tax revenues … the CRA must be raking in the bucks, right? Not at all:
… by keeping that purchase threshold at $20 instead of giving Canadian shoppers a break and raising it to $80, Ottawa spends about $166 million to collect $39 million in additional taxes and duties.
Think about that: Ottawa’s customs officials spend a net $127 million of taxpayers’ money annually, basically to keep Canadians trapped inside the Canadian retail corral.
H/T to SDA for the link.
June 22, 2016
Matt Welch has a few warnings for Americans of all political stripes who threaten to come to Canada if the wrong politico gets elected president this year:
* Revenge-minded border cops. Casually crossing our northern border with a family of four, as I attempted recently, is no longer a routine matter. Investigators I know who have worked with Canada’s Border Services Agency say that customs officials are ramping up their screening of Americans in advance of a possible November onslaught. And just maybe, after 15 years of U.S. border enforcers giving Canadians a harder time, followed by 12 months of a xenophobic presidential campaign, we might be getting some payback.
* You better like Canadian musicians. Americans can be forgiven for losing track of who among their beloved North American entertainers might say “oot and aboot” after a few Mooseheads. But sitting at one of Toronto’s roughly 1,000 sports bars is a grueling reminder that Canada’s Broadcasting Act, which requires that at least one-third of the content at commercial radio stations emanate from musicians with maple leafs in their passports, is a make-royalties program for the Rushes of the world. If you think American classic rock stations are repetitive, get used to side 1 of “Moving Pictures.”
* You can run from America, but you cannot hide. Think living in Montreal or Vancouver frees you up from the long arm of the Internal Revenue Service? Think again! There are two countries on this whole planet that require federal income tax filing from its nonresident citizens. Eritrea, not particularly known for its good governance, is one of them. Uncle Sam’s the other.
It gets considerably worse from there. Because of a putrid 2010 law called the Foreign Account Tax Compliance Act (FATCA for short, because Washington legislators are nothing if not subtle), U.S. citizens and their spouses who hold more than $10,000 total in non-American financial institutions must file annual disclosures listing the maximum exchange-rate value of each and every such account during the previous year. If you don’t comply, you face steep fines and even jail time.
Ostensibly aimed at fat cats, this law instead has punished the majority nonrich among America’s estimated 8.7 million expatriates. Not only does FATCA impose costly paperwork on individuals, it also requires overseas financial institutions to act as Washington’s international collections muscle, mandating that they seize and transfer to the IRS 30% of deadbeat Americans’ assets. To the surprise of no one who understands basic incentives, foreign banks have been dropping American clients like sacks of flaming garbage.
February 23, 2016
Over on his campaign website Bernie Sanders has a page telling us all how his delightful bribes to the voters will get paid for. The usual populist politician’s trick of just shouting that it will be someone else, not you, no absolutely not you the special little voting snowflake, who will pay for all that you, that special little voting snowflake, are being promised. In Bernie’s case it will be “the rich” who pay for everything. And that’s what means that his taxation plans don’t add up. Simply because there’s not all that many rich people and collectively they don’t have all that much money.
Sure, it’s possible to get a bit more money from them. But at some point in the face of ever rising marginal tax rates, peoples’ behavior will change. There really is some tax rate at which point higher rates don’t produce more revenue, they produce less. And sadly Bernie’s sums don’t take account of this fact. Thus under the current taxation plans all these goodies will not be paid for at all. And this brings us to the essential truth that the European states have all worked out. If you want to bring Big Government to the middle classes then you’ve got to tax the middle classes to pay for Big Government. There just is no other way of raising that sort of amount of revenue.
Tim Worstall, “How Bernie Sanders Won’t Pay For His Proposals”, Forbes, 2016-02-12.
February 14, 2016
Until March 1933, these were the years of President Herbert Hoover — the man that anti-capitalists depict as a champion of non-interventionist, laissez-faire economics.
Did Hoover really subscribe to a “hands off the economy,” free-market philosophy? His opponent in the 1932 election, Franklin Roosevelt, didn’t think so. During the campaign, Roosevelt blasted Hoover for spending and taxing too much, boosting the national debt, choking off trade, and putting millions of people on the dole. He accused the president of “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible,” and of presiding over “the greatest spending administration in peacetime in all of history.” Roosevelt’s running mate, John Nance Garner, charged that Hoover was “leading the country down the path of socialism.” Contrary to the modern myth about Hoover, Roosevelt and Garner were absolutely right.
The crowning folly of the Hoover administration was the Smoot-Hawley Tariff, passed in June 1930. It came on top of the Fordney-McCumber Tariff of 1922, which had already put American agriculture in a tailspin during the preceding decade. The most protectionist legislation in U.S. history, Smoot-Hawley virtually closed the borders to foreign goods and ignited a vicious international trade war.
Officials in the administration and in Congress believed that raising trade barriers would force Americans to buy more goods made at home, which would solve the nagging unemployment problem. They ignored an important principle of international commerce: trade is ultimately a two-way street; if foreigners cannot sell their goods here, then they cannot earn the dollars they need to buy here.
Foreign companies and their workers were flattened by Smoot-Hawley’s steep tariff rates, and foreign governments soon retaliated with trade barriers of their own. With their ability to sell in the American market severely hampered, they curtailed their purchases of American goods. American agriculture was particularly hard hit. With a stroke of the presidential pen, farmers in this country lost nearly a third of their markets. Farm prices plummeted and tens of thousands of farmers went bankrupt. With the collapse of agriculture, rural banks failed in record numbers, dragging down hundreds of thousands of their customers.
Hoover dramatically increased government spending for subsidy and relief schemes. In the space of one year alone, from 1930 to 1931, the federal government’s share of GNP increased by about one-third.
Hoover’s agricultural bureaucracy doled out hundreds of millions of dollars to wheat and cotton farmers even as the new tariffs wiped out their markets. His Reconstruction Finance Corporation ladled out billions more in business subsidies. Commenting decades later on Hoover’s administration, Rexford Guy Tugwell, one of the architects of Franklin Roosevelt’s policies of the 1930s, explained, “We didn’t admit it at the time, but practically the whole New Deal was extrapolated from programs that Hoover started.”
To compound the folly of high tariffs and huge subsidies, Congress then passed and Hoover signed the Revenue Act of 1932. It doubled the income tax for most Americans; the top bracket more than doubled, going from 24 percent to 63 percent. Exemptions were lowered; the earned income credit was abolished; corporate and estate taxes were raised; new gift, gasoline, and auto taxes were imposed; and postal rates were sharply hiked.
Can any serious scholar observe the Hoover administration’s massive economic intervention and, with a straight face, pronounce the inevitably deleterious effects as the fault of free markets?
Lawrence W. Reed, “The Great Depression was a Calamity of Unfettered Capitalism”, The Freeman, 2014-11-28.
February 9, 2016
Dan Mitchell explains how Cam Newton is being taxed at nearly 200% on his California income for playing in the Super Bowl:
When I give speeches in favor of tax reform, I argue for policies such as the flat tax on the basis of both ethics and economics.
The ethical argument is about the desire for a fair system that neither punishes people for being productive nor rewards them for being politically powerful. As is etched above the entrance to the Supreme Court, the law should treat everyone equally.
The economic argument is about lowering tax rates, eliminating double taxation, and getting rid of distorting tax preferences.
Today, let’s focus on the importance of low tax rates and Cam Newton of the Carolina Panthers is going to be our poster child. But before we get to his story, let’s look at why it’s important to have a low marginal tax rate, which is the rate that applies when people earn more income.
Now let’s look at the tax implication for Cam Newton.
If the Panthers win the Super Bowl, Newton will earn another $102,000 in playoff bonuses, but if they lose he will only net another $51,000. The Panthers will have about 206 total duty days during 2016, including the playoffs, preseason, regular season and organized team activities (OTAs), which Newton must attend or lose $500,000. Seven of those duty days will be in California for the Super Bowl… To determine what Newton will pay California on his Super Bowl winnings alone, …looking at the seven days Newton will spend in California this week for Super Bowl 50, he will pay the state $101,600 on $102,000 of income should the Panthers be victorious or $101,360 on $51,000 should they lose.
So what was Cam’s marginal tax rate for playing yesterday?
Losing means his effective tax rate will be a whopping 198.8%. Oh yeah, he will also pay the IRS 40.5% on his earnings.
In other words, Cam Newton will pay a Barack Obama-style flat tax. The rules are very simple. The government simply takes all your money.
Or, in this case, more than all your money. So it’s akin to a French-style flat tax.
December 28, 2015
Some thoughts from Dave’s Insight on Alberta’s attempt to signal their new-found carbon virtues:
First, let me set the premise. When giving seminars on Tax and/or Profits, I like to ask the question. What is a word for a Company that does not pass all its expenses, including its taxes on to its customers? The answer of course is bankrupt. Maybe not immediately, but eventually. Something I always ask when dealing with businesses, non-profits and governments when they are talking about spending is: Where is the money going to come from? Well, where is the money going to come from?
The NDP government may claim that it will only be three or four hundred dollars per person, sorry, per family. But let’s cut to the chase. In almost the same breath they claim it will raise 3-4 billion dollars per year revenue for the provincial government. Possibly double that in a few years. So where is this coming from? At the end of the day, one way or another it has to come from our pockets. While at first you might think that we export so we can export the tax. However, our exports have to compete with all the other available sources of supply, so we cannot export the tax. If we could, we would still be charging over $100 per barrel for oil, but we cannot. That leads me back to: Where is this 3 to 4 Billion dollars per year (more later) to come from?
Well, there is really only one answer; it might be somewhat invisible, but we Albertan’s will have to pay it, and that my friend works out to about $1,000 per person per year, or $4,000 per family of four. And if it brings in $8 billion in a few years, that is over $8,000 per family of four per year. We will pay it in the form of higher transportation costs (both public and private); higher heating costs and to a lesser extend in the cost of everything we buy from groceries to toys. Of course some will pay more and some less, but to be clear, this will hurt the poorest the most.
H/T to Small Dead Animals for the link.
December 10, 2015
A few years ago, I was called upon to inform the IRS that a former employee of mine would have liked to be paid more than I had paid him. Given that I have never met a freelance writer who thought he was being paid enough, I thought it a strange request, but I eventually understood the IRS’s line of thinking: The gentleman in question, who was in his 80s at the time, had retired from his former occupation and worked as a freelance writer. His beat involved a great deal of travel, and he deducted the expenses for which he was not compensated — which, the state of the newspaper industry being what it is, was all of them, at least as far as my editorial budget was concerned. The IRS suspected that his writing gig was somehow phony, something he had invented simply for tax deductions. In truth, he was just a freelance writer who didn’t make a lot of money — i.e., a freelance writer indistinguishable from about 88.8 percent of all freelance writers.
Kevin D. Williamson, “Mottos for Miscreants”, National Review, 2014-11-20.
November 13, 2015
I have written a fair bit on this site and elsewhere (I work in the financial/media world) about this subject, and there is no doubt in my mind that the idea that tax competition is harmful is almost always held by politicians and collectivist-minded commentators who want to create a sort of global tax cartel. Cartels are, we learn in our textbooks, harmful although they tend to fracture with time. (The OPEC cartel had a problem in the 80s and 90 sustaining high oil prices, which at one stage went below $10 a barrel). However futile the attempt, however, do not underestimate the harm that is being done in the process of trying to shut down offshore financial centres and the like. The possibility that people can and will take their money elsewhere is one of the few constraints that exist on otherwise rapacious governments. So naturally, governments try to stop this from happening – hence all this talk about shutting down tax “competition”.
When governments claim that tax dodgers are taking food from the mouths of poor babies, treat it with scorn. The money that goes offshore doesn’t disappear down some black hole, never to appear again: that money, if it is to earn a return and outpace inflation, is invested – ie, it is put to work, often far more effectively than would otherwise be the case.
Johnathan Pearce, “The end of tax competition?”, Samizdata, 2014-11-07.
October 21, 2015
Megan McArdle on the odd and oddly resilient habit of tipping:
Restaurateur Danny Meyer is planning to eliminate tips at his restaurant group’s 13 restaurants by the end of next year. Among other things, the New York Times suggests this will lower the disparity in pay between the back of the house, which makes an average of around $12 an hour, and the servers, who pull in considerably more than that.
Meyer is part of a small but interesting movement among restaurants and bars. A bar without tips just opened near my house in Washington; New York has a few places that no longer support tipping. Prices will naturally have to rise to reflect increased labor costs. Meyer says that servers’ incomes will not fall, but I am skeptical on this point. But it will certainly be interesting to see if Meyer manages to slay tipping — and if so, whether other restaurants will follow suit.
To get a sense of whether this is likely to work, it seems worth asking: Why do we tip? Tipping is, after all, a rather strange custom. We tell ourselves that it exists to ensure good service, but in fact, most people are very reluctant to undertip even when the service has been appalling. They follow the norms of tipping even when they are never going to see that waiter again, and therefore don’t need to worry about retaliation. Meanwhile, all sorts of things seem to affect tipping that have nothing to do with the quality of the service, like the race of the server and whether they put a smiley face on your check (though apparently this only works for female servers).
So if it’s not about rewarding good service, why do we tip? Notice that we do it in some circumstances, but not others. We tip the bellhop, but not the clerk at reception. The waitress, but not the person behind the Target checkout counter. These disparities offer our first clue to the mystery: We tip people who are providing the services that used to be performed by household servants, but not the people who do the jobs of tradesmen or retail clerks. It’s possible that this grew out of the old tradition of tipping servants when you went to stay at someone’s house.
Another post I stashed away, intending to blog and then somehow forgot … Dan Mitchell on the two main varieties of statist supporters:
At the risk of oversimplifying, there are two types of statists.
The first type is generally insincere and simply views bigger government and increased dependency as a strategy to obtain and preserve political power. Most inside-the-beltway leftists in Washington are in this category.
The second type genuinely cares about the less fortunate but makes the mistake of thinking that good intentions somehow lead to good results. You could call these people the Pope Francis leftists.
As you might imagine, there’s very little hope of persuading the first category of statists. You could show them all the data and evidence in the world, for instance, that a flat tax would boost prosperity, and they’ll simply shrug and tell you to jump in a lake because genuine tax reform would reduce the power and influence of Washington’s political elite.
But the second group of statists should be persuadable. That’s why I share so many comparisons of nations with smaller government and freer markets versus countries with bigger government and more intervention. I want open-minded folks on the other side to see how good policy leads to better economic performance, particularly since the poor will be big beneficiaries. That should be compelling, especially when combined with the data on how the welfare state simply traps poor people in government dependency.
October 7, 2015
Published on 18 Mar 2015
Since the passage of the Clean Air Act, SO2 emissions have decreased by 35%. Part of this is due to tradable allowances, which created a market solution to the external costs of SO2 emissions. In this video, we look at the lessons of tradable allowances for SO2 and see if a similar market-based solution could work to decrease other pollutants, such as CO2.