Good government is a constable — it keeps the peace and protects property. Parasitic government — which is, sad to say, practically the only form known in the modern world — is at its best a middleman that takes a cut of every transaction by positioning itself as a nuisance separating you from your goals. At its worst, it is functionally identical to a goon running a protection racket.
The desire to be left alone is a powerful one, and an American one. It is not, contrary to the rhetoric proffered by the off-brand Cherokee princess currently representing the masochistic masses of Massachusetts in the Senate, an anti-social sentiment. It is not that we necessarily desire to be left alone full stop — it is that we desire to be left alone by people who intend to forcibly seize our assets for their own use. You need not be a radical to desire to live in your own home, to drive your own car, and to perform your own work without having to beg the permission of a politician — and pay them 40 percent for the privilege.
Principles are dangerous things — whiskey is for drinking, water and principles are for fighting over. The anti-ideological current in conservative thinking appreciates this: If we all seek complete and comprehensive satisfaction of our principles, then there will never be peace. This is why scale matters and why priorities matter. In a world in which the public sector consumes 5 percent of my income and uses it for such legitimate public goods as law enforcement and border security, I do not much care whether the tax system is fair or just on a theoretical level; and while I may resent it as a matter of principle, the cost of my consent is relatively low, and I have other things to think about. But in a world in which the parasites take half, and use it mainly to buy political support from an increasingly ovine and dependent electorate, then I care intensely.
Kevin D. Williamson, “Property and Peace”, National Review, 2014-07-20.
July 16, 2015
July 3, 2015
Frances Woolley on the hidden advantages even a modest amount of money can provide:
Less often observed is that wealth itself generates consumption benefits, even if one never spends a dime of it.
I own a 12 year old Toyota Matrix. The front fender has collided with one too many snow banks, and is now held together with string. The exhaust system has seen better days. It breaks down occasionally. But overall it’s very cheap to run.
If I was poor, it would be tough having an old, unreliable car. The unexpected, yet inevitable, major repairs would be a financial nightmare. $750 to repair the clutch. $200 to fix the axle seal. If the car broke broke down, and I couldn’t get to work, I might lose my job.
But because I’m financially secure, I can afford a cheap car. I can self-insure against financial risks: unexpected repair costs, taxi fares, rental cars, and so on. I can afford to get my car towed. If it was beyond repair, I could get another car tomorrow.
The real value of having $10,000 in the bank isn’t $200 in interest income, or the stuff $200 in interest income might buy. $10,000 in the bank creates a little bit of room to take risks. One could call it the “implicit value of self-insurance generated by own capital.” It’s the comfort of being rich (or having rich relatives). It’s real. It’s valuable. But it wouldn’t be taxed if Canada had a consumption tax.
Admittedly, the insurance value of having wealth isn’t taxed under an income tax either. But at least under an income tax some of the return on wealth is taxed, so there is, at least potentially, some shifting of the tax burden onto those with wealth.
The greatest freedom money offers is the freedom to walk away. Your bank doesn’t offer you unlimited everything with no monthly fees? Walk away. There’s always someone else who wants your money. Your phone plan is too expensive? Walk away (o.k., that may not be the best example).
People with money have alternatives, which makes their demand for goods and services elastic. Food may or may not cost more in poor areas. But a rich person can shop at Value Village if he chooses. A poor person may not be able to afford expensive purchases which save money in the long run, like bread machines or high efficiency appliances or pressure cookers. Consumption taxes aim to tax the amount of stuff people actually consume. But if poor people pay a higher price for their stuff than rich people, is a system that taxes only consumption spending, without taking into account the ability to command consumption wealth conveys, fair?
June 27, 2015
You can think of corporate taxation as a sort of long chess match: The government makes a move. Corporations move in response — sometimes literally, to another country where the tax burden is less onerous. This upsets the government greatly, and the Barack Obama administration in particular. Treasury Secretary Jack Lew has written a letter to Congress, urging it to make it stop by passing rules that make it harder to execute these “inversions.”
I’ve got a better idea: What if we made our tax system so attractive to corporations that they would have no interest in moving themselves abroad?
The problem with this extended chess game is that every move is very costly. First, it adds to the complexity of the tax code. With every new rule — no matter how earnestly said rule attempts to close a “loophole” — it becomes harder to know whether you are in compliance with the law. This is true on both sides; corporate tax law has now passed well beyond the point where it is possible for a single expert to be familiar with its ins and outs. This makes it harder to plan business expansions, harder to forecast government revenue, and it requires both sides to hire more experts in order to determine whether corporations are compliant. It also means more lawsuits, and longer ones, as both sides wrangle over how this morass of laws should be applied to real-world situations.
You can think of it this way: Every new law has possible intersections with every other tax law in existence. As the number of laws grows, the number of possible intersections grows even faster. And each of those intersections represents both a possible way to avoid taxes and a potential for unintended consequences that inadvertently outlaw something Congress never intended to touch. This growing complexity makes it more and more difficult for either companies or lawmakers to forecast the ultimate effects of new tax laws.
Megan McArdle, “We Don’t Need a Corporate Income Tax”, Bloomberg View, 2014-07-16.
June 17, 2015
At International Liberty, Dan Mitchell points out an example of leftists who genuinely want higher taxes on “the rich” even when the higher rate will return less money to the government:
Every so often, I’ll assert that some statists are so consumed by envy and spite that they favor high tax rates on the “rich” even if the net effect (because of diminished economic output) is less revenue for government.
In other words, they deliberately and openly want to be on the right side (which is definitely the wrong side) of the Laffer Curve.
Critics sometimes accuse me of misrepresenting the left’s ideology, to which I respond by pointing to a poll of left-wing voters who strongly favored soak-the-rich tax hikes even if there was no extra tax collected.
But now I have an even better example.
Writing for Vox, Matthew Yglesias openly argues that we should be on the downward-sloping portion of the Laffer Curve. Just in case you think I’m exaggerating, “the case for confiscatory taxation” is part of the title for his article.
Here’s some of what he wrote.
Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends. We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. …But we don’t do that because we care about public health. We tax tobacco not to make money but to discourage smoking.
The tobacco tax analogy is very appropriate.
May 16, 2015
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 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.