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 27, 2015
QotD: The corporate tax game
June 23, 2015
June 22, 2015
An insurance scam that targets the most vulnerable
At The Intercept, Juan Thompson talks about a burgeoning insurance scam that not only rips off the victims for their insurance premiums but then makes it worse through police action:
Martin was taken in by a widening scam in which crooks, posing as auto insurance agents, prey on working people struggling to find affordable policies. Under the scam, the perpetrator offers auto insurance for a low price — low because the scammer, posing as a broker, will buy an authentic policy using fraudulent means of payment, keeping the policy just long enough to collect a proof of insurance card.
The racket is a growing problem in New York City and South Florida, according to an insurance industry group, but seems most prevalent in Michigan, where premiums are inflated by a state mandate that drivers purchase insurance plans that have unlimited lifetime medical benefits, among other features. Victims in Michigan are thrown even deeper into crisis when police, as is common there, accuse victims of being in on the scam and seize their vehicles and other assets under civil forfeiture laws.
The scam and seizures show how crooks and cops can end up working in concert to further imperil those already on the economic brink. Indeed, in this case, low-income residents are pinched at every turn. They start off with especially high insurance premiums, consumer advocates argue, because insurance companies sometimes charge people in low-income communities more for auto insurance in a practice some have labeled modern redlining.
Bogus agents exploit the need for cheaper policies by selling insurance that’s too good to be true, leaving victims financially exposed, for example, in the case of an accident. As if all that weren’t enough, the police then turn on the victims of the fraud, who are far easier to track down than the original perpetrators.
“You have a blend of crooked agents selling innocent, squeezed drivers bogus policies and insurance cards, and high insurance premiums,” said James Quiggle of the Coalition Against Insurance Fraud, a group that receives funding from insurance companies.
June 18, 2015
QotD: The “optimal” level of corruption
Quick question for you: What’s the optimal amount of corruption in politics?
If you said “zero,” then I’m sorry. You do not win the prize. (It was a year’s supply of Mr. Clean Magic Erasers, just so you know.) The optimal amount of corruption in any system is almost never zero, and that goes double for politics.
We shouldn’t try to get corruption to zero because fighting corruption is costly. Think, for example, of government contracting, which mindlessly awards contracts to the low bidder, as if quality and reliability were irrelevant considerations. This sloppiness inevitably adds time and costs. Or the various requirements we impose on civil service workers to make sure that not one of them enjoys so much as a stray sandwich on the taxpayer dime … and thereby ensure that normal business practices, like sitting down for an inexpensive group meal to discuss something, are almost comically difficult to arrange. All these procedural rules make government less effective and more costly. My father, who was the head of a trade association for contractors on heavy infrastructure projects, estimates that adding federal money to a project adds about five years to its completion date.
There’s even more reason not to strive for zero corruption: Politics is the art of getting widely disparate factions to come to some sort of policy agreement, and “clean graft” greases those wheels. Now, calm down — I’m not advocating that we move to a full-on kleptocracy like Russia. What I’m suggesting is in attempting to root every last vestige of pork and patronage out of the system, we have inadvertently produced the partisan gridlock that we now decry. Anyone who thinks that this is a crazy statement should read Jonathan Rauch’s terrific new e-book, Political Realism: How Hacks, Machines, Big Money, and Back-Room Deals Can Strengthen American Democracy. At a trim 55 pages, it is a fast read, and at $0, it is the bargain of the century.
Megan McArdle, “In Politics, It’s Good to Be a Little Bad”, Bloomberg View, 2015-05-07.
June 9, 2015
QotD: Politics, as practiced in Europe
It is at first denied that any radical new plan exists; it is then conceded that it exists but ministers swear blind that it is not even on the political agenda; it is then noted that it might well be on the agenda but is not a serious proposition; it is later conceded that it is a serious proposition but that it will never be implemented; after that it is acknowledged that it will be implemented but in such a diluted form that it will make no difference to the lives of ordinary people; at some point it is finally recognised that it has made such a difference, but it was always known that it would and voters were told so from the outset.
Brian Micklethwait explains the sourcing of this quote at Samizdata: The above paragraph, originally written to describe the onward march of the European Union, is quoted by Delingpole, in his book Watermelons (p. 45), to help him explain how AGW went from crankery to globally imposed policy. Delingpole found it in The Great Deception (p. 605) by Booker and North. They got it from a Times editorial, published on August 28, 2002.
June 4, 2015
When did “scientific literature” transmogrify into bad science fiction?
In The Lancet, Richard Horton discusses the problems of scientific journalism:
The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue.
Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness. As one participant put it, “poor methods get results”. The Academy of Medical Sciences, Medical Research Council, and Biotechnology and Biological Sciences Research Council have now put their reputational weight behind an investigation into these questionable research practices. The apparent endemicity of bad research behaviour is alarming. In their quest for telling a compelling story, scientists too often sculpt data to fit their preferred theory of the world. Or they retrofit hypotheses to fit their data. Journal editors deserve their fair share of criticism too. We aid and abet the worst behaviours. Our acquiescence to the impact factor fuels an unhealthy competition to win a place in a select few journals. Our love of “significance” pollutes the literature with many a statistical fairy-tale. We reject important confirmations. Journals are not the only miscreants. Universities are in a perpetual struggle for money and talent, endpoints that foster reductive metrics, such as high-impact publication. National assessment procedures, such as the Research Excellence Framework, incentivise bad practices. And individual scientists, including their most senior leaders, do little to alter a research culture that occasionally veers close to misconduct.
May 24, 2015
Charles Stross proposes “The Evil Business Plan of Evil”
Well, “proposes” isn’t quite the right word:
Let me describe first the requirements for the Evil Business Plan of Evil, and then the Plan Itself, in all it’s oppressive horror and glory.
Some aspects of modern life look like necessary evils at first, until you realize that some asshole has managed to (a) make it compulsory, and (b) use it for rent-seeking. The goal of this business is to identify a niche that is already mandatory, and where a supply chain exists (that is: someone provides goods or service, and as many people as possible have to use them), then figure out a way to colonize it as a monopolistic intermediary with rent-raising power and the force of law behind it. Sort of like the Post Office, if the Post Office had gotten into the email business in the 1970s and charged postage on SMTP transactions and had made running a private postal service illegal to protect their monopoly.
Here’s a better example: speed cameras.
We all know that driving at excessive speed drastically increases the severity of injuries, damage, and deaths resulting from traffic accidents. We also know that employing cops to run speed traps the old-fashioned way, with painted lines and a stop-watch, is very labour-intensive. Therefore, at first glance the modern GATSO or automated speed camera looks like a really good idea. Sitting beside British roads they’re mostly painted bright yellow so you can see them coming, and they’re emplaced where there’s a particular speed-related accident problem, to deter idiots from behaviour likely to kill or injure other people.
However, the idea has legs. Speed cameras go mobile, and can be camouflaged inside vans. Some UK police forces use these to deter drivers from speeding past school gates, where the speed limit typically drops to 20mph (because the difference in outcome between hitting a child at 20mph to hitting them at 30mph is drastic and life-changing at best: one probably causes bruises and contusions, the other breaks bones and often kills). And some towns have been accused of using speed cameras as “revenue enhancement devices”, positioning them not to deter bad behaviour but to maximize the revenue from penalty notices by surprising drivers.
This idea maxed out in the US, where the police force of Waldo in South Florida was disbanded after a state investigation into ticketing practices; half the town’s revenue was coming from speed violations. (Of course: Florida.) US 301 and Highway 24 pass through the Waldo city limits; the town applied a very low speed limit to a short stretch of these high-speed roads, and cleaned up.
Here’s the commercial outcome of trying to reduce road deaths due to speeding: speed limits are pretty much mandatory worldwide. Demand for tools to deter speeders is therefore pretty much global. Selling speed cameras is an example of supplying government demand; selling radar detectors or SatNav maps with updated speed trap locations is similarly a consumer-side way of cleaning up.
And here’s a zinger of a second point: within 30 years at most, possibly a lot sooner, this will be a dead business sector. Tumbleweeds and ghost town dead. Self-driving cars will stick to the speed limit because of manufacturer fears over product liability lawsuits, and speed limits may be changed to reflect the reliability of robots over inattentive humans (self-driving cars don’t check their Facebook page while changing lanes). These industry sectors come and go.
Mitchell’s First Theorem of Government
Dan Mitchell clearly understands what modern western government is really all about:
May 19, 2015
QotD: The iron law of bureaucrats
I should say I’m no free-speech absolutist. I think the notion that we should treat pole dancing like constitutionally protected speech while we try to ban actual political speech is just one of the loopiest manifestations of our popular confusion over the First Amendment. In fact, government support for the arts doesn’t offend me in theory, it’s just how they do it in practice that bothers me.
Specifically, I cannot stand the way New Class bureaucrats think they must be autonomous from the taxpayers who pay their salaries. Imagine if we lived in anything like the “Christianist” theocracy so many lefties live in quaking fear of. Evangelical bureaucrats would likely fund art they liked. The professional Bohemians would shriek — with some justification — that the state was imposing its values on the rest of us. But when those same people are in driving the gravy train, they think there’s nothing wrong — and everything right — with imposing their values.
Of course, this is a problem that extends far beyond outposts like the National Endowment for the Arts (NEA). Public teachers’ unions and ed-school priests hate the idea that parents and other taxpayers should have a real say in how education money is spent. Bureaucrats in general have become a kind of secular aristocracy that resents second-guessing by the people who fund their will-to-power.
When voters say that bureaucrats shouldn’t spend money on X, the bureaucrats shriek “censorship!” But it is only the equivalent of censorship if you work from the assumption that it’s all the government’s money anyhow. As Bill Clinton once said about the federal surplus, “We could give it all back to you and hope you spend it right.” But if we did, alas, not enough of you would spend it on urophagic art.
Jonah Goldberg, “Bureaucrats Use Taxpayer Money to Subsidize Their Own Values — and No One Else’s”, National Review, 2015-05-09.
May 16, 2015
Charles Murray and Jonah Goldberg on civil disobedience in America
Published on 11 May 2015
The American ideal of limited government on life support. Is it time for civil disobedience? Charles Murray says yes. Murray has been writing on government overreach for more than 30 years. His new book, By The People, is a blueprint for taking back American liberty. Jonah Goldberg sits down with Murray to discuss civil unrest in Baltimore, the scope of the government, and why bureaucrats should wear body cameras.
According to AEI scholar, acclaimed social scientist, and bestselling author Charles Murray, American liberty is under assault. The federal government has unilaterally decided that it can and should tell us how to live our lives. If we object, it threatens, “Fight this, and we’ll ruin you.” How can we overcome regulatory tyranny and live free once again? In his new book, By the People: Rebuilding Liberty Without Permission (Crown Forum, May 2015), Murray offers provocative solutions.
May 13, 2015
QotD: Mono-culture banking
One of the factors in the financial crisis of 2007-2009 that is mentioned too infrequently is the role of banking capital sufficiency standards and exactly how they were written. Folks have said that capital requirements were somehow deregulated or reduced. But in fact the intention had been to tighten them with the Basle II standards and US equivalents. The problem was not some notional deregulation, but in exactly how the regulation was written.
In effect, capital sufficiency standards declared that mortgage-backed securities and government bonds were “risk-free” in the sense that they were counted 100% of their book value in assessing capital sufficiency. Most other sorts of financial instruments and assets had to be discounted in making these calculations. This created a land rush by banks for mortgage-backed securities, since they tended to have better returns than government bonds and still counted as 100% safe.
Without the regulation, one might imagine banks to have a risk-reward tradeoff in a portfolio of more and less risky assets. But the capital standards created a new decision rule: find the highest returning assets that could still count for 100%. They also helped create what in biology we might call a mono-culture. One might expect banks to have varied investment choices and favorites, such that a problem in one class of asset would affect some but not all banks. Regulations helped create a mono-culture where all banks had essentially the same portfolio stuffed with the same one or two types of assets. When just one class of asset sank, the whole industry went into the tank,
Well, we found out that mortgage-backed securities were not in fact risk-free, and many banks and other financial institutions found they had a huge hole blown in their capital.
Warren Meyer, “When Regulation Makes Things Worse — Banking Edition”, Coyote Blog, 2014-07-07.
May 1, 2015
Statistical myths in California’s water shortage
Devin Nunes debunks the common claim that California’s farmers use “80 percent” of the available water in the state:
As the San Joaquin Valley undergoes its third decade of government-induced water shortages, the media suddenly took notice of the California water crisis after Governor Jerry Brown announced statewide water restrictions. In much of the coverage, supposedly powerful farmers were blamed for contributing to the problem by using too much water.
“Agriculture consumes a staggering 80 percent of California’s developed water, even as it accounts for only 2 percent of the state’s gross domestic product,” exclaimed Daily Beast writer Mark Hertsgaard in a piece titled “How Growers Gamed California’s Drought.” That 80-percent statistic was repeated in a Sacramento Bee article titled, “California agriculture, largely spared in new water restrictions, wields huge clout,” and in an ABC News article titled “California’s Drought Plan Mostly Lays Off Agriculture, Oil Industries.” Likewise, the New York Times dutifully reported, “The [State Water Resources Control Board] signaled that it was also about to further restrict water supplies to the agriculture industry, which consumes 80 percent of the water used in the state.”
This is a textbook example of how the media perpetuates a false narrative based on a phony statistic. Farmers do not use 80 percent of California’s water. In reality, 50 percent of the water that is captured by the state’s dams, reservoirs, aqueducts, and other infrastructure is diverted for environmental causes. Farmers, in fact, use 40 percent of the water supply. Environmentalists have manufactured the 80 percent statistic by deliberately excluding environmental diversions from their calculations. Furthermore, in many years there are additional millions of acre-feet of water that are simply flushed into the ocean due to a lack of storage capacity — a situation partly explained by environmental groups’ opposition to new water-storage projects.
April 30, 2015
The rise of “administrative law” in the United States
In City Journal, Myron Magnet reviews a new book by Philip Hamburger on the rise and rise of the regulatory state:
We conservatives like to complain about overregulation and point to this or that destructive rule, but few of us go so far as Philip Hamburger does in his immensely important Is Administrative Law Unlawful?, published last year. A Columbia law professor, Hamburger indicts the entire structure of executive-agency rulemaking as illegitimate. It’s not just the regulations that have to go but the regulators as well, since their job is to fling down the Constitution and dance on it.
For over 400 pages of a 511-page, doorstopper-weight text, Hamburger counts the ways in which the slithery Medusa’s head of executive-branch agencies — from the Interstate Commerce Commission and the National Labor Relations Board to the Environmental Protection Agency and the Consumer Financial Protection Bureau, all spitting out the venom of administrative law — constitutes a flagrant affront to the Constitution. For starters, the Constitution lodges all legislative power in Congress, which therefore cannot delegate its lawmaking function. So it’s forbidden for Congress to pass a law creating an executive-branch agency that writes rules legally binding on citizens — for example, to set up an agency charged with making a clean environment and then to let it make rules with the force of law to accomplish that end as it sees fit. “The power of the legislative,” as the Founding Fathers’ tutelary political philosopher, John Locke, wrote, is “only to make laws and not to make legislators.” And if Congress can’t delegate the legislative power that the Constitution gives it, it certainly cannot delegate power that the Constitution doesn’t give it — namely, the power to hand out selective exemptions from its laws, which is what agencies do when they grant waivers.
Second, Constitution architect James Madison, following political theorist Baron de Montesquieu, saw the separation of powers as an essential bulwark of American liberty. But administrative agencies, which make rules, carry them out, and adjudge and punish infractions of them, blend together legislative, executive, and judicial powers in one giant anti-constitutional Cuisinart. Moreover, judicial power is as undelegatable as legislative power, since the Constitution lodges all of it in the judicial branch. So third, while administrative judges may look “just like real judges,” says Hamburger, they are no such thing — and not only because the Constitution makes it impossible for them to be so but also because, unlike real judges, their sole duty, rather than using their independent and expert judgment to carry out the law of the land, is to carry out the policy of their agency, as set and overseen by their department chief or the relevant cabinet secretary who in turn oversees him. As Justice William Howard Taft pronounced, an administrative tribunal is “miscalled a court.”
April 15, 2015
QotD: The secret weapon of the bureaucracy
… boredom is the deadly secret weapon of the bien-pensant technocrats of the EU and the UN. “They wear outsiders down with the tedium of their arguments and the smallness of their fine print, so that by the time anyone else notices what they’re up to the damage has been done and it’s too late to do anything about it.”
James Delingpole, “Green Global Governance: How Environmentalists Have Taken Over the World”, Breitbart.com, 2014-06-25.
April 14, 2015
Patently ridiculous, in one image
H/T to Veronique de Rugy, who explains that much of the increase in “patents for trivial and non-original functions” can be traced back to the creation of one particular court.
