Quotulatiousness

December 9, 2012

Sheldon Richman decries “Romanticizing Taxation”

Filed under: Government, History — Tags: , — Nicholas @ 12:25

Of all the topics you might try to romanticize, taxation would certainly be at the bottom of the list:

In the debate over avoiding the “fiscal cliff” — especially over whose taxes should and shouldn’t be raised — I detect an annoying attempt to romanticize taxation. I read this as an act of desperation on the part of those who want higher taxes on the wealthy, for there is nothing romantic about taxation.

The other day MSNBC’s Chris Hayes invoked Franklin Roosevelt in support of higher taxes on the top 2 percent. Pulling out all the stops, Hayes quoted from one of FDR’s October 1936 campaign speeches […]

Roosevelt’s claim that we can judge the social conscience of the government by how it collects taxes is true in a way he could not have imagined. Contrary to FDR and Justice Holmes, taxes are neither a price (in the voluntary-transaction sense) nor club dues. On the contrary, they are exactions by threat of violence. Some social conscience! How ironic that organized society and civilization itself are said to depend on the government’s threatening peaceful people if they fail to surrender their property as demanded by politicians who presumptuously and self-servingly claim to “represent” all the people.

Far from some enlightened institution, taxation began when conquerors realized that formal and continuing appropriation of a subject population’s wealth was preferable to hit-and-run pillaging. For this to work, however, the rulers needed to convince the peasants that the regime would protect them from predators in return for their regular remittances. That’s right: It was a protection racket, from which the racketeers and their cronies profited handsomely. For the taxpayers, there was little choice in the matter. They weren’t buying protection as people buy insurance in the market, and they weren’t paying dues as they would later pay dues to mutual-aid societies. They paid or they were punished. The ideology of benevolent state protection reduced enforcement costs because the ruled outnumbered the rulers and widespread tax resistance would have doomed the regime. Things have changed little in our time.

December 2, 2012

Define or be defined: fiscal edition

Filed under: Government, History, Politics, USA — Tags: , , , — Nicholas @ 10:54

Ron Hart talks about the distant past where congress passed budgets and those budgets were actually in surplus:

Most Americans expect politicians to work out a back-room deal to avoid embarrassing themselves again. The politicians feel these deals are too ugly for us to watch, so they are compelled to spare us the indignity of the “most transparent president” ever. Political deals are like sausage; it is best not to watch the product being made. The difference is, sausage as an end product is actually good.

In the Democratic vernacular, taxes have changed to “revenues.” Long ago they replaced the word “spending” with “investments,” especially when wasting money on Solyndra and the like. They think we are stupid.

When Bill Clinton so famously “balanced the budget” with the Internet boom and all the taxes from those stock sales, the GOP and Newt Gingrich passed a budget (yes, Congress used to do that) of $1.7 trillion in expenditures. Adjusted for inflation, our federal government would be spending $2.3 trillion today and collecting $2.5 trillion in “revenues,” resulting in a $200 billion surplus. But instead of increasing government spending in line with normal inflation, under Bush and Obama we are spending $3.8 trillion today. Democrats, who believe we have a “revenue” problem instead of a “spending” problem, must also think they have a bartender problem, not a drinking problem.

Those Republican neocons who have never seen a country they do not want to bomb because it looked at us wrong, have to give on defense. We spend $1.19 trillion a year on defense — more than the other top 10-countries combined and more than six times what second-place China spends.

November 30, 2012

Republicans widely expected to trade “no tax” pledge for promise of future spending cuts PLUS some awesome magic beans

Filed under: Economics, Government, Media, USA — Tags: , , , , — Nicholas @ 11:45

Most of the conservative pundits seem to expect the Republicans to cave in almost immediately and give Obama the tax increases he’s asking for:

1. President Obama is convinced he will walk out of this crisis with an extremely sweet deal. [. . .]

2. Democrats are completely convinced that enough Republicans in Congress will cave and acquiesce to almost everything they want as the cliff approaches. They have some recent historical examples to provide encouragement in this belief.

3. Democrats are completely convinced that if no deal is reached, the Bush tax cuts expire, and sequestration takes effect, Republicans will get most of the blame. This is probably largely correct, but I think they’re whistling past the graveyard on the consequences to an Obama presidency if 2013 dawns with tax hikes, defense-spending cuts, and another recession.

[. . .]

4. For the GOP, a deal on Obama’s terms is probably worse than sequestration. The middle will not suddenly like the GOP a lot more because they embraced tax increases for the rich. Even if they did, it’s unlikely they would gain enough ground to offset the damage such a move will do among a betrayed and enraged party grassroots. As I said this morning, “Once the Republicans become the party of tax increases, why do we need them? They become indistinguishable from the Democrats.”

[. . .]

The biggest obstacle to all of the options for real deficit reduction and real entitlement reform is that the public doesn’t really think they’re necessary; they think a few tax hikes on the rich will do the trick. Perhaps it’s best to let taxes go up for everyone, from the highest earners to the lowest earners, and let the public see how little that changes the numbers.

November 23, 2012

Google the latest whipping boy in Australia over taxation

Filed under: Australia, Business, Europe, Government, Law — Tags: , , , , — Nicholas @ 09:53

Even if you scrupulously obey the multiple jurisdictional laws to legally minimize the amount of tax you pay, politicians can’t resist the opportunity to pillory you for not paying your “fair share”:

The Minister’s explanation of Google’s tax affairs is as follows:

    “While the day-to-day dealings of Australian firms advertising on Google might be with Google Australia, under the fine print of contracts Australian firms sign with Google, they are actually buying their advertising from an Irish subsidiary of Google.

    It is then argued that the source of this income — and therefore the taxing rights under our tax treaty — would be with Ireland rather than Australia. Despite Ireland’s relatively low company tax rate of 12.5 per cent, we have just started to build the sandwich.

    The next step is to route a royalty payment from the Irish operating subsidiary of Google to a Dutch subsidiary of Google, which is then paid back to a second Irish holding company subsidiary of Google that is controlled in Bermuda, which has no corporate tax.

    The first Irish subsidiary receives a tax deduction for the royalty payment to the Dutch subsidiary, substantially reducing the income subject to the 12.5 per cent Irish company tax rate.

    Under Dutch law, and because EU member countries do not charge withholding taxes on transfers within the EU, the transfers to and from the Netherlands are essentially tax free.

    And under Irish tax law, the second Irish resident subsidiary is not taxed on the royalty payment because it is controlled by managers elsewhere.

    The profits from the sale of advertising to an Australian firm then sit in a tax-free jurisdiction — possibly indefinitely.”

Tax lawyers — especially those who work on multinational levels — don’t create these situations out of whole cloth: it’s the politicians and revenue ministries that set up and maintain the tax rules. Corporations are legally required to pay taxes (as are individuals), but corporations are also legally required to conduct themselves in ways that maximize the profits for their shareholders. Finding ways to legally pay tax at a lower rate is a requirement. That companies like Apple and Google are big enough to take advantage of the “loopholes” deliberately created by the tax authorities is not a reason to bash Apple or Google. They can only take advantage of “loopholes” because this or that government tried to rig the system in a particular way. Changing or threatening to change the rules retrospectively is a really good way to indicate to foreign business that you really don’t want them operating in your territory.

Update: Snigger.

November 17, 2012

Steve Landsburg says paying off the national debt would be a bad idea

Filed under: Government, USA — Tags: , , — Nicholas @ 10:41

Here’s an interesting argument:

How high should taxes be? High enough to cover expected outlays going forward — but no higher.

That’s because any additional revenue would be used to pay down the federal debt, which is a bad idea. It was almost surely a mistake to run up this much debt in the first place, but now that we’ve got it, the best thing to do is to keep it forever.

Here’s why:

Every $100 in outstanding debt commits the government to making payments with a present value of $100, and hence to collecting tax revenues with a present value of $100. In a world where the interest rate is 3%, the options include collecting (and paying off) $100 immediately, or $50 this year and $51.50 next year, or $11.38 a year for ten years running, or $3 a year forever. Because deadweight loss (i.e. the economic damage due to the disincentive effects of taxes) is roughly proportional to the square of the tax rate, it turns out that the latter — the policy of paying interest forever without ever making a principal payment — is (at least roughly) the policy that minimizes the present value of deadweight loss.

The argument for a guaranteed annual income program

Filed under: Cancon, Economics, Government — Tags: , — Nicholas @ 10:16

In the National Post, Andrew Coyne lays out the benefits of instituting a GAI to replace existing poverty programs:

The basic idea behind the GAI is sound: to consolidate a number of federal and provincial programs, some in cash and some in kind, into a single, universal, unconditional cash benefit, delivered through the tax system. The base amount would be modest: perhaps $10,000-$12,000 per person. Critically, it would be taxed back only gradually, say at 25 cents on the dollar, as earned income rises. Compare that to current practice, where benefits are often withdrawn dollar-for-dollar, or in the case of benefits in kind like free dental care or prescription drugs, are denied altogether to those who leave social assistance: an effective marginal tax rate of 100% or more.

You can see why the people who design and administer these systems do this. They’re trying to save money; they want to target assistance only to those who “need” it; they worry what people would do if given the cash to buy what they want, rather than the services government thinks they should have. But the result of all this careful selection and monitoring is not just condescending and intrusive: it effectively punishes people for taking a job, or working longer hours. This is the key insight of the GAI: dependence is created not so much by giving people money when they don’t work — certainly not at $10,000 a year — as by taking it away from them when they do.

So if all of this makes sense, why hasn’t it been done? One barrier is cost. The more gradually you reduce the transfer as income rises, the more paltry the base amount must be to stay within a given limit; conversely, set a more generous minimum, and you have to impose a steeper clawback. Of course, the arithmetic becomes less stark if you include the revenues saved from the programs the GAI would replace. But here you run into other obstacles.

November 13, 2012

Denmark discovers that “price elasticity” is a real phenomenon

Filed under: Economics, Europe, Food, Government, Health — Tags: , , , — Nicholas @ 11:24

Denmark is getting rid of its “fat tax” imposed last year, as it has failed to solve the problem it was intended to address:

Gone, by popular demand: Denmark’s fat tax. ‘The fat tax is one of the most maligned we [have] had in a long time’, said Mette Gjerskov, the Danish food and agriculture minister, in a press conference on Saturday announcing the decision to ditch the policy. ‘Now we have to try improving the public health by other means.’

[. . .]

It turns out, unsurprisingly, that slapping taxes on things doesn’t necessarily persuade people to consume less of them. So Danes either went downmarket in their buying habits by buying cheaper products, or popped across the border to Sweden or Germany to buy their fatty foods there instead. The only real effect was to hit the profits of Danish companies. Chastened by the experience, the Danish government has also scrapped plans for a sugar tax, too.

As the OECD notes: ‘The impact of imposing taxes on the consumption of certain foods is determined by the responsiveness of consumers to price changes, ie, price elasticity. However, it is difficult to predict how consumers will react to price changes caused by taxation. Some may respond by reducing their consumption of healthy goods in order to pay for the more expensive unhealthy goods, thus defeating the purpose of the tax. Others may seek substitutes for the taxed products, which might be as unhealthy as those originally consumed. Depending on the elasticity of the demand for the taxed products, consumers will either end up bearing an extra financial burden, or changing the mix of products they consume in ways that can be difficult to identify.’

So, simply from a practical point of view, food taxes — indeed, any sin tax, including extra duty on tobacco or minimum prices for alcohol — can have some unwanted negative consequences while largely failing to achieve their intended aim.

November 11, 2012

A major reason for Romney’s defeat

Filed under: Politics, USA — Tags: , , , , , — Nicholas @ 11:55

At Reason, Sheldon Richman explains one of the major reasons Mitt Romney’s campaign for president fell short of victory:

Romney couldn’t call Obama to account because he fundamentally agreed with most of what the president did. He could hardly have substantively criticized Obama’s fiscal record: Romney had little specific to say about cutting the government’s deep-in-deficit budget, and he even proposed to leave education and other federal spending intact. While Romney talked about cutting income-tax rates, he emphasized that he had no intention of cutting government revenues, which represent resources extracted from the private economy. He proposed only revenue-neutral tax “reform.”

While Romney promised to “repeal and replace” Obamacare, the architect of Massachusetts’ Romneycare was hardly in a position to offer a fundamental critique. The insurance mandate is the linchpin of Obamacare, but since Romneycare has the same mandate, what could the Republican candidate say? His weak federalist defense of state mandates versus national mandates sounded more like a rationalization. Moreover, Romney doesn’t understand what is wrong with America’s overpriced health-care system: the pervasive, monopolistic government privilege and regulation in the medical and insurance industries at both the state and federal levels. There is no free market in health care — something Romney does not get. As a result, he made the fatal mistake of implying that a partial repeal of Obamacare is all that is needed.

He also endorsed economic regulation, just to a vaguely lesser extent than what Obama favors. That only muddled the message. Romney showed no sign of understanding the relationship between regulation and privilege, which usually go hand in hand. So it’s not enough to favor deregulation; a true advocate of the free market favors “de-privileging” as well.

The biggest pass Obama got was on foreign policy and civil liberties, where his record has been horrendous. Of course, Romney could make no principled criticism because he basically approves of the record, though he claimed Obama hasn’t been aggressive enough.

As early as August, this lack of actual substantive differences between the candidates had already become quite clear.

November 9, 2012

Solving the “tax haven problem” … with military intervention

Filed under: Economics, Europe, Government — Tags: , , , , , , , , — Nicholas @ 12:30

Radley Balko suggested that this is insanity. I agree, but as Dan Mitchell explains, it’s being bruited about by people who should know far, far better:

A former bureaucrat from the European Bank for Reconstruction and Development actually called for the forcible annexation of low-tax jurisdictions, writing in the Financial Times that, “Jersey, Guernsey and the Isle of Man should simply be absorbed lock, stock and barrel into the UK…Andorra, Monaco and Liechtenstein should be given the choice of ending bank secrecy or facing annexation.”

He wasn’t quite so belligerent about Switzerland, perhaps because all able-bodied male citizens have fully automatic assault weapons in their homes. But he did urge financial protectionism against the land of chocolate, yodeling, and watches.

What a bizarre attitude. It’s apparently okay for certain countries to persecute – or even kill – ethnic minorities, religious minorities, political dissidents, homosexuals, and other segments of their populations. Very rarely do people like Mr. Buiter call for annexation or sanctions against such loathsome regimes.

But if a nation has low taxes and a strong human rights policy on financial privacy, then cry havoc and let slip the dogs of war.

November 8, 2012

Has Stephen Harper begun “starving the beast”?

Filed under: Cancon, Government — Tags: , , — Nicholas @ 09:43

In Maclean’s, Stephen Gordon says that Republicans should carefully observe the way Stephen Harper has gone about his goal of reducing the size of the government:

The “starve the beast” strategy works like this:

  1. Cut taxes.
  2. Wait until the resulting budgetary deficit becomes a problem important enough to solve.
  3. Cut spending in order to deal with the budget crisis.
  4. Go to 1.

The goal of this exercise is to steadily reduce the size of government. The idea has its origins in the US conservative movement, but US conservatives haven’t had much success in implementing it. Steps 1 and 2 work as advertised, but politicians can never get the hang of the third part.

[. . .]

Meanwhile, Stephen Harper is quietly implementing a Canadian “starve the beast” strategy, and not without success. Unlike the Republicans, the Conservatives have actually reached stage 3. Step 1 was the reduction to the GST, which created a structural deficit. After a certain period of denial, step 3 was reached in the austerity measures announced in the 2012 budget.

Federal revenues have been held below 15 per cent of GDP for four years in a row, well below the levels we’ve seen in the last fifty years. And the outlook is for more of the same.

Republicans are entering a rebuilding phase. I wouldn’t be surprised if some of them start paying close attention to how the Canadian Conservatives have managed to pull off the “starve the beast” trick that always seems to elude U.S. conservatives.

November 2, 2012

California tax collectors discover exciting new technique: double billing

Filed under: Bureaucracy, Government, USA — Tags: , , — Nicholas @ 08:04

Let’s say you’re an honest, upstanding citizen who pays your taxes on time and in full. Let us also say you happen to live in California. What would you do when you got a bill from a different agency of the state government, saying you still owed an amount of money that you paid in your state taxes (and have the documentation to prove it)? David Friedman ponders whether this new approach to state fund-raising is fraud or mere incompetence:

I recently received a bill from the California Board of Equalization (BOE) demanding that I pay them about three hundred dollars in use tax. That puzzled me, since I had already paid the use tax with my California state income tax return—my reporting it on that return is the only reason the BOE knew that I owed it. Just to be sure, I went online and checked my account with the Franchise Tax Board, the body that collects California income tax—it showed me owing nothing.

So I called the number for the BOE. The woman I spoke with told me that they had not received the money from the FTB and that if I did not want them to bill me for it I should call the FTB and have them take care of the matter. I called the number she gave me, got an FTB phone tree with no option of talking to a human being and no reference to use tax.

[. . .]

It is possible, of course, that I am misinterpreting incompetence as dishonesty—that at some stage in the process someone made a mistake, which will now be corrected. One reason I doubt that is that what the letter I received said was:

    “According to information provided to us by the Franchise Tax Board (FTB), you reported a use tax liability on your state income tax return. However, FTB advised the funds were not available to be transferred to the State Board of Equalization (BOE), which is ultimately responsible for the collection of use tax.”

    “If the use tax was remitted with your FTB return, the use tax was either redirected to a FTB liability or refunded by FTB. Accordingly, the BOE is sending this letter to inform you that the use tax remains due (see enclosed billing notice)”

They do not say that I did not pay the money to the FTB, merely that the FTB did not pay it to them. And the final bit, which I missed in the initial draft of this post and have just added, makes it clear that if I paid the money but the FTB didn’t pass it on, they want me to pay it again.

October 30, 2012

Pushing for “medical marijuana” makes full legalization less likely

Filed under: Health, Law, Liberty, USA — Tags: , , , , , , , — Nicholas @ 09:05

L. Neil Smith makes the point that supporters of medical marijuana may be missing:

What I do mind — and perhaps I am alone in this, who knows? — is weak and disingenuous politics with regard to drugs. It was the issue of “medical marijuana” that first got my goat this way. I don’t doubt for a microsecond that the weed makes life easier and longer for those suffering certain diseases, and I believe that those who would deny them that relief are little better than scavengers on the misery of others.

But observation — and my knowledge of history and human nature — suggests that the majority of those who advocate the legalization of pot “purely for medicinal purposes” do not require it for that reason. They simply want to slip the nose of their personal camel under the edge of the tent, and I find that approach sneaky, dishonest, and cowardly.

I believe that if they had spent the past fifty years pushing the Ninth Amendment right to roll up and smoke whatever frigging vegetable you wish, marijuana would be legal now, and there would not have been a “War On Drugs” handy for the psychopathetic enemies of liberty to transform into a War on Everything, including the American Productive Class.

I think we’ve seen the high point for medical marijuana. The proof of that lies in a current initiative to “Regulate Marijuana Like Alcohol”, on the ballot in my home state of Colorado this year. The title says it all, although the details could be gruesome, ending in a mess found in some states and all military bases, where the government runs the liquor stores (about as well as they run everything else). In the Air Force, when I was growing up, some officious snoops regularly examined the records of the store and your commanding officer would get a tattletale letter if they thought that you were buying too much booze.

Whatever that amounts to.

This is not a kind of progress any that real libertarian would recognize. The fact that advocates of the measure make a major selling point of taxing the stuff only makes it worse, both in principle and practice. First, by what right does anybody steal money from me when I choose to spend it on some things and not on others. Furthermore, when I was just entering college, a smoker could buy a pack of Marlboros out of a machine for 35 cents. Today, the price per pack is nudging five dollars, and only a small fraction of that is attributable to inflation.

Exactly the same thing will happen with marijuana.

October 21, 2012

QotD: Environmental externalities

Filed under: Economics, Environment, Quotations — Tags: , , , , — Nicholas @ 11:12

That other people place different values upon the environment than I do worries me not in the slightest. It is precisely such differences of opinions about value that make a market. What does annoy me intensely is that almost all of the environmental problems that are currently being complained about have indeed been studied by economists. And they’ve found solutions to them as well. Just about any and every environmental problem is either about externalities or common access to a resource. In many ways these are just the flip side of exactly the same problem. But we do indeed know how to solve each of them and both of them. Hardin on ownership or regulation, Pigou on tax or regulation, both mediated through Coase on transactions costs (with a decent assit from Ostrom on communal ownership). There, that’s it: far from economics ignoring matters environmental economics has solved the damn problems.

So why won’t the environmentalists listen?

Tim Worstall, “Why won’t the environmentalists learn any economics?”, Adam Smith Institute blog, 2012-10-21.

October 15, 2012

A “violence tax” that would only fall on the non-violent

Filed under: Law, USA — Tags: , , , , — Nicholas @ 10:40

Steve Chapman on a recent proposal that will penalize the non-violent for violence in their community:

For urban politicians, gun control is like the bar in Cheers — a place of refuge they can seek out whenever things aren’t going well. Things aren’t going well on the crime front in Chicago, with homicides up 25 percent this year. So what else can our elected leaders do but promise action against guns?

Action against the possession and use of guns by violent felons would be a good idea, but the proposal offered by Cook County Board President Toni Preckwinkle is something else: a penalty on nonviolent citizens who bear no blame for the carnage.

Preckwinkle suggested a tax on sales of firearms and ammunition, with the goal of defraying the costs that gunshots create for the county hospital and jail. Her spokesperson couldn’t say what the tax rate would be or how much revenue it would yield but said the fee would be “consistent with our commitment to pursuing violence reduction in the city and in the county.”

[. . .]

The levy was dubbed a “violence tax,” which is exactly what it isn’t. It would not target criminals who have malice in mind, but would fall entirely on the law-abiding.

Anyone convicted of a felony, after all, is ineligible for an Illinois Firearm Owner’s Card, which is legally required to buy guns or bullets. Under federal law, felons are barred from owning guns. So ex-con gang members would not pay the tax, because they make all their purchases in the illegal market. It would hit only those gun owners who have used their firearms responsibly.

October 9, 2012

Politics and economics: election-style

Filed under: Economics, Politics, USA — Tags: , , , , , , — Nicholas @ 09:32

At the Hit and Run blog, Tim Cavanaugh bewails economic illiteracy:

It’s “very hard to fine-tune an economy” using any tools. That seemed to be a clear lesson of the twentieth century workers’ paradises, and it is implicit when politicians claim (usually following up with a “but”) that the free market is the least-bad system for creating wealth. Spending and taxes can, however, have very destructive effects, and the best way for government to further an enterprise is by the alacrity with which it gets out of its way. As the Clinton-era example shows, you can have a boom even if you just slightly reduce the rate of spending growth. That’s not fine-tuning, it’s slightly easing the heavy hand of the state. The Post’s rhetorical question leaves out such options as “Did they screw it up?” or “Did they do too much?”

You get to this level of fantasy not by knowing too little economics but by knowing too much, by being persuaded that the same math you use when you shop around for bargains or balance your checkbook does not apply at the level of the macroeconomy. Unfortunately, Keynesian logic is like Videodrome: Once exposed to it you can never get rid of it, no matter how much trouble it causes. Nobel Laureate Paul Krugman recently claimed that brisk sales of the iPhone 5 will spur economic growth, thus proving the broken-window theory of economics. In fact, it’s the opposite: People who buy the new phone think it will add value to their lives, not replace an equal amount of value that has been destroyed. As the Apple maps fiasco, the purple glare controversy, and this Jimmy Kimmel video suggest, they may be wrong about that. But that Krugman (who last year called for a hoax invasion by space aliens to spur spending) is down to such a transparently absurd argument suggests the time has never been riper to jettison both the new and old Keynesianism.

Just don’t look for either presidential candidate to do that. Right now the big question is whether Mitt Romney or Barack Obama will use his presidential job-creating powers to create more jobs. Mitt Romney is promising to create 12 million jobs, which strikes me as a strategic error. All Obama has to do is promise to create 13 million jobs and he’ll obviously be the better candidate, because that’s a lot more jobs.

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