July 18, 2012
Who Exploits You More: Capitalists or Cronies?
What is the best way to demonstrate care for the future?
According to Steven Landsburg, the answer is to cut capital taxes, and he makes a good case:
There are only three things you and I can do to make the future world a better place. First, we can consume less, leaving more resources behind. Second, we can work harder, planting trees, building factories and writing poems that will live on after we’re gone. Third, we can innovate, advancing science and technology so that our children’s children’s children can make better use of the resources they inherit.
As it happens, there’s one key policy variable that drives all three of these things, and that’s the tax rate on capital income (which includes interest, dividends, corporate income and capital gains). Capital taxes are a disincentive to save, and when people don’t save they consume instead. Capital taxes are a disincentive to work and a disincentive to innovate.
This is not a plea for lowering taxes in general, and it’s not a plea for making the tax system either more or less progressive. (If you want to soak the rich, there are plenty of things to tax besides capital.) As a matter of fact, this isn’t even a plea for lowering taxes on capital. It’s simply an observation that if your goal is to leave a better world for our descendants, then your best bet is to support lower capital taxes.
H/T to Tim Harford for the link.
July 17, 2012
FATCA “may end up killing more U.S. jobs than all the call centers in India combined”
Matt Welch on the worst bit of legislation for US workers so far:
That’s a line from this commendable Wall Street Journal column by William McGurn about the oft-lamented-around-these-parts Foreign Account Tax Compliant Act of 2010, or FATCA (rimshot). While President Barack Obama keeps hitting presumptive Republican presidential nominee Mitt Romney over offshoring and jobs, one of Obama’s most economically deleterious laws continues inflicting damage largely off the journalistic radar screen.
“Within the United States,” McGurn writes, “almost no American has heard of it. Save for the occasional article, it’s gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November’s election.”
McGurn points out that FATCA was the revenue-generating side of the Hiring Incentives to Restore Employment Act of 2010 (HIRE! God, I hate these people….) — “a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.” So once again, government is “paying” for the economically dubious and morally spurious act of granting targeted tax breaks to favored corporations by screwing over the middle class.
July 13, 2012
The only long-term answer to road congestion: real-time tolls
I know, I know … I hate paying road tolls as much as the next driver. But the current road pricing scheme is broken and getting broken-er. Andrew Coyne points out the unpleasant realities:
… the demand for road use — traffic — is not a fixed quantity. Like anything else, it fluctuates with the price. And the price to use the roads, under present policies, is denominated in time: that is, by how long people are prepared to stew in traffic. This is, when you think about it, perverse. The people who get first claim on the roads are the ones who put the lowest value on their time. Or in other words, the people who need them the least.
That’s why analysts have long recommended pricing roads in more conventional terms, i.e. dollars and cents. But there are lots of ways of getting even this wrong, so we need to eliminate a couple more alternatives, such as:
More taxes. Many people’s first response to the notion of pricing roads is to say “but I already pay a gas tax.” The more knowledgeable will point to statistics showing that revenues from gas taxes more than pay for the cost of building and maintaining the roads.
But these are far from the only costs at issue, or even the most important. As far as congestion is concerned the cost that matters is not the cost of building the road, but the cost of using it. Every time you use the road, you impose a cost on other drivers, so far as you make the roads that much more crowded — as they, of course, do you. Add up those costs over millions of drivers every day — costs measured not only in delays, but in more collisions, more wear and tear, more pollution, and so on — and we are well into the billions, according to several estimates.
[. . .]
What’s really needed, then, is a more comprehensive approach. With modern technology, there’s no reason to toll only some roads and not others. Using GPS-style in-car transponders and satellites, it’s now possible to charge drivers to use the roads generally, with the highest charges applying in downtown centres and at rush-hour — just as you pay a higher charge to use your cellphone depending on the location and time of day. You’d even get a monthly bill in the mail.
Far-fetched? Britain and the Netherlands have each been on the verge of adopting similar schemes in recent years. That each backed down in the end tells you something of the political sensitivities involved: It’s always hard to get people to pay for things they are used to getting for free. But the roads aren’t free. We’re paying more and more to use them every year.
Pay in congestion, in time and noise and aggravation — or pay by credit card. Once you think of it that way, the choice should be easy.
July 11, 2012
July 10, 2012
American exceptionalism, especially in taxation
Mark Steyn on the unique American perspective on taxes:
Elsewhere in the world, there are two generally accepted bases for taxation: residency and source of income. Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American — even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain; Slovenia taxes you if you’re a resident of Slovenia; but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.
As I say, no other developed country does this — although Eritrea does.
On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills — or a small businessman attempting to expand his distribution in Canada.
Maybe you don’t care about these people: Why can’t the business guy expand his business in Michigan or Idaho like true-blue Americans would do, etc? But at a time when America is ever more mortgaged to foreigners, making it more difficult for Americans to go out and earn money from the rest of the planet doesn’t seem a smart move. Unless you’re planning on making U.S. citizenship a combination food-stamp card. American exceptionalism and American isolationism are not the same thing.
More to the point, the 2008 “exit tax”, the existing foreign bank-account disclosure paperwork, the new FATCAT act, and even the recent habit of publishing the names of those who renounce citizenship are simply inappropriate in a free society.
July 2, 2012
June 22, 2012
Charities: the Trojan Horse for expansion of government
Some charities are still what they were twenty years ago: organizations that provide help to those in need. Others, however, have morphed into specialized entities that exist primarily to lobby the government for more funds … to allow them to lobby more efficiently:
The relationship between charities and the British state has been significantly transformed in the past 15 years. There is a gulf between the public’s perception of what is charitable – a traditional view still dominated by visions of self-sacrificing volunteers and jumble sales – and the third sector’s view of itself as a more caring, semi-professional wing of the state. The public can be forgiven for being confused about a ‘voluntary sector’ that, according to a 2009 report for the National Council for Voluntary Organisations (NCVO), employs more than 600,000 people. The public might equally be puzzled by the plethora of ‘non-governmental’ organisations which require an Office of the Third Sector to preside over them.
Between 1997 and 2005, the combined income of Britain’s charities nearly doubled, from £19.8 billion to £37.9 billion, with the biggest growth coming in grants and contracts from government departments. According to the Centre for Policy Studies, state funding rose by 38 per cent in the first years of the twenty-first century while private donations rose by just seven per cent.
This surge in government spending coincided with a politicisation of the third sector which was actively encouraged by the state apparatus from the prime minister down. Traditionally, lobbying activity could not be a charity’s ‘dominant’ activity, but could only be ‘incidental or ancillary’ to its charitable purpose. In 2002, however, a report from the Prime Minister’s Strategy Unit called for charities to increase their lobbying activity and for the Charity Commission guidelines to be made ‘less cautionary’: ‘Charities perform a valuable role in campaigning for social change. The guidelines on campaigning should be revised to encourage charities to play this role to the fullest extent.’
The Charity Commission duly revised its guidelines on campaigning two years later, allowing all non-party political campaigning in furtherance of a charity’s goals so long as this activity was not ‘the dominant method by which the organisation will pursue its apparently charitable objects’. A subsequent Cabinet Office report in 2007 called for the rules to be relaxed further still. Accepting that charities had ‘considerable latitude… for political campaigning under existing rules’, the authors expressed concern about the range of legal and regulatory restraints which ‘unjustifiably restricts political campaigning by third-sector organisations’. Stressing the right of charities ‘to undertake campaigns, regardless of any funding relationship with government’, the Cabinet Office argued that organisations whose purpose was wholly political should not be barred from charitable status: ‘Provided that the ultimate purpose remains demonstrably a charitable one, the government can see no objection, legal or other, to a charity pursuing that purpose wholly or mainly through political activities.’
There are still charities that do what most of us think of as “charity”, but far too many of them are just lobbying devices to accomplish political rather than charitable ends. There’s no reason to prevent organizations from political lobbying, but they should not benefit from the special tax status of genuine charities.
June 18, 2012
June 17, 2012
Narrow specialization, but very wide assumed knowledge
Tim Worstall on the problem when specialists in one area pretend deep understanding of radically different areas:
Regular readers will know that I’m perfectly happy to take what the climate scientists tell me about climate science. Where I start to stray from the path of green orthodoxy is those same scientists then tell us the economics of what we ought to do about it all. Something they are not competent to comment upon as they really don’t understand the economics. I do accept the economics of climate change as laid out by the economists who have studied the economics of climate change. William Nordhaus, Nick Stern and so on, tell us that if the climate science is right then a simple revenue neutral carbon tax will be the solution.
That’s fine by me. But it does still puzzle me as to why the not economists feel competent to pronounce on the economics of climate change. Are they intellectual supermen who can master two widely different subjects? Simply succumbing to politics: something must be done, this is something, do this? [. . .]
Which leads us to our conclusion. The reason the scientists are so in conflict with what the economists of climate change are saying about the economics of climate change is simply that the scientists are entirely ignorant of what the economists are saying. And I’m afraid that, despite the popularity of the stance among politicians, ignorance is not a notably successful form of governance.
June 13, 2012
When is a bribe appropriate?
The British government is trying to crack down on bribery, which on the surface seems like a good thing to do: but will it cripple British businesses in third world countries?
We used to draw a distinct line between what was acceptable business conduct here at home and what we did abroad with Johnny Foreigner.
Inviting Bertie from your major customer to Henley or the Derby, or waving Cup Final and Olympic tickets in his face was entirely acceptable. Slipping him £500 for an order was bribery and both illegal and immoral.
But what you did abroad was an entirely different matter: bribery was until very recently tax deductible.
[. . .]
This is of course very different from the system of old. Which was, essentially, that soft soaping someone with experiences and days out was just absolutely fine while any mention at all of cash was not just legally but also socially verboten.
At home, in Britain, that was. Having worked in some pretty odd and even rough places I’ve done my share of bribing people, but even so I would be profoundly shocked if I was asked for a bung in Blighty. But the system also most definitely facilitated the payment of bribes to Johnny Foreigner.
At one point, working in Russia, I needed to get cheap railway prices out of the Russian railroads to make the numbers on a metals shipment add up. The only way known to do this was to make a deal with the North Koreans who had special state-set prices on said railways. Which is how I found myself inside the N. Korean embassy in Moscow handing over $10,000 in crisp notes to their KGB-style guy after the successful conclusion of the shipment.
Yes, of course, it’s terribly naughty subverting the employees of a communist dictatorship, but the reaction here at home was the most interesting. When I made gentle enquiries to the taxman as to how I might account for this transaction, hinting gently at first, he finally pointed out that since I’d paid the bribe in a foreign currency to a foreign chap that was just fine. Just list it as a business expense and it was tax deductible.
QotD: “California is becoming Detroit”
The liberal model — borrowing huge sums, rigging interest and the currency to enable state profligacy, turning large swaths of the population into less productive unionized government workers or dependents on the dole who vote in thanks to political hacks — simply does not work. How could beautiful blue-state California lose almost a million refugees to arid Texas? I like Texas, but Dallas had far less of nature to work with than did San Francisco. (It takes a lot of human failure for thousands to give up verdant California to move to Utah or the Nevada desert.) What we are witnessing is nothing short of surreal: in the manner that Tijuana was a different universe from San Diego, so too the entire state of California is becoming a different world from its neighbors. Whether one examines its near dead-last schools, its oppressive income and sales taxes, its decaying roads and infrastructure, its absurd prison system, its dysfunctional state offices (try the DMV), or its priestly public employee caste, California is becoming Detroit.
Victor Davis Hanson, “The Liberal Super Nova”, PJ Media, 2012-06-11
June 3, 2012
Quebec case may force common-law couples into marriage
An interesting development in Quebec’s laws relating to common-law relationships:
Somewhere in North America, there is a place where little girls don’t give the slightest thought to what kind of wedding dress they’ll wear one day. A place where young men have never heard the expression: “why buy the cow when you can have the milk for free?” — because the milk is always free. A place where no one asks an unmarried couple expecting a baby if they’re getting hitched.
This place is the province of Quebec. The French language spoken here is no guarantee for romance. Couples are practical, and lovers treasure their individuality. Quebec has become one of the least marrying places in the world, thanks to the institution known as “de facto spouses.” But now, thanks to a bizarre legal case entangling a Quebec billionaire and his de facto spouse, the freedom to un-marry is under threat. More than 1 million Quebecois in this kind of relationship may soon be automatically married by the state, against their will.
De facto spouses are defined by Quebec’s law as two people who have been living together for a year or more without being married and who check the “couple” box on their income tax statement form. Quebec’s lawmakers have deliberately chosen not to give de facto couples the same rights and responsibilities that married couples have under the Law of Quebec, to preserve the freedom of choice. Upon the termination of a relationship, “no matter how long cohabitation has lasted, de facto spouses have no legal support obligation to each other, even if one spouse is in need and the other has a high income.” Quebec is the only province in Canada where spousal support payments are not recognized by law for de facto spouses.
May 29, 2012
The fuzzy good intentions of equalization and the bad results
Peter Holle in the National Post, outlining the economic distortions of federal equalization payments in the recipient provinces:
Equalization, viewed critically, does no favours to either the funding or recipient provinces. After 50 years, outside transfers constitute an ever larger portion of the economies in have-not provinces. In an otherwise globally-oriented, market-driven world, Canada’s equalization program has encouraged the development of locally-oriented, public-sector driven economies.
Here are just a few ways that equalization provides incentives to harmful policy, stunting economic growth in the jurisdictions the policy means to help.
- Inflating the public sector: Equalization has allowed recipient jurisdictions to create disproportionately larger public sectors because someone else is paying the bill. Manitoba’s public sector, for instance, employs 103 people per 1,000 residents, compared to a Canadian average of 84.
- Politicizing spending. The external funding from equalization has allowed local politicians to build up vote-buying infrastructure with little political cost, by disconnecting taxation from benefit. Quebec’s $7-a-day daycare, and university tuition at less than half the Canadian average, would be unworkable without $7.4-billion in annual equalization subsidies from the rest of Canada.
- Incentives for higher taxes. A path-breaking study by the Atlantic Institute for Market Studies showed that equalization rewards recipient provinces for imposing high and damaging tax rates, which deter private-sector investment and job creation. Manitoba, the only have-not province in Western Canada, has the highest income taxes in the region, and also has the lowest rate of private-sector investment.
- Artificially inexpensive hydro power. By excluding the true value of renewable hydro energy revenues from the calculation of revenue capacity, the equalization formula rewards Manitoba and Quebec for charging artificially low domestic electricity prices. Below-market prices, in turn, encourage consumers to use more resources that otherwise would be conserved in response to accurate price signals.
May 20, 2012
This is why I don’t expect the Bush tax cut to be allowed to expire
Here it is in one easy-to-understand graph:
Brad Plumer explains:
What will the economy look like in 2013? A great deal depends on what Congress decides to do at the end of this year. Remember, the Bush tax cuts are expiring, the payroll tax holiday will sunset, and a bunch of new spending cuts under the debt-deal “sequester” are scheduled to kick in. Coming all at once, that’s a potentially big drag on growth.
[. . .]
To put this in perspective, the Federal Reserve expects the economy to grow at a roughly 2.9 percent pace in 2013. If Congress does nothing at the end of this year, much of that growth could be wiped out, and there’s a strong possibility that the United States could lurch back into recession. (Granted, a lot could depend on how the Fed reacts in this situation.)
On the flip side, as Ezra discussed in Thursday’s Wonkbook, letting all of the tax cuts expire and spending cuts kick in would also cut the U.S. deficit considerably: “Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022.”
H/T to Doug Mataconis for the link.
