Quotulatiousness

December 12, 2011

Defining crony capitalism

Filed under: Economics, Government, Liberty, Politics — Tags: , , , , , — Nicholas @ 14:51

Bill Frezza explains what crony capitalism is and how it differs from free market capitalism:

If defenders of capitalism hope to win over fair-minded fellow citizens who are honestly upset and confused, we need to define these terms and answer some basic questions. In what ways are Crony Capitalists and Market Capitalists the same and in what ways are they different? What makes the former immoral and the latter virtuous? Why are Crony Capitalists a threat to democracy and prosperity while Market Capitalists are essential to both? How is it that ever larger numbers of Market Capitalists are being corrupted, turning into Crony Capitalists? And what can we do to reverse that trend?

All capitalism is driven by greed — the desire to not only achieve economic security, but to amass pools of capital beyond one’s basic needs. This capital can fuel the kind of conspicuous consumption that offends egalitarians. But it also finances investments in new products and businesses, without which the economy cannot grow. [. . .]

What makes Crony Capitalists different is their willingness to use the coercive powers of government to gain an advantage they could not earn in the market. This can come in the form of regulations that favor them while hindering competitors, laws that restrict entry into their markets, and government-sponsored cartels that fix prices, grant monopolies, or both.

Crony Capitalists are also more than happy to help themselves to money from the public treasury. This can come from wasteful or unnecessary spending programs that turn government into a captive customer, subsidies that flow directly into their coffers, or mandates that force consumers to buy their products.

[. . .]

Beyond these obvious Crony Capitalists lies a slippery slope designed to attract and entrap Market Capitalists: the tax code. By setting nominal corporate tax rates high while marketing tax breaks to specific companies and industries, Congress assures itself a steady stream of campaign contributions from companies looking to lighten their tax load. While there is no shame in reducing one’s tax burden from 35% to a more globally competitive 20%, is it any wonder that people get sore when some extremely profitable corporations manage to get their tax burden down to nearly 0%?

December 10, 2011

Barack Obama and Teddy Roosevelt: the economic parallels

Filed under: Economics, History, USA — Tags: , , , , — Nicholas @ 12:12

Jim Powell looks more deeply at the similarities between Barack Obama and Theodore Roosevelt:

President Obama is a smart man who believes great wealth is a social problem, and ordinary people would be better off if wealth were substantially taxed away. Recently he drew inspiration from Theodore Roosevelt, another smart man who had a similar view, completely misinterpreted what was happening in the economy, and actively disrupted it.

Theodore Roosevelt was the man who, in 1906, encouraged progressives to promote a federal income tax after it was struck down by the Supreme Court and given up for dead. He declared that “too much cannot be said against the men of great wealth.” He vowed to “punish certain malefactors of great wealth.”

Perhaps TR’s view was rooted in an earlier era when the greatest fortunes were made by providing luxuries for kings, like fine furniture, tapestries, porcelains and works of silver, gold and jewels. Since the rise of industrial capitalism, however, the greatest fortunes generally have been made by serving millions of ordinary people. One thinks of the Wrigley chewing gum fortune, the Heinz pickle fortune, the Havemeyer sugar fortune, the Shields shaving cream fortune, the Colgate toothpaste fortune, the Ford automobile fortune and, more recently, the Jobs Apple fortune. TR inherited money from his family’s glass-importing and banking businesses, and maybe his hostility to capitalist wealth was driven by guilt.

Like Obama, TR was a passionate believer in big government — actually the first president to promote it since the Civil War. He said, “I believe in power … I did greatly broaden the use of executive power … The biggest matters I managed without consultation with anyone, for when a matter is of capital importance, it is well to have it handled by one man only … I don’t think that any harm comes from the concentration of power in one man’s hands.”

November 30, 2011

George Jonas: “All governments are communist”

Filed under: Cancon, Economics, Government — Tags: , , , , — Nicholas @ 08:52

George Jonas looks at how the government of Ontario managed to go a quarter of a trillion dollars into debt:

All governments are communist. Please, relax. What I mean is that all governments expect to be recompensed, not according to the value of their contributions to society, but according to their needs.

Marxist mythology defines progress as capitalism changing into socialism and socialism into communism. Under socialism, everyone contributes according to his abilities, and is compensated according to his contribution. This is an improvement over the vagaries of the market, but communist society goes further. While citizens still contribute according to their abilities, they’re compensated according to their needs.

[. . .]

In a free-market-cum-welfare-state such as Canada, people contribute to society according to their abilities, and are compensated for it at the whim of the market, minus the whim of the government, a.k.a. the taxman. Governments also contribute according to their abilities, but then compensate themselves according to their needs. Their needs vary as they aren’t equally corrupt or ambitious, though they seem equally insatiable. Premier Dalton McGuinty isn’t a communist but Ontario’s debt increased by $110-billion since his party came to power in 2003. We could have had Fidel Castro for less — well, Raoul, anyway.

A gentleman has his hand up. Yes? “Didn’t the debt go up because McGuinty kept his promise and didn’t raise taxes?” Nice try, sir, but no. He did.

November 26, 2011

Daniel Hannan on how the “Occupy” movement misunderstands the right

Filed under: Britain, Economics, Liberty, Media, Politics — Tags: , , , , , — Nicholas @ 09:57

In his latest column in the Telegraph, Daniel Hannan lists ten mistaken beliefs that the “Occupy” folks seem to have about conservatives:

1. Free-marketeers resent the bank bailouts. This might seem obvious: we are, after all, opposed to state subsidies and nationalisations. Yet it often surprises commentators, who mistake our support for open competition and free trade for a belief in plutocracy. There is a world of difference between being pro-market and being pro-business. Sometimes, the two positions happen to coincide; often they don’t.

2. What has happened since 2008 is not capitalism. In a capitalist system, bad banks would have been allowed to fail, their profitable operations bought by more efficient competitors. Shareholders, bondholders and some depositors would have lost money, but taxpayers would not have contributed a penny.

[. . .]

6. Nor, by the way, does state intervention seem to be an effective way to promote equality. On the most elemental indicators — height, calorie intake, infant mortality, literacy, longevity — Britain has been becoming a steadily more equal society since the calamity of 1066. It’s true that, around half a century ago, this approximation halted and, on some measures, went into reverse. There are competing theories as to why, but one thing is undeniable: the recent widening of the wealth gap has taken place at a time when the state controls a far greater share of national wealth than ever before.

7. Let’s tackle the idea that being on the Left means being on the side of ordinary people, while being on the Right means defending privileged elites. It’s hard to think of a single tax, or a single regulation, that doesn’t end up privileging some vested interest at the expense of the general population. The reason governments keep growing is because of what economists call ‘dispersed costs and concentrated gains’: people are generally more aware the benefits they receive than of the taxes they pay.

November 3, 2011

A “fat tax” would not improve anyone’s health or the healthcare sector

Filed under: Government, Health, Liberty, Media — Tags: , , , — Nicholas @ 09:10

Politicians and “food celebrities” in many western countries are calling for a tax on obesity, either on the foods that “make people fat” or on obese people themselves. Other than being incredibly regressive (poor people in the west tend to be fatter than well-off people), such a tax would do nothing to address the problem it is supposed to solve:

The regular calls for a fat tax — whether on the ‘wrong’ foods or on fat people themselves — are symptomatic of two regressive trends in society. The first is the view that experts know best, that these latter-day sages can come to an impartial view based on The Science, then guide government about the appropriate policy action. The new, evidence-based policy usually involves some kind of manipulation of our individual behaviour from gentle ‘nudges’ and increasing taxes through to criminalisation, as in the case of the smoking ban.

But this is not evidence-based policy, but policy-based evidence, with preconceived ideas being pushed through in the name of science at a time when those at the top of society have lost the ability to convince the electorate on the basis of a moral or political argument. This style of policymaking rarely solves social problems, but it does distort both politics and science.

The second worrying trend is the sheer intolerance towards obese people. Being very overweight has always attracted a certain amount of moral opprobrium. But Hatton’s outlook reflects a sea-change. Once, the NHS reflected a progressive outlook that disease was a misfortune that could strike any of us at any time and that the best thing to do was to share that burden across society. Now it’s every man and woman for themselves. In the worldview of Hatton and Coren, some morally weak individuals are costing them money and must be punished.

Ironically, this flows from a left-wing view of disease as having social causes. In the late Seventies, left-wingers correctly saw that some ill-health was the result of poverty, poor housing, polluted air, and so on rather than infection or bad luck. Unfortunately, this has morphed into the idea that disease is caused by individual behaviour — and so health professionals have taken to camping out in our private lives, demanding we stop smoking, drinking and eating the wrong things. Every naughty little pleasure must now be sacrificed to the god of longevity. If we don’t play ball, this intolerance suggests we should lose our right to treatment.

The disease of intolerance is likely to have a far more detrimental effect on society than obesity ever could.

November 1, 2011

Alberta’s policy to help small breweries has unintended consquences

Filed under: Cancon, Economics, Government — Tags: , , — Nicholas @ 08:20

When governments try to rig markets to achieve certain goals, they often end up getting results they didn’t foresee:

The Alberta Gaming and Liquor Commission presumably had good intentions in mind when it brewed up a policy to lend a helping hand to small breweries. Namely, beer companies qualify for substantially reduced beer tax rates on the first 200,000 hectolitres sold in Alberta. The explicit aim was to help small players compete against industry leviathans such as Molson and Labatt. And, implicitly, the tax break would entice craft breweries to set up shop in the province.

However, eight years after the reduced beer tax rates—estimated by one analyst to total about $200 million in savings—were first implemented, little in the Alberta beer business has worked out the way the AGLC envisioned. Only five small breweries have opened for business in Alberta since the policy was implemented. And in that time Alberta has, in fact, become a market characterized by discount beer. And at least one of the breweries taking advantage of the AGLC policy doesn’t even brew in the province, let alone Canada.

[. . .]

Alberta’s small brewer system would appear to be yet another case of the law of unintended consequences—especially when a government agency tinkers with the free market economy. From a dearth of craft brewers to a helping hand for American jobs, the AGLC’s beer tax policy is enough to drive a teetotalling Albertan to drink.

October 25, 2011

QotD: Tax policy

Filed under: Economics, Government, Quotations — Tags: , — Nicholas @ 10:00

One of the reasons I despise tax policy is that it so rarely turns on the utilitarian aspects of taxes and instead focuses on political and social issues (a tax “rewards” one group or “punishes” another). Liberals fret about how “progressive” a tax regime is because their main concern is that the wealthy pay more than the poor; conservatives fret about “punishing success” by taxing the creators and makers higher than the cheats and deadbeats. The problem is that the word “fair” is interpreted differently depending on where you stand in the ideological spectrum: to me, “fair” means that I pay the same tax rate for my place in this Republic as any other citizen; to a liberal, I suspect that “fair” involves overtones of social justice and victim-hood and so on. But regardless of where you come down on taxation, I think it is important that every person pay at least some amount of taxes, just to provide a reminder that government isn’t free — and that the more government you have, the more it costs.

“Monty”, “DOOM: I’m tore down, I’m almost level with the ground”, Ace of Spades HQ, 2011-10-25

October 16, 2011

“We have reached a point where the average earnings of a two income family can barely support the spending of government”

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 11:38

Canadians have an addiction problem. They’re addicted to government:

Consider the following:

  • The Government of Saskatchewan alone spent over $11 billion last year (April 2010 to March 2011) to provide services for its citizens. That works out to nearly $11,000 for every man, woman, and child in the province, or $44,000 for a family of four.
  • The average wage for a person in Saskatchewan is about $44,000/year.
  • If the provincial government relied solely on the income tax of its citizens, then a family of four would have no choice but to have both parents work . . . one to provide for the family and one to provide for the government.

Now consider what other levels of government spend.

  • At the municipal level, the City of Regina has an operating budget of about $2500/person. Federally, the Government of Canada spends about $8,000/person.
  • All together our three levels of Government spend over $21,000/person . . . or $84,000 for a family of four.

We have reached a point where the average earnings of a two income family can barely support the spending of government . . . let alone pay for food, clothing, and shelter for themselves and their children.

The reality is that “free” public services come with a cost . . . and these costs increase as we demand more “free” stuff.

One of the truths about addictions is that they require larger and larger “hits” . . . that provide ever smaller and smaller “highs”. This results in people either becoming so dependent on the substance that they cannot function without it . . . or they pursue the addiction to its ultimate conclusion, an overdose.

H/T to Katewerk for the link.

The argument for value-added taxes

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 10:37

In an article about the Canadian copy-cat protests, Mike Moffatt addresses some of the demands to increase taxes on the wealthy and explains why value-added taxes (like the much-hated Harmonized Sales Tax) are more efficient:

The Occupy Canada protests which began Saturday took place in over a dozen cities with mostly modest turnouts. They also lacked a cohesive goal or message, as their critics in the media are fond of pointing out. The protests did, however, address a number of important societal issues, such as the growing gap between the rich and the poor. As has been acknowledged by both Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty, rising income inequality in Canada is a real and legitimate concern.

Over the last 30 years, the income gap between the top 1 per cent (or more accurately, the top 0.1 per cent) and the rest of us has increased substantially. Furthermore, this inequality is growing faster in Canada than it is in most other countries, including the United States. The Conference Board of Canada has reported that Canada has fallen to 12th out of 17 countries in its peer group when it comes to income inequal-ity. Between 1980 and 2005, before tax earnings increased by 16 per cent for the top 20 per cent, but fell by over 20 per cent for the bottom 20 per cent. The Occupy Canada protests are the product of a rising tide only lifting a few boats.

[. . .]

So how do we reduce inequality? The obvious place to start would be to borrow solutions from countries where after-tax income inequality is relatively low. Three countries that consistently score well on income inequality measures are Denmark, Finland and Sweden. These three Nordic countries share very similar tax structures, featuring moderate-to-low marginal corporate tax rates, moderate-to-high income tax rates and very high value added sales tax rates (VATs, similar to Ontario’s HST). The average VAT in these three countries is 25 per cent, a rate nearly twice that of the average Canadian federal GST plus provincial sales tax or HST. A onepercentage-point increase in the HST alone would raise $5 billion to $6 billion per year for the federal government, so increases by a few percentage points could adequately fund programs designed to reduce inequality. No country on Earth has been able to find a way to fund the kind of social programs and redistribution needed for “reasonable” levels of inequality without VAT rates significantly higher than Ontario’s HST.

Why are high sales taxes needed to fund social programs rather than higher corporate taxes or higher income taxes? Put simply, VATs are the hardest taxes to avoid paying. Higher income taxes reduce labour effort by the taxed. Higher corporate tax rates reduce investment. Canada’s corporate income tax rate was, not so long ago, twice what it is today. Adjusted for the inflation and the size of the economy, however, the higher corporate tax rates brought in similar levels of revenue then as they do now. There are some ways to avoid the HST, of course, but these are far more limited than they are for other taxes. The HST, as with all VATs, is a cash cow that provides governments with the necessary resources to tackle important societal issues.

October 11, 2011

“Fat taxes” are doomed to failure

Filed under: Economics, Food, Government, Health, Liberty — Tags: , , — Nicholas @ 09:06

Patrick Basham and John Luik handily dismiss the potential of government-imposed “fat taxes” on certain foods as tools to reduce obesity or to change peoples’ food choices:

The obesity crusaders’ argument is that a fat tax will reduce junk-food consumption, and thereby improve diets and overall public health. There are many reasons, however, to suspect that a fat tax would be at best unsuccessful, and at worst economically and socially harmful.

For example, scientifically rigorous evidence suggests that higher prices do not reduce soft-drink consumption. There are no studies demonstrating a difference either in aggregate soft-drink consumption or in child and adolescent body mass index (BMI) between jurisdictions with soft-drink taxes and those without such taxes.

[. . .]

These results are confirmed in a study by Christiane Schroeter in the Journal of Health Economics which examined the link between food prices and obesity. The study concluded that while increasing the price of high-calorie food might lead to decreased demand for these foods, ‘it is not clear that such an outcome will actually reduce weight’.

Why do fat taxes fail? The economic answer is that demand for food tends to be largely insensitive to price. Considerable research on food prices has demonstrated this inelasticity. A 10 per cent increase in price, for instance, reduces consumption by less than one per cent.

[. . .]

Furthermore, fat taxes have perverse, unintended consequences. According to the US government’s Economic Research Service, another unintended consequence of a fat tax on consumer behaviour is that taxes on snack foods could lead some consumers to replace the taxed food with equally unhealthy foods. Adam Drewnowksi similarly found that poorer consumers react to higher food prices not by changing their diets, but by consuming even fewer ‘healthy’ foods, such as fruits and vegetables, and eating more processed foods.

A Danish study confirmed this problematic outcome, finding that sin taxes on junk foods would fail to reduce consumption by the population (that is, the poor) who consume these foods most frequently. Additionally, it found that taxes levied on sugar content — the basis for the soft-drinks tax — would increase saturated fat consumption.

October 2, 2011

Tyler Cowen on why “no new taxes” won’t work this time

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 11:03

Almost everyone (except Warren Buffett) agrees that higher taxes are a bad thing, and the GOP candidates are all singing from the same hymn book about not imposing higher tax rates. Under normal circumstances, this might work. Tyler Cowen explains why these aren’t normal times and how “no new taxes” isn’t a serious way to deal with America’s financial problems:

Consider the example more closely. Cutting $10 in spending for every $1 in tax increases would result in $9 in net tax reduction. That’s because lower spending today means lower taxes tomorrow, and limiting the future path of government spending does limit future taxes, as Milton Friedman, the late Nobel laureate and conservative icon, so clearly explained. Promising never to raise taxes, without reaching a deal on spending, really means a high and rising commitment to future taxes.

Furthermore, this refusal to contemplate a tax increase — which I’d characterize as an extreme Republican stance — has brought what seems to be an extreme Democratic response: President Obama’s latest budget plan is moving away from entitlement reform and embracing multiple tax increases on the wealthy. We may be left with no good fiscal options.

The problems with a no-new-taxes stance run deeper. Because it’s unlikely that spending cuts alone can balance the budget, politicians who espouse extreme antitax views often end up denying the scope of our long-run fiscal problems.

[. . .]

The more cynical interpretation of the Republican candidates’ stance on taxes is that they are signaling loyalty to a cause, or simply marketing themselves to voters, rather than acting in good faith. It could be that candidates are more worried about having to publicly endorse tax increases than they are about the tax increases themselves. If that’s true, it is all the more reason to watch out for our pocketbooks; it means that the candidates are protecting themselves rather than the taxpayers.

The final lesson is this: Many professed fiscal conservatives still find it necessary to pander to voter illusions that only a modicum of fiscal adjustment is needed. That’s an indication of how far we are from true fiscal conservatism, but also a sign of how much it is needed.

September 29, 2011

ReasonTV: Prohibition Vogue

Filed under: Government, History, Law, Liberty — Tags: , , , , , — Nicholas @ 13:25

Greek tax evasion: not a new problem at all

Filed under: Bureaucracy, Economics, Europe, Government, Greece — Tags: , , — Nicholas @ 09:28

In a New York Times article from last year, Suzanne Daley reported the rather amazing statistic from Athens:

In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools.

So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools.

That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here.

H/T to Araminta Wordsworth for the link.

September 21, 2011

“Our existing income tax structure is nothing short of crazy”

Filed under: Cancon, Economics, Government — Tags: , — Nicholas @ 12:50

That’s Kevin Milligan in the Globe and Mail talking about the Canadian tax structure:

Here are five nuggets of information Canadians should keep in mind as the high income taxation discussion unfolds. [. . .]

Second, our existing income tax structure is nothing short of crazy. The graph shows the marginal tax rate (the tax owed on the last dollar earned) across different income levels for a two-child family in Manitoba in 2010, the clawback of both federal and provincial refundable tax credits. (Similar graphs for more provinces are here.) What redistributive goal is such a bizarre tax structure designed to achieve? A strong argument can be made that we should improve and reform our existing income tax structure before slapping more confusion on top of it.

Third, the threshold at which one reaches the highest tax bracket is exceedingly low in Canada compared to other countries. In the United Kingdom, one reaches the highest tax bracket of 50 per cent at the Canadian dollar equivalent of $234,000. In the United States, currently the highest federal rate of 35 per cent is reached at incomes of $379,150 (U.S.). In Canada, the highest federal rate is 29 per cent, reached only at $128,800. Just to reach the level of income tax progressivity observed in the United States under President George W. Bush, Canada would need to increase this high income threshold dramatically.

September 1, 2011

Did Google buy Motorola Mobility just for the tax advantages?

Filed under: Economics, Europe, Technology, USA — Tags: , , — Nicholas @ 12:12

If so, it was probably a brilliant move:

I think we all know that Google’s pretty good at, um, obeying tax laws to the letter. For example, they’ve paid an entire £8m in UK corporation tax on revenues of some £6bn from 2004 to 2010.

[. . .]

However, this deal to purchase Motorola Mobility might be a coup to beat that hands down. The headline price to purchase the handset-maker and their bundle of patents is $12.5bn but that’s not what the net cost to Google might turn out to be. How about $3.8bn for that? For, along with the company and the patents, Google has also bought a series of tax losses.

For the record, it’s cheap politics to accuse a person or a corporation for paying “only” so much tax. If the politicians have set up the system to allow certain deductions or credits, then you’re insane not to take advantage of them. Like a number of headlines over the last day or so, pointing out that this or that company paid less in taxes than they paid their CEO. If the company paid more than it should, it’s depriving its shareholders of what they are rightfully due, and will likely be facing them in court.

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