. . . no phenomenon of nature could possibly be as strange as the alternative reality one encounters entering Wendover, Nevada. In that physical regime, hotels and restaurants are connected to—and often concentric with—caverns with mirrored ceilings, walls, and columns, making it difficult to find your way across the room. Serried ranks of electronic slot machines are clung to by half-starved-looking wights — the cigarettes in their hands nothing but long cylinders of gray ash — worshipping runes that appear when they insert a coin and watch the lights and listen to musical notes that would make a Pac-Man fan start screaming, tearing his hair, and running for the roof with a rifle.
To be sure, there are other kinds of gambling going on. I saw a poker room, roulette wheels, and a genuine James Bond baccarat table. But they were truly lost in a great labyrinth of electronic slots. I was surprised not to see slot machines on a free wall of the men’s room.
I’d seen all of this before, mind you. I was in Las Vegas last year, and it was my second time. I first saw it only a couple of years after Bugsy Siegal did. And I gotta confess to youse guys, I just don’ geddit.
What I mean is, there are a number of points of view that various human beings have, which I am forced to accept purely intellectually. I know there are men who find other men sexually attractive, but I don’t really understand it. I know there are grownup people who seem to go into shock when they discover that their aged parents still enjoy sex — I think my mother would have lived longer if she’d had a boyfriend. And I know — but do not understand that folks like to hand their hard-earned money to casino owners who already have plenty of it.
Casinos are like a neon-decorated IRS.
L. Neil Smith, “The Past That Never Was — The Future That Will Never Be”, Libertarian Enterprise, 2011-08-28
August 30, 2011
QotD: Casinos are a neon-decorated IRS
The Canadian economic recovery
David Lee compares the Canadian experience in the most recent recession with that of other nations:
As Republicans and Democrats pushed America further and further to the left and Europe approached ever closer to its socialist ideals, Canada’s political discussion turned from which party could offer the greatest subsidies to the greatest number, to which party’s program of tax cuts would be of more benefit to the economy. For a country where an openly avowed socialist party regularly polls in the top three in provincial and federal elections, this is no small feat. For perhaps the first time in its history, Canada finds itself at the most pro-market limit of the political spectrum among the world’s industrialized nations.
It is not only in this regard that Canada has become an island unto its own. Equally unique to the country is its economic performance subsequent to the financial crisis of 2007 and throughout the ensuing alternations between recession and stagnation that has characterized the experience of the greater part of the developed world since. As the world teeters from crisis to crisis, Canada has proven remarkably resilient in spite of its heavy economic dependence on international trade. Whether there is any significance to the coincidence of these two anomalies will be examined in what is to follow.
By no means is this piece to be taken as an unqualified endorsement of the policies undertaken by the incumbent administration. Despite the overall tenor of the article, this piece could have just as easily been scathing indictment as commendation. The appraisal to be made varies directly with the choice of benchmark. Measured against examples that more closely approximate the free-market ideal such as 1980s-era Hong Kong and Jacksonian America, Canada falls hopelessly short.
August 25, 2011
Look at what they actually do, not what they say
Tim Worstall peers behind the curtain of those noble, generous French fat-cats who wrote the letter to the French government, insisting that they be taxed more. It’s not a pretty picture:
All very jolly and public-spirited you might think, but applying a little bit of economic theory reveals that they’re somewhere along the “speaking with forked tongues” to “lying toads” continuum.
That bit of economics is the concept of “revealed preferences”: translated out of the jargon it just means don’t look at what people say, look at what they do. For example, Liliane Bettencourt, the L’Oreal heiress, is one signatory calling for higher taxes on herself: it’s also been widely reported that she has received tax refunds under French “fiscal shield” provisions intended to limit taxes on the wealthy to 50 per cent. Madame, if you really want to pay higher taxes, just don’t cash those cheques.
We see the same sort of call everywhere of course. All sorts of people call for higher taxes: it’s just that very few actually pay higher amounts of money. We can see this in both the UK and US.
The US has an account, “Gifts to the United States”, specifically for charitable-minded citizens. Send them a cheque, they’ll cash it and spend the money on government. Last time I checked, the figures they received were $2,671,628.40. Roughly speaking, 1 cent per head of population. OK, so, yes, taxes were too low in the US that year. By exactly that amount.
The UK numbers aren’t even that good. In the same year only five Brits sent in cheques to the Treasury and four of those people were deceased. No, the fifth was not Polly Toynbee, despite the impression one might get from her columns (well, I don’t know it wasn’t her but I’m sure she would have urged the rest of us to do the same if it were).
An FOI request revealed that from 2002 to 2009 actual living people contributed £7,349.90 to the Treasury, over and above their legally due taxation. No, not each or per year… but in total.
There’s literally nothing stopping people from paying more taxes than they actually owe: every jurisdiction appears to allow people to give more money voluntarily. The US government even allows it to be done electronically. So, if you feel you’re not paying “your rightful share”, go right ahead and give it to the government. If you don’t, you’re demonstrating that you really don’t feel under-taxed after all.
July 19, 2011
Tax-wary millionaires flee to . . . Canada?
Jason Kirby is either smoking some really premium weed, or the world is changing even faster than we thought it was, in an article titled “The Great White tax haven”:
For decades, Canadians have been told this country is a high-tax, unwelcoming place for business people and the wealthy. It’s a reputation we came by honestly. But a shift has taken place both here and abroad, say experts. While Canada is reforming and lowering its taxes, politicians in other developed countries — those faced with crushing debt loads and economic stagnation — are turning a hungry eye to the bank accounts of their richest citizens. At the same time, instability in the Middle East and Asia means wealthy individuals are looking for a safe place to move their families. Where they might have flocked to the U.S. in the past, many now see Canada as the better option. Tax specialists even use terms like “the Great White tax haven” and “Switzerland of the North” when talking about Canada.
The world’s rich are restless, says Lesperance, whose clients are worth between $30 million and $1 billion. Most work in financial services, but in every sector and every country wealthy individuals are on the move. Lesperance calls these ultra-rich the Golden Geese, arguing that wherever they go, they generate economic benefits—they start companies, buy real estate, keep restaurants busy and spend money on big-ticket items. Along with Ian Angell, a professor at the London School of Economics, he’s writing a book entitled Flight of the Golden Geese, which argues that as countries squeeze wealthy taxpayers, they will pull up stakes and flee. “Canada has an unprecedented, once-in-several-generations opportunity to put up its hand and offer itself as an alternative,” he says.
The migration is well under way. Last year, nearly 12,000 people moved here under the federal government’s Immigrant Investor Program, up from 4,950 a decade ago, according to Citizenship and Immigration Canada. (The figure includes spouses and dependents.) To qualify, immigrants must have a minimum net worth of at least $1.6 million, and are required to “invest” $800,000 with the government, which is returned after five years. (Ottawa says the money is used to fund economic development programs, though critics call it a cash grab.)
July 18, 2011
July 15, 2011
June 29, 2011
The real reason for the Greek bailout
Eric S. Raymond explains why all the politicians and apparatchiks of the world’s bureaucracies are lining up to pump for a Greek bailout:
Lost in the eye-glazing babble about maturity extensions, haircuts, and which acronymic organization is going to funnel the money into place is the real magnitude of the stakes here. It’s not just the Greeks’ opera-bouffé parody of the modern redistributionist state that is circling the structural-insolvency drain; what really terrifies our political class is the prospect that, very soon, the investors simply won’t buy government bonds anymore — and massive borrowing through bond issues is the only thing keeping the redistributionist state afloat.
As I have documented many times on this blog, the entitlement-spending commitments of the U.S. Federal government, most U.S. state governments, most European governments, and indeed most national governments everywhere exceed the capacity of their economies to generate wealth. And demographic trends are making the imbalance worse over time, not better.
This is why raising taxes won’t help. The amount of private wealth available to be taxed is insufficient, even if taxation could be raised to 100% without suppressing all economic activity. In practice, raising taxes leads to increases in spending which more than consume the increased revenue (by a ratio of 1.17:1 in the U.S. since the 1940s).
[. . .]
That is the assumption that is now under threat. Greece must be bailed out in order to preserve the illusion that the borrowing can continue indefinitely, that the bill will somehow never come due. When the political class speaks of “contagion”, what they’re really worried about isn’t the solvency of German banks holding Greek paper, it’s a general flight of investors from the sovereign-debt markets.
June 25, 2011
Taxes must rise to maintain “the overall size of government programs”
Treasury Secretary Timothy Geithner was being as honest as he knows how in talking to the House Small Business Committee this week. Reducing the size of government is literally unthinkable:
[T]he Obama administration believes taxes on small business must increase so the administration does not have to “shrink the overall size of government programs.”
The administration’s plan to raise the tax rate on small businesses is part of its plan to raise taxes on all Americans who make more than $250,000 per year — including businesses that file taxes the same way individuals and families do.
[. . .]
Geithner, continuing, argued that if the administration did not extract a trillion dollars in new revenue from its plan to increase taxes on people earning more than $250,000, including small businesses, the government would in effect “finance” what he called a “tax benefit” for those people.
“We’re not doing it because we want to do it, we’re doing it because if we don’t do it, then, again, I have to go out and borrow a trillion dollars over the next 10 years to finance those tax benefits for the top 2 percent, and I don’t think I can justify doing that,” said Geithner.
Not only that, he argued, but cutting spending by as much as the “modest change in revenue” (i.e. $1 trillion) the administration expects from raising taxes on small business would likely have more of a “negative economic impact” than the tax increases themselves would.
June 22, 2011
QotD: Who’s more smug than Bono? The “Bono Pay Up” protesters
[T]he Bono Pay Up lobby, far from challenging Bono’s gobsmackingly paternalistic attitude towards Africa, is encouraging him to put his money where his mouth is. Its message is effectively: Stop talking about saving Africa and go out and actually save it! The campaign group claims that it is because of individuals like Bono, who export bits of their business overseas in order to avoid paying high taxes at home, that Africa is a mess. Some of that tax could be used for the foreign aid budget, you see. Not only is this a spectacularly naïve view of the massive structural problems facing underdeveloped nations in the Third World — as if their woes could be magically fixed by Bono and others stumping up a bit more tax — but it also suggests, explicitly, that it is up to rich white men to save downtrodden Africa.
According to Bono Pay Up, if Bono paid his taxes in a more “ethical” fashion, he could help to alleviate “suffering in the developing world”. Unless the protesters succeed in shifting Bono’s personal habits, “the poor will always be with us”, they claim. In short, all it takes for the poor to be lifted up from their empty-stomached, teary-eyed existences is for a few good men — white ones, naturally — to behave more ethically and caringly. It’s the White Tax Man’s Burden. In focusing on Bono’s alleged hypocrisy, the protesters are actually trying to bridge the gap between the Bono persona (saviour of Africa) and the Bono reality (he pays his taxes in a weird way). That is, they want him to become what he claims to be — the Moral Viceroy of Africa — and to show the Dark Continent how to reach the light. A plague on both their houses. If there are any African bands playing at Glastonbury I hope they lay into the Bono Pay Up lobby, and then use its silly placards to wallop Bono.
Brendan O’Neill, “The ‘Bono Pay Up’ protesters have achieved the remarkable feat of being even more smug than Bono”, The Telegraph, 2011-06-22
June 8, 2011
Ontario’s (pathetic) choices in the next election
Read ’em and weep:
Dalton’s McGuinty’s record is so well known it barely justifies repeating: the health tax he promised not to introduce, but did. The HST. The eco tax. The soaring power bills. The epic borrowing. The multiple boondoggles. The “wage freeze” that turns out not to apply to police, nurses, civil servants or anyone who actually gets paid by the government. The big bonus for eHealth workers for overseeing a billion dollars in wasted spending. Stop me before I break into tears.
Tim Hudak says he’ll end the agony, but can’t be believed. Sorry Tim, but it’s true. If the campaign platform recently released by the Tories was handed in as a project in a first-year finance class, it would be returned with suggestions that the author find another line of interest. Like line dancing; something that doesn’t involve numbers, or adding and subtracting. Mr. Hudak says he’ll raise spending on all the important programs, but make up for it by finding “waste”. We all know that isn’t going to happen. Politicians never find waste. What they find is that if they keep spending money, their chances of re-election improve. The federal Tories have been promising to find waste for five years now, and have jacked up spending every year.
It’s been widely understood that this election was the Tories’ to lose . . . and they’re determined to do exactly that. This is how the NDP might finally get another chance to form a government . . . perhaps the misery of the Rae experiment has finally been forgotten. Between McGuinty and Hudak, the NDP could run a cardboard cut-out of Jack Layton and be (significantly) more appealing to the average Ontario voter.
June 3, 2011
June 6 is Tax Freedom Day in Canada
You can find your personal tax freedom day (if you live in Canada) by visiting the Fraser Institute’s Tax Freedom Day Calculator.
May 20, 2011
Only one high speed rail line in the world is profitable
Babbage looks at the economics of the various high speed railway lines both in service and planned:
Of all the high-speed train services around the world, only one really makes economic sense — the 550km (350-mile) Shinkansen route that connects the 30m people in greater Tokyo to the 20m residents of the Kansai cluster of cities comprising Osaka, Kobe, Kyoto and Nara. At peak times, up to 16 bullet trains an hour travel each way along the densely populated coastal plain that is home to over half of Japan’s 128m people.
Having worked for many years in Tokyo, with family in Osaka, your correspondent has made the two-and-a-half hour journey on the Tokaido bullet-train many times. It is clean, fast and highly civilised, though far from cheap. It beats flying, which is unbearably cramped by comparison, just as pricey, and dumps you an hour from downtown at either end.
The sole reason why Shinkansen plying the Tokaido route make money is the sheer density — and affluence — of the customers they serve. All the other Shinkansen routes in Japan lose cart-loads of cash, as high-speed trains do elsewhere in the world. Only indirect subsidies, creative accounting, political patronage and national chest-thumping keep them rolling.
California’s planned 800-mile high speed rail route cannot possibly earn a profit, for many reasons (not least of which is that the first segment of the network won’t even run high speed trains until the entire system is built). It’s going to cost an eye-watering amount of money even to build that first section:
Between them, the federal government, municipals along the proposed route and an assortment of private investors are being asked to chip in $30 billion. A further $10 billion is to be raised by a bond issue that Californian voters approved in 2008. Anything left unfunded will have to be met by taxpayers. They could be dunned for a lot. A study carried out in 2008 by the Reason Foundation and the Howard Jarvis Taxpayers Association put the final cost of the complete 800-mile network at $81 billion.That is probably not far off the mark. Last week, the state’s Legislative Analyst’s Office came out with a damning indictment of the project’s unrealistic cost estimates and poor management. The bill this legislative watchdog put on the first phase of the high-speed rail project alone is $67 billion — and higher still if the project runs into trouble gaining route approval in urban areas.
If the latter number is correct, then the first phase of the system is clocking in at nearly $1 billion per mile. And this is the “cheap” section running through mostly thinly populated farming areas. If, somehow, the more expensive sections of the planned network don’t cost much more, the total construction bill will top $800 billion. The original plan had the entire system costing $43 billion.
Cost overruns are an expected part of major government construction projects, but that’s insane.
April 28, 2011
Kevin Milligan: Corporations are not really people
The notion that corporations are “legal persons” is useful for legal purposes, but terribly misleading when politicians are trying to formulate tax policies:
Pretending that corporations are people leads to tax policies with perverse consequences; some can even produce the opposite of what the policy is intended to do.
[. . .]
Some people want to tax corporations heavily because the corporations are ‘rich.’ But, if corporations are not people, they can’t be rich. The owners or employees of the corporation can be rich, but not an artificial legal entity. As my Economy Lab colleague Stephen Gordon wrote, “Claiming that ‘wealthy corporations’ pay [corporate taxes] makes about as much sense as claiming that ‘rich buildings’ pay property taxes.”
This is not an obscure debate. The owners of corporations do not all wear top hats and monocles like the fellow from the Monopoly game. In reality, Bay Street IPO-mongers quake in fear of two large stockholders. One is the Ontario Teachers Pension Plan. The other is the Canada Pension Plan Investment Board. These two pension plans are the largest holders of corporate equity in Canada, and their stakeholders are broadly middle income. Tax policy that hurts the dividends of Canadian corporations has a direct impact on the vast Canadian middle that hold pensions through these two, and similar, pension entities. Of course, many high-income Canadians also own corporate equities. But, if we desire to change the tax burden on high income individuals, though, it is best to do so directly through the personal income tax rather than taxing things high income people may or may not own.
April 25, 2011
Rational debate on tax policy MIA in this election
Stephen Gordon wishes there was a way to disentangle sensible tax policy discussions from politics:
The Conservatives implemented two major tax cuts in the past five years: the two-point reduction in the GST, and the three-point reduction in the corporate income tax (CIT) rate. The GST cut was almost certainly a mistake, but no opposition party has challenged this decision in the election campaign.
On the other hand, every opposition party has promised to increase the CIT — the tax that is most harmful to economic growth. What is going on?
I see two answers to that question, and both are based on the presumption — possibly well-founded — that voters do not understand the concept of tax incidence. If you don’t understand how corporate taxes are passed onto workers, then the idea of taxing ‘wealthy corporations’ has a certain appeal: “I’m not a wealthy corporation, so it’s no skin off my nose.”
But of course, it is. So the only question is whether or not the opposition parties campaigning on increasing corporate tax rates understand who actually pays the CIT. If they do not understand that higher CIT rates reduce wages, then their competence as a government-in-waiting leaves something to be desired. If they do understand, then they are being less than honest about what the effects of their proposals will be.
The most efficient tax is broad-based and as close to non-distorting as possible. That is also the most hated form: the Goods and Services Tax. The Tory cut in the GST was terrible economics, but great politics. There, in a nutshell, is why stupid tax policies are the only ones on offer in the election campaign — because sensible policies require people to actually face up to the costs of the government they want. People much prefer the illusion that “someone else” is paying for the goodies.
April 11, 2011
Budget was over-optimistic, but promises based on that budget are fantasies
Over at the consistently interesting Economy Lab blog at the Globe and Mail, Stephen Gordon casts scorn equally on Liberal, Conservative, and NDP campaign promises:
All parties are using the March 22 budget as a baseline for their scenarios; their platforms enumerate tax and spending plans in terms of deviations from the budget scenario. So the first problem to point out is that the budget’s scenario of freezing nominal expenditures for five years without cutting services or programs is at best implausibly optimistic.
The Liberal platform [. . .] builds on that implausible baseline by overestimating anticipated revenues from an increase in the corporate income tax (CIT) by a factor of 2.5.
The Conservative platform’s variation on its own budget is a promise to identify and implement savings worth $4-billion a year within the next three years without cutting programs or reducing services. No other explanation is offered, but then again, neither do they seem to be able to explain the cuts that were announced in the budget.
But the prize for budgetary opacity must surely go to the New Democrats’ “costing document”. Firstly, their estimate of $9-billion a year from increasing the CIT rate is even more implausible than that of the Liberals: an overestimate by a factor of at least three. The next largest source of revenue — “Tax Haven Crackdown” — is supposed to produce more than $3-billion in 2014-15. I cannot offer you any more in the way of explanation behind that number, because the NDP platform is completely silent on the matter. No measures are announced, no reasoning is offered to explain why those measures might be sensible, and no research is offered to justify the $3-billion estimate. The same goes for the “Ending Fossil Fuel Subsidies” entry: $2-billion a year in extra revenues, again with no explanation, discussion or research.
