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Cherry Picking Tax Policies

from Kevin Williamson at National Review, The U.S. Is Not the Highest-Taxed Nation in the World

The problem for the Left is that Democrats cannot, under most circumstances, tell the truth about U.S. taxes, either, because the American middle class does not want to hear that it isn’t paying enough in taxes to fund the benefits it wants. The Left insists that something, somewhere — somebody rich, preferably in a Republican-voting state — is getting over on us, that the rich are not paying “their fair share.” It is true that the highest-income Americans do make a great deal more money than do the poor and the middle class — that’s what it means to be high-income — but they already pay an even more disproportionate share of the taxes. The top 20 percent takes in about 55 percent of all income but pays about 70 percent of all federal taxes as Curtis Dubay, formerly of the Heritage Foundation, runs the numbers. Other analysts have come to similar conclusions. That’s what you’d expect: We have a progressive tax code, after all.

Country-to-country comparisons tend to be exercises in cherry-picking. Switzerland is generally considered one of the best-administered countries in the world, and its taxes and public spending are a bit higher than in the United States, though lower than in much of Europe. The Swiss pay higher income taxes, but pay very low business and investment taxes, and essentially no capital-gains tax. (There are local taxes on profits from real-estate sales in some parts of the country.) It also has high wages but no national minimum wage, very free trade, and very light regulation in most respects. On the other hand, most workers are covered by some sort of collective-bargaining agreement. There’s a lot more to economic policy than tax rates as such. Northern European welfare states may have tax rates that look confiscatory from the American point of view, but some of them have much more free economies in other respects. On the Heritage “economic freedom” index, Switzerland, the Netherlands, Ireland, Canada, and the United Kingdom all rank higher than does the United States.

HKO

Trying to compare tax systems, like comparing health care systems, isolates a single policy from its economic and political ecosystem. This includes the history that brought it there, its culture, its relative size, and the availability of other options. To think that a system that we believe is successful can be transplanted from a homogeneous small country to a giant federation of 50 states with widely differing dynamics is as politically naive as it is economically ignorant.

Politics and Profits

From Thomas Donlan At Barron’s, Trump’s CEOs: In the Wrong Place at the Wrong Time (I like the title in the print edition better, There’s No Profit in Politics)

Business executives as a group rarely show the kind of sophistication that the nation needs in politics. They give money to candidates of both parties, and they expect lower taxes, fat contracts, and gratitude. They have as little understanding of citizenship as politicians do of economics. Their interest in politics is as limited as politicians’ interest in profits.

When business leaders leap into bed with politicians, they think they will gain influence and respect. Thus, they become members of the oldest profession, and they run the risk of catching a serious social disease.

HKO

As a mentor of mine said, “When business gets in bed with government, somebody gets screwed.”

 

Statutory vs Actual Tax Rates

from Kevin Williamson at National Review, The U.S. Is Not the Highest-Taxed Nation in the World

We do have an extraordinarily high top corporate-tax rate — on paper, anyway. Our statutory top corporate rate is among the highest in the world, but the corporate tax code is a welfare program. You know how basically every president at every State of the Union address announces a special plan to encourage U.S. manufacturing or green energy or something like that? Those end up as exemptions and deductions in the corporate tax code, which, along with other tax-code favoritism, is why companies such as General Electric sometimes pay no taxes even in years in which they seem to be making a great deal of money. The effective corporate tax rate — what corporations actually pay — in the United States is not especially high, and it’s low if you have the right friends in Washington. The fact that corporate taxes vary so much from company to company and industry to industry is not an accident — the code is designed that way on purpose. It gives big powerful market incumbents a way to disadvantage potential competitors while giving power-brokers in Washington the power to make or break entire industries.

HKO

We conflate statutory tax rate with actual- those rates after deductions,credit, and loopholes you obtain through lobbying and political connections. The greater this difference the greater the government is influencing and polluting market decisions.

Liberty and Unemployment

From Deirdre McCloskey in Reason Magazine, The Myth of Technological Unemployment

Helping the poverty-stricken is laudable. But we can’t subsidize 1.7 million people a month. Nor is job retraining a good idea when directed from above: The wise heads in Washington don’t know the future, and they’ll end up teaching people to be machinists for companies that won’t exist. Workers themselves know best how to retrain and relocate, as did the hundreds of thousands who moved to North Dakota during the brief oil boom there. We want the labor force to be as flexible as the capital force. And for that we need liberty, not government programs.

In the spirit of John Rawls, we should ask which society we’d rather enter at birth, without knowing where within that society we’d end up. One in which all jobs are protected, bureaucrats decide who gets subsidies and who doesn’t, and the economy slides, as France has, into stagnation and high levels of youth unemployment? Or one in which labor laws are flexible, individual workers decide their own futures, and the economy lifts up the poorest among us?

Choose, and then quit worrying about technological unemployment.

The True Dynamic of Employment

From Deirdre McCloskey in Reason Magazine, The Myth of Technological Unemployment

In 1910, one out of 20 of the American workforce was on the railways. In the late 1940s, 350,000 manual telephone operators worked for AT&T alone. In the 1950s, elevator operators by the hundreds of thousands lost their jobs to passengers pushing buttons. Typists have vanished from offices. But if blacksmiths unemployed by cars or TV repairmen unemployed by printed circuits never got another job, unemployment would not be 5 percent, or 10 percent in a bad year. It would be 50 percent and climbing.

Each month in the United States—a place with about 160 million civilian jobs—1.7 million of them vanish. Every 30 days, in a perfectly normal manifestation of creative destruction, over 1 percent of the jobs go the way of the parlor maids of 1910. Not because people quit. The positions are no longer available. The companies go out of business, or get merged or downsized, or just decide the extra salesperson on the floor of the big-box store isn’t worth the costs of employment.

What you hear on the evening news is the monthly net increase or decrease in jobs, with some 200,000 added in a good month. But the gross figure of 1 percent of jobs lost per month is the relevant one for worries about technological unemployment. It’s well over 10 percent per year at simple interest. In just a few years at such rates—if disemployment were truly permanent—a third of the labor force would be standing on street corners, and the fraction still would be rising. In 2000, well over 100,000 people were employed by video stores, yet our street corners are not filled with former video store clerks asking for loose change.