The State of Washington Should Learn a Very Important Lesson from Connecticut about the Dangers of an Income Tax

Every so often, I get asked why I’m so rigidly opposed to tax hikes in general and so vociferously against the imposition of new taxes in particular.

In part, my hostility is an ideological reflex. When pressed, though, I’ll confess that there are situations - in theory - where more taxes might be acceptable.

But there’s a giant gap between theory and reality. In the real world, I can’t think of a single instance in which higher taxes led to a fiscally responsible outcome.

That’s true on the national level. And it’s also true at the state level.

Speaking of which, the Wall Street Journal is - to put it mildly - not very happy at the tax-aholic behavior of Connecticut politicians. Here’s some of what was in a recent editorial.

The Census Bureau says Connecticut was one of six states that lost population in fiscal 2013-2014, and a Gallup poll in the second half of 2013 found that about half of Nutmeg Staters would migrate if they could. Now the Democrats who run the state want to drive the other half out too. That’s the best way to explain the frenzy by Governor Dannel Malloy and the legislature to raise taxes again… Mr. Malloy promised last year during his re-election campaign that he wouldn’t raise taxes, but that’s what he also said in 2010. In 2011 he signed a $2.6 billion tax hike promising that it would eliminate a budget deficit. Having won re-election he’s now back seeking another $650 million in tax hikes. But that’s not enough for the legislature, which has floated $1.5 billion in tax increases. Add a state-wide municipal sales tax that some lawmakers want, and the total could hit $2.1 billion over two years.

In other words, higher taxes in recent years have been used to fund more spending.

And now the politicians are hoping to play the same trick another time.

Magna Carta 800

It has been 800 years since English barons negotiated a written peace agreement with King John. The original June 1215 agreement was revised and reissued numerous times, with the 1217 version gaining the title Magna Carta (“Great Charter”). Over the centuries, the document has had a powerful influence of the evolving British legal system and government.

The Great Charter will be explored at a Cato conference this week, and David Boaz recently blogged about the document’s importance to the American founding.

If you are interested in a very brief primer, I noticed this article (page 64) by British historian David Starkey in BBC History magazine. Starkey describes the 1215 charter as a radical break, and also the beginning of a long evolutionary process of building parliamentary government in Britain.

Here is the magazine’s summary of a conversation with Starkey, who has an upcoming book on the topic:

Magna Carta was initially drafted in 1215 in an attempt to broker peace between England’s barons and the unpopular King John. It failed, and the country was plunged into civil war. Following John’s death the charter then underwent a series of revisions over the next decade. An updated version was issued in 1216 by the government of his successor, the young Henry III, in an attempt to placate the rebels. Having won the war, the king issued a new edition in 1217 in order to cement peace. The final version was produced in 1225 in return for a grant of taxation.

And here are some of Starkey’s thoughts:

[Magna Carta] set out to do three things. Firstly, to bridle a king, John, who was dangerous and unpredictable  and made his whim the law, and secondly, to make it impossible for any other king to rule in the same way. It was successful in both of those things. The third thing was the great change, and something very different: it set out to create machinery that absolutely bound any king in iron to its measures.

… One of the things that we forget is that the Magna Carta of 1215 had 62 or 63 clauses, while the long-term one has in the region of 40. A third of it was struck out in 1216 …

… It had an immense and immediate impact on law and on the development of law. Individual clauses are very quickly pleaded. What’s striking is how many copies were circulated. It forced governments to behave differently, and set rules for good behaviour and, once the charter was reissued in 1225, it became impossible to impose general taxation without consent.

I think you are repeatedly struck by the ambition of 1215. Whatever you may think about the motives of the people like Robert Fitzwalter, clearly I rather respect ambition. I respect radicalism; I don’t necessarily like it, but I respect it. They are intellectually ambitious, which is impressive whatever one thinks. How do we go about setting an absolute monarch in chains?

… The year 1215 really is the beginning of a very particularly English politics – and I’m daring to use the word English – which has actually survived 800 years. The futures of England and the English political system are first sketched out in 1215 – or rather, in that crucial decade-long crisis of the charters from 1215 to 1225. You can trace so much back to that point: the whole dialogue of Whig and Tory; particular models of statesmanship that constantly repeat themselves; this crisis of charters leading directly to the establishment of parliament. The whole structure of parliamentary government really begins with the reissue of the charter in 1225.

For more on Magna Carta, the British Library website has useful resources.

Supreme Court Protects Your Right to Make Negligent Facebook Posts

True to form, in Elonis v. United States the Supreme Court continued its unparalleled defense of free speech – this time in the social-media context. Also true to form, however, Chief Justice John Roberts put together a near-unanimous majority by shying away from hard questions and thus leaving little guidance to lower courts.

The case involved a statute that made it a federal crime to transmit in interstate commerce – the Internet counts – “any communication containing any threat … to injure the person of another.” Based on a bizarre series of Facebook posts styled largely on the lurid lyrical stylings of Eminem, Anthony Elonis was convicted under that law of threatening his wife, the police, an FBI agent, and a kindergarten class. Yet prosecutors didn’t prove that Elonis intended to threaten anyone or even understood his words as being threatening. All they showed was that the individuals in question felt threatened by the posts. The Supreme Court correctly ruled that that’s not enough, that negligently throwing around violent rap lyrics shouldn’t get someone thrown in prison. As Roberts noted, the general rule is that a “guilty mind” – what lawyers call mens rea – is a necessary element of any crime.

But alas that’s as far as Roberts went: since the statute in question doesn’t specify the requisite state of mind, mere negligence isn’t enough. He did not say – the Court did not rule at all – whether an amended statute criminalizing negligent speech would pass First Amendment muster. (This issue was the focus of Cato’s amicus brief.) Indeed, as Justice Alito points out in partial dissent, the majority opinion doesn’t even say whether “reckless” Facebook posts come under the statute’s purvey (or whether that reading would in turn satisfy the First Amendment).

In short, I’m glad that amateur poet “Tone Dougie” (Elonis’s nom de rap) won’t be practicing his art in the hoosegow, but the Supreme Court’s minimalism has guaranteed this type of case – and maybe even this defendant – an encore. Particularly as social media and other new means of expression evolve, the justices need to do more than narrowly slice speech-chilling criminal laws.

EEOC v. Abercrombie: Headscarfs and Judicial Modesty

Reversing the Tenth Circuit, the Supreme Court this morning ruled to allow an Equal Employment Opportunity Commission (EEOC) suit to go forward against retailer Abercrombie & Fitch in the widely noted “headscarf case.” The retailer had turned away a Muslim applicant who wore head covering, rather than considering whether its prescribed salesperson “look” might reasonably be refined to accommodate her wish. The outcome was not a surprise, given the way the case had developed, and in the end turned on narrow issues of statutory interpretation not much connected to the other religion-and-law cases that have riled the Court and the nation in recent years. And while the Court declined Cato’s invitation to draw a clearer line that would have averted more future disputes, its ruling is likely to be of limited direct significance: there just aren’t that many discrimination disputes that hinge on whether an employer has been explicitly told of someone’s religious beliefs.  

The Court’s near-unanimous ruling (Justice Clarence Thomas dissented in part) was unsurprising in part because the facts in evidence were not favorable toward Abercrombie: even though Samantha Elauf had not declared that her wish to wear a scarf was based on her religious beliefs, managers apparently did realize that it was so based, which mean that later, when lawyers argued that she had not put the company on notice of it being a religious issue, it seemed, well, lawyerly of them.  As Justice Antonin Scalia observed in Footnote 3 of his majority opinion – and as Justice Samuel Alito made clear as well in his concurrence – this does not mean employers will lose if they genuinely don’t know about an employee’s religious beliefs, or if they have an inkling about them but are motivated in their decision by other factors.

Even if not many future cases fall into the Abercrombie pattern, employers are still at risk in at least two other ways. First, they will be tempted to ask explicitly whether some requested accommodation (such as weekend scheduling) is based on religious belief, and such questions will sometimes rouse a suspicion of religious discrimination (or perhaps even be an act of discrimination itself). Second, they will be encouraged to make assumptions about employees’ unvoiced religious preferences that will shade into stereotyping (“She seemed so pious, we figured she probably wouldn’t want to be assigned Sunday work.”) One good way to avoid situations of being sued if you do, sued if you don’t is for judges to spell out clear rules that are easy to follow. In its concern to craft a modest statutory reading, the Court missed a chance to do that today.

Polling Free Trade

A New York Times/CBS News poll from 2013 asks, “Which is more important to you – to protect American industries and jobs by limiting imports from other countries, or to allow free trade so you can buy good products at low prices no matter what country they come from?” I like this question because it addresses protectionism as a policy rather than trade agreements.

When the options were protectionism or free trade, the result was 51% in favor of limiting imports and 41% supporting free trade.  Now that isn’t a majority of American favoring free trade, but it strikes me as an incredibly high number considering how broadly the question is worded.  It didn’t ask if we should lower tariffs; it asked if we should have any at all?  Do 41% of Americans really oppose all tariffs?

That’s worth keeping in mind as the public becomes more involved in the debate over trade promotion authority and the Trans-Pacific Partnership.  We’re going to be hearing more from the news media about Americans’ attitudes toward trade and globalization, and it’s important to remember that polls about trade vary greatly depending on how the question is worded. 

A 2013 Gallup poll focusing on general attitudes toward trade asked respondents, “Do you see foreign trade more as an opportunity for economic growth through increased U.S. exports or a threat to the economy from foreign imports?”  The problem with this question is that it assumes that trade is supposed to meet some mercantilist goal of exports exceeding imports and asks whether that goal is being met.  Unfortunately, this is how most supporters of the TPP have framed their arguments.  Still, the poll found support for trade at 57% with 35% opposed.

A new Pew Research Center poll shows that most Americans think trade agreements have been good for the United States, but when asked whether those agreements have been good for them personally, the results are more mixed:

Majorities across income categories say free trade agreements have been a positive thing for the U.S., but there are much wider income differences in opinions about the personal impact of free trade agreements.

Overall, somewhat more say their family’s finances have been helped (43%) than hurt (36%) by free trade agreements. Among those with family incomes of $100,000 or more, far more feel they have been helped (52%) than hurt (29%) financially. But among those in the lowest income group (less than $30,000), 38% say their finances have benefited from free trade agreements, while 44% say they have been hurt.

My colleague Simon Lester has noted that these results might be different if people were more informed about the regressive costs of protectionism.

Trade opponents have been quick to point out that polls about past agreements don’t actually ask if people support the TPP.  They also point to other polls that show strong public opposition when the question links trade agreements to specific hot-button issues like currency manipulation or outsourcing. 

Shawn Donnan of the Financial Times has noted how the Pew poll demonstrates a disconnect between the American public and their elected representatives.

What is remarkable is the consistency with which polls have pointed to support for trade and trade agreements in some important demographics.

Polls have shown a majority of Democratic voters support trade agreements even as most of the party’s representatives in both houses of Congress do not. The same is true for Republicans, voters under 30 and Hispanics, last week’s Pew poll found.

In fact the Pew survey found that a majority in all income groups thought trade agreements had been a “good thing” for the US economy even if they took contrasting views on what the impact had been on their own family finances.

Largely because of the political discourse in Washington, the US often looks from the outside like a parochial nation in retreat from the world, particularly when it is put up against a resurgent China. But from the ground, the US seems more comfortably interconnected with the world than it has in decades.

Just as polls show Americans are more comfortable with gay marriage than they once were they also reflect the fact that Americans are more accepting of globalisation than they have been in the past.

The TPP Is, In Fact, About Trade

One of the criticisms of the Trans Pacific Partnership (TPP) is that it’s “not about trade.”  While it is true that the TPP goes beyond trade, and addresses issues such as labor, environment and intellectual property protection (in ways that I’m not always happy about), its impact on traditional protectionist measures such as tariffs should not be ignored.  Here is Politico on this issue:

Vietnam slaps tariffs of 70 percent on U.S. cars and machinery, 35 percent on U.S. chemicals, 30 percent on U.S. biscuits and baked goods, and 25 percent on U.S. recording equipment. Japan marks up our oranges 16 percent from June through November and 32 percent from December through May; it marks up our beef exports 38.5 percent all year long. Cars made in America face a 30 percent tariff in Malaysia, which might not seem stiff compared to 50 percent on motorcycles or 35 percent on plywood, except that cars made in Japan and other Asian nations don’t face any tariff in Malaysia.

These burdensome overseas tariffs, provided to POLITICO by US Trade Representative Michael Froman, are the kind of problems President Obama hopes to address with the free trade deal known as the Trans-Pacific Partnership, which has not yet been finalized but has recently erupted into one of the most contentious topics on Washington’s agenda. 

Overall, the U.S. imposes an average tariff of 1.4 percent on foreign goods, less than half the average for the rest of the nations Froman is negotiating with, barely a fourth the average in Vietnam and Malaysia. And it can get much worse for specific industries and products. TPP nations have tariffs ranging up to 100 percent on textiles, 87 percent on corn, and 75 percent on consumer goods, not to mention selected Japanese tariffs that amount to 189 percent on U.S. shoes and a don’t-even-think-about-it 778 percent on U.S. rice above a certain annual quota.

Even our friendly trading partner to the north has some brutal anti-American protectionism on its books. The North American Free Trade Agreement of 1994 broke down a slew of barriers between the U.S. and Canada, but it exempted the poultry and dairy industries, which is why U.S. eggs face tariffs of up to 163.5 percent—and not less than 79.9 cents per dozen—in the land of ice hockey and eh. U.S. yogurt, milk, cheese, and frozen chicken all face tariffs between 237.5 percent and 249 percent in Canada.

Of course, when you talk to a U.S. government official, the focus will be on the protectionism of others, and U.S. protectionism will be ignored.  In reality, the U.S. is not all that great either.  Among other things, we have some “tariff peaks” of our own, we abuse anti-dumping duties, and there is lots of protectionism in government procurement (e.g., Buy America laws).  But the overall point is still valid: There is plenty of protectionism for trade agreements to take on.  The key, from my perspective, is how much of it the TPP actually gets rid of.  For that, we need to wait for the TPP to be completed, and see what the negotiators have accomplished.  Then, whatever has been achieved in this regard needs to be balanced against the other parts of the TPP.

Talk to Kim Jong-un Even as He Kills His Way to Power in North Korea

Secretary of State John Kerry recently visited Seoul and South Korean President Park Geun-hye will head to Washington later this month. The main agenda item: what to do about North Korea.

As usual, no one knows what is going on in Pyongyang. Its internal politics appears to be bloodier than usual. Ironically, this might provide an opportunity for Washington to initiate talks over a more open bilateral relationship.

The latest rumor is that young dictator Kim Jong-un had his defense minister executed with anti-aircraft fire for disrespectful conduct. Hyon Yong-chol probably has been purged, though South Korea’s intelligence agency acknowledged that it could not confirm his gruesome death. If Hyon was executed, it probably was because the military man was plotting, or at least feared to be plotting, against the North’s leadership.

There has been striking turnover among party and military officials since Kim Jong-un took over after his father’s death in December 2011. Most dramatic was the arrest and execution of Kim’s uncle, Jang Song-taek, seen as the regime’s number two, in December 2013. Overall some 70 top apparatchiks and more than 400 lower level officials apparently have been killed this year.

This brutality towards the power elite sets Kim apart from his father and grandfather. While Kim Jong-un’s apparent penchant for executions may reflect a peculiarly sadistic nature, it more likely grows out of insecurity. Only 28 or maybe 27 when his father died, Kim’s succession was pushed extremely quickly after his father suffered a stroke in August 2008.

Although there is no sign of organized resistance to the latest Kim, continuing turnover suggests that Kim is not, or at least does not see himself, as yet secure. Instead of cowing resistance, promiscuous executions, even for acts short of actual rebellion, might make subordinates believe it is worth going for broke.

Repression is rising in other ways. For instance, the regime apparently has been employing “Patrol Teams” as press gangs to fill out its construction work force for projects to be finished by October, the 70th anniversary of the founding of the Korean Workers’ Party. The regime also has strengthened border controls with China.

If Kim retains control, none of this might matter. However, everyone is wary of something other than the usual predictable unpredictability in Pyongyang. South Korean President Park Geun-hye noted “growing concern” over “an extreme reign of terror within North Korea.”

Governance matters since the North continues to expand its nuclear capabilities. While nothing suggests that Kim is suicidal—members of the dynasty appear to prefer their virgins in this world rather than the next—Pyongyang’s decision-making process could become more unilateral, unpredictable, or both.

Unfortunately, there is little that the U.S. can do to directly influence events within the DPRK. War would be foolhardy, tougher sanctions aren’t likely to work, and the Kim regime is well beyond the reach of moral suasion.

Nor is negotiation likely to have much effect. While the North recently launched an international charm offensive, it continues to highlight weapons development and spout rehashed threats against America and the South. The Kim regime is not likely trade away the one factor causing the world to follow events in the DPRK.

Nevertheless, as I point out in Forbes, “the possibility of division and dissension in Pyongyang gives Washington a new reason to suggest direct discussions without preconditions, but with the prospect of benefits for a change in direction. If the regime is unsettled, those disaffected might benefit if Washington stood ready to reward a new approach.”

A peace treaty, diplomatic relations, and end of economic sanctions all should be on the table. It’s still a long-shot, but so is almost any other proposal to address the North.

Someday Pyongyang will change. Engagement is the best way to prepare for that day.

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