Archives: July, 2008

Maryland Meets the Laffer Curve

Greedy politicians in Annapolis doubled the cigarette tax in Maryland for the ostensible purposes of reducing a budget deficit and financing more government spending. They increased spending (of course), but their tax hike is not generating much additional revenue. As the Washington Post reports, consumers are adjusting their behavior to minimize their tax burden:

Cigarette sales have dropped by nearly 25 percent in Maryland since the state’s tobacco tax doubled in January, as sticker shock apparently has curtailed some residents’ smoking and sent others across the border for better deals. Maryland lawmakers voted last fall to raise the tax to $2 a pack to help bridge a budget shortfall and expand subsidized health care. Fiscal analysts predicted that the new rate, the sixth highest in the nation, would cause cigarette sales to drop off, following a pattern with past increases. But the decline during the first six months of the year significantly exceeded their projections, exacerbating Maryland’s budget problems… Legislative analysts say they are looking at the degree to which Marylanders are crossing borders to buy cheaper cigarettes. It seems to be happening to some extent. On a recent afternoon, two service stations along South Dakota Avenue NE in the District were packed with vehicles with Maryland tags, many belonging to commuters heading to Maryland by Route 50 or the Baltimore-Washington Parkway. “The tax is not going to stop people from buying cigarettes,” said Mike Brockington, a 40-year-old Prince George’s County resident, adding that he was purchasing cigarettes in the District because of Maryland’s tax increase. … Maryland law seeks to limit out-of-state cigarette purchases. It is illegal for Maryland residents to be in possession of more than two packs of cigarettes lacking stamps showing that taxes were paid in the state.

The Mysterious Mr. Obama

Yesterday, one minute apart, I received two email messages that sort of sum up the mixed libertarian views on Barack Obama. First, an old friend forwarded an AP story in which Obama promised to repeal any executive orders that “trample on liberty”:

Barack Obama told House Democrats on Tuesday that as president he would order his attorney general to scour White House executive orders and expunge any that “trample on liberty,” several lawmakers said… .

The Illinois senator “talked about how his attorney general is to review every executive order and immediately eliminate those that trample on liberty,” said Rep. Jerrold Nadler, D-N.Y.

Good stuff! Let’s just hope he realizes that Bush isn’t the first president to issue executive orders that “trample on liberty.” It was President Bill Clinton’s aide, Paul Begala, who drooled at the notion of using executive orders to do what Congress wouldn’t go along with: “Stroke of the pen. Law of the land. Kinda cool.” For a look at some pre-Bush executive orders that might warrant elimination, Obama’s attorney general might consult “Executive Orders and National Emergencies: How Presidents Have Come to ‘Run the Country’ by Usurping Legislative Power,” published by Cato in 1999. There he can find information about Clinton orders that nationalized land, sought to reverse Supreme Court rulings, rewrote the rules of federalism, and waged war in Yugoslavia.

One minute after receiving that story, I received another Obama analysis in my inbox. That one was an editorial from Investor’s Business Daily titled “Barack Obama’s Stealth Socialism.” The editorial noted Obama’s repeated use of the sneaky phrase “economic justice” and cited a laundry list of spending programs and regulations that Obama supports. It’s a pretty scary list for a libertarian, from national health insurance and penalties for companies that do business internationally to huge new federal burdens on employers.

To the extent that some libertarians look favorably on Obama, I think it’s mostly negative: Bush and the Republican Congress have been so bad that any alternative looks good. But occasionally Obama does indeed say something almost libertarian. And then he promises that he’s the guy who can build a consensus to actually implement Hillary Clinton’s policy agenda, and libertarians are reminded of why they rarely vote Democratic. In Obama’s case, of course, the confusion is created by his lack of much public record. He was a senator for only two years before he began running for president full-time. Unlike candidates such as Clinton and John McCain, he doesn’t have decades’ worth of votes and statements to review. So we parse the substantive moments amid his soaring rhetoric and try to determine if he’s “the most liberal member of the Senate,” “more to the left than the announced socialist in the United States Senate, Bernie Sanders of Vermont,” a “a pro-growth, free-market guy,” or even a “left libertarian.”

Typical Bad Advice from the IMF

The International Monetary Fund has a dismal reputation for peddling snake-oil economic advice, with higher taxes and currency devaluation always high on their list. Sometimes, I wonder whether that is an unfair characterization, but then I see that their latest analysis of the Japanese economy endorses higher taxes. Tax-news.com has a summary:

While welcoming the efforts being made by the Japanese government to balance its budget by 2011, the International Monetary Fund (IMF) said on Tuesday that consumption tax may have to be raised to curb public debt and absorb rising social security costs. “Larger fiscal adjustments than currently envisaged by the authorities will be required to stabilize the high public debt and make room for the fiscal costs of population aging,” the IMF stated in its Article IV report on the Japanese economy. According to the Fund, with limited scope for further expenditure cuts, future fiscal consolidation will compel the Japanese government to raise more revenues. 

The adding-rhetorical-insult-to-policy-injury aspect of the IMF report is the deceptive and dishonest choice of words. Higher taxes are needed to “make room for the fiscal costs of population aging,” the IMF admonishes. Did the bureaucrats never consider that entitlement programs should be reformed to “make room” for the amount of available tax revenue? The IMF also writes in the report that “Expenditure cuts are nearing their limit and further fiscal consolidation will require tax measures, yet OECD data shows that government spending this year is consuming more than 36 percent of GDP, which is a bigger burden than two years ago (and much bigger if compared to the size of government 20 years ago, 30 years ago, etc). Perhaps the IMF should not make such foolish statements until the government of Japan actually reduces spending rather than increasing it.

State Government Spending and Borrowing Is Soaring

The Department of Commerce released second quarter national income data today. The data includes estimates of state and local spending and revenues. (See Table 3.3)

Here is what I found comparing the first two quarters of 2008 with the first two quarters of 2007.

- State and local tax revenues have grown about 2.1 percent over last year, with personal income taxes up 4.2 percent and property taxes up 4.3 percent. (I say “about” because I estimated the missing data item for corporate tax revenues).

- State and local total expenditures have soared 6.8 percent over last year.

There are two items of interest here. First, leading newspapers have been running stories in recent months about the horrible cutting and slashing going on in state budgets. With spending growth at about 7 percent, such budget downsizing is apparently not widespread, to say the least.

Second, the gap between spending at about 7 percent and revenues at about 2 percent is curious, given that state governments are supposed to balance their budgets each year. The explanation, according to the Commerce data, is that state and local government borrowing is soaring.

Federal Reserve data confirm the state/local government borrowing binge. See Table D.3.

Steve Chapman on Consent Searches

Steve Chapman takes a look at the problem of ‘voluntary’ roadside searches.  Excerpt:

If I approach as you pull into a parking space and ask if you’d mind my rummaging through your car, the chances are at least 90 percent that you’d decline. But if a police officer stops you with the same request, the chances are higher than 90 percent that you’d agree. Something about that badge makes citizens eager to be helpful.

Or maybe not. In civics class and 4th of July speeches, we are told that American democracy rests on the consent of the governed. But interactions with the police serve as a useful reminder that government rests less on voluntary cooperation than on fear and force. A nation is free to the extent it prevents the rulers from bullying and coercing the ruled. By that standard, American society still has a way to go.

Read the whole thing

Learn what your rights are.  Get the Busted dvd.  Related Cato work, here.

It’s Midnight in America

You could be excused for getting that vibe from this McCain campaign video, what with its vaguely X-Files-esque theme music and apocalyptic imagery (am I the only one who finds the little girl picking flowers reminiscent of “Daisy” the famous anti-Goldwater ad from the ‘64 campaign?). The Teddy Roosevelt tape is from TR’s unhinged speech to the 1912 Progressive Party convention, a speech that ends “we stand at Armageddon–and we battle for the Lord!”

Election 2008: the Messiah vs. the Prophet of Doom. Sigh. Whatever happened to normalcy? Where have you gone Warren Harding? A nation turns its lonely eyes to you.

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