Tag: United Kingdom

English Riots, Moral Relativism, Gun Control, and the Welfare State

I wrote earlier this year about the connection between a morally corrupt welfare state and the riots in the United Kingdom.

But what’s happening now is not just some left-wing punks engaging in political street theater. Instead, the UK is dealing with a bigger problem of societal decay caused in part by a government’s failure to fulfill one of its few legitimate functions: protection of property.

To make matters worse, the political class has disarmed law-abiding people, thus exacerbating the risks. These two photos are a pretty good summary of what this means. On the left, we have Korean entrepreneurs using guns to defend themselves from murdering thugs during the 1992 LA riots. On the right, we have Turkish entrepreneurs reduced to using their fists (and some hidden knives, I hope) to protect themselves in London.

Which group do you think has a better chance of surviving when things spiral out of control? When the welfare state collapses, will the Koreans or the Turks be in a better position to protect themselves? And what does it say about the morality of a political class that wants innocent people to be vulnerable when bad government policies lead to chaos?

Speaking of chaos, let’s look at the “root causes” of the riots and looting in the United Kingdom.

Allister Heath is the editor of City A.M. in London, and normally I follow his economic insights, but his analysis of the turmoil is superb as well. Here’s an excerpt. But as Instapundit likes to say, read the whole article.

Debilitating, widespread fear. The country held to ransom by feckless youths. Thousands of shocked Londoners cowering in their homes, with many shops, banks and offices shutting early. …It no longer feels as if we live in a civilised country. The cause of the riots is the looters; opportunistic, greedy, arrogant and amoral young criminals who believe that they have the right to steal, burn and destroy other people’s property. There were no extenuating circumstances, no excuses. …decades of failed social, educational, family and microeconomic policies, which means that a large chunk of the UK has become alienated from mainstream society, culturally impoverished, bereft of role models, permanently workless and trapped and dependent on welfare or the shadow economy. For this the establishment and the dominant politically correct ideology are to blame: they deemed it acceptable to permanently chuck welfare money… Criminals need to fear the possibility and consequence of arrest; if they do not, they suddenly realise that the emperor has no clothes. At some point, something was bound to happen to trigger both these forces and for consumerist thugs to let themselves loose on innocent bystanders. …the argument made by some that the riots were “caused” or “provoked” by cuts, university fees or unemployment is wrong-headed. …the state will spend 50.1 per cent of GDP this year; state spending has still been rising by 2 per cent year on year in cash terms. It has never been as high as it is today – in fact, it is squeezing out private sector growth and hence reducing opportunities and jobs. …This wasn’t a political protest, it was thievery. …We need to see New York style zero tolerance policing, with all offences, however minor, prosecuted. But what matters right now is to regain control, to stamp out the violence and to arrest, prosecute and jail as many thugs as possible. The law-abiding mainstream majority feels that it has been abandoned and betrayed by the establishment and is very, very angry.

A Victory for the Laffer Curve, a Defeat for England’s Economy

A new study from the Adam Smith Institute in the United Kingdom provides overwhelming evidence that class-warfare tax policy is grossly misguided and self-destructive. The authors examine the likely impact of the 10-percentage point increase in the top income tax rate, which was imposed as an election-year stunt by former prime minister Gordon Brown and then kept in place by his feckless successor, David Cameron.

They find that boosting the top tax rate to 50 percent will slow economic performance. And because of both macroeconomic and microeconomic responses, tax revenues over the next 10 years are likely to drop by the equivalent of more than $550 billion. Here’s a key paragraph from the executive summary of the new study.

The country is suffering from a 50%-­plus marginal tax rate which even its architect admits was imposed without economic purpose. Now our analysis shows that the policy is set for failure: at best leading to flat growth for a decade and £350bn of lost revenue. The Chancellor should seize the occasion of the 2011 budget to reverse this disaster promptly, for the benefit of public revenues, economic growth, the government’s standing with domestic wealth-creators, and the UK’s reputation with world business.

The authors urge Prime Minister Cameron to reverse this disastrous policy, but the odds of that happening are very slight. I hope I’m wrong, but I have repeatedly noted that Cameron almost always makes the wrong choice when deciding between liberty and statism.

President Obama wants to impose similar policies in the United States and there is every reason to expect similarly poor results. I’ve already posted evidence from IRS data showing that the rich paid much more tax following the Reagan tax cuts, so it shouldn’t shock anybody when the reverse happens if Obama is successful in moving America back toward a 1970s-style tax system.

To emphasize these critical points, let’s close with two videos. This first video explains the Laffer Curve and why politicians are foolish if they assume that there is a fixed linear relationship between tax rates and tax revenue.

This second video debunks the notion of class-warfare tax policy.

English Riots, Faux Austerity, and Krugman’s Fairy Tale

London was just hit by heavy riots as part of a protest against the “deep” and “savage” budget cuts of the Cameron government. This is not the first time the UK has endured riots. The welfare lobby, bureaucrats, and other recipients of taxpayer largesse are becoming increasingly agitated that their gravy train may be derailed.

The vast majority of protesters have been peaceful, but some hooligans took the opportunity to wreak havoc. These nihilists apparently call themselves anarchists, but are too ignorant to understand the giant disconnect of adopting that title while at the same time rioting for bigger government and more redistribution. My anarcho-capitalist friends must be embarrassed by the potential linkage with these hooligans.

Speaking of rage, Paul Krugman is equally dismayed with Prime Minister David Cameron’s ostensibly penny-pinching budget. Summoning the ghost of John Maynard Keynes, Krugman asserts that such frugality is misguided when an economy is still weak and people are unemployed. Indeed, Krugman argues that the UK economy is weak today precisely because of Cameron’s supposed austerity.

Not surprisingly, the purpose of his argument is to discourage similar policies from being adopted in the United States.

Here’s part of what Krugman wrote as part of his column on “The Austerity Delusion.”

Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong. …Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right. But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

At first I wondered if Krugman was playing an April Fool’s joke, but this is consistent with his long-held views about the magical impact of government spending. Besides, his piece is dated March 25, so I think we can safely assume he actually believes that Cameron’s supposed budget cutting is crippling the UK’s recovery.

There are two problems with Krugman’s column. The obvious problem is his unwavering support for Keynesian economics. I’ve addressed that issue here, here, here, here, and here, so I don’t feel any great need to rehash all those arguments. I’ll just ask why the policy still has adherents when it failed for Hoover and Roosevelt in the 1930s, failed for Japan in the 1990s, failed for Bush in 2008, and failed for Obama in 2009.

But the really amazing thing is that both Krugman and the rioters are wrong, not just in their opinions and ideology, but also about basic facts. Government spending has skyrocketed in the United Kingdom in recent years. Spending is even increasing at about double the rate of inflation in the current fiscal year. But don’t believe me. Look on page 102 of the UK’s latest budget.

Maybe that’s austerity to the looters and other protestors who think they have an unlimited claim on the production and income of other people, but it’s hard to see how a 4 percent increase in spending can be characterized as “brutal” and “vicious” spending cuts.

Moreover, Cameron has been a disappointment on the tax issue. He left in place Gordon Brown’s election-year, 10-percentage point increase in the top income tax rate. But then he imposed an increase in the VAT rate and implemented a higher capital gains tax.

To be sure, Cameron’s budget promises a bit of fiscal restraint in upcoming years, with spending supposedly growing at about 1 percent annually over the next three years. That would actually be somewhat impressive, roughly akin to what Canada and Slovakia achieved in recent decades. But promises of future spending restraint (which may never materialize) surely are not the same as present-day austerity.

One final comment: While I obviously disagree with much of what Krugman wrote, he does make some sound points. Many Republicans and Democrats claim that changes in deficits and debt have a big impact on interest, for instance, but Krugman correctly notes that there is no evidence for this assertion. Nations such as Portugal and Greece may face high interest rates, but that’s because investors don’t trust those governments to pay their debts, not because those states’ borrowing is having an impact on credit markets.

English Anti-Tax Haven Ideologues Are Just as Foolish and Ignorant as their American Cousins

There’s a supposed expose’ in the U.K.-based Daily Mail about how major British companies have subsidiaries in low-tax jurisdictions. It even includes this table with the ostensibly shocking numbers.

This is quite akin to the propaganda issued by American statists. Here’s a table from a report issued by a left-wing group that calls itself “Business and Investors Against Tax Haven Abuse.”

At the risk of being impolite, I’ll ask the appropriate rhetorical question: What do these tables mean?

Are the leftists upset that multinational companies exist? If so, there’s really no point in having a discussion.

Are they angry that these firms are legally trying to minimize tax? If so, they must not understand that management has a fiduciary obligation to maximize after-tax returns for shareholders.

Are they implying that these businesses are cheating on their tax returns? If so, they clearly do not understand the difference between tax avoidance and tax evasion.

Are they agitating for governments to impose worldwide taxation so that companies are double-taxed on any income earned (and already subject to tax) in other jurisdictions? If so, they should forthrightly admit this is their goal, notwithstanding the destructive, anti-competitive impact of such a policy.

Or, perhaps, could it be the case that leftists on both sides of the Atlantic don’t like tax competition? But rather than openly argue for tax harmonization and other policies that would lead to higher taxes and a loss of fiscal sovereignty, they think they will have more luck expanding the power of government by employing demagoguery against the big, bad, multinational companies and small, low-tax jurisdictions.

To give these statists credit, they are being smart. Tax competition almost certainly is the biggest impediment that now exists to restrain big government. Greedy politicians understand that high taxes may simply lead the geese with the golden eggs to fly across the border. Indeed, competition between governments is surely the main reason that tax rates have dropped so dramatically in the past 30 years. This video explains.

Disastrous U.K. Tax Hike Unleashes a Steroid-Pumped Version of the Laffer Curve

The Laffer Curve is one of my favorite issues (see here, here, here, here, here, etc). But it is a very frustrating topic. Half my time is spent trying to convince left-leaning people that the Laffer Curve exists. I use common-sense explanations. I cite historical examples. I even use information from left-of-center institutions in hopes that they will be more likely to listen.

The other half of my time is spent trying to educate right-leaning people that the Laffer Curve does not mean that “all tax cuts pay for themselves.” I relentlessly try to make them understand that there is a big difference between pro-growth tax cuts that increase incentives for productive behavior and therefore lead to more taxable income and other tax cuts such as child credits that have little or no impact on economic performance.

Given my focus on this issue (some would say I’m tenacious, others that I’m bizarrely fixated), I was excited to see a column from the editor of a business paper in the United Kingdom about a tax increase that backfired in a truly spectacular fashion. It deals with the taxation of rich foreigners, called “non-doms,” who often choose to live in London because the U.K. government does not tax them on their foreign income. But then the Labor Party, with the support of spineless Tories, imposed an annual fee of £30,000 (about $45,000-$50,000) on these highly productive people.

The rest, as they say, is history. Here’s a long extract, but you should read the entire article.

Figures out last night confirmed yet again that crippling tax hikes are driving people and economic activity away from Britain. Rather than raising extra tax receipts to plug Britain’s budget deficit, there is growing evidence that the raids are actually reducing the amount of money collected by the taxman, thus inflicting even greater debt on the rest of us. Our predicament is depressing almost beyond words. The number of non-doms living in the UK collapsed by 16,000 in 2008-09, the most recent year for which data is available, according to yesterday’s figures. This is a dramatic decline: an 11.6 per cent drop from 139,000 in 2007-08 to 123,000. When in April 2008 Labour – egged on by the Conservatives – introduced an annual levy of £30,000 for those who had claimed non-dom status for seven years, pundits dismissed the tax as too low to make a difference. …Non-doms are people who originated overseas and pay UK tax on their UK earnings but no tax on their foreign income. The original non-doms were Greek shipping moguls who fled their socialist country to base themselves (and their businesses) in London. Until recently, the UK fought to attract such people; they pay a lot of UK tax and are often employers or high spenders. Yesterday’s figures actually underplay the true extent of the exodus: the departure of non-doms is bound to have accelerated in 2009-10 and will continue in the coming years as a result of the 50p tax rate, the hike in capital gains tax, the extra national insurance contributions and the near-hysterical war on financiers and myriad other attacks on wealth-creators and foreign investors that are now routine in this country. …The Treasury told us 5,400 non-doms opted to pay the fee. This means that the taxman raised an extra £162m. The Treasury wouldn’t or couldn’t give us any more information, so I’ve made a few guesstimates to work out the net cost of the tax raid. Being over-generous to the government, it might be that half the missing non-doms are now full taxpayers. Let’s assume they are paying an extra £15,000 in tax each. That would make another £120m in tax, taking the total to £282m. Let’s then assume that the 8,000 missing non-doms would have paid £50,000 each in UK income tax, capital gains tax, VAT and stamp duty – the gross loss jumps to £400m, which means that the Treasury is £118m worse off. The real loss is almost certainly much higher.

In other words, this is one of those rare cases where a tax increase is so punitive that the government winds up losing money. In a logical world, this should be an opportunity for the left and right to unite for lower taxes. The left would get more money to spend and the right would get the satisfaction of better tax policy. This assumes, however, that the left is more motivated by revenue maximization than it is by a class-warfare impulse to punish the rich. As Obama said during a Democratic debate in 2008, he didn’t care whether higher taxes raised more revenue.

UK To Make It Easier To Hire, Fire Workers

In Britain, the coalition government of David Cameron hopes to stimulate much-needed hiring by reducing state interference with private employers’ right to choose their own workforces. Per the Telegraph, Cameron “hopes that relaxed employment laws will help to boost the private sector and encourage firms to take on thousands of new workers.”

For all the high hopes, the changes are in fact quite modest. Newly hired workers will wait two years, rather than one, before obtaining the power to challenge later firings before official tribunals. To discourage doomed or trivial claims, disgruntled workers will be charged a fee for resorting to a tribunal. The smallest employers will be exempted from some portions of the law, and so forth.

Judged by the “employment at will” principle that best exemplifies liberty of individual contract, Britain’s job market will remain far too highly regulated. But the direction of change is interesting. Despite the frequent impression that “Eurosclerosis” (and its equivalents elsewhere) puts the patient on a one-way course of decline, nations around the globe have repeatedly sought to shake off economic malaise by pulling back from labor regulation toward liberty of contract. Often these steps have stimulated exactly the economic expansions hoped for, as with Margaret Thatcher’s reforms in Britain in the 1980s and with New Zealand’s less famous yet more radical 1991 reforms. Alas, in both Britain and New Zealand, later Labour governments reimposed some (not all) of the previous types of regulation in deference to their union and Left constituencies.

What of the United States? For the most part, we’ve resisted the worst Euro labor-market practices — which has required us to ignore prevailing opinion among labor and employment specialists in our law schools, most of whom (as I’ve argued at book length in the past, and mention again in my forthcoming book on the influence of law schools) tend to support a great many bad proposals to restrict private employers’ liberty to hire and fire. Yet in our own distinctive way — which owes more to lawsuits and less to administrative tribunals — we keep edging toward European-style notions of workplace tenure. Newly released numbers show that federal complaints of employment bias surged to record levels last year, up 7 percent, led by a 17 percent spike in disability-discrimination claims, which now represent one-quarter of the nearly 100,000 total.

The newly activist posture of the Obama Equal Employment Opportunity Commission may have contributed to the trend a bit, and so may the state of the economy: laid-off workers may be more willing to pursue lawsuits when job prospects are bleak. But the main responsibility goes to the ADA Amendments Act passed by Congress in 2008 and signed by none other than Republican President George W. Bush, in this respect continuing his father’s tradition of uncritically endorsing almost any measure labeled as a matter of disabled rights. Among its other provisions, the 2008 ADA Amendments Act reversed a series of U.S. Supreme Court decisions that had tended to limit the scope of coverage of the ADA to persons with more severe disabilities. It also bestowed new rights to sue on persons “regarded as” disabled whether or not their actual medical condition so qualifies. The overall effect of the changes is to make it hard if not impossible to argue that a disability is too minor to deserve accommodation: “Challenging the employee’s ‘disability’ status is a waste of time with the new expanded definition of ‘disability’,” per one employer advisor. Karen Harned and Katelynn McBride have much more on the amendments in a new article in the Federalist Society publication “Engage.”

Once again, both major political parties pave the way to excessive regulation. And that makes it harder politically for an equivalent of Cameron’s reforms to come along here.

What Happens When Politicians Get a New Source of Revenue?

We’ve been spending too much time on elections, so let’s get back to pointing out inane, foolish, and destructive government policies. Our latest example comes from the United Kingdom, where politicians are pushing airline ticket taxes to punitive levels and harming the tourism industry. But the real lesson from this story is that it is very dangerous to give politicians a new revenue source.

The airline ticket tax was first imposed by a (supposedly) Conservative Party government in 1994 at a maximum rate of 10 pounds. During the Blair/Brown Labor Party reign, the tax was boosted to a maximum rate of 50 pounds. Now, the new government, led by ostensible Conservative David Cameron, is pushing the maximum tax up to 75 pounds (more than $120) per ticket.

Here’s an excerpt from the story in the Telegraph.

Families are avoiding holidays in Egypt and the Caribbean because of the high cost of air taxes — even before the hike in passenger duty that comes into place on Monday.

…The duty, which is paid by all travellers on leaving Britain and added automatically to the price when a ticket is booked, is to increase by 50 per cent to some destinations. It is the second significant rise in two years, and figures show that previous hikes have already influenced people’s choice of holiday destinations.

…Bob Atkinson, travel expert at Travelsupermarket.com, said: “Families looking to book for this winter and summer next year will be faced with tax rises of up to 54 per cent on their family holidays. This tax rise is completely out of line with inflation and bears no relation to the original purpose of the tax.”

…The tax was introduced in 1994 at the rate of £10 on long-haul flights, but increased by the previous Government, which said it was a necessary “green measure”.

…The increases mean a family of four flying to the Caribbean will pay £300 in duty compared with the old rate of £200 or £160 last year. Willie Walsh, the chief executive of British Airways, has branded the higher taxes a “disaster”. Earlier this month, he called the duty a “disgrace”.

No wonder families are choosing not to travel. But, more important, imagine what American politicians will do if they ever succeed in imposing a value-added tax. The rate initially will be low (just as the original income tax had a top rate of just 7 percent), but nobody should delude themselves into thinking the rate won’t quickly climb as greedy politicians get hooked on a new form of revenue to feed their spending addictions.