Topic: Government and Politics

Lower Tax Rates Yielding More Tax Revenue

The capital gains tax should not be reduced to give more money to the government. Instead, the tax should be abolished since it is a punitive form of double-taxation on income that is invested. Nonetheless, it is worth noting that the government is collecting more money at a lower tax rate. Because there are many factors that influence economic performance, this does not necessarily mean that the lower rate is “paying for itself,” but it certainly indicates that there is a supply-side effect. As the Wall Street Journal explains, the bean-counters at the Joint Committee on Taxation failed to predict this result: 

Data released last week from the Congressional Budget Office confirm that the tax cuts of 2003 keep soaking the rich, especially on their capital gains. CBO and Congress’s Joint Tax Committee originally estimated that reducing the capital gains rate to 15% from 20% would cost the Treasury $5.4 billion from 2003-2006. Whoops. Actual revenues exceeded expectations by 68%, creating a $133 billion revenue bonanza for the feds. CBO’s original forecast for 2006 was for $57 billion in capital gains revenues, but actual receipts were $110 billion. This surprise windfall is one reason the budget deficit is also far lower than CBO predicted. The lower capital gains tax has raised stock values by raising the after-tax return on capital investment. It has also given stock owners a greater incentive to sell their shares, and then reinvest the proceeds, because the tax penalty on these transactions is lower. …The 2003 rate cut liberated hundreds of billions of dollars of capital for new investment. By the way, the National Venture Capital Association reports that venture capitalists invested $25.5 billion in 2006, the biggest burst of dealmaking since the stock market bubble burst in 2000. This is seed money for new companies and new jobs that will lift future tax revenues.

Jeb vs. W

Reading the Washington Post write-up of Gov. Jeb Bush’s speech to the National Review Conservative Summit, you have to wonder just what he’s saying. The Post reports:

Jeb Bush delivered yesterday in Washington a resounding endorsement of conservative principles, bringing his audience repeatedly to its feet.

In his lunchtime remarks to the Conservative Summit, Bush struck every conservative chord, blaming Republicans’ defeat in November on the party’s abandonment of tenets including limited government and fiscal restraint….

He added, “If the promise of pork and more programs is the way Republicans think they’ll regain the majority, then they’ve got a problem.”

Jeb said he was talking about the Republican Congress, and Kathryn Jean Lopez of National Review noted that he offered

a vigorous defense of his brother. Bush, at the beginning of his lunch speech, directed comments to the press gathered, noting emphatically: “I’m not going to criticize the president of the United States.” Among other accomplishments, Bush noted, “I like Justice Roberts. I like Justice Alito…” and tax cuts. He would also go on to defend the president’s immigration policy.

But who’s he kidding? President Bush sponsored most of those “more programs,” and in six years he hasn’t vetoed a single piece of pork or a bloated entitlement bill or a new spending program. And if Jeb thinks “we lost…because we rejected the conservative philosophy in this country,” he must realize that his brother has set the agenda for Republicans over the past six years almost as firmly as Putin has set Russia’s agenda. If Republicans turned their back on limited-government conservatism, it’s because the White House told them to. Not that congressional leaders were blameless — and on Social Security reform, they did decide to resist Bush’s one good idea — but it was President Bush and his White House staff who inspired, enticed, threatened, bullied, and bully-pulpited Republicans into passing the No Child Left Behind Act, the biggest expansion of entitlements in 40 years, and other big-government schemes.

This isn’t a dynastic country, and we shouldn’t elect a president whose brother (or husband) just served in the same office. But maybe Jeb could do like royals and nobles in the Old World sometimes do — give up their title or family name and enter politics as just plain Tony. (Believe me, once voters hear Jeb discuss public policy with facts and complete sentences, they’ll quickly forget that he’s supposed to be the president’s brother.) As John Ellis, the successful two-term governor of Florida, Jeb would instantly be the mainstream-conservative candidate for president.

But actual supporters of limited government should limit their enthusiasm. Although Jeb seems to have convinced conservatives that he’s much more committed to spending restraint than W — and he did veto some $2 billion in spending over eight years — his real record is much more like his brother’s. According to the Cato Institute’s Fiscal Policy Report Card on America’s Governors (pdf), he presided over “explosive growth in state spending.” Indeed, in the latest report card, only 10 governors had worse ratings on spending restraint, though — again like his brother — Jeb scored much higher on tax cutting. Federal spending is up 50 percent in six years; Florida’s spending was up 52 percent in eight years, and Jeb wasn’t fighting two foreign wars.

But at least he gives a good speech.

Why Fight Educational Freedom?

As reactions to Why We Fight: How Public Schools Cause Social Conflict have started coming in, a few recurring objections have emerged to letting parents choose schools that comport with their values. Andrew Coulson, in an excellent post, responds to the arguments of one group in particular: defenders of evolution-only biology instruction. I won’t focus on that camp since Andrew handles them so deftly, and because many of their objections are really just specific examples of the more general complaints I’m going to tackle.

Unfortunately, many of the broadsides launched against Why We Fight employ what I’ll call the “boogeyman gambit”: attacking the entire notion of school choice on the grounds that some parents might choose fringe schools. As Red State Rabble contends:

Cato’s solution to Balkanization? Balkanize the schools. A Christian fundamentalists school here, a Muslim Madrassa there. Hey, there might even be enough money left for a school with a science department somewhere. 

These kinds of attacks are easy, and all too often effective, frighteningly suggesting without any support that somehow the nation will explode with maniacal kooks if we stop forcing people to fund public schools and let them go to institutions of their choice. Give people educational freedom, we’re supposed fear, and the name “Bob Jones” will replace “Horace Mann” on schools across the country.

Right.

Were such fringe groups truly the great threat Red State Rabble makes them out to be, then their schools would already swamp the nation. Parents are, after all, allowed to send their children to private schools as things stand now. Yet with very few exceptions, we hear little or nothing about a threat from private education. Which leaves two possibilities: either the malevolent hordes that Red State Rabble envisions going wild with school choice don’t actually exist, or they’re not so zealous that they’d be willing to part with private school tuition to indoctrinate their kids. Sure, we’re supposed to believe, they’re single-minded fanatics about their causes, but not so much that they’d sacrifice money for them!

Another frequent objection to letting parents choose their kids’ schools is that American children need to be steeped in a shared worldview, lest they be in constant combat as adults. This arose as a major line of argument in a Free Republic discussion about Why We Fight, and is very similar to the “Americanization” mission given to industrial-era public schools, where immigrant students were taught to reject the customs and values of their parents’ lands — and often their parents themselves — and adopt the values political elites deemed proper.

Now, if one were willing to accept a system that would, by definition, quash any thoughts not officially sanctioned, then in theory one would be okay with a public schooling system intended to force uniform thought. In the context of an otherwise free society, however, getting such a system to work is impossible, because it would require that incredibly diverse and constantly combative adults create and run an education system that somehow produces uniform and placid graduates. It’s no more realistic than hoping a tornado will drop houses in a more perfect line than it found them.

The practical result of our trying to make uniformity out of diversity has, of course, been constant conflict, as Why We Fight makes clear. Moreover, there is another by-product of this process that no one mentions when they weave scenarios about choice producing schools steeped in ignorance: our schools right now teach very little, especially in the most contentious areas like evolution and history, because they want to avoid conflict.

When it comes to teaching the origins of life, for instance, while evolution stalwarts might think they have the upper-hand because courts have regularly ruled in their favor, the reality on the ground is often that, courts or no courts, teachers dodge evolution. As the New York Times reported in February 2005:

Dr. Eugenie Scott, executive director of the National Center for Science Education, said she heard “all the time” from teachers who did not teach evolution “because it’s just too much trouble.”

“Or their principals tell them, ‘We just don’t have time to teach everything so let’s leave out the things that will cause us problems,’ ” she said.

So here’s what happens when evolution supporters fight to the political death to keep dissenters’ tax dollars in the public schools: Neither evolutionists nor creationists get what they want. It ends like a dispute between children, with someone taking their ball home and no one getting to play.

As one can imagine, because it potentially involves the stories of every group ever on Earth, history instruction often ends up even more denuded than science, thanks to the controversy-avoidance instinct. As Diane Ravitch explains in great detail in The Language Police, history textbooks — and, as a result, history classes — have been rendered utterly barren by the need to pass muster in highly contentious, politicized textbook adoption processes. The result is that nothing very critical ever gets said about any group, and students do not learn anything interesting or meaningful about history. The entire subject, it seems, has taken its ball and gone home.

Which brings us to the fundamental problems with the anti-choice arguments thrown at Why We Fight: they ignore the utter failure of the system we have now, and rest on baseless scare tactics. Choice opponents, however, can only ignore the very real consequences of not having choice for so long. Pretty soon, parents on all sides of the public school wars will unite around just two things: exhaustion with the all the fighting, and demands for school choice.    

Boston Tea Party? REAL ID Party!

Our nation has many gentle rivalries. As a northern California native, I have always known that I’m slightly superior to our friends in So Cal. (LA-LA land’s ignorance of our disdain validates it wonderfully, by the way.)

Maine people have a similar feeling toward their neighbors in Massachusetts (even while they root for Boston’s professional sports teams). This is among the things I enjoyed discovering this week as I traveled to the far northeast for some lively discussion of the REAL ID Act.

On a panel I was privileged to join at a community center in Augusta Wednesday night, George Smith, executive director of the Maine Sportsmen’s Alliance, stood to share his opinion of our national ID law and what Maine should do about it. A Norman Rockwell painting come to life, he spoke with all the directness (and accent) of a lifelong Mainer. Summarizing, his message was this: They had their Boston Tea Party. Let’s have a REAL ID Party!

All the spirit and independence that makes me so proud of Americans — without sparing that family rivalry for even a minute!

The result of George’s work — along with the Maine Civil Liberties Union and a bipartisan consensus of the state’s political leaders — was near unanimous passage of a state resolution refusing to implement REAL ID. Maine is now the first state to reject the REAL ID Act, and the tide against the bill is beginning to run. 

(For some equally stirring rhetoric in defense of liberty and against a national ID, here’s New Hampshire Representative Neal Kurk (R-Weare) on the REAL ID Act last year. New Hampshire is one of many states likely to join Maine in rejecting a national ID.)

I have tried to supply the intellectual arguments for rejecting a national ID in my book, Identity Crisis: How Identification is Overused and Misunderstood. I was pleased to offer Smith and a number of Maine’s political leaders copies of the book. 

The Chuck Hagel Surge

Nebraska senator Chuck Hagel burst onto the national scene this week as the leading critic of President Bush’s “surge” plan for Iraq. After his widely reported speech at a Senate Foreign Relations Committee hearing, he’s become a hot topic in the blogosphere.

His possible presidential candidacy made the front page of the Washington Post today, and he got a love note from Peggy Noonan at opinionjournal.com (probably to be printed in Saturday’s Wall Street Journal). The Post says, “He is reviled by his party’s conservative base.”

Yes, right now the only thing conservatives know about him is his opposition to George W. Bush’s war plans, and conservatives are still inexplicably in thrall to the big-government Bush. But I’ll predict that over, say, the next 12 months leading up to the Iowa caucuses, Hagel is going to look increasingly wise and prescient to Republican voters. And as they come to discover that he’s a commonsense Midwestern conservative who opposed many of the Bush administration’s worst ideas, he’s going to look more attractive.

To see what all the fuss is about, click here.

The Ethanol Con

The pitch to reduce American gasoline consumption by 20 percent over the next 10 years was one of the highlights (or, make that, lowlights) of the president’s State of the Union Address last Tuesday night. The president hopes that three quarters of that goal will be met by that old political standby — corn.

Yesterday, the Orange County Register ran an op-ed I wrote that debunks the claims that:

  • ethanol will lead to energy independence;
  • ethanol is economically competitive now;
  • ethanol reduces gasoline prices;
  • ethanol is a renewable fuel;
  • ethanol reduces air pollution;
  • ethanol reduces greenhouse gas emissions;
  • ethanol subsidies are necessary to “level the playing field”; and
  • cellulosic ethanol is a promising economic bet.

Since I wrote that, however, even more devastating research has come to light. On the issue of global warming, a PhD student at MIT just issued a paper through MIT’s Laboratory for Energy and the Environment demonstrating that, on a life-cycle basis, ethanol and gasoline emit about the same amount of greenhouse gases. Increasing ethanol production, however, will tilt the greenhouse gas balance against ethanol because the only way to get more corn production is to seed more land with corn. That new cropland will be, on balance, less productive than the land already being used for corn, so land harnessed at the margin would require more fertilizer and/or irrigation (read, more energy inputs) to produce commercially optimal yields. The increased energy inputs required for the new cropland will be so great that the author believes that the president’s plan for wildly expanding ethanol production would actually make greenhouse gas emissions higher than they are at present.

For a more robust discussion of this automotive snake oil, see the cover story I co-authored — titled, “The Ethanol Illusion” — in the most recent issue of the Milken Review. An even more comprehensive beating, in the form of a full Policy Analysis, will soon be published by Cato.

By the way, I live to debate this topic. If anyone wants to sponsor an event featuring me and the ethanol shyster of your choice, just drop me a line. Any time, any place, any where.

Bloomberg Wins the Nanny State Olympics

As he counts his money and ponders an independent bid for the presidency, New York mayor Michael Bloomberg has won one competition. He’s the biggest nanny-statist around. Sure, Bangor is banning smoking in cars if children are passengers, and Arkansas governor Mike Huckabee wants to get rid of cigarettes, and Texas wants to require parents to attend parent-teacher conferences, and Kansas wants to require all seventh-grade girls to get vaccinated against a sexually transmitted infection. But for sheer nannyism, can you beat this?

Available soon: an official New York City condom.

Mayor Michael Bloomberg’s administration wants to reduce rates of sexually transmitted diseases and AIDS, and part of the strategy is the aggressive promotion of free condoms. Officials say more people will use them if they have jazzy packaging.

One idea is a subway theme, with maps on the wrappers.

“Brands work, and people use branded items more than they use nonbranded items, whether it’s a cola or a medicine even,” Health Commissioner Thomas Frieden said.