Topic: Political Philosophy

Major New Study about the Top 1 Percent… And Much More

By
Cato Editors

This new Cato Institute Working Paper by Senior Fellow Alan Reynolds confirms recent studies which find little or no sustained increase in the inequality of disposable income for the U.S. population as a whole over the past 20 years, even though estimates of the top 1 percent’s share of pretax, pretransfer (market) income spiked upward in 1986-88, 1997-2000 and 2003-2007.

It has become commonplace  to use top 1 percent shares of market income as a shorthand measure of inequality, and as an argument for greater taxes on higher incomes and/or larger transfer payments to the bottom 90 percent.  This paper finds the data inappropriate for such purposes for several reasons:

  • Excluding rapidly increased transfer payments and employer-financed benefits from total income results in exaggerating the rise in the top 1 percent’s share between 1979 and 2010 by 23 percent because a growing share of other income is missing.
  • Using estimates of the top 1 percent’s share of pretax, pretransfer income (Piketty and Saez 2003) as an argument for higher tax rates on top incomes or larger transfer payments to others is illogical and contradictory because the data exclude taxes and transfers.
  • Using highly cyclical top 1 percent shares as a measure of overall inequality leads, paradoxically, to describing most recessions as a welcome reduction in inequality, because poverty and unemployment rates typically rise when the top 1 percent’s share falls, and fall when the top 1 percent’s share rises.
  • Top 1 percent incomes are shown to be extremely sensitive (“elastic”) to changes in the highest tax rates on ordinary income, capital gains and dividends.  Although estimates of the elasticity of ordinary income for the top 1 percent range from 0.62 (Saez 2004) to 1.99 (Moffitt and Wilhelm), those estimates fail to account for demonstrably dramatic responses to changes in the highest tax rate on capital gains and dividends.

Reynolds estimates that more than half of the increase in the top 1 percent’s share of pretax, pretransfer income since 1983, and all of the increase since 2000,  is attributable to behavioral reactions to lower marginal tax rates on salaries, unincorporated businesses, dividends and capital gains. After reviewing numerous data sources, he finds no compelling evidence of any large and sustained increase in the inequality of disposable income over the past two decades.

Topics: 
Cato Publications, Finance, Banking & Monetary Policy, General, Government and Politics, International Economics and Development, Political Philosophy, Social Security, Tax and Budget Policy

Camille Paglia on Art and Capitalism

By
David Boaz

The Wall Street Journal’s Saturday “Review” section is one of the best weekly magazines around, because of articles like this one from Camille Paglia:

Capitalism has its weaknesses. But it is capitalism that ended the stranglehold of the hereditary aristocracies, raised the standard of living for most of the world and enabled the emancipation of women. The routine defamation of capitalism by armchair leftists in academe and the mainstream media has cut young artists and thinkers off from the authentic cultural energies of our time.

Topics: 
General, Political Philosophy

Romney and Obama on the Role of Government

By
David Boaz

President Obama and Mitt Romney effectively delivered clashing statements on the role of government last night. That’s an issue I discuss in the latest issue of Reason, in a review of two new books, To Promote the General Welfare: The Case for Big Government, edited by Steven Conn, and Our Divided Political Heart: The Battle for the American Idea in an Age of Discontent, by E. J. Dionne, Jr. It’s not online yet, so you’ll have to go to the newsstand to buy a copy! Obama seemed to be channeling the Conn book, with its endless repetition of “things the government did for us”:

I also believe that government has the capacity – the federal government has the capacity to help open up opportunity and create ladders of opportunity and to create frameworks where the American people can succeed. Look, the genius of America is the free enterprise system, and freedom, and the fact that people can go out there and start a business, work on an idea, make their own decisions.

But as Abraham Lincoln understood, there are also some things we do better together.

So in the middle of the Civil War, Abraham Lincoln said, let’s help to finance the Transcontinental Railroad. Let’s start the National Academy of Sciences. Let’s start land grant colleges, because we want to give these gateways of opportunity for all Americans, because if all Americans are getting opportunity, we’re all going to be better off. That doesn’t restrict people’s freedom; that enhances it.

And so what I’ve tried to do as president is to apply those same principles.

Romney had a different view:

The role of government – look behind us: the Constitution and the Declaration of Independence.

The role of government is to promote and protect the principles of those documents. First, life and liberty. We have a responsibility to protect the lives and liberties of our people, and that means the military, second to none. I do not believe in cutting our military. I believe in maintaining the strength of America’s military.

Second, in that line that says, we are endowed by our Creator with our rights – I believe we must maintain our commitment to religious tolerance and freedom in this country. That statement also says that we are endowed by our Creator with the right to pursue happiness as we choose. I interpret that as, one, making sure that those people who are less fortunate and can’t care for themselves are cared by – by one another.

We’re a nation that believes we’re all children of the same God. And we care for those that have difficulties – those that are elderly and have problems and challenges, those that disabled, we care for them. And we look for discovery and innovation, all these thing desired out of the American heart to provide the pursuit of happiness for our citizens.

But we also believe in maintaining for individuals the right to pursue their dreams, and not to have the government substitute itself for the rights of free individuals. And what we’re seeing right now is, in my view, a – a trickle-down government approach which has government thinking it can do a better job than free people pursuing their dreams. And it’s not working.

His rhetoric was certainly more appealing to libertarian voters. But when Romney waxes eloquent about freedom, the rubber rarely meets the road. He’s the father of the health care mandate. His view of liberty, above, is a strong military. His closing argument, about the candidates’ “two very different paths,” ended with a promise not to cut Medicare or the military. He promised to deliver “energy independence” and to crack down on countries that sell us goods.

More on why libertarians are skeptical about big government here – and in Reason!

Topics: 
General, Government and Politics, Political Philosophy

Election Pamphlets Raise Questions

By
Chris Edwards

I live in Virginia, which is a battleground state, and my mailbox has been littered with political propaganda in recent weeks. Here are some questions for the candidates:

  • George Allen (R) for Senate promises to “protect defense jobs from devastating cuts” while “restoring fiscal discipline in Washington.” But Allen was already in Washington and his party didn’t restore discipline. Is he proposing anything different this time?
  • Rep. Jim Moran (D) promises to “stand up for women” and protect their “rights” by ensuring they “have access to affordable contraception.” But what about men? Shouldn’t they get a tax credit for condoms or something?
  • Romney/Ryan (R) promise to “begin reducing the deficit and balancing the budget.” But how? Apparently not with defense savings because they will “protect and strengthen Virginia’s military jobs,” nor with Medicare savings because they will “preserve and strengthen” that program.
  • Romney/Ryan (R) promise to “champion small business.” But what about big business? Big business employs tens of millions of Americans and is subject to more intense global competition than is small business. So why do R/R want to specially favor small businesses?
  • Tim Kaine (D) for Senate says that he “dramatically increased the percentage of state contracts issued to small, women-owned and minority-owned businesses.” But are women’s businesses more important than men’s businesses? And is Kaine saying that he will use government power to favor minority businesses over other businesses? How does that square with his promise to create opportunities “for all”?
  • Tim Kaine (D) for Senate also promises to “strengthen Medicare, Social Security, and Medicaid.” Is he saying that even though rising spending on these programs will cause government finances to implode in coming years, he wants to spend even more on them? Does Kaine think it’s fair to enslave young people with even more debt from these programs just to gain votes from greedy geezers?  

In sum, I’m seeing a lot from both parties about “strengthening” spending, “protecting” big government, and “championing” some groups of Americans over others. What about voters who want their leaders to strengthen individual rights, protect equality under the law, and champion the United States Constitution? 

Topics: 
Government and Politics, Political Philosophy

Segmenting the Libertarian Vote: Tea Partiers, Civil Libertarians, and Libertarian Independents

By
David Kirby

Last week, I posted data from the latest Reason-Rupe poll showing 77 percent of libertarians supporting Romney—the highest percentage share of the libertarian vote of any Republican presidential candidate since 1980.

Many commenters on Twitter and Facebook were horrified! Surely, many reasoned, this large vote share is a measure of antipathy for Obama rather than affinity for Romney. Others commented that any libertarian supporting Romney doesn’t deserve to be considered a “true” libertarian.

I wanted to reflect on this last comment. Who should count as a libertarian?

In our Cato research, David Boaz, Emily Ekins and I have taken to using a relatively broad definition of a libertarian. Why? Compared to other political words like “capitalism” or “socialism,” fewer know the word “libertarian.” Many who hold libertarian views call themselves “moderate” or “independent” or even “conservative.” Few polls even offer respondents an option to identify themselves as “libertarian.” Those that do reveal confusion about what the word means.

Given all this, we have preferred to probe respondents’ basic background beliefs about the role of government, using questions commonly asked on national polls. Libertarians give different answers than liberals or conservatives. For instance, in the Reason-Rupe poll, we chose three questions to screen libertarians. This gives us a 20 percent group of libertarian likely voters. Other methods and questions produce slightly higher or lower estimates.

But what if you define libertarians more strictly, say, only libertarians who self-identify as such? Or libertarians who also prioritize civil liberties, like support for the legalization of marijuana? Or libertarian independents? Or tea party libertarians? The chart below breaks out these different segments of the broader libertarian vote.* (Thanks again to Emily Ekins for sharing the crosstabs.)

  • Civil liberties libertarians – among libertarians (by our broader definition) who also favor “legalizing small amounts of marijuana for personal use,” Romney support drops to 63 percent. If you add Gary Johnson to the list of candidates, Johnson wins 17 percent, pulling mostly from Obama voters. While many civil libertarians held out hope for Obama, he has continued many of the Bush era policies. For instance, Obama’s Justice Department continues to raid medical marijuana dispensaries in California and support Bush era surveillance policies.
  • Tea party libertarians – the data show that half of tea party is libertarian. Among libertarians who also support the tea party, Romney would win his largest percentage vote share at 93 percent. Though interestingly, tea party libertarians seem as willing as other libertarians to consider voting for a third party candidate Gary Johnson. Johnson wins 13 percent of tea party libertarians, if you add him to the candidate list.
  • Libertarian independents – among libertarians who also consider themselves “independent” (like the voters Matt Welch and Nick Gillespie profile in their book Declaration of Independents), 71 percent would vote for Romney, 23 percent Obama. Interestingly, among libertarian independents, Gary Johnson pulls a larger share away from Obama voters than Romney voters.
  • Self-identified libertarians – respondents who self-identify as “libertarian” are the smallest of these groups at only 4 percent of likely voters. Among self-identified libertarians, Romney would win 66 percent of the vote and Obama 32 percent. Perhaps not surprisingly, self-identified libertarians are most willing to consider voting for a Libertarian Party candidate, with 51 percent saying they’d vote for Johnson, if he is offered him as an option.

So who are the true libertarians? Take your pick!

My own perspective is that the libertarian brand seems broader and more self-aware today than ever before—and that’s a good thing. Ron Paul has certainly played a big role in this. It also may be that in confusing economic times, people are more open to the libertarian ideas long espoused by Cato, Reason, FreedomWorks, and other free-market organizations. In interviews at the grassroots level, Emily and I found more and more voters who act like libertarians, talk like libertarians, and reason like libertarians.

And who knows—as pollsters, strategists, and pundits pick up on the importance of the libertarian vote, more politicians may start to behave like libertarians.

————

*Note: One should be cautious when comparing such small subsets of voters, as the statistical margin of error increases, making comparisons problematic. For instance, Reason polled only 787 likely voters with a margin of error +/- 4%. Among the broadest 20 percent of libertarians, the margin of rate increases to +/- 7%. Among self-identified “libertarians,” who represent only 4 percent of likely voters, the margin of error increases to +/- 15%. For instance, given this large margin of error, we cannot say that Romney’s vote share among self-identified libertarians is statistically different than Romney’s vote share among libertarians more broadly. But among self-identified libertarians, the jump in support for Johnson is large enough to be statistically significant.

Topics: 
Government and Politics, Political Philosophy

Another UN Push for Global Taxation

By
Daniel J. Mitchell
But I guess I’m not very persuasive. The bureaucrats have just released a new report entitled, “In Search of New Development Finance.”
As you can probably guess, what they’re really searching for is more money for global redistribution.
But here’s the most worrisome part of their proposal: they want the UN to be in charge of collecting the taxes, sort of a permanent international bureaucracy entitlement.
I’ve written before about the UN’s desire for tax authority (on more than one occasion), but this new report is noteworthy for the size and scope of taxes that have been proposed.
Here’s the wish list of potential global taxes, pulled from page vi of the preface:

Below is some of what the report has to say about a few of the various tax options. We’ll start with the carbon tax, which I recently explained was a bad idea if it were to be imposed on Americans by politicians in Washington. It’s a horrible idea if imposed globally by the kleptocrats at the UN.

…a tax of $25 per ton of CO2 emitted by developed countries is expected to raise $250 billion per year in global tax revenues. Such a tax would be in addition to taxes already imposed at the national level, as many Governments (of developing as well as developed countries) already tax carbon emissions, in some cases explicitly, and in other cases, indirectly through taxes on specific fuels.

Notice that the tax would apply only to “developed countries,” so this scheme is best characterized as discriminatory taxation. If Obama is genuinely worried about jobs being “outsourced” to developing nations like China (as he implies in his recent attack on Romney), then he should announce his strong opposition to this potential tax.

But don’t hold your breath waiting for that to happen.

Next, here’s what the UN says about a financial transactions tax:

A small tax of half a “basis point” (0.005 per cent) on all trading in the four major currencies (the dollar, euro, yen and pound sterling) might yield an estimated $40 billion per year. …even a low tax rate would limit high-frequency trading to some extent. It would thus result in the earning of a “double dividend” by helping reduce currency volatility and raising revenue for development. While a higher rate would limit trading to a greater extent, this might be at the expense of revenue.

This is an issue that already has attracted my attention, and I also mentioned that it was a topic in my meeting with the European Union’s tax commissioner.

But rather than reiterate some of my concerns about taxing financial consumers, I want to give a bit of a compliment to the UN: the bureaucrats, by writing that “a higher rate … might be at the expense of revenue,” deserve credit for openly acknowledging the Laffer Curve.

By the way, this is an issue where both the United States and Canada have basically been on the right side, though the Obama administration blows hot and cold on the topic.

Now let’s turn to the worst idea in the UN report. Its authors want to steal wealth from rich people. But even more remarkable, they want us to think this won’t have any negative economic impact.

…the least distorting, most fair and most efficient tax is a “lump sum” payment, such as a levy on the accumulated wealth of the world’s richest individuals (assuming the wealthy could not evade the tax). In particular, it is estimated that in early 2012, there were 1,226 individuals in the world worth $1 billion or more, 425 of whom lived in the United States, 90 in other countries of the Americas, 315 in the Asia-Pacific region, 310 in Europe and 86 in Africa and the Middle East. Together, they owned $4.6 trillion in assets, for an average of $3.75 billion in wealth per person. A 1 percent tax on the wealth of these individuals would raise $46 billion in 2012.

I’ll be the first to admit that you can’t change people’s incentives to produce in the past. So if you steal wealth accumulated as the result of a lifetime of work, that kind of “lump sum” tax isn’t very “distorting.”

But here’s some news for the UN: rich people aren’t stupid (or at least their financial advisers aren’t stupid). So you might be able to engage in a one-time act of plunder, but it is naiveté to think that this would be a successful long-term source of revenue.

For more information, I addressed wealth taxes in this post, and the argument I was making applies to a global wealth tax just as much as it applies to a national wealth tax.

Now let’s conclude with a very important warning. Some people doubtlessly will dismiss the UN report as a preposterous wish list. In part, they’re right. There is virtually no likelihood of these bad policies getting implemented any time in the near future.

But UN bureaucrats have been relentless in their push for global taxation, and I’m worried they eventually will find a way to impose the first global tax. And if you’ll forgive me for mixing metaphors, once the camel’s nose is under the tent, it’s just a matter of time before the floodgates open.

The greatest threat is the World Health Organization’s scheme for a global tobacco tax. I wrote about this issue back in May, and it seems my concerns were very warranted. Those global bureaucrats recently unveiled a proposal—to be discussed at a conference in South Korea in November—that would look at schemes to harmonize tobacco taxes and/or impose global taxes.

Here’s some of what the Washington Free Beacon wrote:

The World Health Organization (WHO) is considering a global excise tax of up to 70 percent on cigarettes at an upcoming November conference, raising concerns among free market tax policy analysts about fiscal sovereignty and bureaucratic mission creep. In draft guidelines published this September, the WHO Framework Convention on Tobacco Control indicated it may put a cigarette tax on the table at its November conference in Seoul, Korea. …it is considering two proposals on cigarette taxes to present to member countries. The first would be an excise tax of up to 70 percent. …The second proposal is a tiered earmark on packs of cigarettes: 5 cents for high-income countries, 3 cents for middle-income countries, and 1 cent for low-income countries. WHO has estimated that such a tax in 43 selected high-/middle-/low-income countries would generate $5.46 billion in tax revenue. …Whichever option the WHO ends up backing, “they’re both two big, bad ideas,” said Daniel Mitchell, a senior tax policy fellow at the Cato Institute. …Critics also argue such a tax increase will not generate more revenue, but push more sales to the black market and counterfeit cigarette producers. “It’s already a huge problem,” Mitchell said. “In many countries, a substantial share of cigarettes are black market or counterfeit. They put it in a Marlboro packet, but it’s not a Marlboro cigarette. Obviously it’s a big thing for organized crime.” …The other concern is mission creep. Tobacco, Mitchell says, is easy to vilify, making it an attractive beachhead from which to launch future vice tax initiatives.

It’s my final comment that has me most worried. The politicians and bureaucrats are going after tobacco because it’s low-hanging fruit. They may not even care that their schemes will boost organized crime and may not raise much revenue.

They’re more concerned about establishing a precedent that international bureaucracies can impose global taxes.

I wrote the other day about whether Americans should escape to Canada, Australia, Chile, or some other nation when the entitlement crisis causes a Greek-style fiscal collapse.

But if the statists get the power to impose global taxes, then what choice will we have?

Topics: 
Finance, Banking & Monetary Policy, International Economics and Development, Political Philosophy, Tax and Budget Policy

The First Amendment and Zombies

By
Jason Kuznicki

I’m pretty much a free speech absolutist. I know that’s an epithet, but to me it’s kind of like being an arithmetic absolutist: There are right and wrong answers. Emotional attachment to the right answers might be kooky – but it sure beats being attached to the wrong ones.

In Slate, Eric Posner reminds us that the rest of the world doesn’t love the First Amendment. Even Americans weren’t always free speech absolutists, Posner notes; for much of our history, the state blithely ignored the First Amendment whenever it became inconvenient. American governments cheerfully arrested anarchists, communists, pacifists, and purveyors of birth control literature. They prosecuted publishers of works by James Joyce and William S. Burroughs.

It might be better, Posner suggests, if we went back to the good old days.

That’s what we call an argument from authority. Arguments from authority are like placeholders. They say, “Someone else made this argument for me.” As a result, an argument from authority can only ever be as good as the argument that the authority has actually made. It can’t be any better. If it’s a placeholder for a good argument, that’s sometimes allowed. If it’s trying to hide a bad argument, that’s a problem.

So what’s the real argument here? Posner is vague. He just says a whole lot of people have made one.

That’s true. But it’s also a tricky move on his part, because it’s hard for me, or for anyone, to refute all of the anti–free speech arguments that billions of different people have made all over the world during the last several centuries. To say nothing of the arguments that people might make in the future.

In cases like this, the burden of proof is on the person who wants to argue for a restriction in liberty: It’s what philosophers, notably Anthony de Jasay, refer to as the presumption of liberty.

Some arguments for restricting liberty might be plausible, even convincing. But if they are, then surely they can and should be made explicitly. Bear in mind that some liberty-restricting arguments are going to be fallacious, and we need to sort these out before we can act with any justification. Until we do, liberty is what we have to go on. Those who wish to restrict will need to meet the burden of proof.

Digging a little deeper, Posner offers what might be called half an argument:

A totem that is sacred to one religion can become an object of devotion in another, even as the two theologies vest it with different meanings. That is what happened with the First Amendment. In the last few decades, conservatives have discovered in its uncompromising text— “Congress shall make no law … abridging the freedom of speech”—support for their own causes. These include unregulated campaign speech, unregulated commercial speech, and limited government. Most of all, conservatives have invoked the First Amendment to oppose efforts to make everyone, in universities and elsewhere, speak “civilly” about women and minorities. I’m talking of course about the “political correctness” movement beginning in the 1980s, which often merged into attempts to enforce a leftist position on race relations and gender politics.

Let’s grant for the sake of discussion that the freedom of speech is just another totemic religion. (It’s absurd to say so, for reasons I’ll soon explain. But bear with me.) Granting Posner’s claim, I might very well ask: Why should my religion – the bare, unmitigated, absolute freedom of speech – yield to someone else’s religion, which has at best an equal (and not a greater) moral force? That is, even if we admit Posner to be correct, all we have is an irresolvable dilemma. In cases of irresolvable dilemma, the tie goes to my bliss. Why not?

But Posner does have a bit of a point here. Sometimes defending free speech is a little too easy. To get personal here: I’m a gay atheist who loves bacon, martinis, and compound interest. Hooray for capitalism! I also think women’s hair is awesome, and they should be able to wear it however they please. I’m not exactly going to be sympathetic to the Muslim religion, and if The Innocence of Muslims had any wit or cleverness about it, I’d be laughing my ass off. (Spoiler alert: It doesn’t.)

In other words, this particular film isn’t such a great test for me. A better one, both for me and for lots of others, might be the building of a mosque in downtown Manhattan, not far from the site of the World Trade Center. Or the protests of the Westboro Baptist Church. Or Slate publishing an odious article suggesting that we capitulate to violent thugs on the other side of the world.

Any of those might do. In each, I’ve got some serious disagreements with the message. And I support free expression anyway. If you do too, then congratulations. You’re probably a free speech absolutist.

But is free speech absolutism a religion? No. It’s not. It’s not even an ordinary aspect of public policy. It’s a meta-political commitment.

I’m sorry for the fancy term. Sometimes they’re actually helpful. Free speech is a thing that we do because we trust that, by doing it, we get better politics (and better religion, and better art, and better science, and…). The airing of different ideas, even of bad ideas, is not something that we hold as a revelation from God, or from the mystical Founders, or from the high authority of the Supreme Court in the era of Earl Warren. We support free speech because we believe it conduces to all sorts of other good things – including good public policy.

Posner has to deny that, and he does:

Suddenly, the disparagement of other people and their beliefs is not an unfortunate fact but a positive good. It contributes to the “marketplace of ideas,” as though we would seriously admit that Nazis or terrorist fanatics might turn out to be right after all. Salman Rushdie recently claimed that bad ideas, “like vampires … die in the sunlight” rather than persist in a glamorized underground existence. But bad ideas never die: They are zombies, not vampires. Bad ideas like fascism, Communism, and white supremacy have roamed the countryside of many an open society.

This is some weak argument. The point of free speech is not and has never been that Naziism is a “positive good.” That would be a bare self-contradiction, because Naziism entails censorship. Nor do we necessarily admit that Nazis can be talked out of their beliefs (although, on the margins, some certainly were).

We air odious beliefs so that each of us – who are not Nazis or otherwise fanatics – may learn to argue properly against them. Are they zombies? Yes! Do you remember how every single fantasy video game used to start with killing, like, a whole bunch of zombies? That’s political education in a free society. You kill zombies until you acquire the skills to do more interesting things.

Posner ends with a nod to the protesters in Cairo and Islamabad, whose grievances, he implies, must go beyond a stray YouTube video. What would we say to them?

In some cases, I would protest the very same things. Like them, I too am concerned about American drone strikes. I don’t like how they are changing international relations. I don’t like what they are doing to American civil liberties. I certainly don’t approve of killing innocent bystanders in Pakistan.

I protest these things. Peacefully. Can they peacefully protest as well? Overwhelmingly, the answer is yes. Well then. Come, let us reason together.

Topics: 
Law and Civil Liberties, Political Philosophy

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