Topic: Political Philosophy

Know Your Libertarian History: The Great Tax Revolt of the 1970s

One of the great libertarian victories of the past few decades was the tax revolt of the late 1970s and early 1980s. The inflation of the 1970s caused higher property taxes and income tax bracket creep, which led to California’s Proposition 13, the Kemp-Roth tax cut bill, the election of Ronald Reagan in 1980, the 1981 tax cut, the deceleration of government spending, the further lowering of marginal rates in 1986—and a long period during which economic growth exceeded government growth.

This story isn’t told often in history books and popular media. Even with the boom in histories of modern conservatism, which in many instances focuses on the reaction to socialism and the welfare state, there is rarely a sense of the important arguments that free-market advocates were making. That’s why it’s important to have historians who understand economics and appreciate the value of limited government. One such historian is Brian Domitrovic, author of Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.

In the latest issue of Cato Policy Report, the Cato Institute’s newsletter for Sponsors and friends, Domitrovic has a lead article titled “Tax Revolt! It’s Time to Learn from Past Success,” where he tells the story outlined above. If you get discouraged about the possibility of positive change, you should read it. Or read it if you just want to know more about the history of movements for limited government.

Also in the January-February Cato Policy Report: my editorial on Pope Francis, Nelson Mandela, and the longing for Utopia; leading scholars and policymakers on a century of central banking; and reports on NSA surveillance, jury nullification, and Cato’s recent policy studies.

Note that if you were a Cato Sponsor, you would get articles like this in your mailbox every month, along with the satisfaction of supporting the work of the Cato Institute. Become a Sponsor now!

For Europe’s Youth, Minimum Wages Mean Minimal Employment

Yesterday, in the wake of Tuesday’s State of the Union address, I poured cold water on President Obama’s claim that a hike in the minimum wage for federal contract workers would benefit the United States’ economy, pointing specifically to unemployment rates in the European Union. The data never lie: EU countries with minimum wage laws suffer higher rates of unemployment than those that do not mandate minimum wages. This point is even more pronounced when we look at rates of unemployment among the EU’s youth – defined as those younger than 25 years of age.

In the twenty-one EU countries where there are minimum wage laws, 27.7% of the youth demographic – more than one in four young adults – was unemployed in 2012. This is considerably higher than the youth unemployment rate in the seven EU countries without minimum wage laws – 19.5% in 2012 – a gap that has only widened since the Lehman Brothers collapse in 2008.

I will conclude yet again with a piece of wisdom from Nobelist Milton Friedman, who correctly noted that “the minimum wage law is most properly described as a law saying employers must discriminate against people who have low skills. That’s what the law says.

The Freedom’s the Thing

We are in the midst of National School Choice Week, and much of the talk is about test scores, helping poor children access better schools, getting more bang for our bucks, and lots of other, very worthy, important things. But something often seems to get lost in the shuffle not just of School Choice Week, but the overall choice and education debate: freedom. The most fundamental American value is liberty – individual freedom – and not only is an education system rooted in free choice the only system consistent with a free society, it is key to peaceful coexistence among the nations’ hugely diverse people.

That only an education system rooted in free choice is consistent with a free society should be self-evident. Should be, but isn’t, with “social reproduction” – shaping the young to conform with and perpetuate present society – thought by many to be a primary purpose of education, and one which must be controlled by government. As long as a “democratic” process is employed – often poorly defined as some sort of vague, deliberative/majoritarian system – then all is well.

Cato Scholars Respond to the 2014 State of the Union

Cato Institute scholars Alex Nowrasteh, Aaron Ross Powell, Trevor Burrus, Benjamin H. Friedman, Simon Lester, Neal McCluskey, Mark Calabria, Dan Mitchell, Justin Logan, Patrick J. Michaels, Walter Olson and Jim Harper respond to President Obama’s 2014 State of the Union Address.

Video produced by Caleb O. Brown, Austin Bragg and Lester Romero.

The State of the Union Is…Irrelevant

Kevin Williamson has your red-meat, small-r republican rant on the State of the Union over at NR. He’s right that the once-modest Annual Message has become as bloated and ridiculous as the presidency itself.   

Like Williamson, I used to fume and fume about our latter-day Speech from the Throne, but lately I’m no longer sure it’s worth the bother. For the speech to be worth getting worked up about, somebody would have to be listening. But as I point out in the Washington Examiner today, the polling and poli sci evidence suggest that POTUS is basically howling into the void: 

“There is overwhelming evidence that presidents, even ‘great communicators,’ rarely move the public in their direction,” writes George C. Edwards III, a presidential scholar at Texas A&M University. “Going public does not work.” In a 2013 analysis of SOTU polling, Gallup found that “most presidents have shown an average decrease in approval of one or more points between the last poll conducted before the State of the Union and the first one conducted afterward.”

(For more on that point, see Table 2.2 from Edwards’s book On Deaf Ears: The Limits of the Bully Pulpit or this review of the evidence by Ezra Klein) 

Nor does the president usually fare any better trying to use the SOTU to bend Congress to his will. As this Associated Press analysis puts it, the speech is “high volume, low yield” in terms of generating legislative action.  Contra TR, the bully pulpit isn’t so “bully.” 

None of that is to deny that the modern president has powers vastly greater than he was ever intended to have—or than one man should ever have. The danger isn’t his “power to persuade”: it’s what he can get away with under the “living Constitution” version of Article II: waging war worldwide, reshaping the law through “royal dispensations,”  taking care that his secret laws are faithfully executed. What he does matters; what he says in this stage-managed spectacle is the least of our worries. 

Many of us at Cato will watch and read the speech tonight because it’s sort of our job. If the spirit moves you, follow along on Twitter, hashtag #CatoSOTU. Otherwise, it seems to me that the late Justice Rehnquist had the right attitude

When asked why [he planned to skip the SOTU], he explained that it conflicted with a watercolor class at the YMCA. An incredulous law clerk said, “You can’t miss the State of Union Address for a watercolor class.” Rehnquist responded that he had spent $25 to enroll in the class, and he was going to get every benefit out of it.

 

A Primer on State of the Union Economics

Until recently, President Obama’s December 4 “Remarks on Economic Mobility” were thought to preview his State of the Union address by defining “dangerous and growing inequality and lack of upward mobility” as “the defining challenge of our time.”  

That downbeat and divisive theme polled badly. As a result, the President is expected to recast the same story as “ladders to economic opportunity” (which is just another way of describing upward mobility). Obama’s passionately misinformed perceptions about rising inequality and falling mobility, however, are surely unchanged.

In his December 4 address, the President could find no official statistics to support his overblown claims about “growing inequality.” The Census Bureau and Congressional Budget Office report that the top 20 percent earns about half of all income. The CBO finds the top 20 percent received an average of 47.6 percent of all after-tax income since 1983, and roughly the same percentage (48.1) in 2010 and 2011. Yet the President insisted on claiming, “The top 10 percent [not the top 20 percent] no longer takes in one-third of our income – it now takes half.”

Unless the President thinks all affluent people are thieves, the top 10 percent never “take” any fraction of “our” income. On the contrary, they earn 100 percent of their own income.

Eschewing all official data, President Obama relied instead on estimates of pretax, pre-transfer income (which are clearly irrelevant to issues concerning taxes or transfers) from Thomas Piketty and Emmanuel Saez. Among many other problems with these figures, documented in my recent paper, growth in top incomes is exaggerated by including a rising share of business income formerly reported on corporate returns, and also by counting realized capital gains as income (in fact, selling assets does not make anyone richer). Lower incomes, by contrast, are grossly understated by completely excluding the huge and rising share of income from government transfer payments, now approaching $3 trillion a year.

“The combined trends of increased inequality and decreasing mobility,” said President Obama, “pose a fundamental threat to the American Dream, our way of life, and what we stand for.” As the title of his talk suggested, Obama was primarily focusing on decreasing mobility (since repackaged as decreasing opportunity), not increasing inequality per se. As he put it, “the problem is that alongside increased inequality, we’ve seen diminished levels of upward mobility in recent years.”

Two major studies by U.S. Berkeley’s Emmanuel Saez, Harvard’s Raj Chetty and others, find the President entirely wrong about diminished mobility. Their newest paper shows that, “children entering the labor market today have the same chances of moving up in the income distribution relative to their parents as children born in the 1970s.” Moreover, a narrowing “gap in college attendance between children from the lowest- and highest- income families… suggests that mobility in the U.S. may be improving.” The authors conclude that, “if one defines mobility based on relative positions in the income distribution – e.g., a child’s prospects of rising from the bottom to the top quintile – then intergenerational mobility has remained unchanged in recent decades. If instead one defines mobility based on the probability that a child from a low-income family (e.g., the bottom 20%) reaches a fixed upper income threshold (e.g., $100,000), then mobility has increased…” As for the President’s rhetorical effort to link top income shares with declining mobility, the authors find “little or no correlation between mobility and… top 1% income shares – both across countries and across areas within the U.S.” The biggest actual barrier to upward mobility, in fact, turns out to be single parenthood.

President Obama’s revealing December 4 lecture relied on irrelevant pretax, pre-transfer estimates to assert that the top 10 percent have been “taking” half of “our” income, and he used no evidence whatsoever to assert that upward mobility has been declining.

The defining challenge of our time may be to discover ways to stop politicians from using made-up numbers to excuse destructive and demoralizing economic policies.

Meet the Kronies!

If you want to get something done (or, just as often, not done) in Washington, you might just need … the Kronies.

Take, for example, Kaptain Korn:

Kaptain Korn is a mutant hero who can change shape at will. One minute he’s coating your corn flakes; another minute he’s bootleg liquor in your gas tank. Though he’s powerless without G-force, subsidies and mandates give Kaptain Korn the muscle he needs to push puny third world back down into the dust. Kaptain Korn ensures jokes stay corny, rears stay flabby and engines run less efficiently.

If you want to help defeat the Kronies, you might want to take a look at Cato’s DownsizingGovernment.org. Learn more from our video series on how to downsize specific departments (all videos will play below):