Topic: Tax and Budget Policy

Happy Birthday, Milton

Today is the 95th anniversary of the late Milton Friedman’s birth, and I’ll be celebrating his contribution to the school choice movement this evening in a presentation at the Evergreen Freedom Foundation in Washington state (to be available via live web-cast).

Here are some opening thoughts I have for that presentation:

In the spring of 1998, I was wrapping up four years of work on my book “Market Education: the Unknown History.” The publisher asked me come up with a list of prominent people who might be willing to write blurbs for the jacket, and so I sat down and mulled over the possibilities. The first name that came to mind was Milton Friedman.

I’d read Dr. Friedman’s 1954 essay on “the Role of Government in Education” and been deeply impressed by it. Of course, I didn’t seriously think that he would have the time to read a hefty manuscript by an author he’d never heard of, but, I thought, what’s the harm in trying?

In what still seems to me a minor miracle, Dr. Friedman decided to give the manuscript a read, and in doing so helped to launch my career in education policy. In fact, just weeks after I had contacted him, and before I knew what he thought of the book, I received a last-minute invitation to share the stage with him, along with his wife Rose and economist and columnist Thomas Sowell, at the gala launch event of the Milton and Rose Friedman foundation in San Francisco. Of course I was incredibly excited, not to mention moderately terrified, at the prospect.

Just as we were about to walk onto the stage at that event, Dr. Friedman leaned close to me and whispered “It’s a fine book,” but then added in a somber tone, “except where you run-down vouchers in Chapter 10.” He looked at me earnestly for a moment, and my heart nearly stopped. For a second I thought that my as-yet-unreleased manuscript was about to be carved up by a Nobel laureate economist in front of a live audience of several hundred people. Then he smiled and added, “but we can talk about that later.” And so we did, on and off, until his passing late last year.

Dr. Friedman was always quick to say that he was a monetary economist by profession, and that his interest in school choice was more avocation than vocation. But though he wrote only a few non-technical works in the field of education, he was a seminal force behind the modern American school choice movement.

To understand his impact on this field, you have to go back to the early 1950s. At that time, even more so than today, advocacy of limited government and individual liberty had been outside the philosophical mainstream. Not just outside it. Not just on the shore looking into the mainstream. But buried in the bushes entirely out of view of it.

Milton wrote of this period that “Those of us who were deeply concerned about the danger to freedom and prosperity from the growth of government, from the triumph of welfare-state and Keynesian ideas, were a small beleaguered minority regarded as eccentrics by the great majority of our fellow intellectuals.”

Consider that barely 20 years before Milton wrote his essay on “the Role of Government in Education,” the National Education Association had declared that the time had come for, quote, “the frank acceptance of the collective economy.” Not only did early 20th century education philosophers oppose the privatization of their own industry, they advocated nationalizing most of the others.

It was into this intellectual milieu that Milton ventured his modest suggestion: that the goals and ideals of “public education” would be best fulfilled though the private sector, with the government intervening, only if and as necessary, to ensure universal access to the independent educational marketplace.

Milton has passed, but that modest suggestion has become an international movement backed by an ever growing body of interdisciplinary empirical evidence.

Thank you, Milton, and happy birthday.

State Debt Cracks $2 Trillion

New Federal Reserve data show that state and local government debt has topped $2 trillion. At the end of first quarter 2007, state and local debt was $2.050 trillion, which is up 9.6 percent from first quarter 2006.

State and local debt growth has been explosive since 2001. In Table D.1 (see link), you can see that debt growth has soared in recent years, compared to the more moderate growth rates on the 1990s.

This is disturbing because current strong tax revenue growth in the states should be allowing governments to pay down debt in a prudent fashion before the next recession hits.

In Table D.3, you can see that state and local debt increased just 21 percent for the entire decade 1990-2000. Yet between 2000 and 2006, debt soared 68 percent.

For further discussion, see   

http://www.cato.org/pubs/tbb/tbb_0706-37.pdf

Bulgaria Announces 10 Percent Flat Tax

According to Bulgarian news sources, the coalition government in Bulgaria has agreed to implement a low-rate flat tax starting next January. This is good news for Bulgaria, but also good news for the rest of Europe since it means further pressure for tax-rate reductions and tax reforms. The global flat tax revolution is picking up so much steam that the time has come to propose a theme song. I realize I’m showing my age, but Another One Bites the Dust seems appropriate. Perhaps the song could be piped into the European Commission and the Organization for Economic Cooperation and Development, adding to their angst about the market-based reforms sweeping the world?

At an operative cabinet meeting Sunday attended by the top brass from the three parties it was decided to retire the current three-bracket personal income tax rate system and replace it with a flat rate of 10%. …The government also decided on a 10% pension increase from October 2007, enabled by a 20% budget revenue overperformance by end-July, and a 3% cut in the social security burden.

House Farm Bill: “A Major Achievement?”

On Friday, the Democratically controlled U.S. House of Representatives passed a massive new farm bill. In a front page story on Saturday, the Washington Post reported:

The House yesterday passed a far-reaching new farm bill that preserves the existing system of subsidies for commercial farmers and adds billions of dollars for conservation, nutrition and new agricultural sectors.

Passage of the 741-page bill by a vote of 231 to 191, after partisan battling unusual for farm legislation, was a major achievement for the new Democratic leadership.

“A major achievement?” It says a lot about the political culture in our nation’s capital that passing a bill that basically continues more than 80 years of failed farm policy with minimal reforms is considered a major achievement.

In Washington, achievement is measured by how much legislation is passed and how much money is spent, not by whether the nation’s interests are advanced. For reasons we have outlined in great detail at Cato, the policies contained in the House farm bill benefit a small number of farmers at the expense of the vast majority of Americans.

Some achievement.

Parliament of Windbags

Let me add to Sallie’s observations on the House farm bill battle.

I watched the action on CSPAN over the pro-reform Kind/Flake amendment and was really struck by the arrogance of the anti-reform members. They repeatedly said essentially: “How dare members like Flake criticize the hard work of the Agriculture Committee — he’s not on the committee, he’s not a farmer, and so what does he know about farming!”

The anti-reform members also trotted out the ”downtrodden small farmer” rhetoric, despite the frequent reminders from the reformers that the vast share of subsidies go to the largest and wealthiest farms.

And for any voters who still think that the GOP is the party of spending restraint, note that on the vote for the Kind/Flake amendment, 32% of Democrats favored reform while only 23% of Republicans did.

Parliament of Whores, Indeed

Those hoping for reform of the outdated and economically damaging farm bill have cause for disappointment today, after the House defeated, by a margin of three votes to one, an amendment that represented some hope for change. (The roll call can be viewed here). That amendment, whilst by no means close to sufficient reform, included important changes to income eligibility requirements and payment limits for subsidies, and would have closed a loophole allowing producers to manipulate the marketing loan program.

Unscathed passage of the House Agriculture Committee’s bill (see my colleague Dan Griswold’s brief criticism of the House bill here) looked in doubt just a few days ago, but House majority leaders managed to sway Rep. Jim McGovern (D., MA), originally in the reform camp, to vote for the farm bill by promising about $840 million to his pet cause, overseas food aid. The Congressional Black Caucus agreed to support the farm bill after a promise to spend $1.1 million on settling racial discrimination claims from the 1990s.

As if the House proposal for the “new” farm bill wasn’t insult enough for the taxpayer and consumer, the proposal for funding some of the largesse is beyond the pale. The $4 billion increase in food stamps and nutrition programs, which could presumably be paid for by cutting the subsidies to farmers of chosen crops, will instead be financed by taxing “inshoring” companies — U.S.-based subsidiaries of foreign companies who employ American workers.

For a Congress supposedly concerned that international trade is threatening American jobs, taxing employment of American workers seems perverse — not to mention violative of tax treaties. Business groups and Treasury Secretary Henry Paulson have expressed their deep dissatisfaction with the tax increase. Some Republicans, including the ranking member on the House Agriculture Committee Robert Goodlatte (Va.), have indicated they would vote against the farm bill (up for a final vote today) because of the tax increase. I’ll believe that when I see it.

On a more positive note, the proposed tax increase has led the administration to issue a veto threat, albeit of the less-than-clear “his senior advisers will recommend that the president veto this bill” variety.