Topic: Tax and Budget Policy

My 56-Word Review of SiCKO

SiCKO was a very funny film, and I praise Michael Moore for starting the conversation and pointing out many horrors of the U.S. health care system. 

But from a policy standpoint – and I say this more in sadness than in anger – SiCKO was so breathtaking a specimen of ignorant propaganda that it would make Pravda blush.

Oppressed Canadians Finally Reach Tax Freedom Day

American taxpayers worked until April 30 before they earned enough money to satisfy the rapacious demands of federal, state and local tax collectors. This is discouraging, but Americans should be grateful that they don’t live in Canada. The Fraser Institute has revealed that the average Canadian worked until June 20 before quenching the appetites of the political class. Taxpayers in Newfoundland and Labrador are still working as serfs for government. Their tax freedom day won’t arrive until July 1:

Starting tomorrow, Canadians have paid off the total tax bill imposed on them by government and can finally start working for themselves, according to The Fraser Institute’s annual Tax Freedom Day calculations. “If you look at the average Canadian family’s total tax bill, each and every dollar they earn before June 20 would be required to pay the taxes owing to all levels of government. It takes until June 20 before they begin earning money for themselves,” said Niels Veldhuis, The Fraser Institute’s Director of the Centre for Tax Studies. …This year Tax Freedom Day falls four days earlier than in 2006. The latest Tax Freedom Day in Canadian history was in 2000, when it fell on June 25. Tax Freedom Day moved forward to June 17 in 2001 before steadily retreating to June 24 in 2005 and 2006. “Even with the recent improvements, Tax Freedom day still falls almost two months later than in 1961, the earliest year for which we have calculations,” Veldhuis said. …Tax Freedom Day varies from province to province, depending on the taxation levels of each provincial government. Alberta enjoys the earliest Tax Freedom Day on June 1, followed by New Brunswick and Prince Edward Island (June 14), BC and Manitoba (June 16), Ontario and Nova Scotia (June 19), and Saskatchewan (June 22). Quebec has the second-latest Tax Freedom Day, on June 26, while Newfoundland and Labrador wait the longest, until July 1.

Google Gets Sucked into the Parasite Economy

The Washington Post reports that Google “does not intend to repeat the mistake that its rival Microsoft made a decade ago.”

Microsoft was so disdainful of the federal government back then that it had almost no presence in Washington. Largely because of that neglect, the company was blindsided by a government antitrust lawsuit that cost it dearly.

Mindful of that history, Google is rapidly building a substantial presence in Washington and using that firepower against Microsoft, among others.

This story just keeps repeating itself. People build companies, and then activists, competitors, and politicians notice that they have deep pockets. It happened to Microsoft, then to Wal-Mart.  When the parasite economy first started lapping at Google last year, I wrote this:

Founders Larry Page and Sergey Brin and many other wealthy officers of the company got rich the only way you can in a free market: by producing something other people want. A lot of brilliant people worked long hours producing computer software that hundreds of millions of people chose to use, in the midst of a highly competitive market that offered lots of other options.

But in our modern politicized economy – which National Journal columnist Jonathan Rauch called the “parasite economy” – no good deed goes unpunished for long. Some people want to declare Google a public utility that must be regulated in the public interest, perhaps by a federal Office of Search Engines. The Bush administration wants Google to turn over a million random Web addresses and records of all Google searches from a one-week period. Congress is investigating how the company deals with the Chinese government’s demands for censorship of search results by Chinese users.

So, like Microsoft and other companies before it, Google has decided it will have to start playing the Washington game. It has opened a Washington office and hired well-connected lobbyists. One of the country’s top executive search firms is looking for a political director for the company.

What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, anti-business activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks. Now Microsoft is part of the Washington establishment, with more than $9 million in lobbying expenditures last year.

Google has become a brilliantly useful company. We can’t imagine how we got along without it. I can’t even imagine how I got along without Google Desktop. Some of us appreciate that; others believe that becoming indispensable imposes obligations on a company. Google has started to find out how it feels to be the most flagrantly successful company in America.

Alas, Google seems to have taken to Washington all too enthusiastically. As the Post notes,

In its first major policy assault on a competitor, Google’s Washington office helped write an antitrust complaint to the Justice Department and other government authorities asserting that Microsoft’s new Vista operating system discriminates against Google software. Last night, under a compromise with federal and state regulators, Microsoft agreed to make changes to Vista’s operations.

So Google’s brilliant staff are now spending some of their intellect thinking up ways to sic the government on Microsoft, which is once again forced to give consumers a less useful product in order to stave off further regulation. The Post’s previous story on Google’s complaint called it ”allegations by Google that Microsoft’s new operating system unfairly disadvantages competitors.”

Bingo! That’s what antitrust law is really about–not protecting consumers, or protecting competition, but protecting competitors. Competitors should go produce a better product in the marketplace, but antitrust law sometimes gives them an easier option–asking the government to hobble their more successful competitor.

Recall the famous decision of Judge Learned Hand in the 1945 Alcoa antitrust decision. Alcoa, he wrote, “insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connection and the elite of personnel.” In other words, Alcoa’s very skill at meeting consumers’ needs was the rope with which it was hanged.

I look forward to more competition between Microsoft and Google–and the next innovative company–to bring more useful products to market. But I’m saddened to realize that the most important factor in America’s economic future – in raising everyone’s standard of living – is not land, or money, or computers; it’s human talent. And some part of the human talent at another of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own. The parasite economy has sucked in another productive enterprise, and we’ll all be poorer for it.

Farm Subsidies: All You Need to Know

As Congress considers a new farm bill in coming weeks, Cato has launched a web resource, Downsizing the U.S. Department of Agriculture, which offers a menu of cuts to shrink the department’s $89 billion budget by 90 percent.

A nice complement to the Cato pages is an updated farm subsidy database from the Environmental Working Group.

Go to Cato to understand why farm subsidies are bad economics. Go to EWG to find out exactly how much millionaire “farmers” such as Edgar Bronfman and David Rockefeller are receiving.

In winning the House last year, the Democrats portrayed themselves as reformers willing to take on wealthy special interests for the benefit of average families. With the farm bill, they have a chance to prove it by making cuts to subsidies that are strongly supported by both liberal and conservative policy experts. 

The Suburban Spending Machine

A few weeks ago I noted that the $3.3 billion county budget in one of Washington’s wealthy suburbs, Fairfax County, had a bit of fat in it, such as manners classes for kids. This weekend the Washington Post reported that ”a $2 million [swimming pool] renovation [in neighboring Arlington County], dedicated yesterday, is part of the Northern Virginia Regional Park Authority’s effort to woo residents from the increasing number of pools run by homeowners associations, officials said.”

Maybe if the private sector is providing a service, taxpayers could be relieved of that burden. If the argument is that government-run pools are intended to serve poor children who don’t have access to private pools, we could debate that policy. But the Post article makes clear that Northern Virginia government officials see themselves as competing in a “market” to attract customers from the pools provided by homeowners associations. And that seems a strikingly inappropriate mission for government.

Government Spending Matters, not Deficits

Investor’s Business Daily correctly explains that government borrowing is not a problem. The deficit is small as a share of GDP, and is expected to stay low for several years. The real problem is government spending. Whether that spending is financed by taxes or borrowing, it causes a misallocation of labor and capital, particularly since most government outlays are for consumption and transfer expenditures rather than core public goods such as maintaining the rule-of-law. The editorial also warns that some deficit alarmists have a not-so-hidden agenda of higher taxes:

It’s fashionable these days, for Democrats and even some Republicans to style themselves as “fiscal conservative” to advocate the end of government red ink. Some of them mean well, to be sure. Certainly, no one wants to see a budget deficit forever — or one that expands to a point that it impairs our government’s ability to function. But we’re so far from that right now it’s easy to think those who push for the immediate elimination of the deficit have another agenda entirely. …Last year, the deficit hit $248 billion. Sounds like a lot, but in a $13.6 trillion economy, it’s not. It’s the equivalent of a $900 dollar credit card charge for someone with a $50,000 income. As a share of GDP, the budget deficit last year was 1.9%. That’s down from 3.6% in 2004 and below the long-term average of 2.5%. This year, says the CBO, the deficit will be about $177 billion, or 1.3% of GDP. …For those who argue the deficit is such a bad thing that we need to raise taxes to get rid of it, this too is wrong. As Nobel-winning economist Edward Prescott has noted, workers are highly sensitive to tax rates. They work and earn more when rates fall, less when they rise. It’s common sense.

Squelching Dissent

The New York Times has compiled a mammoth list of federal subsidies (or “earmarks”) to thousands of religious organizations.

Public discussions of such giveaways usually revolve around the First Amendment and also the possible damage that subsidies do to the strength, diversity, and integrity of  religious institutions themselves.

As a fiscal wonk, a bigger concern for me is that the flow of federal money to thousands of otherwise independent organizations squelches sources of dissent for government policies.

Let’s say you belong to the Jewish Council for Public Affairs, the Salvation Army, the Ebenezer Baptist Church in Atlanta, the Presbyterian Church in Louisville, Kentucky, or any of the other groups on the NYT list. Will you not be more hesitant to speak out about the War in Iraq, the immigration bill, civil liberties issues, or other policies because you don’t want to put your group’s federal funding put in jeopardy? Won’t you learn to take a more favorable view of big government over time as your group gets used to the steady stream of “free” money from Washington? 

I think earmarks such as ”$100,000 to the National Museum of American Jewish History, Philadelphia” are outrageous. Religious orders aren’t even responsible for their own history anymore? In my view, Jewish leaders ought to be ashamed of themselves for grabbing taxpayer money for such a project.

For more on earmarks, faith-based giveaways, and federalism, see http://www.cato.org/pub_display.php?pub_id=8246