Capitalizing on Big Government

By
David Boaz

The Securities and Exchange Commission is investigating “political intelligence” firms that promise to give investors advance word of what Congress and regulators may do next. A continuing Washington Post investigation reports:

Antonia Ferrier, a spokeswoman for [Sen. Orrin] Hatch, said the senator is aware that his staff participates in such events [as an investor phone call on Medicare and private insurers, organized by a Washington consulting firm] and that communicating with these types of groups is not unusual given the technical nature of the issues the committee handles.

“Staff members meet with stakeholders on every side of an issue as a means of better crafting policy solutions,” Ferrier said. “What information they share is the same information that Senator Hatch shares in an open and transparent way with his constituents. Senator Hatch has a zero-tolerance policy for anyone who would take advantage of privileged information, and he’s confident that no one on his staff has done that.”

This is just one more inevitable facet of the system we live under. As long as the federal government spends trillions of dollars, and reallocates more trillions through taxes and regulation, and issues bans and mandates on everything from contraception to local speed limits, you’re going to see a lot of money spent to control how those decisions are made. Which includes spending money to find out what the decisions will be, in order to make appropriate investment choices. 

I’ve been writing about this for years, apparently to no avail. I focused on why money flows to Washington way back in 1983 in the Wall Street Journal:

Business people know that you have to invest to make money. Businesses invest in factories, labor, research and development, marketing, and all the other processes that bring goods to consumers and, they hope, lead to profits. They also invest in political processes that may yield profits.

If more money can be made by investing in Washington than by drilling another oil well, money will be spent there.

Nobel laureate F.A. Hayek explained the process 40 years ago in his prophetic book The Road to Serfdom: “As the coercive power of the state will alone decide who is to have what, the only power worth having will be a share in the exercise of this directing power.”

As the size and power of government increase, we can expect more of society’s resources to be directed toward influencing government.

We can pass all the laws we want, launch insider training investigations – but as long as the federal government is acquiring and redistributing so much wealth, businesses and investors are going to go to great lengths to figure out where it’s going and how to get a piece of it.

Topics: 
Government and Politics

Huge Value-Added Tax Increases in Europe Show Why Washington Politicians Should Never Be Given a New Source of Tax Revenue

By
Daniel J. Mitchell

The most important, powerful, and relevant argument against the value-added tax in the short run is that we can balance the budget in just five years by capping spending so it grows at the rate of inflation, a very modest level of fiscal restraint.

The most important, powerful, and relevant argument against the value-added tax in the long run is that more than 100 percent of America’s long-term fiscal problem is too much spending.

So why even consider giving politicians a new source of revenue such as the VAT, particularly since this hidden form of national sales tax helped cause the European fiscal crisis by facilitating a bigger welfare state?*

And now Europeans are doubling down on that failed approach, thus confirming that politicians will rarely make necessary spending reforms if they think more revenue can be squeezed from taxpayers.

Here’s a chart taken from the recent European Commission report on taxation trends in the EU. As you can see, the average VAT rate in Europe has jumped by nearly 2 percentage points in just five years.

VAT EU Increase

As I explained last week, European politicians also have been increasing income tax rates, so taxpayers are getting punished when they earn their income and they’re getting punished when they spend their income.

Which helps to explain why much of Europe is suffering from economic stagnation. Given the perverse incentives created by redistributionist fiscal policy, it makes more sense to climb in the wagon of government dependency.

For more information, here’s my video that describes the VAT and explains why it’s a bad idea.

The Value Added Tax: A Hidden New Tax to Finance Much Bigger Government

*The same thing is now happening in Japan.

P.S. I don’t know if you’ll want to laugh or cry, but the tax-free bureaucrats at the Organization for Economic Cooperation and Development actually argue that the VAT is good for jobs and growth.

Topics: 
General, Government and Politics, International Economics and Development, Tax and Budget Policy

Pushed into Common Core? Thanks For Volunteering!

By
Neal McCluskey

If someone pushed you into a wall, would you turn around – after you regained consciousness, of course – and say, “it’s fine. I totally smashed my face voluntarily”? No, you  wouldn’t, but it seems Chester Finn, President of the Thomas B. Fordham Institute, would. After all, he just wrote the following about how state adoption of Common Core national curriculum standards has been “totally voluntary”:

This was—and remains—totally voluntary, but decisions grew more complicated when the Obama administration started pushing states toward such adoptions by jawboning, hectoring, and luring them with dollars and regulatory waivers.

Doesn’t sound truly voluntary at all, does it? And let’s not forget, taxpayers – who live in states – had no choice about sending their dollars to Washington in the first place.

Wait. I take that back. It was totally voluntary. They’d just go to jail if they refused to pay up.

Topics: 
Education and Child Policy

Prophets of the Communist Police State

By
David Boaz

In a review of five books on the Soviet police state, David Satter notes this prophetic volume:

Landmarks

By Nikolai Berdyaev, et. al (1909)

The year was 1909. Terrorists were murdering not only czarist ministers but provincial officials and police. It was in this atmosphere that “Landmarks” was published in Moscow. The contributors, all of them Russian Orthodox believers, called on the intelligentsia to reject materialist moral relativism and return to religion as a means of grounding the individual. Their essays, with stunning foresight, described all of the characteristics of the coming Soviet state. The religious philosopher Nikolai Berdyaev explained the roots of its contempt for the individual. He said that the revolutionary intelligentsia hungered for a universal theory but was only prepared to accept one that justified their social aspirations. This meant the denial of man’s absolute significance and the total subordination of spiritual values to social goals. Bogdan Kistyakovsky wrote that the intelligentsia’s predilection for formalism and bureaucracy and its faith in the omnipotence of rules were the makings of a police state. A hundred years later these essays are still among the best arguments ever made against revolutionary fanaticism, political “correctness” and the drive to create “heaven on earth.”

Sounds like a book I should have heard of before now. 

Topics: 
Law and Civil Liberties, Political Philosophy

Scoring Immigration Reform Correctly

By
Alex Nowrasteh

Word is our pro-free-market brethren at the Heritage Foundation will release a new study on the fiscal impact of immigration reform in time for the congressional debate. It will be an update to a 2007 study that played a key role in derailing immigration reform then.

While the 2007 study was influential, it was fatally flawed, as I detail here.  Hopefully Heritage’s updated version will correct for those criticisms and others, or else its analysis must be judged as lacking. 

The key flaw in Heritage’s 2007 study is its use of static fiscal scoring, rather than dynamic fiscal scoring, to evaluate that year’s immigration reform bill. “Scoring” a bill means predicting its impact on the U.S. budget in the future by estimating how it will affect future spending and tax revenue. A statically scored prediction assumes the bill will not affect the rest of the economy – which is highly unrealistic. 

A dynamically scored prediction, on the other hand, assumes that the bill will affect the rest of the economy, also changing tax revenue and government spending. Since increased immigration will increase the size of the economy, it will also increase tax revenue and some government spending. It’s important to factor those increases into any scoring model. Heritage’s 2007 study did not. 

The Congressional Budget Office (CBO) has adopted dynamic scoring for the coming immigration bill for reasons they explain here.  The best justification for using dynamic scoring comes from Ed Feulner, who only recently stepped down as head of the Heritage Foundation and retains an emeritus title there. He writes:

Indeed, some lawmakers are fighting a proposal that would require them to take real-world considerations into account. They prefer to keep ‘scoring’ each bill-estimating how it will affect the economy and the amount of taxes they take in-with the ‘static’ model used by the store owner’s friend. If, say, a 5 percent tax on something brings in $50 million, they assume a 10 percent tax will fetch $100 million.

Not surprisingly, this approach has caused lawmakers to come up with some wildly inaccurate assumptions over the years.

Feulner goes on to explain how numerous tax cuts actually produced more revenue despite static models predicting the opposite. 

Can you imagine any private business acting this way? Of course not. That’s why it’s time Congress switched to a method many business owners use-‘dynamic scoring’-which assumes that if you change the way you do business, customers will react in relatively predictable ways. Before they’ve hiked a price or changed a product, most companies have a pretty good idea of how many customers they’ll gain or lose.

Would ‘dynamic scoring’ always give lawmakers perfect estimates? No, but it surely would get much closer to the true cost than “static scoring” does. If doubts remain, put it to the test: Have Congress produce ‘static’ and ‘dynamic’ scores of various pieces of legislation for a few years and see which prove more accurate.

Using dynamic scoring to predict the effects of legislation is as relevant for immigration reform as it is for tax cuts. Allowing more legal immigration, and legalizing those here, will increase the number of workers and entrepreneurs in the U.S., necessarily growing the size of the economy. Capital accumulation and land improvements then catch up to the population growth. Those effects boost GDP, ergo tax revenue.

A common retort to the above is that many new immigrants will be low-skilled and, because of our progressive tax system, will not pay much in taxes.  Expanding the supply of laborers and entrepreneurs through immigration would increase profits, expand the production possibilities frontier, increase the return to capital, and raise incomes for most American workers who are complements.  Thus, even if most future immigrants are low-skilled—and they likely will be—their positive effect on the economy would increase tax revenues indirectly.   

Heritage’s former president supports dynamic scoring, and now so does the CBO, at least for immigration.  For the sake of an honest debate, I sure hope Heritage’s upcoming report does too.

Topics: 
General, Government and Politics, Trade and Immigration

Ricin Suspect Used His Home to Elude Police

By
Tim Lynch

An interesting report from the Washington Post:

Dutschke went into hiding on Thursday to escape the media attention. The FBI and local law enforcement officials spent five hours hunting for him before his attorney revealed her client’s location.

Evidently, the attorney directed the police to her client’s home address.

James Everett Dutschke, 41, was taken into custody about 12:50 a.m. Saturday at his home in Tupelo, Miss., the FBI said.

According to the story, that’s the very same house the police searched earlier in the week. Note also the number of law enforcement agencies that were on the case:

Among the government agencies that joined the FBI in the investigation were the Secret Service, the U.S. Postal Inspection Service, the Capitol Police, the counterterrorism section of the Justice Department’s national security division, the Mississippi National Guard, the Mississippi Office of Homeland Security and multiple county and city law enforcement units.

And they needed the attorney’s help to discover Dutschke at his home?  As Glenn Reynolds likes to say (in jest), “we’re in the very best hands.”

Policymakers might just want to take stuff like this into account when the agencies say their budgets can’t be cut and that their surveillance powers must be “enhanced.”

Topics: 
Law and Civil Liberties

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