Who Is This Crazy Supply-Sider?

“Supply-side” economics is the simple notion that tax rates affect growth. One of the key observations made by supply-siders is that policy makers should pay close attention to the relationship between tax rates, taxable income, and tax revenue - particularly since higher tax rates can reduce incentives to earn and report taxable income, which therefore means there is not a linear relationship between tax rates and tax revenue. There is even a “Laffer Curve” which shows that excessive tax rates can lead to less revenue, though the main use of the Curve is to show that higher tax rates will collect more money, but not as much as predicted by the simplistic models used by revenue estimators.

The beltway establishment routinely sneers at supply-side analysis, in part because some Republicans overstate the argument by claiming that every tax cut (even useless gimmicks such as rebates and credits) will generate more revenue. Properly understood, however, the Laffer Curve is a very useful tool for steering tax policy in the right direction - i.e., lower tax rates and reductions in the tax bias against saving and investment. Interestingly, there was a prominent Democrat who understood the Laffer Curve, and he gave a speech about it years before Art Laffer came on the scene and popularized the concept. Can you imagine Senator Obama giving this speech?

To be sure, based on a scientific poll of my children, President Kennedy clearly does not have the charisma and charm of the person in this video, but he clearly understands that there is a relationship between tax rates, taxable income, and tax revenue. And while a bit of Keynesianism is detectable (the discredited notion that tax cuts boost the economy by putting money in people’s pockets, which somehow overlooks the fact that government only gets the money to put in people’s pockets by first taking it out of their pockets), it is worth noting that Kennedy’s proposal was a pure supply-side mix of permanent tax-rate reductions.

What Do You Call the Ring in a Bull’s Nose? Perhaps “KST”?

While the country moves forward with increasing confidence in its ability to meet the security challenges posed by terrorism, the administration seems still utterly, utterly spellbound.

Take, for example, National Security Presidential Directive 59/Homeland Security Presidential Directive 24. Issued June 5th, it (take a breath … wait for it …) “establishes a framework to ensure that Federal executive departments and agencies … use mutually compatible methods and procedures in the collection, storage, use, analysis, and sharing of biometric and associated biographic and contextual information of individuals … .”

That means, roughly, “Let’s get our act together on biometrics and biometric surveillance, people!”

The directive uses a set of initials I hadn’t come across before: “KST.” This stands for “known and suspected terrorists.” As in, we’re going to “collect, store, use, analyze, and share biometrics to identify and screen KSTs and other persons who may pose a threat to national security.”

Now, to be clear, there are terrorists, and there may be some in the country - terrorist precursors, perhaps. But I don’t think there are enough of them, or enough danger from them, to merit awarding them their own initials. Even in acronym- and initial-happy Washington, D.C., these things are reserved for things of greater significance.

This reveals the thrall in which the administration is still held by terrorism. “We’re not up against a few small bands of sociopathic ideologues. No, we’re up against a movement with all the power of our ‘FBI’, ‘CIA’, ‘DoD’, and ‘DoJ’.”

I’ve posted here before about terrorism as a strategy, suggesting certain counter-strategic behaviors. Terrorists gain by drawing attention to themselves, wrapping themselves in the romance of rebellion, and being seen as legitimate rivals to their enemies. By dubbing the threat “KST,” the administration grants terrorists that legitimacy. It tells audiences ideologically and physically near terrorists that we’re still scared, which does terrorists a tremendous favor. (I, for one, am not scared; I’m embarrassed.)

On the merits, biometrics are occasionally necessary, but essentially impotent against the well-known technique of using “clean-skin” terrorists (see, e.g., 9/11, Oklahoma City). The NSPD/HSPD doesn’t appear to have a lot of substance other than to promote more ferment and federal spending on biometric surveillance technology.

Political Brouhaha

InBev, a giant Belgian beer conglomerate, has made a bid to purchase Anheuser-Busch, the brewer of popular beers like Budweiser, Bud Light, and Michelob – not to mention lesser-known, though equally-delicious beverages such as Bud Dry, Busch Ice, Hurricane High Gravity, and King Cobra.

Anheuser-Busch is of course, headquartered in St. Louis.  So it should come as no surprise that Missouri politicians have sprung into action to block the deal.

Senator Claire McCaskill is “nervous” and “upset” and plans on contacting the board of director’s at Anheuser-Busch to urge them to stop the deal.  Governor Matt Blunt finds the deal “deeply troubling” and is frantically searching for a state law that would allow him to intervene.

Senator Kit Bond has honed in on a specific set of laws that he believes should be used to block the deal. In a letter to U.S. Attorney General Mukasey and Federal Trade Commission Chairman Kovacic he claims:

The proposed foreign acquisition of Anheuser-Busch is troubling to me because it potentially raises antitrust issues under existing law by putting a significant market share of the U.S. in the hands of fewer competitors.  I urge you to scrutinize closely InBev’s proposed acquisition of Anheuser-Busch to protect the interests of American consumers and the
U.S. economy.

This is yet another case of government officials trying to meddle in the free market to protect parochial interests. Thankfully, early indications suggest that despite the pleadings of Missouri’s elected officials, the federal government will not intervene in the possible deal. 

The political uproar should serve as a reminder of why Congress should repeal antitrust laws altogether. As the Cato Handbook on Policy explains:

More than two centuries ago, in the Wealth of Nations, Adam Smith observed that ‘‘people of the same trade seldom meet together … but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.’’ Coming from the father of laissez faire, that warning has been cited ad nauseam by antitrust proponents to justify all manner of interventionist mischief. Those same proponents, whether carelessly or deviously, rarely mention Smith’s next sentence: ‘‘It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.’’

Antitrust is bad law, bad economics, and bad public policy. It deserves an ignominious burial—sooner rather than later.

Cheers to that.

Obama Tax Proposals

Candidate Obama has introduced an array of tax proposals, which he discusses in various places on his campaign website. There are four overlapping themes in the Obama tax proposals the way I see it:

  1. Social engineering.
  2. Discrimination.
  3. Economic micromanagement.
  4. Empty populism.

Under social engineering, I would put Obama’s plan to greatly increase the dependent care tax credit. That would further encourage parents to find institutional day care for their children, rather than providing care themselves.

Under discrimination, I would put Obama’s proposed special tax break for the elderly. The federal fiscal system is already heavily tilted in favor of the elderly, thus it is unclear why Obama would want to further discriminate against the young. 

Obama’s “American Opportunity Tax Credit” also creates unfair discrimination. This new tax break for college essentially increases subsidizes for future lawyers, accountants, and other professionals. Why subsidize these folks who will likely have much higher earnings than factory workers, retail clerks, and others who don’t go to college?

Under economic micromanagement, I would put Obama’s Patriot Employer Act, which provides tax breaks to certain businesses that jump through hoops related to hiring, wages, and other items.  Obama wants to cut capital gains taxes on certain investments and increase capital gains taxes on others, and he is proposing various narrow energy tax breaks. 

Under empty populism, I would put Obama’s railings against “tax haven abuse” and “corporate loopholes.” If Mr. Obama really wanted to reduce corporate tax avoidance–rather than just using it as a campaign prop–he would join with John McCain and call for an across-the-board corporate rate cut.

A final category might be “innocuous tax cuts that do nothing for economic growth.” Here I would put Obama’s $500 payroll tax credit called “making work pay.” If Obama had wanted to spur employment, he should have proposed a cut in the payroll tax rate, which would change the marginal incentive to work, unlike the proposed credit.

In sum, Obama’s tax proposals are pretty awful. It is true that many Republicans and Democrats have proposed similarly bad tax ideas over the years. But Obama can be contrasted with candidate McCain, who thus far has avoided narrow favoritism in his tax proposals, and favors broad-based tax reductions designed to spur economic growth.  

The Amazing Story of Medicare’s Low Administrative Costs

How is it that a government bureaucracy like Medicare can keep it’s administrative costs so much lower* than private health insurance? 

Today’s Washington Post may have the answer: “Medicare Pays Most Claims Without Review.”  That was the sub-head of an article on today’s front page.  The headline was, “Medical Fraud a Growing Problem.”

So, what kind of fraud are we talking about here?

All it took to bilk the federal government out of $105 million was a laptop computer.

From her Mediterranean-style townhouse, a high school dropout named Rita Campos Ramirez orchestrated what prosecutors call the largest health-care fraud by one person. Over nearly four years, she electronically submitted more than 140,000 Medicare claims for unnecessary equipment and services. She used the proceeds to finance big-ticket purchases, including two condominiums and a Mercedes-Benz

Law enforcement authorities estimate that health-care fraud costs taxpayers more than $60 billion each year.

Woah!  That’s a lotta coin!  How can it be so easy to bilk Medicare??

Health-care experts say the simplicity of Campos Ramirez’s scheme underscores the scope of the growing fraud problem and the need to devote more resources to theft prevention…

What’s that you say?  Not enough administrative resources dedicated to preventing fraud?

A critical aspect of the problem is that Medicare, the health program for the elderly and the disabled, automatically pays the vast majority of the bills it receives from companies that possess federally issued supplier numbers.

So Medicare’s approach to paying claims is not unlike, say, shoveling money out the door?

Officials who oversee the Medicare program say they are vigilant despite time pressure and limited resources. Employees review fewer than 5 percent of the nearly 1 billion claims filed each year…This year, CMS is working to finalize a rule that would prevent convicted felons from obtaining Medicare billing numbers.

But the important thing here is that Medicare is keeping administrative costs down, and passing the savings on to you, the taxpayer.

*Claim not valid in your state.  Or any state.

Compensating for Climate Change

Reason Roundtable has a discussion on whether developed countries should compensate developing countries for any damages from climate change. The following is from the introduction to the discussion:

Should companies or countries that have contributed to global warming be required to compensate individuals directly impacted by climate change? Is global warming a threat to private property? The latest Reason Roundtable examines these questions from a couple of perspectives.

Reason Foundation’s Shikha Dalmia says libertarians “cannot treat the earth’s thermostat as an enemy of freedom. Indeed, regardless of whether climate change eventually turns out to be real or not, the libertarian goal ought to be to ensure the protection and advancement of freedom — and all its attendant institutions: free markets, limited government and property rights.”

Jonathan Adler, professor of law at Case Western Reserve University School of Law, writes, “The whole point of protecting property rights is to ensure that property owners control exercise of their own rights. If a property owner wishes to accept another’s waste in return for compensation, that should be her choice. If not, then her right to refuse ought to be protected. Individual property rights should not be put up for a community vote or sacrificed as part of some utilitarian calculus. Libertarians readily accept this principle when government planners violate property rights in the name of economic development (think of the Supreme Court’s landmark eminent domain decision, Kelo v. New London). Yet they seem to abandon their commitment to property rights when it comes to global warming…. Given the potential impact of climate change on property rights, we ought to at least start thinking about policy measures that compensate affected parties without themselves posing a risk to individual liberty.”

Indur M. Goklany, author of the book The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet, writes, “Not only is there no proven harm that can be specifically attributed to the warming, but, more importantly, even if there were such harm, a proper respect for property rights might preclude compensation…. If only some countries had contributed to global warming and benefited from causing it while others had neither contributed nor benefited from it, there might have been an argument for compensation from one to the other. But that’s far from the case. That every country is both a contributor and a beneficiary not only makes it infinitely more difficult to calculate who owes whom how much, it also vitiates anyone’s moral standing for compensation — a normative commitment to property rights notwithstanding.”

The Roundtable essays can be found in the following:

Global Warming: Keeping Property Rights at the Forefront
Looking for solutions that would least empower the government — and least threaten property rights
By Shikha Dalmia

Climate Change As If Property Rights Mattered
Individuals should be compensated by those whose actions create environmental problems that produce provable damages to their property
By Jonathan H. Adler

Climate Change: No Harm, No Claim
All countries have engaged in greenhouse-gas generating activities
By Indur Goklany

The School Choice Money Angle

The AP story on the New Orleans voucher program that just passed the state Senate illustrates something interesting that all school choice proponents should consider. Opponents of choice in Louisiana appear to be focusing on the financial angle, just as they have elsewhere (italics added):

Opponents point to recent improvements in New Orleans public schools that have been realized since the state and various charter organizations began running them after the hurricane. They say the $10 million would be better spent on public schools.

Opponents also said the cost is likely to balloon as the first-year students progress and more students enter the program. “When we get to the end how much is this program going to cost?” asked Sen. Joe McPherson, D-Woodworth.

The school choice community tends to focus on the human-interest, educational equity, side of things because it seems the most compelling and toughest angle to dismiss.

But we neglect the fiscal side of the equation at our peril. My doctoral research on school choice messaging suggests that emphasizing the financial argument for school choice – that it saves money – is the best way to increase support among the general public.

Most voters don’t have children, but almost all of them pay taxes. And in general, people think school choice reform will cost taxpayers a lot more than we already spend on education. Of course, that just isn’t the case.

School choice great way to save millions or even billions of dollars each year, and we all need to do more to make sure the public knows this fact.