Ben Stein Should Stick with Acting

I’ve always enjoyed reading Ben Stein’s descriptions of life in Hollywood in The American Spectator. And his performance in Ferris Bueller’s Day Off is a cult classic. Unfortunately, his writings on economics are somewhat less fulfilling. A recent open letter to John McCain in the New York Times argues for “much higher taxes on the truly rich” and assumes that it is impossible to control government spending:

All politicians campaign on the promise to cut federal spending by identifying hitherto unfound waste, fraud and corruption. None of them ever do so in a meaningful way. …That is the first thing you need to know. The next thing is that the Republican Party (my party and yours) has for the last 30 years or so been operating under a demonstrably false and misleading premise: that tax cuts pay for themselves by generating so much economic growth that they replace the sums lost by tax cutting. …In fact, tax cuts lower federal revenue and generate federal deficits. …What to do? …You can propose still more tax cuts… Or, you can raise taxes. But whom to tax? …The first step toward putting our house in order, once we are past the seemingly looming recession, is much higher taxes on the truly rich and serious enforcement to prevent offshore tax evasion. …we can have some integrity and levy taxes equal to what we spend. 

Stein’s analysis is horribly wrong. First, he asserts that government spending cannot be reduced and that this means either runaway deficits or higher taxes. While it would be nice if government outlays actually were reduced, a more modest measure of success is whether the private economy is growing faster than the government. If that happens, deficits will fall since tax revenues generally increase at least as fast as nominal GDP. This modest level of fiscal discipline is not an impossible task, as former Cato expert Veronique de Rugy has shown (here and here). Before urging Senator McCain to raise taxes, perhaps Stein should be arguing that the presumptive Republican nominee merely hold the growth of government to, say, the rate of inflation.

Stein is equally misguided on tax policy. He correctly notes that many Republicans have wrongly claimed that all “tax cuts pay for themselves.” Indeed, that is the same point I made in the Center for Freedom and Prosperity’s first video on the Laffer Curve. But he fails to realize that there are some tax policies that have very significant Laffer-Curve effects, and the second video in the series specifically shows that Stein’s proposal of ”much higher tax rates” on the rich almost surely would backfire.

Weekly Standard Argues, Weakly, for Standards

In the current issue of the Weekly Standard, speech-writer Daniel Casse opines on the school choice debate sparked last month by Sol Stern. Casse begins by uncritically repeating Stern’s claim that the American school choice movement has stagnated for over a decade. In attempting to defend that claim, Stern failed to mention that five new education tax credit programs have been created over that time, harnessing hundreds of millions of dollars and serving a hundred thousand or so children. These programs have grown significantly since their inception and will likely continue to do so. Stern’s omission had already been corrected by several different scholars weeks ago, and for Casse not to mention this shows either poor judgement or poor research on his part.

Casse goes on to dismiss responses to Stern by Robert Enlow, Neal McCluskey and myself as “doctrinaire” in our support for education markets over government school monopolies. But to be doctrinaire is to be impractical and inflexible. I am neither. There are education policies already enacted in several states that, if simply allowed to grow over time, will eventually have very good prospects for creating market forces in education. One example is Pennsylvania’s Education Improvement Tax Credit, which allows businesses to make donations to private scholarship funds that serve low income children, and get a 90% tax credit in return. There are certainly ways to accelerate the advent of real market forces, Cato’s own Public Education Tax Credit model legislation is one, but even the expansion of existing programs could eventually do the trick. That is a practical solution.

And as for flexibility, I would be quite ready to change my position favoring real market reform over central planning in education if the preponderance of evidence changed accordingly. No such change seems iminent. I maintain a spreadsheet of the international research comparing public and private provision of education across 7 or 8 different outcomes (mostly academic achievement and efficiency). These studies span the past 25 years, and of the 91 statistically significant findings I’ve collected, 82 favor private schooling. If these studies are winnowed down so that we look only at those comparing government schools to markets of minimally regulated private schools paid for at least in part by parents, there are 34 statistically significant findings, 32 of which favor market provision. The less intrusive the state is, and the more market-like the schools are, the better private schools work. The latest version of this literature review has yet to be published, but the detailed original 2004 version is available on-line, as is a brief updated discussion at the end of a paper released last year on the No Child Left Behind act.

If anyone is doctrinaire in this debate, it is the advocates of government mandated curricula and educational standards who seldom present any sort of empirical evidence in support of their views, with the exception of an occasional anecdotal reference to some place that has standards they like.

As I pointed out in the Washington Post on-line last year, it is not government standards that produce excellence, but the competitive pursuit of excellence that drives up standards.

Goliath vs. Goliath?

A further development in the cross-border supply of gambling and betting services broke today when the European Union announced they would launch a formal investigation into the selective (and retroactive) prosecution of European gaming interests by US authorities.

This is yet another twist in the saga first brought to light by Antigua’s case against the United States in the WTO. That case (summarized here and updated here, here, here, and here) sparked a slew of indirectly related skirmishes, a plethora of “David vs. Goliath” headlines, and an unprecedented reaction from the United States to pick up their ball and go home. The various twists and turns of the dispute have provided ample fodder for trade junkies in the form of commercial and systemic issues: Does the WTO dispute settlement mechanism provide effective recourse for big as well as small members? How should WTO members respond when one of their cohorts wants to change the nature of the contracts between the parties? How do members balance their rights and obligations in the context of issues of public morals?

The questions look far from answered because if the EUs investigation proceeds, a new WTO case could be on the horizon. Although the EU and the United States came to a settlement in December over the United States’ wish to withdraw its commitment to open its market to the cross-border supply of gambling and betting services, the details of that settlement are sketchy. And the December deal pertains to compensation for the withdrawal of market access going forward: unless and until that deal is ratified by all WTO members (including those who are asking for compensation of their own), the U.S. obligations stand and so does the ruling that found the United States was in breach of those obligations.

In other words, while the United States might eventually be able to get away with changing its obligations to provide WTO members access to the lucrative U.S. gambling market, in the meantime their (discriminatory?) prosecution of offshore interests leaves them vulnerable.

State Politicians Want Rich People to Leave New York

In a rather self-destructive move, Democrats in the New York State Assembly are proposing a huge increase in the income tax rate on the state’s most productive and valuable people. A column in the New York Post correctly warns that this will drive entrepreneurs and investors to other states.

The State Assembly Majority announced yesterday that it’s considering a dramatic increase in state personal-income taxes that will come down hardest on New York City residents and the key industries that are the engine for economic growth across the state. …the measure would hike personal-income taxes 1 percent on households earning more than $250,000, 2 percent for those over $500,000 and 3 percent for those over $1 million. This translates into a combined city-state income tax of 11.5 percent to 13.5 percent. Add in federal taxes, and the burden approaches 50 percent. Taxes in New York City already are nearly 50 percent more than in any other US city. …This approach is also a money-loser for the state. Gov. Arnold Schwarzenegger last week said that half of California’s $14 billion deficit is due to people and business leaving the Golden State because of high taxes. If the Assembly measure passes, many of the city’s highest earners and biggest taxpayers – who all enjoy global mobility – are likely to pack up and leave. It’s a great economic development strategy – for New Jersey, Connecticut, Florida and London.

States such as Maryland and California already have demonstrated the damage caused by high state tax rates, but New York politicians apparently are oblivious to the real-world impact of such policies or they put class-warfare politics above every other relevant consideration.

Pennsylvania Proposes to Defraud Non-Pennsylvanians

From an article in the Pittsburgh Post-Gazette:

Pennsylvania hospitals and other medical providers often seek higher state reimbursements for treating low-income, elderly and disabled people under the state’s Medical Assistance program.  Now the state Department of Public Welfare has come up with a new tax idea that would make higher payments possible by placing an “assessment” on the profits of general hospitals in two counties, Allegheny and Philadelphia…

Public Welfare Secretary Estelle Richman … said that such a levy on net patient revenues at acute care hospitals in the state’s two largest counties would have two benefits: it would increase state Medical Assistance payments for services to the elderly and poor, and would also enable health providers to get higher federal Medicaid reimbursements, which rise as state payments rise…

DPW spokeswoman Stacey Witalec … said the proposed hospital assessment “is similar to other assessments we already have in place,” such as ones on nursing homes.  “The basic model is to increase the amount of federal match [funds] that we receive to support our Medical Assistance program,” she said. Other states have such hospital assessments in place, she added.

In other words, Pennsylvania pretends to give its hospitals higher Medicaid payments.  Based on those “higher” payments, the Commonwealth pulls down additional “matching” federal Medicaid dollars – which is a fancy way of saying it takes money from taxpayers in other states.  Then, Pennsylvania taxes back the money it pretended to give its hospitals.  Thus the federal Medicaid program allows Pennsylvania to siphon money away from other states.

That sound you hear is your pocket being picked.

Obama Appeals for Libertarian Voters

Sen. Barack Obama resumed his winning streak by beating Sen. Hillary Clinton in the Wyoming caucuses after a brief full-court press by both sides. The Wall Street Journal noted one of Obama’s themes in the rugged-individualist Cowboy State:

Tailoring his message to the state’s antigovernment streak, Sen. Obama put new emphasis on his criticisms of the Bush administration’s warrantless wiretaps and other heightened law-enforcement activities implemented as antiterror measures. “You can be liberal and a libertarian, or a conservative libertarian,” Sen. Obama told a crowd of about 1,200 at a recreation center here. But “there’s nothing conservative” about President Bush’s antiterror policies. “There’s nothing Republican about that. Everybody should be outraged by that,” he added. 

He may have been reading some of the articles David Kirby and I wrote about the libertarian vote and the Mountain West:

In the Goldwateresque, “leave us alone” Mountain West, Republicans not only lost the Montana Senate seat; they also lost the governorship of Colorado, two House seats in Arizona, and one in Colorado. They had close calls in the Arizona Senate race and House races in Idaho, New Mexico, Colorado, Nevada, and Dick Cheney’s Wyoming. In libertarian Nevada, the Republican candidate for governor won less than a majority against a Democrat who promised to keep the government out of guns, abortion, and gay marriage. Arizona also became the first state to vote down a state constitutional amendment to define marriage as between one man and one woman….

If Republicans can’t win New Hampshire and the Mountain West, they can’t win a national majority. And they can’t win those states without libertarian votes.

Jeffrey Rosen has praised Obama’s civil libertarian record. Lest we get too excited about Obama’s new libertarian appeal, though, we should note that in his speech he also said he would undermine trade agreements and promised enough goodies from the Treasury to make Ted Kennedy happy.