Defending Ron Paul’s Tax Plan

The Washington Post takes a swipe at Ron Paul, deriding his plan to abolish the income tax because revenues would fall to 1995 levels (rather than 2000 levels, as Dr. Paul mistakenly claimed in a recent Jay Leno appearance):

Expounding on his proposal for abolishing the income tax, Paul claims this would still leave the U.S. Treasury with roughly the revenues it had in 2000, in the final year of the Clinton administration. A post on the Paul campaign website explains that individual income taxes account for “approximately one third of federal revenue.” Unfortunately for the tax slashers, the one-time Libertarian candidate for president is wrong on both counts. According to the Congressional Budget Office, individual income taxes represent between 45 and 49 percent of federal tax revenues, depending on the year. For financial year 2007, total receipts from individual income tax were in the region of $1.1 trillion dollars. If you eliminated all that revenue, the federal budget would shrink to the size it was around 1995.

The Post’s criticism is akin to condemning a book because the typesetting was not centered on a few pages. The real issue is whether America would be a stronger and more prosperous nation if government was reduced to the levels envisioned by the Founding Fathers. America climbed from agricultural poverty to middle-class prosperity before the income tax was adopted, and federal government spending (with the exception of times of war) was a small percentage of GDP. The Post also fixates on whether the Paul campaign has identified $1.1 trillion of savings to match the forgone revenue from eliminating the income tax.

In attempt to figure out where the $1.1 trillion in annual savings is going to come from in a Paul administration, I talked yesterday afternoon to the candidate’s policy director, Joseph Becker. He pointed out that Paul has promised to bring troops home from Iraq and Afghanistan, eliminate foreign aid, eliminate agriculture subsidies, and get rid of the U.S. Education Department. A President Paul would, however, still have a military sufficient to defend the homeland.

Based on Paul’s rhetoric and record, this presumably is not a problem. The candidate almost certainly would favor the elimination (or transfer to the states) of the Departments of Agriculture, Energy, Education, Housing and Urban Development, Transportation, Labor, Commerce, and Health and Human Services. (What a joyous sentence to type!) Indeed, because he also would gradually turn entitlement programs into systems based on personal accounts (and shift welfare components back to the state and local levels), the long-term savings would significantly exceed the amount of money collected by the personal income tax. Ron Paul may not be a realistic candidate in today’s America, but that is an unfortunate reflection on voters (and the forces that have shaped voter attitudes), not the candidate’s platform.

First Thing We Do, Let’s Kill All the Lawyers

Scholars argue about what Shakespeare’s famous line in Henry VI really means, but I prefer to think that the wise playwright understood that law is a protection for the people and a constraint on rapacious rulers. Which brings us to the situation in Pakistan, where President/General Musharraf must be contemplating Shakespeare’s proposition. The glamorous Benazir Bhutto gets the headlines, but the real conflict is between Musharraf and the judges and lawyers who uphold the rule of law.

The latest crisis began last March, when Musharraf suspended Supreme Court Chief Justice Iftikhar Chaudhry. The rest of the Supreme Court then reinstated the chief justice. After questions arose about the legitimacy of Musharraf’s reelection, the general suspended the constitution and brought lawyers into the streets.

Lawyers. In the streets. In suits, as a Washington Post essayist noted. It’s not the usual image of a revolution. The people leading the rebellion against Musharraf’s undemocratic rule are not embattled farmers, or sans-culottes, or proletarian mobs, or even Buddhist monks. They’re lawyers, people normally committed to quiet meetings, legal briefs, formal argument, and decisionmaking processes both judicial and judicious.

But as Husain Haqqani, a former adviser to three Pakistani prime ministers, wrote in the Wall Street Journal:

Pakistan’s burgeoning civil society, led by lawyers and encouraged by judges ousted from the Supreme Court, is refusing to be cowed. Protests are spreading despite thousands of arrests and the use of tear gas and batons against peaceful demonstrators. More than 1,700 attorneys have been jailed but still more are taking to the streets. University students have joined the lawyers, and former Prime Minister Benazir Bhutto has vowed to violate a ban on public meetings by leading a rally on Friday.

There are a number of important reasons why Pakistan’s attorneys are leading the protests against Mr. Musharraf. They have a long tradition of activism for rule of law and human-rights issues. In 1968-69, the lawyers started the campaign that resulted in the ouster of Pakistan’s first military ruler, Field Marshal Ayub Khan. They also were at the forefront of the campaign against Mr. Zia-ul-Haq, whose 11-year military rule ended when he died in a 1988 plane crash.

The sympathies of Americans should be with the Pakistani people and the rule of law, not with any political player in the current struggle. It is not for the United States government to pick winners in Pakistan, but we should free ourselves of the belief that Musharraf is the only force capable of opposing radical Islamic terrorism in the country. Chief Justice Chaudhry, in Haqqani’s words, “has become a symbol of resistance to arbitrary rule — the man who refused to roll over and disappear, unlike earlier judges who cooperated with military rulers or simply went home when their conscience dictated otherwise.” He may one day be seen as the Joan of Arc or the George Washington of his country’s revival.

Haqqani writes, “Mr. Musharraf seems determined to put his own political survival before the rule of law — actions that warrant the label dictator. Pakistan’s attorneys, and increasingly the rest of its citizenry, seem equally determined to prevent this from happening.” Americans should wish them well.

Citing Impact of Tax Competition, Former IMF Chief Economist (Reluctantly?) Endorses Flat Tax

Noting that over-taxation will cause the geese that lay golden eggs to fly away, the International Monetary Fund’s former top economist says that a flat tax may be the only sensible approach. This, of course, is precisely why groups like the Cato Institute and the Center for Freedom and Prosperity are fighting to protect tax competition. Resource mobility is the enemy of greedy politiicans. Unfortunately, those politicians are not giving up without a fight. They are working through international bureaucracies such as the OECD to get the ability to track - and tax - flight capital. American lawmakers should resist this effort, both because the US is the world’s largest tax haven for foreign capital and because it is the right thing to do:

Many super-earners are also super-creative and bring enormous value. Places like the United Kingdom actively court wealthy foreign nationals through extraordinary preferential treatment of their investment income. The ultra-rich are an ultra-mobile group, too. If you are earning $540,000 an hour, it does not take too long to save up to buy an apartment, even in London. Anyway, there are limits to how much tax pressure the political system can apply to the ultra-rich. …Rather than punitively taxing wealth, globalization strengthens the case for shifting to a flat tax on income (or better yet consumption) with a moderately high exemption. Aside from the usual efficiency arguments, it is just going to become increasingly difficult and costly to maintain complex and idiosyncratic national tax arrangements.

Lewis, Tell the Truth

Pinocchio has some serious competition, but not from Bill Clinton. Today’s most truth-challenged person is Lewis Hamilton, the race-car driver who will lower his tax bill by about $8 million per year by moving from England to Switzerland. He claims he wants solitude, but with an annual income of about $20 million, he could have purchased a sound-proof mansion. Too bad Mr. Hamilton is unwilling to boldly proclaim that he is escaping an oppressive tax system. The Mirror reports on the real reason for the move:

Lewis Hamilton will save more than £4million a year when he moves to his Swiss tax haven. The F1 driver, who missed out on becoming World Champion by just one point, will earn an estimated £10million next season. Lewis, 22, has rented a £3,000-a-month apartment next to Lake Geneva, claiming he is quitting the UK due to intrusions in his personal life. But he will avoid the UK’s 40 per cent tax - paying just £180,000 to the Swiss state of Vaud where foreigners pay five times their annual rent. The sports star, who will be living just 25 miles away from former McLaren rival Fernando Alonso, said: “I love England and I’m happy to pay tax if I live there. Money isn’t a decider - the quality of life is.”

Topics:

Identity Systems Aren’t Good Security, and Other Lessons From the Chicago Airport Fake ID Story

AFP is reporting that more than a hundred people with false identification documents were given employee security passes to Chicago’s O’Hare airport.

This is a good opportunity to compare conventional wisdom to actual security wisdom.

CW: This was a breach of the airport’s security system.
W: This was definitely a breach of the airport’s identity system, but identity systems provide very little security. The airport’s security, already weak if it relied on workers’ identities, was little changed.

CW: “ ‘If we are to ensure public safety, we must know who has access to the secure areas of airports,’ said Patrick Fitzgerald, US attorney for the northern district of Illinois.”
W: Public safety can’t be ensured by knowing who has access to the secure areas of airports. Knowing who has access may protect against ordinary threats like theft, but not against the threats to aviation that we care about.

CW: “A fundamental component of airport safety is preventing the use of false identification badges and punishing those who commit or enable such violations.”
W: Preventing the use of false identification is a trivial component of airport safety. It’s a fundamental component of airport safety programs, which are mostly for show. Security expert Bruce Schneier calls them “security theater.”

CW: “Unauthorized workers employed at sensitive facilities such as airports, nuclear power plants, chemical plants, military bases, defense facilities and seaports pose a vulnerability which compromises the integrity of those key assets,’ US Immigration and Customs Enforcement said in a statement.”
W: Authorized workers employed at sensitive facilities pose a vulnerability which compromises the integrity of those very same assets. If you want to prevent some kind of harm, you must make that harm difficult to cause, regardless of who may try.

Security is not easy.

USA Today is Confused on Vouchers: It’s demand in a free market that drives supply.

USA Today knocks vouchers today on the basis of an unbelievably maddening canard about school choice in general and vouchers in particular:

Vouchers, which give students public dollars that can be used to pay tuition at private schools, are supposed to promote competition and improve schools. But they have never flourished as a national school reform because their logic contains a flaw. Vouchers don’t create new, high quality schools.

Economics 101 would be helpful for the folks at USA Today. Vouchers aren’t meant to create new schools. They are meant to moderate the ills created by a government-run monopoly by marginally reducing the penalty parents pay for choosing private education.

It is difficult to get new businesses to enter the kind of market that characterizes existing school choice programs: entry barriers are huge, the potential customer base is small, profit is small or non-existent (most private schools are non-profit), and the very existence of the market in question is subject to frequent elections and political whims.

That’s not a recipe for entrepreneurship and skyrocketing supply. But supply has increased substantially in Milwaukee and elsewhere despite the severe handicaps of that education market.

And Utah’s law would have created the largest education market to date, although still restricted and at a massive disadvantage to public schools that receive much more funding per-pupil.

Libertarian Voters Hiding in the Post Poll

The headline on the latest Washington Post-ABC News poll was “Poll Finds Americans Pessimistic, Want Change.” And why would they not, with a floundering war, civil liberties abuses, soaring federal spending, and the prospect of four years under the rule of Hillary or Rudy? But there are some signs in the accompanying data that seem to confirm the existence of libertarian voters, voters who don’t fit into either the liberal or conservative box.

One of the questions was an old standby: “Generally speaking, would you say you favor smaller government with fewer services, or larger government with more services?” Smaller government won by 50 to 44 percent, but the Post noted that that was a much smaller margin than previous surveys had shown, indicating the damage the Bush administration and the congressional Republicans have done to the “smaller government” brand. Still, a six-point margin is better than Bush achieved in his two elections, and 50 percent is better than Bill Clinton ever did.

The next question in the survey was “Do you think homosexual couples should or should not be allowed to form legally recognized civil unions, giving them the legal rights of married couples in areas such as health insurance, inheritance and pension coverage?” Respondents said they should, by 55 to 42 percent, up from earlier surveys.

So if you take support for smaller government as an indicator of libertarian-conservative sentiment, and support for civil unions as an indicator of libertarian-liberal sentiment, then the libertarian position got a small majority on both questions.

I asked Post polling director Jon Cohen if it was possible to get crosstabs for those questions, and he generously supplied them. So we can use those two questions to construct a four-way ideological matrix. I categorize the responses this way: Roughly speaking, libertarians support smaller government and civil unions. Conservatives support smaller government and oppose civil unions. Liberals support larger government and civil unions. And the fourth group–variously called statists, populists, or maybe just anti-libertarians–support larger government and oppose civil unions. And thus we find that on these two questions 26 percent of the respondents are libertarians, 26 percent liberals, 23 percent conservatives, and 17 percent anti-libertarians:

A few other reflections on these questions: It’s often been noted that how you ask the question can shape the answers. For instance, if you offer three positions, people will tend toward the middle option. Polls usually show that a majority of voters oppose gay marriage, while a slimmer majority now support legal recognition for domestic partnerships or civil unions. But if you give respondents three options–marriage, civil unions, or no legal recognition–the opposition is reduced, and polls tend to show a strong majority supporting some form of recognition. In the 2004 exit poll, for instance, the results were 25 percent for marriage, 35 percent for civil unions, and 37 percent opposed to both.

I’ve always thought the “smaller government” question is incomplete. It offers respondents a benefit of larger government–“more services”–but it doesn’t mention that the cost of “larger government with more services” is higher taxes. The question ought to give both the cost and the benefit for each option. A few years ago a Rasmussen poll did ask the question that way. The results were that 64 percent of voters said that they prefer smaller government with fewer services and lower taxes, while only 22 percent would rather see a more active government with more services and higher taxes. A similar poll around the same time, without the information on taxes, found a margin of 59 to 26 percent. So it’s reasonable to conclude that if you remind respondents that “more services” means higher taxes, the margin by which people prefer smaller government rises by about 9 points. That suggests that adding “higher taxes” to the Post question would have widened the margin from 6 to 15 points, or perhaps a response of 55 percent for smaller government and 40 percent for larger government. (Note that Jon Cohen and the Post are not responsible for any of this speculation.)

And when you adjust the four-way division on the basis of our Platonic ideal of the two questions, then we get slightly more libertarians and conservatives and fewer liberals and anti-libertarians—29 percent libertarians, 25 percent conservatives, 23 percent liberals, and 15 percent anti-libertarians:

Yet more evidence that there is a libertarian vote that is indeed different from liberals and conservatives.