Raise Your Own Darn Taxes

In a Politico story about what appears to be push-polling (“a political campaign technique in which an individual or organization attempts to influence or alter the view of respondents under the guise of conducting a poll”) by Hillary Clinton is this gem:

Freeman Ng, a software designer in Oakland, Calif., reported getting a call late in the morning of May 5.

He wrote on DailyKos that day that he was asked how the fact that “Barack Obama failed to vote in favor of abortion rights nine times as a state senator” might affect his vote.

He said he was also asked a question that associated Edwards with tax hikes.

“A lot of the statements struck me as being very conservative and moderate in orientation, like the tax thing,” said Ng, who stands well to the left of center. “To me, that was a plus that he’s going to raise my taxes.”

Hey, you wanna pay more taxes? Fine, pay more taxes. Nobody’s stopping you. But leave me out of it.

Warren Buffett’s Faulty Tax Math

Class-warfare activists were delighted when Warren Buffett recently complained that his tax rate was too low and that his secretary was subject to a higher effective tax rate. The various news reports, including the excerpt below from Tax-news.com, do not provide any detail on Buffett’s taxes, but he almost certainly was being either dishonest or ignorant.

It is probably safe to assume that Buffett receives lots of dividend income and that he also declares a considerable amount of capital gains, both of which are subject to a 15 percent tax rate on an individual tax return. What he did not mention, however, is that corporations pay a 35 percent tax before distributing dividends to shareholders, so the actual effective tax rate on that portion of Buffett’s income is closer to 50 percent.

The capital gains tax is another example of double taxation. An increase in the value of a stock is a reflection of an anticipated increase in the future income stream from that stock. Yet that income stream will be taxed (usually two times!) when it occurs. The real effective rate on that portion of Buffett’s income is harder to calculate, but it certainly will be far higher than 15 percent.

Shifting gears, Buffett’s calculations almost surely include Social Security payroll taxes, which only apply to the first $90,000 of income in exchange for not providing huge benefit payments to rich retirees. Indeed, the overall program is highly progressive once benefit payments are added to the equation, so Buffett’s secretary gets a better deal than he does from Social Security (though both would be better off with a system of personal retirement accounts).

Last but not least, if Buffett really thinks he is not paying enough to government, he can write a check to George Bush, Ted Kennedy, and Nancy Pelosi. But he should not try to assuage his feelings of guilt by seeking higher taxes on other people:

Warren Buffett, perhaps the most successful investors of modern times and one of the world’s wealthiest men, has spoken out against the U.S. tax system which allows him to pay proportionately less of his multi-million dollar annual income in taxes than his cleaning lady. Addressing attendees at the $4,600-a-place fund-raising dinner for the Hilary Clinton presidential campaign, Buffett, who runs investment group Berkshire Hathaway and is reputedly worth $52 billion, told the 600 Wall Street bankers and money managers that: “(We) pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” According to Buffett, he makes no use of tax shelters to mitigate his tax liability, but still managed to pay an average tax rate of 17.7% on his $46 million income last year. By comparison, his secretary, who earned $60,000, paid tax at 30%.

Let a Hundred Flowers Bloom

The most fascinating story in the world is China today, as the world’s most populous country struggles toward modernity.

The Chinese rulers seem to be trying to emulate Singapore’s success in creating a dynamic modern economy while maintaining authoritarian rule. But can a nation of a billion people be managed as successfully as a city-state? Since 1979 China has liberated its economy, creating de facto and even de jure property rights, allowing the creation of businesses, and freeing up labor markets. The result has been rapid economic growth. China has brought more people out of back-breaking poverty faster than any country in history.

And, as scholars such as F. A. Hayek have predicted, the development of property rights, civil society, and middle-class people has created a demand for political rights as well. Every week there are reports of actual elections for local posts, lawyers suing the government, dissidents standing up and often being jailed, labor agitation, and political demonstrations. It’s reminiscent of the long English struggle for liberty and constitutional government.

And it would be great if it turns out that modern technology can make that struggle shorter than it was in England. A hopeful example was reported this week. According to the Washington Post, hundreds of thousands of “text messages ricocheted around cellphones in Xiamen,” rallying people to oppose the construction of a giant chemical factory. The messages led to “an explosion of public anger,” large demonstrations, and a halt in construction.

Leave aside the question of whether the activists were right to oppose the factory. The more significant element of the story is that, as the Post reported, “The delay marked a rare instance of public opinion in China rising from the streets and compelling a change of policy by Communist Party bureaucrats.”

Cellphones and bloggers fighting against the Communist Party and its Propaganda Department and Public Security Bureau — and the “army of Davids” won. Reporters and editors afraid to cover the story followed it on blogs, even as the censors tried to block one site after another. This isn’t your father’s Red China.

Citizen blogger and eyewitness Wen Yunchao

said he and his friends have since concluded that if protesters had been armed with cellphones and computers in 1989, there would have been a different outcome to the notorious Tiananmen Square protest, which ended with intervention by the People’s Liberation Army and the killings of hundreds, perhaps thousands, in the streets of Beijing.

The cause of freedom is not looking so good in Russia these days. But in China a hundred flowers are blooming, a hundred schools of thought contending.

Heritage — Unhealthy

In his post on the differences over energy policy between the (conservative) Heritage Foundation and the (libertarian) Cato Institute, Jerry Taylor mentions that the two Washington think tanks also have differences regarding health care. For those who are curious, here’s where I see the biggest differences between Cato scholars and Heritage scholars on health policy:

The Heritage Foundation’s health policy team generally supports having the government force people to buy health insurance. Cato scholars generally do not. A couple of weeks ago, Heritage’s director of health policy studies Bob Moffit wrote in the San Diego Union-Tribune:

[M]y Heritage Foundation colleagues and I support the “personal responsibility principle.” It’s a simple idea: All adults have a responsibility to buy their own health insurance, pay their own health care bills, and not shift those costs to others….

People who can reasonably afford it have a responsibility to buy health insurance to protect themselves and their families against the financial devastation of catastrophic illness….

People who do not wish to buy health insurance for whatever reason should be free to do so. But, in exchange, they must demonstrate in some tangible way that they are really going to pay their own hospital bills. 

My Cato colleagues and I generally differ, for a number of reasons: such “individual mandates” are impractical, ineffective, and expand government power beyond its legitimate scope. Government should and does require people to pay their debts, meaning that patients already are legally responsible for their medical bills. The Heritage “personal responsibility principle,” on the other hand, would hold a Christian Scientist responsible for debts that he will never incur.

In addition, Heritage scholars embrace the idea that government should pursue “universal coverage.” Meanwhile, I do things like start the Anti-Universal Coverage Club (whose membership is growing).

There are many areas where Cato and Heritage scholars agree. I personally respect every member of their health policy team. Why, just yesterday Cato hosted Heritage’s Ed Haislmaier at a forum where we released a study critical of the Heritage-backed Massachusetts health plan. 

Where we disagree, we criticize. But I consider such criticism a form of praise. The only reason we bother to criticize is because what Heritage scholars say matters.  A lot.

This Cato-Heritage disagreement over health care goes back more than a decade. It contributes to the free-market movement’s lack of direction on health care reform. The movement cannot move on in a unified manner until that disagreement is resolved.

Compulsion: The Only Tool for the Job?

Thursday’s Supreme Court ruling on race-based student assignment programs is pretty clear: public school districts cannot simply use racial balance targets to determine where children will go to school.

A key point in the ruling is that districts must exhaust racially neutral means of achieving their diversity and minority achievement goals before race-based student assignment can even be contemplated. In both cases before the court, the districts failed to do that.

This central point of the ruling apparently escaped CNN judicial analyst Jeffrey Toobin, who made the following statement in a live interview: “the school districts were told they couldn’t integrate their schools.”

Live TV is an unforgiving medium, especially when covering breaking news, so it’s not entirely clear that this is what Toobin meant to say. What is clear is that it is 100% nonsense.

Integration is a goal. There are many possible ways of achieving it besides government compulsion. As I pointed out in a blog post on Thursday afternoon, it can in fact be much better achieved through voluntary school choice programs that make both public and private schools financially viable options for all families. Summaries of some of the relevant studies, along with links to the full text in several cases, can be found here.

Zimbabwean Economics Spreads to Capitol Hill

In Zimbabwe, the government is ordering businesses to cut prices and threatening to jail executives who don’t comply, in an attempt to deal with inflation that is now variously estimated at somewhere between 4,000 and 20,000 percent a year.

Meanwhile, on Capitol Hill both houses of Congress have passed legislation establishing stiff penalties for those found guilty of gasoline price gouging. The bill directs the Federal Trade Commission and Justice Department to go after oil companies, traders, or retail operators if they take “unfair advantage” or charge “unconscionably excessive” prices for gasoline and other fuels in an “energy emergency.” (The complex energy legislation is still working its way through both houses, though both have endorsed the price-gouging provisions.)

How’d’ja like to be the bureaucrat charged with enforcing such vague and emotional language, or the businessperson trying not to incur a 10-year jail sentence for doing something “unfair” or “unconscionably excessive”? It’d be sort of like living in, you know, Zimbabwe.

Did Congress offer bureaucrats and businesses any more specific guidance? You bet they did. H.R. 6 and S. 1263 define an ”unconscionably excessive price” as a price that

(A)(i) represents a gross disparity between the price at which it was offered for sale in the usual course of the supplier’s business immediately prior to the President’s declaration of an energy emergency;

(ii) grossly exceeds the price at which the same or similar crude oil, gasoline, or petroleum distillate was readily obtainable by other purchasers in the affected area; or

(iii) represents an exercise of unfair leverage or unconscionable means on the part of the supplier, during a period of declared energy emergency; and

(B) is not attributable to increased wholesale or operational costs outside the control of the supplier, incurred in connection with the sale of crude oil, gasoline, or petroleum distillates.

So that seems reasonable clear: it’s a price that is “gross” or “unfair” or (redundantly enough) “unconscionable.” And it can only happen during a “Federal energy emergency”:

(a) IN GENERAL- If the President finds that the health, safety, welfare, or economic well-being of the citizens of the United States is at risk because of a shortage or imminent shortage of adequate supplies of crude oil, gasoline, or petroleum distillates due to a disruption in the national distribution system for crude oil, gasoline, or petroleum distillates (including such a shortage related to a major disaster (as defined in section 102(2) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act 42 U.S.C. 5122(2))), or significant pricing anomalies in national energy markets for crude oil, gasoline, or petroleum distillates, the President may declare that a Federal energy emergency exists.

In the United States, unlike Zimbabwe, we have the rule of law. That means vague, emotional, and nonsensical laws can only be passed upon a vote of both houses of Congress and the approval of the president.