More Tax-Funded Media Bias

This morning on Marketplace Radio, there was a clear example of the bias toward government intervention that pervades so much of the establishment media. The story was titled

U.S. finishes last in fuel economy

Online, the introduction reads, “A new report reveals that the U.S. is at the bottom of the barrel when it comes to fuel economy standards. Turns out even China tops us. ” The reporter introduces the topic of a new study on mandatory fuel economy rules in different countries and turns to the study’s author:

Drew Kodjak: At the bottom of the heap is, unfortunately, the United States.

Study co-author Drew Kodjak says Europe and Japan already have high mile per gallon rules, and they’re gonna get even better.

Kodjak: Out to 2012, Europe is projected to have a 49 MPG passenger fleet. And Japan a 47 in 2015.

Even China’s better than the American 27.5 miles a gallon.

Kodjak: So certainly a very big difference between the leaders and the laggers.

Notice the drumbeat: the United States is “last,” “at the bottom of the barrel,” “at the bottom of the heap,” a “lagger.” Stricter regulation is “better.” And all because our regulations are slightly less intrusive and burdensome than those in other countries.  I think we’re better off letting the market determine how much fuel efficiency American consumers want. But my point here is not to argue the issue, but simply to notice that Marketplace Radio, heard on tax-funded radio stations, didn’t argue the issue either. It just indicated to listeners that stricter regulation was “better,” and the United States was a “lagger … at the bottom of the heap” for having less stringent regulations.The last time I wrote about a similar one-sided, adjective-laden story on Marketplace, I referred to it as “unconscious liberal bias.” But really, how long can I keep seeing only unconscious bias? I noted in my previous item:

So where’s the bias? Let us count the ways. First, of all the studies in the world, only a few get this kind of extended publicity. It helps if they confirm the worldview of the producers. For instance, I don’t believe Marketplace covered this Swedish study (pdf) showing that the United States is wealthier than European countries (perhaps most provocatively, that Sweden is poorer than Alabama — perhaps because Europe has the kinds of laws the Heymann study advocates). Second, Heymann was allowed to appear without a critic. Third, the interviewer never asked a critical question. He never noted that the countries that Heymann was praising are poorer than the United States and in particular that many are suffering from high unemployment brought on by such expensive labor mandates. Fourth, look at the language of the questions: “lags behind,” “falling short,” “picking up the slack.”

The unstated, perhaps unconscious, premise is that countries should have mandatory paid leave and other such programs. If we don’t, we’re “falling short” and someone must “pick up the slack.” Language like that, which is very common in the media, posits government activism as the natural condition and then positions any lack of a government program as a failure or a problem.

Do Marketplace’s reporters, editors, and producers–and the reporters, editors, and producers at other media outlets–really not recognize that this sort of language biases their coverage?

Is Federal Pay Too High?

Chris Edwards writes below that the gap between federal pay and private-sector pay continues to widen, with federal employees now making more than twice as much as private employees. Meanwhile, a congressional committee is holding hearings on whether federal employees are underpaid or overpaid. Do you think they’ll hear testimony about why federal employees make twice as much as private-sector workers? Or about the fact that federal quit rates are far lower than private-sector quit rates, suggesting that most federal employees are pretty satisfied?

Bad News for Karl Marx

If there is a heaven (or, more appropriately, if there is a hell), Karl Marx must be in a sour mood. The Berlin Wall has disappeared. Communism is dead every place other than Cuba, North Korea, and certain faculty lounges. And now, former Soviet colonies are abandoning his concept of discriminatory taxation and instead adopting simple and fair flat tax regimes. A Czech article discusses the flat tax revolution, which is proceeding in spite of complaints from Western Europe’s uncompetitive welfare states:

Karl Marx might be shocked to see who’s doing what with tax systems in Central and Eastern Europe these days. After all, it’s the capitalist West that won’t abandon progressive tax systems, which Marx championed in The Communist Manifesto, while the former Soviet bloc countries are lining up to buck their old ideological fountainhead by moving to a … single tax rate for nearly all earners, regardless of income. Nowhere has this flat tax caught on more swiftly than in Central and Eastern Europe, where nine of world’s 13 countries to have adopted the system are located. It’s a reform movement that started in 1994 with Estonia, gained momentum when Russia saw a 25-percent increase in state revenue from personal income tax after implementing a 13-percent flat tax in 2001, and culminated with Slovakia’s much-lauded adoption of a single 19-percent rate on income, corporate, and valued added tax three years later. …

Few, if any, of the reforms in Central and Eastern Europe meet the definition of a true flat tax because they include deductions, exemptions, and other exceptions. … Several Western European leaders complain that the lower tax rates … give the newer European Union states an unfair advantage in attracting business.

We Accept the Challenge

Robert Samuelson gets one thing wrong in his Newsweek/Washington Post column this week: Cato isn’t a conservative think tank. At least, I think it would be odd to call scholars “conservative” when they criticize the war in Iraq, the Patriot Act, the growth of executive power, the war on drugs, the holding of American citizens without habeas corpus, the federal marriage amendment, the late lamented sodomy laws, and the general attempts by both right and left to impose their moral values on all Americans through government.

But he’s right on his main point: The growth of entitlement spending, especially for the elderly, is not only a looming fiscal disaster but a fundamental shift in the nature of American government. He proposes

that some public-spirited sugar daddy (the MacArthur Foundation? Warren Buffett?) sponsor a short book. A possible title: “Facing Up to an Aging America.” Six leading think tanks would be invited to participate: three liberal – the Brookings Institution, the Center on Budget and Policy Priorities, and the Urban Institute– and three conservative: the American Enterprise Institute, the Cato Institute and the Heritage Foundation.

We accept. We’ve been writing about the entitlements crisis since 1980 or thereabouts. We’d be glad to join other research institutions in a grand public debate about how big we want government to be and what its appropriate responsibilities are.

New Federal Pay Data

The Bureau of Economic Analysis just released its annual data on employee compensation by industry. (See tables 6.2, 6.3, 6.5, and 6.6).

The new data for 2006 show that 1.8 million federal civilian workers earned an average $111,180 in total compensation (wages plus benefits). That is more than double the $55,470 average earned by U.S. workers in the private sector.

Looking just at wages, federal workers earned an average $73,406, which is 60 percent greater than the $45,995 average earned by private sector workers.

Average federal pay has soared in recent years, growing much faster than private sector pay between 2001 and 2005. However, federal pay growth slowed in 2006, while private sector pay accelerated. As a result, average compensation for federal civilians grew 4.0 percent in 2006, compared to the average in the private sector of 4.2 percent.

Hopefully, federal pay increases will continue slowing to help relieve the soaring taxpayer costs of federal workers. I’ve proposed freezing federal pay to help reduce the deficit and privatizing expensive activities such as air traffic control.

The BEA data show that compensation for federal civilian workers cost taxpayers $203 billion in 2006, up from $145 billion in 2001 when President Bush took office. (The costs of military compensation have grown even more rapidly, from $98 billion in 2001 to $156 billion in 2006).

The acceleration of federal compensation is clear in the figure below covering 1990-2006.

Source: Chris Edwards, Cato Institute, based on Bureau of Economic Analysis data

For further information, see

http://www.cato.org/pub_display.php?pub_id=6611

http://www.cato.org/pubs/tbb/tbb-0605-35.pdf

(Data note: The BEA data for number of employees is measured in full-time equivalents.)

French Tax Exiles Unlikely to Go Home

For all the joking about the French (e.g.: Ad seen on E-Bay: French military rifles for sale. Hardly used, only dropped once), they deserve credit for not being dumb enough to trust politicians. A Bloomberg story discusses the huge number of productive people who have fled France’s oppressive tax system and notes that very few of these tax exiles are tempted to return merely because Sarkozy is tinkering with the tax system:

Nicolas Sarkozy is rolling out the welcome mat for thousands of rich French people who fled one of Europe’s most onerous tax regimes. Few may heed his call. In his first economic act as president, Sarkozy is pushing a tax law to lure back exiles such as rock star Johnny Hallyday, 64, and members of the Mulliez clan, who control the French retailer Groupe Auchan SA. The measure will increase exemptions on the “fortune” tax – the bete noire of rich expatriates – and cap the total individual tax rate at 50 percent of income. Sarkozy, 52, needs these wealth-creators to help rekindle an economy that’s lagging behind its neighbors and to sustain future growth. …

“In France, to earn a lot of money is to be seen as a little bit criminal,” says author Anne-Marie Mitterrand, who moved to Belgium in 1997. … “The Right to Laziness,” a 19th century book by Paul Lafargue, Karl Marx’s son-in-law, advised against working more than three hours a day. And French author Honore de Balzac famously said, “Behind every great fortune lies a crime.” This prejudice drove French citizens to Switzerland, Belgium, the U.K. and the
U.S., where at least 500,000 of them reside, either to make more or keep more of what they have. London and the U.S. are preferred refuges for younger people. Switzerland, with about 200,000 French residents, attracts the retired and stars like Hallyday. …

Households fleeing the fortune tax climbed to a record 649 in 2005 from 370 in 1997, according to a study by French Senator Philippe Marini. Another study by the Economic Analysis Council, which advises the government, says about 10,000 business directors fled in the last 15 years, taking 70 billion to 100 billion euros ($137 billion) in capital to invest elsewhere. …

Francois Micheloud, a Lausanne lawyer who helps clients settle in Switzerland, says he doubts French exiles will return anytime soon because they distrust government tax policies.

“Carried Interest” Battle Could Be Precursor to Broader Effort to Increase Capital Gains Tax

Writing for the Wall Street Journal, Phil Kerpen of Americans for Prosperity weighs in on the taxation of the returns to private equity funds. He notes, as have others, that the so-called “carried interest” is a capital gain – even if it is then shared with the fund manager. The key message of the article is that the attempt to raise the tax on this type of capital gains is the first step in an effort to raise the tax rate on all capital gains:

Under current law, individual partners in an investment partnership such as a hedge fund or private equity fund are taxed based on what the underlying partnership income is; if the income comes from a capital gain, it is taxed at the capital gains rate. Ordinary income is taxed at ordinary income tax rates. This tax treatment is consistent with the rationale for a lower capital gains tax rate – to alleviate the double taxation of corporate-source income and to encourage risk taking, entrepreneurship and capital formation. The legislation Congress is considering ends those protections, saying in effect that it doesn’t matter if the income is a clear-cut capital gain, such as proceeds from the sale of corporate stock. What matters is who receives the income, in this case politically unpopular rich guys. All investors should be on notice that if the capital gains tax is considered a loophole for investment partnerships, it can’t be long before the capital gains tax is raised for everyone else. Some leading Democrats, including Oregon Sen. Ron Wyden and presidential candidate John Edwards, are already calling to do just that.

Kerpen’s fears are confirmed by a story in the New York Sun. At a Finance Committee hearing, a number of politicians expressed support for broader tax hikes:

Democrats may dodge a tax hike on private equity managers and instead look to raise other taxes that would generate greater revenue from a broader swath of the American economy. At hearings on Capitol Hill yesterday, Senate Democrats voiced fresh doubts about legislative proposals to increase tax rates in the burgeoning private equity industry, questioning both the fairness of the plans and whether they would yield the revenue infusion lawmakers are seeking for the federal coffers. … Lawmakers indicated yesterday that they might turn their attention to more far-reaching tax shifts, such as increasing the rate on capital gains, to 20% from 15%, and the marginal income rate for the top-earning Americans, to 40% from 35%.