Cuba, Venezuela, and the Eternal Shortage of Toilet Paper

Marketplace Radio takes a look at the challenge of filming movies and television shows in Cuba, focusing specifically on Showtime’s “House of Lies” starring Don Cheadle. The episode is titled “No es facil” – “It’s not easy.” The title appears to be a description of doing business in Cuba, and also of filming a show about doing business in Cuba. As Marketplace’s Adrienne Hill and show creator Matthew Carnahan explain:

Camera equipment was shipped from Germany because it couldn’t be sent directly from the U.S. Even basic supplies – “there’s not hammers and toilet paper, and things that people need.” 

Journalists have stopped reporting on the privations of socialism in Cuba. But Hugo Chavez was a great admirer of Fidel Castro and the society he built, and he wanted to give Venezuelans the same thing. And of course he did:

Venezuela’s product shortages have become so severe that some hotels in that country are asking guests to bring their own toilet paper and soap, a local tourism industry spokesman said on Wednesday….

Rest well, Comandantes Castro and Chavez, while your people dream of toilet paper. And hammers. And soap.

About Those One Sentence Free Trade Agreements

I sometimes hear it said that today’s lengthy trade agreements are about “managed trade,” and that a true free trade agreement would only have to be one sentence (or perhaps one paragraph.) Well, maybe, but it depends on what that sentence or paragraph says. Here’s a suggestion someone made on a trade policy blog I run:

A true free trade agreement would be one sentence. Any good that can be sold legally in a country can be sold legally by a seller from any other country that is a party to this agreement. The agreements are long because they are negotiating winners and losers. That is crony capitalism.

The problem with this proposed sentence is that it would be under-inclusive: It would not achieve free trade, in several respects.

First, the primary barrier to free trade is still tariffs, which are taxes imposed on imports. Tariffs don’t make trade illegal, they just tax it, and a rule that goods which can legally be sold in a country can also be sold by foreign sellers would not eliminate tariffs. And, by the way, that’s a big reason why trade agreements are so long – they list all traded products and place limits on the tariff level for each product. Many of the pages are taken up by these detailed tariff reduction schedules.

Now, you could have a one sentence trade agreement that said something along the lines of, “All tariffs are hereby abolished.” That would be a pretty good sentence in a trade agreement. So far, we haven’t seen a sentence like that, unfortunately.

In addition, there are some complex protectionist measures out there, not all of which ban the sale of foreign goods.  For example, you could have a tax measure which applies higher taxes to foreign goods than domestic goods. This would mean that foreign goods could still legally be sold in the country, and thus the free trade sentence quoted above would not address such a measure.

Along the same lines, some trade agreements impose constraints on the use of anti-dumping measures.  There might be an ideal sentence here (“anti-dumping measures are hereby abolished”), but that is not politically achievable right now, so we end up with many pages of rules that put limits on anti-dumping measures. It’s not perfect, but it helps.

To sum up, I agree with critics who say there are lots of problems with today’s trade agreements, as various interest groups have lobbied succesfully for specific regulations to be included in them.  We can definitely scale back from the 5,000 or so pages in the Trans Pacific Partnership. In the end, though, any free trade agreement is likely to take quite a few pages to set out all the various constraints on protectionism. 

Much Higher Tax Rates in 2013 Left Top 1% Taxes About the Same

Top Tax Rate and Taxes Paid

A timely new blog post from the Tax Foundation points out that, “taxes on the rich are much higher than they’ve been in recent years. Between 2008 and 2012, the top 1 percent of households paid an average tax rate of 28.8 percent. However, in 2013, this figure spiked to 34.0 percent, as a result of tax increases in the “fiscal cliff” deal and the Affordable Care Act”.

“Readers should check out the new CBO report,” the authors suggest, “and reflect for themselves about whether or not high-income Americans are now paying their fair share of taxes.”

The trouble is that the tax rate alone can’t tell us how much the Top 1% paid in taxes: To know how much taxes were paid by the Top 1% requires knowing how much income they reported to the IRS.  The reason this matters is that there is ample evidence that the “elasticity of taxable income” is very high among top taxpayers, which simply means they find ways to report less income if marginal tax rates go up.  This doesn’t require lawyers or loopholes: Avoid capital gains tax by not selling assets and/or shifting into exempt assets (housing up to $500k); avoid the dividend tax by holding tax-exempt bonds; defer personal tax on business income by retaining earnings within a C-corporation; avoid punitive tax rates on second earners by becoming a one-earner household; retire early, etc.

Looking at the same thing from a different angle, the graph shows that average taxes actually paid by the Top 1% grew rapidly after the tax rate on capital gains was cut from 28 percent to 20 percent in 1997. Taxes paid by the Top 1% grew even more rapidly after 2003 when the tax rate on capital gains and dividends was further reduced to 15 percent and the top tax on salaries and unincorporated businesses was cut from 39.6 percent to 35 percent.  If you want the rich to pay more taxes, cut their tax rates.  

As it turns out, 2013 showed that we can’t just assume higher tax rates mean docile taxpayers will simply write bigger checks to the U.S. Treasury. On the contrary, when the average tax rate on the Top 1% increased by 18.4 percent in 2013, the amount of income reported by the Top 1% fell by 15.4 percent – from $1,856,000 in 2012 to $1,571,600. The net effect was almost a wash, in terms of taxes actually paid. According to the CBO, average federal taxes paid by the Top 1% were $530,128 in 2013 –virtually unchanged from $529,056 in 2012. 

Presidential candidates Bernie Sanders and Hillary Clinton propose even more increases in top tax rates on income and capital gains (to 54.2 percent with Sanders, 43.6 percent with Clinton), ostensibly to finance their lavish government spending plans.  But even a relatively small dose of this same poison failed to raise significant revenue from the Top 1% in 2013, partly because of the drag on the overall economy from reduced incomes and incentives. 

Libertarians Are More Racially Diverse Than Some May Realize

In recent weeks, Libertarian presidential candidate Gary Johnson has been gaining media momentum as polls show him garnering about 10 percent of the vote in a race with Trump and Clinton. His candidacy has attracted attention to the libertarian ideas he espouses and the people who embrace the label.

The popular media stereotype of libertarians is disproportionately white and male. But is this accurate? What do the data actually say?

As it turns out, the libertarian label is embraced by a more racially and ethnically diverse group of individuals than some may realize, but tilts male.

Averaging across nine Reason-Rupe surveys I conducted at Reason Foundation/Reason Magazine with Princeton Survey Research Associates between 2012-2014 and a recent survey we conducted here at the Cato Institute with YouGov, here’s what we find: Among those who self-identify as “libertarian”, 71 percent are Caucasian, 14 percent are Latino, 5 percent are African-American, 8 percent identify as another race, and 4 percent chose not to identify. While not an exact reflection, these numbers are similar to the demographic makeup of all respondents averaged across the surveys: 67 percent white, 13 percent Latino, 12 percent African-American , 7 percent identifying as other, and 1 percent not identifying.  

You Ought to Have a Look: The Hows and Whys of the Social Cost of Carbon

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

There are several notable pieces this week that relate to the social cost of carbon (SCC)—the government’s powerful tool to aid in justifying all manner of rules and regulations. The SCC is supposed to represent the negative externalities (i.e., projected economic damages in a projected society resulting from projected climate change) that are associated with the emissions of each ton of carbon dioxide. It was developed as a way to translate carbon dioxide emission reductions into dollars savings and to make the “benefits” of proposed climate actions hit closer to home for more people.

But as you may guess from the number of “projected”s in the above parenthetical, the SCC is so highly malleable that you can pretty much game it to produce any value desired—the perfect characteristic for an all-purpose economic cost/benefit tool wielded by an opportunistic and activist government.

The situation is well-described by American Enterprise Institute’s Benjamin Zycher in his recent post for The HillThe magic of the EPA’s benefit/cost analysis.”

Welcome to the fascinating world of EPA benefit/cost analysis… the administration conducted an “analysis” of the “social cost of carbon” (SCC), in order to generate an estimate of the marginal externality cost of greenhouse gas emissions (GHG). The problems with that analysis are legion, but the central ones are the use of global (rather than national) benefits to drive the benefit/cost comparison; the failure to apply a 7 percent discount rate to the streams of benefits and costs, despite clear direction from the Office of Management and Budget; and — most important — the use of ozone and particulate reductions as “co-benefits” of climate policies. The administration’s estimate is about $36 per ton in 2015 ($31 per ton in 2010).

And that is how a regulation yielding future changes in temperatures and sea levels approaching zero can be claimed to yield net benefits “exceeding $100 billion, making this a highly beneficial rule.” In the EPA’s benefit/cost framework, the actual effects of the policies literally are irrelevant; just compute the assumed reduction in GHG emissions, multiply by $36, and voila!

Zycher takes us through the absurdities of just how small the impact of Obama’s “climate” actions is on the actual climate and how the actions are enormously magnified they become when they are run through the social cost of carbon. He concludes:

It is the delegation of legislative powers to the regulatory agencies that has allowed such game-playing in pursuit of an ideological agenda. The only means with which to restore political accountability to the regulatory process is a requirement that all regulations be approved by Congress.

You can check out his entire article, here.

Respecting Property Rights Means Paying Just Compensation for Takings

There’s no such thing as a free lunch. Or as the Fifth Amendment puts it, “nor shall private property be taken for public use, without just compensation.” Despite the clarity with which the Takings Clause proclaims that government must respect property rights, state and local governments have long been contriving ways to obtain private property without paying the constitutionally required just compensation.

In 2012, San Juan County, Washington—the islands in the Salish Sea between Seattle and Victoria—enacted a rule that conditions shoreline owners’ proposed land uses on dedicating a portion of their property as on-site conservation areas. This isn’t a new tactic. In Nollan v. California Coastal Commission (1987), for example, the Supreme Court rejected the government’s conditioning of a building permit on the landowners’ granting a public easement across their property to access a beach. The Court acknowledged that conditioning a benefit on the property owners’ giving up their Fifth Amendment right to just compensation is “an out-and-out plan of extortion.” The Court elaborated seven years later in Dolan v. City of Tigard (1994), ruling that courts must apply a high level of scrutiny to conditions attached to land-use permits to prevent government “gimmickry.”

There’s No Such Thing as a ‘Public’ School

Perhaps the most pervasive myth about our nation’s education system is the notion that “public schools have to take all children.” Last year, when criticizing charter schools that she claimed, “don’t take the hardest-to-teach kids,” Hillary Clinton quipped, “And so the public schools are often in a no-win situation, because they do, thankfully, take everybody.” 

No, in fact, they do not.

At best, so-called “public” schools have to take all children in a particular geographic area, although they can and do expel children based on their behavior. They are more appropriately termed “district schools” because they serve residents of a particular district, not the public at large. Privately owned shopping malls are more “public” than district schools.