Archives: 08/2012

Small Government Is Beautiful

Joelle Cannon is one of Capitol Hill’s top budget experts, and she looks great in her new Downsizing Government T-shirt. She’s good at cutting costs and knows a bargain when she sees it. The new shirts are just $18 from the Cato store and emblazoned with the inspiring slogan “Small is beautiful … when it comes to government.”

Joelle works full-time battling the bloated federal budget for Senator Tom Coburn. You can help her fight overspending by ordering a T-shirt and spreading the downsizing message to your friends and family.

And there is more from the Cato store. You can impress your office mates with a handsome Downsizing Government coffee mug. The mug will help banish the usual banal banter at the coffee machine, and hopefully spark conversation on the proper role of government in society.

The mugs are a robust 16 oz and can be yours for just $7.50. Just think—every time you reached for your caffeine fix, you’d be declaring your independence from the philosophy of big government!

America’s Olympic Athletes Should Be Taxed on Their Winnings (but Not by the IRS)

The folks at Americans for Tax Reform have received a bunch of attention for a new report entitled “Win Olympic Gold, Pay the IRS.”

In this clever document, they reveal that athletes could face a tax bill - to those wonderful folks at the IRS - of nearly $9,000 thanks to America’s unfriendly worldwide tax system.

The topic is even getting attention overseas. Here’s an excerpt from a BBC report.

US medal-winning athletes at the Olympics have to pay tax on their prize money - something which is proving controversial in the US. But why are athletes from the US taxed when others are not? The US is right up there in the medals table, and has produced some of the finest displays in the Olympics so far. … But not everyone is happy to hear that their Olympic medal-winning athletes are being taxed on their medal prize money. Athletes are effectively being punished for their success, argues Florida Senator Marco Rubio, a Republican, who introduced a bill earlier this week that would eliminate tax on Olympic medals and prize money. …This, he said, is an example of the “madness” of the US tax system, which he called a “complicated and burdensome mess”.

It’s important to understand, though, that this isn’t a feel-good effort to create a special tax break. Instead, Senator Rubio is seeking to take a small step in the direction of better tax policy.

More specifically, he wants to move away from the current system of “worldwide” taxation and instead shift to “territorial” taxation, which is simply the common-sense notion of sovereignty applied to taxation. If income is earned inside a nation’s borders, that nation gets to decided how and when it is taxed.

In other words, if U.S. athletes earn income competing in the United Kingdom, it’s a matter for inland revenue, not the IRS.

Incidentally, both the flat tax and national sales tax are based on territorial taxation, and most other countries actually are ahead of the United States and use this approach. The BBC report has further details.

The Olympic example highlights what they regard as the underlying problem of the US’ so-called “worldwide” tax model. Under this system, earnings made by a US citizen abroad are liable for both local tax and US tax. Most countries in the world have a “territorial” system of tax and apply that tax just once - in the country where it is earned. With the Olympics taking place in London, the UK would, in theory, be entitled to claim tax on prize money paid to visiting athletes. But, as is standard practice for many international sporting events, it put in place a number of tax exemptions for competitors in the Olympics - including on any prize money. That means that only athletes from countries with a worldwide tax system on individual income are liable for tax on their medals. And there are only a handful of them in the world, says Daniel Mitchell, an expert on tax reform at the Cato Institute, a libertarian think tank - citing the Philippines and Eritrea as other examples. But with tax codes so notoriously complicated, unravelling which countries would apply this in the context of Olympic prize money is a tricky task, he says. Mitchell is a critic of the worldwide system, saying it effectively amounts to “double taxation” and leaves the US both at a competitive disadvantage, and as a bullyboy, on the world stage. “We are the 800lb (360kg) gorilla in the world economy, and we can bully other nations into helping enforce our bad tax law.”

To close out this discussion, statists prefer worldwide taxation because it undermines tax competition. This is because, under worldwide taxation, individuals and companies have no ability to escape high taxes by shifting activity to jurisdictions with better tax policy.

Indeed, this is why politicians from high-tax nations are so fixated on trying to shut down so-called tax havens. It’s difficult to enforce bad tax policy, after all, if some nations have strong human rights policies on privacy.

For all intents and purposes, a worldwide tax regime means the government gets a permanent and global claim on your income. And without having to worry about tax competition, that “claim” will get more onerous over time.

P.S. Just because a nation has a right to tax foreigners who earn income inside its borders, that doesn’t mean it’s a good idea to go overboard. The United Kingdom shows what happens if politicians get too greedy and Spain shows what happens if marginal tax rates are reasonable.

P.P.S. The International Olympic Committee apparently insisted that London couldn’t host the games unless the UK government agreed not to tax any of the athletes on their winnings.

$800 Billion Stimulus? I Wish

Cato scholars aspire to high standards for accuracy and analysis. Because of that, I feel obligated to note an error in Dan Mitchell’s recent post on the ongoing failure of Washington’s economic stimulus efforts.

Dan writes:

The politicians in Washington flushed about $800 billion down the toilet and we got nothing in exchange except for anemic growth and lots of people out of work.

About $800 billion? I wish. By my calculation, federal fiscal stimulus efforts for the recent recession are now close to $2.5 trillion—at least.

Of course, Dan had in mind the $820 billion American Recovery and Reinvestment Act that President Obama pushed through Congress within a month of becoming president. But ARRA was just one of several fiscal stimulus bills that Washington adopted, beginning with the February 2008 Economic Stimulus Act and continuing through to early this year. Some of those bills were explicit stimulus measures; others were ostensibly intended to address other policy goals, but were engineered to provide fiscal stimulus by borrowing and spending money now, and then using future government revenues to pay off that borrowing (perhaps when God grants St. Augustine chastity and continence).

Below is a list I’ve kept of these stimulus measures. I use multiple-sequence numbering to differentiate between major and minor legislation.

# Name Stimulus (Billions) Became Law Public Law Note
1.0 Economic Stimulus Act of 2008  $167 2/13/2008 110-185 A “timely,” “targeted,” and “temporary” fiscal stimulus.
1.0.1 Unemployment Compensation Extension Act of 2008  $5.7 11/21/2008 110-449 Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.0 American Recovery and Reinvestment Act of 2009  $819 2/17/2009 111-16 This package of public works projects, tax breaks, unemployment insurance extension, and other spending would keep unemployment below 8%.
2.0.1 Cash for Clunkers Extension  $2 8/7/2009 111-47 Continues the subsidy for new car purchases that was first enacted as part of ARRA.
2.1 Worker, Homeownership and Business Assistance Act of 2009  $44.7 11/6/2009 111-92 Extends and expands the homebuyer tax credit program.
2.2 Temporary Extension Act of 2010  $8.1 3/2/2010 111-144 Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.3 Hiring Incentives to Restore Employment Act  $17.6 3/18/2010 111-147 AKA the “Jobs for Main Street Act,” this “jobs bill” would “spur job growth and strengthen the private sector.”
2.4 Continuing Extension Act of 2010  $18.1 4/15/2010 111-157 Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.5 Homebuyer Assistance and Improvement Act of 2010  $145 7/2/2010 111-198 Extends the deadline for submitting paperwork for homebuyer credit.
2.6 Unemployment Compensation Extension Act of 2010  $33.9 7/22/2010 111-205 Extends unemployment insurance, using borrowed funds so as to provide stimulus.
2.6.1 United States Manufacturing Enhancement Act of 2010  $3 8/11/2010 111-227 Reduces or suspends various import duties.
2.7 Small Business Jobs Act of 2010  $85.4 9/27/2010 111-240 Expands SBA loan programs and provides other small business assistance.
3.0 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010  $916.8 12/17/2010 111-312 A package of tax breaks, including a cut in the Social Security payroll tax, an extension of the Bush income tax rates, and an extension of unemployment insurance.
3.1 Temporary Payroll Tax Cut Continuation Act of 2011  N/A 12/23/2011 112-78 Extends the Social Security payroll tax cut, extends unemployment insurance, and other provisions.
4.0 Middle Class Tax Relief and Job Creation Act of 2012  $167.6 2/22/2012 112-96 Extends the Social Security payroll tax cut, among other provisions.
SUM:   $2,433.9      


Keep this list in mind when someone says there was “only” $800 billion in stimulus—or when someone says the only reason the stimulus failed is because it was too small.

Post Script(2016): As part of its final Economic Report of the President report, the outgoing Obama Council of Economic Advisers offered a lengthy (and positive) assessment of its handling of the recession, including efforts to fiscally stimulate the economy. The report (p. 34) notes that “Together with automatic stabilizers, the total fiscal stimulus over these four years averaged 4 percent of GDP,” or about $2.5 trillion.

On the Perils of Single-Issue Politics – Breastfeeding Edition

Earlier this week I wrote about the perils of the NRA’s single-issue politics. Now it’s breastfeeding moms in the crosshairs – different issue, same principle.

In the NRA case, it seems that they’re going after a Tennessee state legislator – a long-time NRA member and supporter, no less – who opposed a bill that would have allowed employees to keep guns in their cars while parked in their private employers’ parking lots. The principle at issue there could not be simpler or more basic to a free society: individuals, including private employers, should have a right to determine the conditions on which others may enter their property. The NRA’s mistake is in asking the state to restrict that right in the name of the Second Amendment, which of course applies only against governmental, not private, restrictions.

The breastfeeding moms make a similar mistake. We learn from NPR this morning that a number of them have just gathered en masse and staged a “Great Nurse-In” at the U.S. Capitol. Their aim is to secure “federal protection of breastfeeding everywhere.” Everywhere? In my home, my business?

Don’t get me wrong: I’m no more against the right to breastfeed than I am against the right to keep and bear arms. That’s not the point. Rather, the point is that, in a free society, the property right is fundamental, starting with your property in your person and your liberty, which you can exercise only to the extent that you respect the equal rights of others. Property rights set the lines that determine where one person’s rights end and the next person’s begin, which is why getting those lines right is so crucial to a society that aspires to protecting equal rights.

The breastfeeding moms might well object if they were forced to allow people to carry guns into their businesses, just as the gun owners might object to being forced to allow breastfeeding in theirs. And it isn’t that some values are better than others. We can argue over that all day and get nowhere. With rights, by contrast, there’s a good possibility of agreement. In fact, the nation is based on a live-and-let-live principle we largely agreed on at the outset – and lived by, for the most part, until we started asking government to impose our values on others, leading to the war of all against all that we see all about us today and to the politicization of everything, including parking lots and breastfeeding.

House Oversight Hearing on the IRS’s Illegal Rule Increasing Taxes & Spending under ObamaCare

Overall, this Tennessean article summarizes well yesterday’s House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about here and here. Unfortunately, the article does perpetuate the misleading idea that the nation’s new health care law is “missing” language to authorize tax credits in federally created Exchanges. (The statute isn’t missing anything. It language reads exactly as its authors wanted it to read.)


Rep. Scott DesJarlais’ argument that the health-care reform law lacks wording needed to implement a crucial part of it took a major step forward Thursday.

The Jasper Republican got a hearing before the House Committee on Oversight and Government Reform on his claim that the Internal Revenue Service lacks authority to tax employers who fail to offer health policies and leave workers to buy coverage through federally established exchanges.

His arguments, while not uncontested during the hearing, apparently won over the committee chairman, Rep. Darrell Issa, R-Calif. Issa signed on Thursday as a co-sponsor of DesJarlais’ bill related to the issue. Other House Republican leaders also have shown interest, DesJarlais said in an interview afterward. He said he expects a vote on the House floor sometime this fall.

And a Senate version has been introduced by Sen. Ron Johnson, R-Wis…

DesJarlais contends that Congress worded the law in a way that authorizes the taxes and tax credits only for insurance bought through state-based exchanges, not federal ones…

The distinction is important because many states are balking at setting up their own exchanges. DesJarlais’ argument would mean federal exchanges couldn’t be implemented in those states, either…

“They have rewritten a law Congress haphazardly drafted,” DesJarlais said.

His bill, which has 35 cosponsors, would keep the IRS from moving forward with its regulatory language.

“I have employers watching this very closely,” DesJarlais added. Essentially, he said, the issue is “about whether ObamaCare can continue to exist.”

Jobless Rate Climbs to 8.3 Percent, Creating More Anxiety for Obama and the Left

Can we finally all agree that Keynesian economics is a flop? The politicians in Washington flushed about $800 billion down the toilet and we got nothing in exchange except for anemic growth and lots of people out of work.

Indeed, we’re getting to the point where the monthly employment reports from the Labor Department must be akin to Chinese water torture for the Obama administration. Even when the unemployment rate falls, it gives critics an opportunity to recycle the chart below showing how bad the economy is doing compared to what the White House said would happen if the so-called stimulus was enacted.

But for the past few months, the joblessness rate has been rising, making the chart look even worse.

I never watch TV, so I’m not in a position to know for sure, but I haven’t seen any articles indicating that the Romney campaign is using this data in commercials to criticize Obama. That seems like a missed opportunity. But since it’s not clear to me that Romney would actually do anything different than Obama (check out this post if that seems like an odd assertion), I don’t focus on the political implications.

Instead, I’m hoping the American people will learn an important long-run lesson: If you want more growth and prosperity, the recipe is smaller government and free markets. In other words, our economic policy should be more like Hong Kong and Singapore, but the Obama administration has been making us more like France.