How about presidential signing statements?

Politicians tend to like high tax rates because they believe it yields more revenue for them to redistribute. Yet the perverse incentive effects of high rates tend to limit the increase in revenue, since the higher the rates, the more worthwhile are tax avoidance activities. At some point it becomes better to consume than invest and play than work, since the rate of return is so low.

Reports Robert Carroll for the Tax Foundation:

Economic Effects of High Tax Rates
High tax rates discourage work, saving and entrepreneurship. They also encourage taxpayers to rearrange their tax affairs to receive more of their compensation in less heavily taxed forms and to take greater advantage of the myriad tax preferences in today’s tax code. For example, taxpayers can reduce their tax bill by financing more of a home purchase, receiving more of their compensation as tax-free fringe benefits, or rebalancing their investment portfolios towards tax-exempt state and local government bonds.

It’s important to remember that every time a taxpayer makes a decision based on tax considerations rather than economic merit, we all lose. It wastes resources by redirecting them to less productive uses. The cost of high tax rates is not trivial. Research on the major changes in tax rates over the last several decades—the lower tax rates enacted in 1981, 1986 and 2001 or the higher tax rates enacted in 1993—finds that the behavioral responses can be large. This research generally finds that for every 1 percent decrease in the after-tax reward from earning income, taxpayers reduce their reported income by about 0.4 percent.

This does not mean that tax cuts pay for themselves. Rather, tax rate changes can have a profound effect on the size of the tax base, with lower tax rates increasing the size of the tax base and higher tax rates, such as those proposed by President Obama, shrinking the tax base. A shrinking tax base is not only suggestive of the economic costs of high tax rates, but also means that the government will take in less revenue than the casual observer might assume.

High Tax Rates Will Shrink the Federal Income Tax Base
Consider the combined effect of President Obama’s proposal to raise the top tax rate from 35 percent to 39.6 percent and the new surtax. This means high-income households will receive 54 cents rather than 65 cents from every dollar they earn; that is, the after-tax reward from earning income falls by 17 percent. Based on the research mentioned above, with such large increases in tax rates, we can expect taxpayers facing the top tax rates to reduce their reported incomes by nearly 7 percent.

What is critically important from the government’s perspective is that while it collects an extra 10 cents for every dollar subject to the higher rates, it loses over 45 cents for every dollar by which reported income falls due to taxpayers working less or otherwise reporting less income.

Overall, simulating the effect of the higher tax rates in 2011 shows that the federal government can expect to raise at most only 60 cents on the dollar. While “large” is always in the eye of the beholder, losing 40 cents on a dollar should cause us all to question this policy. Moreover, this is a cautious estimate. It is based on the behavioral response estimated for the overall taxpaying population, even though high-income households are likely to be much more responsive. Thus, we might expect an even faster shrinkage of the federal tax base from these tax increases.

President Barack Obama wants Americans to believe that they can enjoy all of his proposed programs without paying for them because “the rich” will cover the cost. Alas, this is a dangerous political fantasy. Taxing “the rich” will only be the start. To get real money, the big spenders are going to have to tax the middle class as well. There ain’t no such thing as a free lunch–or a free government program!

NPR reported this morning that “Cash for Clunkers” style programs in Germany and France are “popular and successful.” Successful by what standard? I see that the Wall Street Journal has reported that in Europe “‘cash for clunker’ programs have breathed fresh life into a battered auto industry.”

Yes, by that standard, no doubt subsidies for buying cars are successful in encouraging the sale of cars. Certainly subsidies to homebuying encouraged the buying of homes. A “Cash for Computers” program would “breathe fresh life” into computer sales. Make it “Cash for Compaq” or “Cash for Windows,” and you could direct purchasers to particular companies.

But to declare a policy successful, shouldn’t you mean that it makes the country better off? And that means that the subsidies produced more economic growth or more overall consumer satisfaction than a policy of nonintervention would have. That’s a much harder standard to meet. Subsidies by definition divert consumer choices from their natural outcome. Economists generally agree that subsidies create deadweight losses for society. And sometimes, by distorting consumer decisions and encouraging decisions that don’t make real economic sense — as in the long effort to channel consumer resources into housing — subsidies eventually prove unsustainable and unstable.

Indeed, it seems likely that another part of the Wall Street Journal was correct when it described “Cash for Clunkers” as “crackpot economics.”

Washington’s dysfunctional agricultural policy is costing consumers again. Limits on sugar imports, designed to protect a few large sugar producers, are driving up prices in a tight market. Reports the Wall Street Journal:

Some of America’s biggest food companies say the U.S. could ‘virtually run out of sugar’ if the Obama administration doesn’t ease import restrictions amid soaring prices for the key commodity.

In a letter to Agriculture Secretary Thomas Vilsack, the big brands — including Kraft Foods Inc., General Mills Inc., Hershey Co. and Mars Inc. — bluntly raised the prospect of a severe shortage of sugar used in chocolate bars, breakfast cereal, cookies, chewing gum and thousands of other products.

The companies threatened to jack up consumer prices and lay off workers if the Agriculture Department doesn’t allow them to import more tariff-free sugar. Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year, except from Mexico, suppressing supplies from major producers such as Brazil.

While agricultural economists scoff at the notion of an America bereft of sugar, the food companies warn in their letter to Mr. Vilsack that, without freer access to cheaper imported sugar, ‘consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted.’

Officials of many food companies — several of which are enjoying rising profits this year despite the recession — declined to comment on how much they might raise prices if they don’t get their way in Washington.

The letter is the latest salvo fired in a long-simmering dispute between U.S. food companies and the sugar industry over federal policy that artificially inflates the domestic price of U.S.-produced sugar in order to support the incomes of politically savvy sugar-beet farmers on the Northern Plains and cane-sugar farmers in the South. Most years, the price food companies pay for U.S. sugar is twice the world level.

President Barack Obama ran on the platform of change. How about changing agricultural policies which enrich the farm lobby at consumer and taxpayer expense?

Someone once observed that the problem with conservatives is that they want to ban anything that they don’t like and the problem with liberals is that they think anything good ought to be subsidized by taxpayer dollars. And so it goes with needle exchanges. Too many jurisdictions ban needles from stores. And then the liberals who fight the bans want to leap over to government funding for needle exchanges. It is as if no one has considered the idea that the government should just stay out of it altogether.

Just a few minutes ago on the wash​ing​ton​post​.com homepage, there was an example of one of my pet peeves about bias — possibly unconscious bias — in the way the major media cover issues. A homepage headline read “Price of Failure on Health Care,” and the Howard Kurtz article itself is titled “The Price of Failure.” Kurtz explores what would happen if “health care reform [goes] down in flames.”

So what does he mean by “Failure on Health Care”? He means President Obama not getting the sweeping new government programs that he seeks. But to many of us Post readers, that would actually be “Success on Health Care.” It would mean that American health care would not get worse under the burden of government regulations and restrictions.

The media tendency to refer to the defeat of a big-government scheme as “failure” reflects a possibly unconscious bias toward government action. As I’ve written before:

Does one ever hear “Congress failed today to reduce taxes”? “No Progress on Deregulation”? I don’t think so. Journalists unconsciously assume that Congress should Do the Right Thing. When it doesn’t, that’s “failure” or “no progress.” Journalists and headline writers should try to find neutral language to describe Congress’s actions.

(Kurtz’s article actually focuses on the political consequences to Obama of not passing his signature issue, and I have no quarrel with the article. But the headlines convey the sense that it would be a “failure” for Congress not to pass a government health-care plan.)

I was very pleased to read in Federal Computer Week this morning that the Office of Management and Budget will begin tracking earmark requests next year for the fiscal 2011 budget cycle.

OMB makes available some years’ approved earmarks, but not the earmark requests put forward by members of Congress. Tracking and publishing requests will shed light on the whole ecosystem of congressional earmarks—the favor factory, if you will.

OMB’s move follows a project Wash​ing​ton​Watch​.com has conducted this summer: asking the public to plug earmark disclosures into a database. The site now maps over 20,000 earmarks. (Well, technically, that much data breaks the mapping tool, but you can see state-by-state earmark maps.)

Earlier this year, the House and Senate Appropriations Committees required their members to disclose earmark requests. These disclosures—published as Web pages and PDF documents—were not useful, but public interest in this area is strong, and the public made them useful by entering them into WashingtonWatch.com’s database.

The project isn’t over, by the way, and the current focus is collecting earmarks requested by Appropriations Committee members.

It’s great news that next year the Obama Administration will track and disclose earmarks, from request all the way through to enactment. Given his struggle in the area lately, this is a chance to score some transparency points. President Obama campaigned against earmarks, promising reform, and this is an important step toward delivering on that promise.