Topic: General

A Left-Wing Tax Victory that Is Actually a Triumph for Supply-Side Economics

Our statist friends like high taxes for many reasons. They want to finance bigger government, and they also seem to resent successful people, so high tax rates are a win-win policy from their perspective.

They also like high tax rates to micromanage people’s behavior. They urge higher taxes on tobacco because they don’t like smoking. They want higher taxes on sugary products because they don’t like overweight people. They impose higher taxes on “adult entertainment” because…umm…let’s simply say they don’t like capitalist acts between consenting adults. And they impose higher taxes on tanning beds because…well, I’m not sure. Maybe they don’t like artificial sun.

Give their compulsion to control other people’s behavior, these leftists are very happy about what’s happened in Berkeley, California. According to a study published in the American Journal of Public Health, a new tax on sugary beverages has led to a significant reduction in consumption.

Here are some excerpts from a release issued by the press shop at the University of California Berkeley.

…a new UC Berkeley study shows a 21 percent drop in the drinking of soda and other sugary beverages in Berkeley’s low-income neighborhoods after the city levied a penny-per-ounce tax on sugar-sweetened beverages. …The “Berkeley vs. Big Soda” campaign, also known as Measure D, won in 2014 by a landslide 76 percent, and was implemented in March 2015. …The excise tax is paid by distributors of sugary beverages and is reflected in shelf prices, as a previous UC Berkeley study showed, which can influence consumers’ decisions. …Berkeley’s 21 percent decrease in sugary beverage consumption compares favorably to that of Mexico, which saw a 17 percent decline among low-income households after the first year of its one-peso-per-liter soda tax that its congress passed in 2013.

I’m a wee bit suspicious that we’re only getting data on consumption by poor people.

Why aren’t we seeing data on overall soda purchases?

The European Commission’s War against Pro-Growth Corporate Tax Policy

I have a love-hate relationship with corporations.

On the plus side, I admire corporations that efficiently and effectively compete by producing valuable goods and services for consumers, and I aggressively defend those firms from politicians who want to impose harmful and destructive forms of taxes, regulation, and intervention.

On the minus side, I am disgusted by corporations that get in bed with politicians to push policies that undermine competition and free markets, and I strongly oppose all forms of cronyism and coercion that give big firms unearned and undeserved wealth.

With this in mind, let’s look at two controversies from the field of corporate taxation, both involving the European Commission (the EC is the Brussels-based bureaucracy that is akin to an executive branch for the European Union).

First, there’s a big fight going on between the U.S. Treasury Department and the EC. As reported by Bloomberg, it’s a battle over whether European governments should be able to impose higher tax burdens on American-domiciled multinationals.

The U.S. is stepping up its effort to convince the European Commission to refrain from hitting Apple Inc. and other companies with demands for possibly billions of euros… In a white paper released Wednesday, the Treasury Department in Washington said the Brussels-based commission is taking on the role of a “supra-national tax authority” that has the scope to threaten global tax reform deals. …The commission has initiated investigations into tax rulings that Apple, Starbucks Corp., Amazon.com Inc. and Fiat Chrysler Automobiles NV. received in separate EU nations. U.S. Treasury Secretary Jacob J. Lew has written previously that the investigations appear “to be targeting U.S. companies disproportionately.” The commission’s spokesman said Wednesday that EU law “applies to all companies operating in Europe – there is no bias against U.S. companies.”

The University of Chicago Has No Room for Crybullies

I’m delighted to join the many people spreading the news today that the University of Chicago, my graduate alma mater, is bucking the trend at colleges and universities across the country by refusing to pander to the delicate but demanding “snowflakes” and “crybullies” who’ve tyrannized American campuses over the past few years. As the Daily Beast reports, Dean of Students John Ellison told the incoming class of 2020 “something they wouldn’t hear on most other liberal-arts campuses: ‘We do not support so called “trigger warnings”… and we do not condone the creation of intellectual “safe spaces.”’” At Chicago, students are expected to live “the life of the mind.”

Just yesterday Nick Rosenkranz posted in this space about the efforts he and colleagues over at Heterodox Academy are taking to encourage greater ideological diversity in academia. On both of these closely connected issues I’ve spoken at some length and in detail—it’s not a pretty picture out there. But this silliness could not go on forever—not at these prices. Let’s hope that these are signs of changes in the offing.

The Manifest Presence of the President

“The president’s presence is already late to this crisis”: that weird phrase comes from yesterday’s widely shared editorial in the Baton Rouge Advocate“Vacation or not, a hurting Louisiana needs you now, President Obama.” It’s not just the man himself who’s missing: it’s his “presence.” “A disaster this big begs for the personal presence of the president at ground zero,” the editorialist insists.

But why? Well, “it’s what chief executives sign up for when they take the oath of office.” Does it help? The Advocate acknowledges that “sometimes, presidential visits can get in the way of emergency response, doing more harm than good,” but that won’t happen in this case. OK, even if it won’t do more harm than good, what good would it do? “In coming here, the president can decisively demonstrate that Louisiana’s recovery is a priority for his administration–and the United States of America.” Or he could demonstrate that by declaring the affected region a disaster area, freeing federal funds for assistance and recovery under the Stafford Act, like he’s already done. Still, “the optics of Obama golfing while Louisiana residents languished in flood waters was striking.”

Perhaps it’s harsh to point out that there’s not a single line of rational argument in the piece—after all, the editorialist is understandably upset about the suffering friends and neighbors have endured over the last week. But for most of the people sharing it, like Governor Scott Walker (R-WI), it’s content-free partisanship, as complaints about presidents golfing invariably are. Here’s the Washington Times grousing: “Obama puts vacation above American people amid deadly Louisiana flooding,” and Howie Carr snarling that while: “In Eastman, Georgia, a cop, a father of three, is murdered in cold blood by a gunman identified as Royheem Delshawn Deeds, who is later arrested in Florida…. Obama golfs at the Farm Neck Golf Club.” I confess I don’t see the connection.

New College Regs: Accusation = Sentence

It’s no secret that war has been declared on for-profit colleges. The question is whether the war is justifiable. I don’t think it is—the evidence strongly suggests that all of higher ed is broken—but I also think it is very hard for the public, in any individual case, to know whether a college accused of wrongdoing is really awful, or the target of politicians trying to make names for themselves. But just accusing a school of predatory behavior hurts it, generating lots of bad press, encouraging more suits and investigations, and usually resulting in schools settling with government accusers without admitting guilt, maybe to stop the PR and financial bleeding, maybe because they think they’re guilty and that’s the best they can get. Regardless, there is clearly an imbalance of power between taxpayer-funded accusers and the accused.

New federal regulations look like they’ll make the problem of accusation-equals-sentence worse. The Wall Street Journal has a lengthy piece looking at the broad potential ramifications of the regs, but one part of the US Department of Education regulation summary caught my eye: Schools would have to automatically “put up funds, in the form of letters of credit (LOCs), that total at least 10 percent of the amount of Title IV funds received by the school over the previous year” if “a state or federal government entity such as an attorney general, the CFPB, or the FTC brings a major suit against the school.” In other words, the moment any government entity, including the unchained Consumer Financial Protection Bureau, accuses a school of wrongdoing, the punishment begins.

This punishment could easily trigger a cascade of trouble, with the need for a letter of credit scaring off investors, bad publicity scaring off students, and a school suffering financially as a result. That school could then be targeted by the Department of Education for being even more of a financial risk, and the death spiral would become inescapable. This is not too far off from what seems to have happened to Corinthian College. Corinthian was, importantly, ultimately found guilty of fraud, but that rare guilty verdict was rendered after Corinthian was no more and had no one to defend it in court.

It is, to be sure, hard to feel too sorry for the for-profit sector. It does have poor outcomes, and is heavily dependent on students paying with government dough. That said, there is also a good bit of evidence that it is no worse, controlling for student challenges, than other higher ed sectors. And it is very easy to imagine politicians—human beings likely as self-interested as the average for-profit school owner or employee—going after for-profit schools because it is politically easy.

These proposed regulations look like they will stack the deck even more against for-profit colleges.

A Cartoon that Tells You Everything You Need to Know about International Bureaucracies

Okay, I’ll admit the title of this post is an exaggeration. There are lots of things you should know - most bad, though some good - about international bureaucracies.

That being said, regular readers know that I get very frustrated with the statist policy agendas of both the International Monetary Fund and the Organization for Economic Cooperation and Development.

I especially object to the way these international bureaucracies are cheerleaders for bigger government and higher tax burdens. Even though they ostensibly exist to promote greater levels of prosperity!

I’ve written on these issues, ad nauseam, but perhaps dry analysis is only part of what’s needed to get the message across. Maybe some clever image can explain the issue to a broader audience (something I’ve done before with cartoons and images about the rise and fall of the welfare state, the misguided fixation on income distribution, etc).

It took awhile, but I eventually came up with (what I hope is) a clever idea. And when a former Cato intern with artistic skill, Jonathan Babington-Heina, agreed to do me a favor and take the concept in my head and translate it to paper, here are the results.

I think this hits the nail on the head.

Excessive government is the main problem plaguing the global economy. But the international bureaucracies, for all intents and purposes, represent governments. The bureaucrats at the IMF and OECD need to please politicians in order to continue enjoying their lavish budgets and exceedingly generous tax-free salaries.

So when there is some sort of problem in the global economy, they are reluctant to advocate for smaller government and lower tax burdens (even if the economists working for these organizations sometimes produce very good research on fiscal issues).

Instead, when it’s time to make recommendations, they push an agenda that is good for the political elite but bad for the private sector. Which is exactly what I’m trying to demonstrate in the cartoon,

But let’s not merely rely on a cartoon to make this point.

In an article for the American Enterprise Institute, Glenn Hubbard and Kevin Hassett discuss the intersection of economic policy and international bureaucracies. They start by explaining that these organizations would promote jurisdictional competition if they were motivated by a desire to boost growth.

…economic theory has a lot to say about how they should function. …they haven’t achieved all of their promise, primarily because those bodies have yet to fully understand the role they need to play in the interconnected world. The key insight harkens back to a dusty economics seminar room in the early 1950s, when University of Michigan graduate student Charles Tiebout…said that governments could be driven to efficient behavior if people can move. …This observation, which Tiebout developed fully in a landmark paper published in 1956, led to an explosion of work by economists, much of it focusing on…many bits of evidence that confirm the important beneficial effects that can emerge when governments compete. …A flatter world should make the competition between national governments increasingly like the competition between smaller communities. Such competition can provide the world’s citizens with an insurance policy against the out-of-control growth of massive and inefficient bureaucracies.

Using the European Union as an example, Hubbard and Hassett point out the grim results when bureaucracies focus on policies designed to boost the power of governments rather than the vitality of the market.

…as Brexit indicates, the EU has not successfully focused solely on the potentially positive role it could play. Indeed, as often as not, one can view the actions of the EU government as being an attempt to form a cartel to harmonize policies across member states, and standing in the way of, rather than advancing, competition. …an EU that acts as a competition-stifling cartel will grow increasingly unpopular, and more countries will leave it.

They close with a very useful suggestion.

If the EU instead focuses on maximizing mobility and enhancing the competition between states, allowing the countries to compete on regulation, taxation, and in other policy areas, then the union will become a populist’s dream and the best economic friend of its citizens.

Unfortunately, I fully expect this sage advice to fall upon deaf ears. The crowd in Brussels knows that their comfortable existence is dependent on pleasing politicians from national governments.

And the same is true for the bureaucrats at the IMF and OECD.

The only practical solution is to have national governments cut off funding so the bureaucracies disappear.

But, to cite just one example, why would Obama allow that when these bureaucracies go through a lot of effort to promote his statist agenda?

Is Education “Privatization” Really Just Devious Deceit?

Education historian Diane Ravitch is against charter schools, voucher programs – any sort of education “privatization.” And that’s fine. I just wish she would bring more to bear in opposing such measures than accusations about privatizers’ hand-rubbing, dastardly motives, and unsupported assertions about what privatization has or has not done.

Here’s the part that really got to me in Ravitch’s latest writing on privatization:

A quarter century after privatization began in earnest, it is clear that its main effect has been to undermine the public schools. Actually, that has always been the goal of the privatization movement. Their propaganda campaign – which now spans from Kenya to the United Kingdom – blames public schools for the persistence of poverty and for the low test scores of children who grow up in poverty, without adequate food or medical care.

The privatization movement has cleverly and deceitfully branded itself as a “reform movement.” As they divert resources and students from public schools, which still enroll the vast majority of students, they congratulate themselves for leading a civil rights movement and introducing market discipline into what has traditionally been a government responsibility.

These are pretty tough accusations. But where’s the evidence? Ravitch offers basically none, save attacking the 1983 report “A Nation at Risk” for overinflating the dangers posed to the United States by its education system. (A point, by the way, to which I am sympathetic.)

But demonstrate that the main goal—and effect—of privatizers has been to hurt public schools, not help kids? No evidence. That privatizers have “deceitfully” used the term “reform movement,” as if more school choice weren’t somehow a reform? No evidence. That they blame public schools, presumably exclusively, for the persistence of poverty? No evidence.

I can’t speak to the motivations of others, but my goal in supporting “privatization” is absolutely to reform the system and help not just children, but all of society. Not only do I think the evidence shows public schooling does not work as well as free-market education academically, government schooling is fundamentally at odds with basic American values, forcing social conflict and creating inequality under the law. And Ravitch herself has furnished a significant amount of the evidence that has led me to those conclusions.  

Those conclusions have, of course, caused me to believe that the government monopoly over education should go away, and that funding should follow each, unique child to the educational options chosen by his or her parents. The end of government schooling, however, is not my goal, but a consequence of achieving my desired goals: improving education and maximizing liberty.

There is also weighty evidence of the power of privatized—meaning, really, freedom-based—education. As James Tooley’s work has vividly illustrated, private, for-profit schools seem to be providing education, typically better than the public schools, to many of the poorest people in the world. And the cases of Sweden and Chile to which Ravitch points actually furnish far from damning evidence that choice fails.

Of course, Ravitch may not agree with the findings of Tooley and others, but she at least ought to deal with them. Instead, she brusquely dismisses privatization and impugns the motives of “privatizers.” To truly determine what’s best for children and society, that’s not a very useful argument.