Federal Tax Rates

Conveniently timed as Tax Day approaches, the Congressional Budget Office has released new data on the taxes paid by each income group. The CBO data includes federal income taxes, payroll taxes, and excise taxes, which amounts to almost the entire federal tax grab.

The CBO calculates tax rates by quintile from the lowest-earning to the highest earning households. These tax rates are simply total federal taxes paid by the group divided by total income earned by the group.

The chart makes clear that we have a very graduated or redistributive tax system, which some people call “progressive.” President Obama doesn’t think that the 25.8% rate paid by the top quintile is progressive enough, so he plans to penalize that group with an income tax rate hike.

New at Cato

Here are a few highlights from Cato Today, a daily email from the Cato Institute. You can subscribe here.

  • Malou Innocent argues that the United States should not increase its troop presence in Pakistan in a new Cato Policy Analysis.
  • Watch Tucker Carlson discuss whether a president should blame problems on past administrations on Fox News.
  • Chris Edwards is finishing his live debate with French economist Thomas Piketty over whether the rich should pay higher tax rates. Readers decide who wins, so don’t miss the chance to cast your vote.

Iklé on Pirates

The are a number of statements to take issue with in Fred Iklé’s oped on piracy in today’s Washington Post. Let’s focus on one. He writes:

Terrorists are far more brutal than pirates and can easily force pirates – petty thieves in comparison – to share their ransom money. We already know that Somalia is an ideal fortress and headquarters for global terrorist activity.

Lots is possible, but the fact is that there is no connection between the Somalia pirates and terrorists, as I discussed here.

Terrorism “experts” have been heralding Somalia as the next big terrorist haven for years, and few, if any, have arrived. That is because the idea that violent political chaos is generally conducive to terrorism is wrong. Even in Afghanistan, Al Qaeda got comfortable only once there was a somewhat coherent government that allied with them, not amid total chaos. Civil wars are not, it turns out, ideal locales to hatch international terrorist plots.

While we’re here, it’s worth noting the current level of American concern about piracy is overblown. As Peter Van Doren pointed out to me the other day, the right way to think about this problem is that pirates are imposing a tax on shipping in their area. They are a bit like a pseudo-government, as Alexander the Great apparently learned. The tax amounts to $20-40 million a year, which is, as Ken Menkhaus put it in this Washington Post online forum, a “nuisance tax for global shipping.”

The reason ships are being hijacked along the Somali coast is because there are still ships sailing down the Somali coast. Piracy is evidently not a big enough problem to encourage many shippers to use alternative shipping routes. In addition, shippers apparently find it cheaper to pay ransom than to pay insurance for armed guards and deal with the added legal hassle in port. The provision of naval vessels to the region is an attempted subsidy to the shippers, and ultimately consumers of their goods, albeit one governments have traditionally paid. Whether or not that subsidy is cheaper than letting the market actors sort it out remains unclear to me.

These considerations are worth keeping in mind when we discuss the costs and benefits of particular counter-piracy proposals. Iklé suggests blockading Somalia ports, which would require a massive naval force. Condi Rice suggested a UN peacekeeping force on shore, a far more expensive and risky proposition.

Iklé does make one more promising suggestion, which is to create an international law against paying ransom to pirates. In practice this would require member states to enforce the law against payments, probably making it unenforceable, but it is an interesting idea.

A Not So Happy Anniversary for the “Massachusetts Model”

Three years ago yesterday, then-Governor Mitt Romney signed into law the most far reaching state health care reform plan to date.  At the time, we warned that the plan, with its individual and employer mandates, new regulatory bureaucracy (the Connector), and middle-class subsidies would result in “a slow but steady spiral downward toward a government-run health care system.” Sadly, three years later, those predictions appear to be coming true.

  • While the state has reduced the number of residents without health insurance, some 200,000 people remain uninsured. Moreover, the increase in the number of insured is primarily due to the state’s generous subsidies, not the celebrated individual mandate.
  • Health care costs continue to rise much faster than the nationally. Since the program became law, total state health care spending has increased by 23 percent. Insurance premiums have been increasing by 10-12 percent per year, nearly double the national average.
  • New regulation and bureaucracy is limiting consumer choice and adding to costs.
  • Program costs have skyrocketed. Despite tax increases, the program faces huge deficits in the future. As a result, the state is considering caps on insurance premiums, cuts in reimbursements to providers, and even the possibility of a “global budget” on health care spending.
  • A shortage of providers, combined with increased demand, is increasing waiting times to see a physician, especially primary care providers.

With the “Massachusetts model” being frequently cited as a blueprint for state or national health care reform, it is important to recognize that giving the government greater control over our health care system will have grave consequences for taxpayers, providers, and health care consumers. That is the lesson of the Massachusetts model.

Stop the War, Stop the Spending

One of the great things about Ron Paul’s presidential campaign was its cross-ideological appeal. Libertarians, free-market conservatives, and antiwar young people all found his candidacy appealing. As someone who has despaired for years about the split between free-marketers and civil libertarians, who ought to be part of the same broad freedom movement, I looked forward to seeing that combination continue. So here’s a suggestion.

President Obama’s frightening tax-spend-and-take-over-private-businesses policies are re-energizing a free-enterprise constituency that had been depressed and dispirited by the reality of a Republican government giving us bigger, more expensive government for eight years. Cato’s full-page newspaper ads against the “stimulus” bill generated much enthusiasm and media discussion. CNBC’s Rick Santelli and South Carolina governor Mark Sanford have become folk heroes for speaking out against Obama’s economic policies. Now there are anti-tax “tea parties” planned in more than 300 cities. The growing resistance to Obama’s spending agenda is encouraging.

But meanwhile, where’s the antiwar movement? President Obama rose to power on the basis of his early opposition to the Iraq war and his promise to end it. Now he has doubled down on the war in Afghanistan and has promised to keep the war in Iraq going for another 19 months, after which we will have 50,000 American troops in Iraq for as far as the eye can see. If McCain had proposed this sort of minor tweaking of the Bush policy, I think we’d see antiwar rallies in 300 cities. Calling the antiwar movement!

So here’s my suggestion. Some libertarian group – which may or may exist already; the Internet makes it amazingly easy to organize a new group at a moment’s notice – should start a campaign to unite the antitax and antiwar constituencies with a simple message:

Stop the War, Stop the Spending

Or maybe it should be “Stop the Wars, Stop the Spending.” But it would pick up on Ron Paul’s appeal with his TV ads in which he said, “I’m the only presidential candidate who’ll bring our troops home from Iraq immediately and stop wasteful government spending.” Millions of Americans are tired of the war and worried about soaring federal spending. Somebody should give them a rallying point.

Cuban Agents Beat Up Young Dissident (and ElCato.org Contributor)

A year and a half ago I had the opportunity to travel to Cuba and meet with a group of young dissidents. Despite their early age, these guys had already suffered enormously the rigors of their totalitarian government. One of them had been imprisoned four times for his political activism. Constant official harassment was their daily life. But they remain unrepentant about their desire for liberty.

I’m still in touch with one of the guys I met that day, a young independent journalist. Every week he sends me articles and newsletters reporting instances of human rights abuses, lack of opportunities for young people, and how life is in general in the Castro prison-island. We have published several of his articles on ElCato.org.

Last Sunday, my friend was headed to a meeting of young dissidents when he was intercepted by government thugs. This is how Reporters Without Borders reported what happened next:

An attack by State Security agents on 5 April left Alvaro Yero Felipe, a young Havana-based dissident journalist, with a badly bruised face, a broken nose and a split lip. He was on his way with two friends to a meeting in support of prisoners of conscience when members of the political police intercepted him, took him to a nearby park and gave him a beating. “Yero’s experience is unfortunately representative of the mixture of harassment and brutality used by the authorities to crack down on dissent,” Reporters Without Borders said. “As the government has signed UN human rights conventions, it should logically punish officials who violate the international undertakings it has given.

This incident happened the same week that several U.S. Congressmen met with the Castro brothers in Havana and lavished praised on the eldest dictator, Fidel, to whom one of the congressmen described as the “ultimate survivor.” However, the ultimate survivors are the dissidents like my friend Álvaro Yero, who every day risk their life and limbs in pursuit of liberty. He’s my personal hero.

Tax Havens Should be Emulated, Not Prosecuted

My March 23 Capitol Hill speech defending tax havens against fiscal protectionism is now a two-part Youtube series, complete with the powerpoint slides from my presentation. Unfortunately, we are fighting a defensive battle and the other side is making progress. If you have any suggestions for making stronger arguments for tax competition, fiscal sovereignty, and financial privacy, please don’t hesitate to contact me.