Author Archive
One Small Step for Private Airports
The New York Times reports that the nation’s only privately financed commercial airport is set to open in Branson, Missouri.
Unlike government transportation projects such as the Big Dig, this private project has gone well so far: “‘I think it’s some kind of record,’ Jeff Bourk, executive director of the airport, said of the speed of the construction. ‘On other projects I’ve been involved in, there’s a lot more red tape.’”
On the broader issue of America’s airports, the Times notes:
Every one of the 552 airports providing commercial air service in the United States receives some kind of federal money, according to the Federal Aviation Administration, and these airports are owned by public entities, municipalities, transportation districts or airport authorities.
In airports, America embraces socialism, while free enterprise has taken hold abroad. Many major cities around the world have privatized their airports in recent decades, as I discuss here.
The growth in private airports faces a number of hurdles in America. One problem is that government airports receive federal, state, and local subsidies, which makes it hard for private companies to compete. Another problem is the tax-deductibility of state/local (“muni”) bonds, which gives government facilities a financing advantage over private projects.
Thus, two reforms are obvious: end all federal subsidies for state/local infrastructure and repeal the tax deductibility of muni bonds. (Note that the Branson airport found an interesting way around the second problem).
Over time, these two steps would likely create a giant leap forward for privatized infrastructure in America.
Hat tip: Harrison Moar.
Agony of Defeat
Oh, what a burn. My tax debate with French economist Thomas Piketty was a dead heat, 50-50, for the past four days. Then just as the contest was closing, he pulled ahead to seize victory, 51-49.
The Economist editor described the tightly fought battle:
Chris Edwards got over a strong initial disadvantage to narrow what was originally a strong lead for Mr Piketty to a dead heat, but eventually Mr Piketty has prevailed: but only just—even hours before closing, the vote was split exactly down the middle. One could not have asked for a closer contest: this has been the most closely-fought of our 21 online debates, although it began with a fairly substantial lead for the proposition.
Certainly, the debate revealed high levels of interest in taxation and relative income levels. There were more than 1,100 reader comments posted, making it the “most commented” story on the Economist site for the last 10 days or so. My thanks to all the supportive voters and commenters.
Piketty won the website voting battle, but I don’t think he’ll win the war. Global tax competition has led to large cuts in top tax rates in recent decades, and will continue to exert downward pressure for years to come. However, these are dangerous times as governments press to end financial privacy, to create international tax cartels, and to substitute competition with multinational government power in various other ways.
Private Zips Past Public
Govexec.com reports: “Private sector zips past government in Recovery Act tracking.”
If you want to find out where governments are spending the $800 billion in federal stimulus money, the story reports that you would do better to go to www.recovery.org than www.recovery.gov. The latter is the government website that stimulus-overseer, VP Joe Biden, could not remember the name of. The former is a project of the business research firm Onvia.
The private www.recovery.org does have useful data and charts. But Onvia should have paired the chart ”Estimated Jobs Created by State” with another one titled “Estimated Jobs Destroyed by State” to illustrate the financing burden of all the new spending.
Is Rick Perry Really for Limited Government?
Conservative radio hosts are excited about a recent speech by Texas governor Rick Perry. Perry forcefully argued his theme of “unwavering support for efforts all across our country, but, most of all, here in Texas, to reaffirm the states’ rights affirmed through the Tenth Amendment to the U.S. Constitution.”
That sounds great, but does he really mean it?
In a study, I noted that Perry and the Texas state government are aggressive scavengers of federal grant dollars. The rise in federal granting is one of the central causes of the destruction of the Tenth Amendment in recent decades.
I noted that Perry’s official webpage is chock full of press releases touting his distribution of federal subsidies. These press releases are from a short time period in 2006:
- “Perry: Texas Farmers and Ranchers to Share $780 Million in Drought Assistance.”
- “Perry: FEMA Agrees to Reimburse Texas at Same Rate as Louisiana for Hurricanes.”
- “Gov. Perry Announces $1.6 Million in Grants to Juvenile Offender Accountability Programs.”
- “Perry: Homeland Security Grants to Focus on Technology Needs.”
- “Gov. Perry: Presidential Disaster Declaration Approved for El Paso.”
- “Gov. Perry Announces $38,098 in Victims of Crime Act Funds to El Paso County.”
- “Gov. Perry Announces $3.6 Million in Grants to Local Law Enforcement.”
Notice how Perry takes credit for all the new spending? Politicians love spending, especially when they can foist the cost on taxpayers living in other states.
Look at these two press releases up on Perry’s website right now:
- Apr. 9: “Gov. Perry Backs Resolution Affirming Texas’ Sovereignty Under 10th Amendment.”
- Apr. 10: “Gov. Perry Calls on FEMA to Assist the State in Fighting Wildfires.”
Governor Perry: Do you want to revive the Tenth Amendment or do you want the FEMA money? You’re giving us whiplash out here!
I don’t think Perry’s tax policies have been particularly conservative either, as they have centralized fiscal power at the state level and thus reduced beneficial competition between local governments.
Demand for Subsidies
My op-ed on National Review Online today provided new information about the increasing number of federal subsidy programs. The federal welfare state is expanding rapidly.
One friendly reader emailed me:
Ever cross your mind that there’s a reason government programs increase over time? I’ll clue you in: Programs increase because of public demand.
It’s not rocket science, people want more services. Period. Somebody’s got to pay for them. Hences taxes. Or perhaps borrowing. Or a combination of both. In any event, there’s no evidence people are willing to get along with fewer services.
The situation seems simple to me; so why can’t you ideologues on the far right understand what’s going on. Instead, you simply go on bemoaning the existence of programs and taxes you don’t like.
There are numerous problems with this reader’s views, including constitutional problems. But one thing that strikes me is the underlying assumption of the “public interest theory of government,” or the idea that democracies and bureaucracies operate to efficiently provide “services.”
In reality, there are structural problems in government that bias policymakers toward fiscal irresponsibility, as our current $1.8 trillion federal deficit indicates. The issue is not ideology, it is scientific: Does the government actually work as the optimists, like this reader, believe? I think the empirical evidence is in on that question.
Vote for Me!
Final statements in my tax debate with economist Thomas Piketty were posted today at the Economist.
I think I’m softening Piketty up, as he reiterated that a 60% tax on high earners might be OK, rather than the 80% that he suggested.
The voting from readers has been locked at 50%/50% for days. So it is important that you register your vote by the end of tomorrow before the magazine’s “decision” on the winner Friday.
Tax Day
Fox News and MSNBC are having fun with the taxpayer tea party protests today. Fox News is playing up the protests, while MSNBC hosts are making jokes about “tea-bagging,” while pretending that the protests were all orchestrated by Sean Hannity. I’ll be attending the protests in D.C. today, and I’m hoping that the message isn’t just anti-Obama because the Republicans are every bit as guilty as the Democrats for the government’s fiscal mess.
MSNBC hosts who think that the colonists didn’t mind taxes, but were just upset about the “without representation” part, should read Alvin Rabushka’s massive tax history leading up to 1776, Taxation in Colonial America.
Doing my taxes last night, I asked my twins (age 5 1/2): “If Mommy and Daddy had $100, how much should we give to the government?” One twin said “5″ and the other said “10,” so they are off to good start on understanding limited government. Mommy reminded the kids that the government provides useful services such as fire and police, but the kids were comfortable with their answers.
I would footnote that state/local fire, police, and corrections spending amounts to just 4 percent of total government spending in the United States.
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.
Piketty Tax Battle: Round Two
The Economist has posted rebuttals to first-round arguments in my tax debate with French economist Thomas Piketty. Piketty seems to think that everyone with a high income has a “grabbing hand” that comes at someone else’s expense.
The debate over tax rates on the rich is important, but Piketty is important in himself because he is widely cited in the media and elsewhere as if he were a neutral authority. For example, President Obama’s budget featured a chart showing that the top 1 percent of earners have greatly increased their share of national income over the decades, using Piketty’s numbers.
But Alan Reynolds has found serious flaws in Piketty’s calculations. Piketty bases his calculations on tax return data, but reported income under the federal income tax has changed greatly over time.
The bottom line is to be suspicious when you see a chart on income trends that is sourced to this advocate of 80 percent tax rates.
Obama Tax Policies and Beyond
I was a panelist for a Tax Notes forum on April 3 regarding Obama’s tax policies. The other panelists were Len Burman of the Urban Institute and Gene Steuerle of the Peterson Foundation. It was an expert and ideologically diverse panel, but nobody was fond of Obama’s fiscal policy direction. (In the photo, that’s former CBO director Rudy Penner to my left. Photo credit to Derek Squires)
Tax Notes summarized the discussion: “A diverse panel of economists and tax specialists largely agreed … that President Obama’s tax and budget plans at best would fail to forestall long-term fiscal ruin and could even hasten its arrival.” One point of agreement was that the tax code is too complex and it doesn’t need the complicated new tax credits that Obama has proposed.
Where we differed was on the need for added federal revenue, and herein lies the big tax policy battle ahead. Len thought that some form of new value-added tax (VAT) was inevitable in order that the government could raise more money. I am increasingly hearing that argument from top fiscal scholars, and I fear that the drumbeat for a VAT will get louder.
Dan Mitchell and I are dead-set against a VAT because it will be a tool to fund even larger government, as we discuss in Global Tax Revolution. But supporters of limited government need to start watching this issue and making preparations to ward off a Euro-style money machine.
Majorities Favor Soaking the Rich
We are in the middle of a nine-day debate at The Economist on the proposition that “the rich should pay higher taxes.” I’m on the “no” side of the proposition. French economist Thomas Piketty is on the “yes” side, arguing that we ought to impose an 80 percent tax on those with the highest incomes.
I need help! Thus far, readers are favoring Piketty 57 percent to 43 percent. Please go to the site and register your vote.
Are website visitors actually reading the statements, or do their votes just reflect their existing political biases? Are they mainly Europeans or Americans? We don’t know, but majorities in favor of 80 percent tax rates does not bode well for economic freedom.
On Friday, Piketty and I post our rebuttals to opening statements, and next week we make closing arguments.
Obama vs. Ontario
The left-of-center government in Ontario, Canada’s largest province, is enacting dramatic corporate income tax (CIT) cuts. It announced last week that it is phasing in a reduction of the provincial CIT to 10 percent, which is paid on top of the federal rate that itself is falling to 15 percent. The combined rate of 25 percent will be far lower than the average U.S. federal/state rate of 40 percent.
The province is also eliminating sales taxes on business purchases, which will substantially reduce effective business tax rates.
As the Canadian Press reports, the cuts will make Ontario’s business tax rates much “lower than the average U.S. Great Lake state, considered Ontario’s main competitors for jobs and investment.”
Big Three auto companies, for example, may decide to close their U.S. plants over their numerous Ontario plants if they conclude that there will be a long-term Canadian tax advantage.
For its part, the Obama administration’s budget proposed a range of higher taxes on businesses, going in the exact opposite direction of virtually all other advanced economies.
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