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  • Seattle’s Brazen Tax Grab Ignores the Unintended Economic Consequences

    Over the last several years, certain members of the Seattle City Council have embarked on a quest to make the city a socialist utopia. From raising the minimum wage to a whopping $15 an hour to instituting a ridiculous soda tax on consumers, Seattle loves to squeeze money from its residents and business owners in any way it can.

    On Monday, the City Council continued this pattern by voting to implement a new “employment tax” on large Seattle-based businesses. The city is justifying this tax on major job creators like Amazon, Microsoft, and Boeing by blaming them for Seattle’s increase in homelessness. By the city’s logic, these companies have set the bar too high when it comes to employee wages. This has subsequently led to an increase in housing prices, which the city believes is responsible for the rise in homelessness.

    By instituting this new tax, the city hopes to be able to build 1,780 low-income apartments over five years with the revenue collected. And while this tax was surely created with the best of intentions, the logic behind it falls flat. Punishing companies for voluntarily paying their employees generous salaries is so absurd, it sounds like a proposal straight from the mind of a Randian villain. But it also seems particularly ironic coming from the very same city officials who championed using force to incrementally raise the minimum wage just a few years ago.

    And while the city has yet to acknowledge the detrimental impact this minimum wage increase has already had, they are also ignoring the potential consequences of this new tax. But if the city is not careful in considering both the seen and the unseen repercussions of this new employment tax, they might soon find that all the job creators have had enough.

    Private Sector Opposition

    Amazon has been one of the first companies to voice its opposition to this new employee “head” tax. And it is no surprise why. The tax would require every Seattle-based company with revenue over $20 million to pay 14 cents for each hour worked by Seattle residents. This adds up to about $275 per employee each year, which means that these companies will end up paying an estimated $47 million a year for five years. This is an outrageous demand for companies that are doing more for job and wealth creation than all of Seattle’s big-government programs put together. In fact, Amazon alone is responsible for creating over 40,000 jobs.

    Amazon spokesman Drew Herdener issued a statement saying:

    We are disappointed by today’s City Council decision to introduce a tax on jobs. While we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here.”

    Amazon also questioned the city’s own spending habits when Herdener mentioned that the city revenue growth “far outpaces the Seattle population increase over the same time period. The city does not have a revenue problem — it has a spending efficiency problem.”

    But Amazon is not alone in their opposition to this tax. Starbucks, another Seattle-based company, also has some grave concerns over the city’s apparent spending problem. Public affairs chief John Kelley commented on the matter saying that the city “continues to spend without reforming and fail without accountability…”

    A group of Seattle tech leaders also stand in opposition to the tax, but that has not done much to deter the city government.

    While Mayor Jenny Durkan was initially opposed to the original employment tax proposal, which was asking for 26 cents per hour worked for each employee, she seemed more than satisfied with the version that passed this week. She stated:

    This legislation will help us address our homelessness crisis without jeopardizing critical jobs. Because this ordinance represents a true shared solution, and because it lifts up those who have been left behind while also ensuring accountability and transparency, I plan to sign this legislation into law.”

    But making such a bold claim about the impact, or lack thereof, that this new policy will have on job growth completely ignores the consequences that are not immediately seen.

    The Seen and the Unseen

    All actions have consequences, and when those actions are meant to control the economy, the consequences can have far reaching implications. In his essay “What Is Seen and What Is Not Seen,” French economist Frédéric Bastiat explained that all government actions have consequences that are both immediately seen, and also consequences that are unseen.

    He writes:

    In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.

    There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

    In the instance of the new Seattle employment tax, the “seen” is the revenue generated by the city through this new tax. But City Council members are so blinded by how this money can potentially decrease Seattle’s homeless problem that they fail to see how this tax may also have negative implications.

    Unless you are the Federal Reserve, money is not simply printed out of thin air. And while the city government routinely ignores the economic realities that come with using other people’s money, the private sector understands that the money has to come from somewhere.

    In order to pay for this new tax, which again taxes companies for each hour worked by employees, the obvious solution would be to lay off employees or cut back on employee hours, or both. Amazon is one of the largest employers in Seattle and forcing the company to lay off employees or trim the number of hours they can work will not serve to help the city’s homelessness problem. In fact, in many ways, it could be adding to it.

    There is already a fear that automation will jeopardize human jobs. And while much of this fear is unfounded, by instituting a “head tax” on employers you are basically incentivizing them to move away from taxed labor and right into the arms of automation.  

    Additionally, between the minimum wage increase and the new employment tax, there is also the possibility that these companies get completely fed up with Seattle and choose to leave the city altogether. Layoffs, reduced hours, and companies leaving are just a few of the “unseen” consequences of this new policy.

    If only the Seattle City Council was wise enough to read Bastiat, they might be able to save themselves from a world of economic trouble. But the fact of the matter is, many politicians and legislators see only the immediate consequences, and completely ignore the “unseen.” However, economic realities can be ignored forever, anyone who doubts this fact need only look at the city of Detroit.

    Brittany Hunter

    Brittany Hunter

    Brittany Hunter is an associate editor at FEE. Brittany studied political science at Utah Valley University with a minor in Constitutional studies.

    This article was originally published on FEE.org. Read the original article.

  • Why It’s Time to Revisit the 1970 Federal Requirement to Report Cash Transactions Exceeding $10,000

    Many readers will know that the Currency and Foreign Transactions Reporting Act of 1970 requires that financial institutions must keep records of cash transactions summing to more than $10,000 in one day and report suspicious transactions to the federal government. In addition, people coming into the United States from foreign countries (including US citizens) must declare cash or other negotiable instruments they are bringing into the country if the amount exceeds $10,000.

    Monitoring large holdings of cash and cash transactions provides a way for the government to identify people who may be engaging in illegal activity. These reporting requirements open the potential for government to abuse them, especially because of civil asset forfeiture laws that allow governments to confiscate assets without proof of any wrongdoing and require the owners of the assets to prove they were not associated with any illegal activity to get their assets back. That’s an important point, but not my point here.

    One aspect of this requirement is that because the limit is stated as a dollar amount ($10,000), inflation lowers the real value of that limit year after year. Adjusting for inflation, $10,000 in 1970, when the Act was passed, would be $65,000 today. As inflation continues, the reporting requirement continues to shrink in terms of real purchasing power.

    Inflation and the 4th Amendment

    At today’s current inflation rate of 2.5 percent, the value of a dollar will fall by half in 29 years. If inflation picks up beyond that, it will take less time for the value of a dollar to decline by half. As time goes on, more and more cash transactions will be covered under the Act, enabling the government to monitor even more of our financial activities.

    Back in 1970 when the Act required reporting of cash transactions in excess of $65,000 in today’s prices, you can imagine people not objecting, thinking that there would be little reason to be holding that much cash. But there are some good reasons to have more than $10,000 in cash, and as inflation makes that number even smaller, more people and more transactions will be captured by government reporting requirements.

    I’m not an attorney, but it appears to me the Act violates the Fourth Amendment, which states in part, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated…” The Act constitutes what appears to me to be an unreasonable search.

    Could a legal challenge be possible? If, when the Act passed, it required reporting of cash transactions exceeding $65,000 in today’s dollars, it appears that one could claim that, even if that was reasonable, the $10,000 limit today is not.

    Setting aside any legal issues, one hidden cost of inflation is that it makes an increasingly large share of cash holdings and transactions subject to government surveillance.

    Reprinted from the Independent Institute.

    Randall G. Holcombe

    Randall G. Holcombe is Research Fellow at The Independent Institute, DeVoe Moore Professor of Economics at Florida State University, past President of the Public Choice Society, and past President of the Society for the Development of Austrian Economics. His many books include Housing America (edited with Benjamin Powell) and Writing Off Ideas.

    This article was originally published on FEE.org. Read the original article.

  • Taxes Were Never Really Cut, and the Economy Is Suffering For It

    U.S. stock markets remain volatile and their direction uncertain, although the S&P 500 may have broken out of what technical traders would call a “bullish triangle,” which began forming after the market fell approximately 12 percent in early February from a high of 2,872 the previous month. However, traders will also tell you every technical pattern can tell at least two stories. One must look to the fundamentals for confirmation, and they have been anything but unanimous on the underlying economy.

    Stagnant Growth

    Corporate earnings have been strong, but that may not be a real indicator of economic growth, as much of the earnings per share increases are due to stock buybacks rather than organically increasing profits. And jobs numbers continue to disappoint. Not only did April’s number come in lower than expectations, January’s number was adjusted down by a whopping 63,000 jobs.

    Job growth for the first four months of 2018 is still ahead of 2017, but by a lot less than previously thought, and we don’t know if March and April numbers will be adjusted downward. Consumer spending remains weak, and surging energy prices, especially gasoline, may continue to eat up what would otherwise be discretionary spending dollars for average households. While unemployment is at or near record lows, so is workforce participation—a statistic conservatives seem to have completely forgotten about since President Trump was inaugurated.

    GDP growth slightly beat expectations at 2.3 percent but is far below the 5.4 percent predicted by the Atlanta Federal Reserve just two months ago. Despite missing the real number by a country mile, the same institution is now predicting 4.0 percent growth for Q2. Why should anyone expect this “irrational exuberance” to be any more accurate than last quarter’s?

    Tax Cuts?

    The trump card (pun intended) is supposed to be tax cuts. Although they obviously haven’t delivered the jobs or growth promised to date, sooner or later the supposedly smaller slice the government is taking must result in more domestic investment, jobs, production, and growth.

    The problem is taxes haven’t really been cut. They’ve simply been deferred. The federal government is going to spend more this year, and every year for the foreseeable future, than in any year in U.S. history. That spending is ultimately going to be paid with taxes, either now or in the future.

    Lowering corporate and individual rates now merely allows Americans to pay for the spending at a slower rate. But unless you believe in leprechauns who donate their pots of gold to the government, the $4.1 trillion the government will spend this year must come from the American economy. The roughly $1.1 trillion in spending not covered by current tax revenues will be borrowed, meaning Americans will pay for not only the spending but the interest due to lenders when the bonds come due. All that spending comes at the expense of productive investment in the private sector.

    Contrary to conventional wisdom, the government borrowing money now doesn’t just harm future generations. It hurts economic growth in the present, the same year the money is borrowed. Every Treasury bond purchased on the open market represents a U.S. corporate bond that isn’t purchased. The result is new jobs that aren’t created, new production that doesn’t occur, and existing production that doesn’t expand.

    Price Inflation

    The bill is also paid for partially in price inflation, which the government tells us is low. But that is just another deceiving statistic for two reasons. First, by its own admission, the government manipulates price inflation numbers lower with “hedonic adjustments” (negating price increases because a product has new features), “substitution” (ignoring price increases under the assumption consumers will just buy something else), and other accounting tricks.

    Second, and rarely mentioned, is the massive price deflation we should be seeing. Technology is allowing the economy to produce more with less people. With U.S. manufacturing output at or near all-time highs while using only a fraction of the personnel it once required, for example, the prices of manufactured goods should be falling, just as they did throughout the 19th century. The natural result of economic growth is falling prices. If you increase supply, all other things being equal, prices will fall.

    The massive wave of baby-boomer retirements is also a deflationary force. Retirees spend about 37 percent less on average than working adults. That decreased demand while supply is increasing should result in sharply falling prices. That prices can rise 1-2 percent (or higher, if measured honestly) under present conditions is a testament to the magnitude of the Federal Reserve’s inflationary interventions, especially over the past decade.

    The privilege of printing the world’s currency has allowed the United States to direct massive amounts of capital towards non-productive endeavors, including avoidable wars that have yielded no discernible benefit to the taxpayers who fund them, a freakishly oversized military establishment even in peacetime, health care and higher-education industries that cannot survive as they are without massive subsidies for the former and government-backed loans for the latter, an entire generation owed entitlement benefits future workers can’t possibly underwrite, and a $21 trillion federal debt the government can’t possibly pay back.

    Those economic distortions represent a mega-bubble that will pop, just as all the others have, but the results will be far more catastrophic due to the relative size of the problems. With the federal funds rate target still below 2 percent and the signs of a correction already appearing, we may be at the leading edge of the worst correction in U.S. history. Even if the Fed has one more trick up its sleeve, that must certainly be its last.

    The key vote in Congress over the past year wasn’t to cut tax rates; it was to increase federal spending. We’re not seeing the jobs and growth expected because the federal government is consuming more of what society produces rather than less. Until that trend reverses and the fundamental, structural problems with the U.S. economy are addressed, real economic growth will continue to prove elusive.

    Tom Mullen

    Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom’s writing, visit www.tommullen.net.

    This article was originally published on FEE.org. Read the original article.