• Tag Archives taxes
  • European Welfare States Are Frantic to Breed More Taxpayers

    European Welfare States Are Frantic to Breed More Taxpayers

    Recently I read a very peculiar news item reporting that the Spanish government has appointed what the media are calling a “Sex Tsar.” It is officially a “commissioner for the demographic challenge,” whose job is to persuade the people of Spain to have more sex, and, by extension, more children.

     

    The Spanish are not alone. In 2016, the Italian government ran a “Fertility Day” campaign to get people to have more babies. The Swedish government has initiated a study into the sex lives of its citizens, to find ways to increase the amount of sex Swedes have.

    If that was all there was to the story, we could chalk it up to politicians being their usual ridiculous selves and have a good laugh about it. But this nonsense has serious economic causes and potentially far-reaching consequences.

    The Ponzi Welfare State




    In each of the three cases, the main reason governments wanted more children was to save the welfare state. The welfare state is the biggest Ponzi scheme on Earth, as the great economist Milton Friedman explained.

    As long as there are more taxpayers (young, working people) than those who are receiving the benefits of the welfare state, the whole operation runs fine.

    The problem starts when people have fewer babies, as in Europe. This will result in a larger number of old people depending on the government, which will have to tax a smaller and smaller working population to finance the benefits. Without new fools to con, the Ponzi scheme will collapse. Even Paul Krugman understands this elementary fact about welfare schemes like Social Security.

    Immigrants could compensate for the shrinking population in Europe and increase the tax base for governments. But the governments have closed borders to refugees from Syria and other countries (due to political compulsions), making immigration more difficult precisely when they need more people. If they cannot get more taxpayers through migration, the only alternative is to get their citizens to have more children.

    Precedent in History

    In 1807, the United States Congress outlawed the import of slaves, economically akin to the immigration controls in modern Europe. Because slave masters could not get more slaves from Africa, they established “breeding farms,” as Ned and Constance Sublette describe in their book, “The American Slave Coast: A History of the Slave-Breeding Industry.”

    On these breeding farms, there were far more women and children than men. Slaves were encouraged to have stable family lives. As economic historian and Nobel laureate Robert Fogel explained in his book “Time on the Cross: The Economics of American Slavery,” most slaves were sold with their entire families, or, when a slave wished to separate from his family, separately. In fact, as distinguished economists Thomas Sowell and Walter Williams have pointed out so often, more black children were raised in two-parent families during slavery than are today.

    Was this because slave owners had any love for their slaves? Not by any stretch of the imagination. The slave owners simply wanted to maximize profits by encouraging their slaves to have more children. They gave rewards to women for having children, similar to the tax benefits or payments offered by a welfare state. Just as politicians can stay in the welfare business only if citizens have more and more children, the slave owners could stay in business only if slaves had more and more children. They knew that, and acted purely in their selfish interests – just like politicians.

    Next, Fogel pointed out that living standards for slaves in the South were comparable to those of free workers in industry. The master ensured the welfare of his slaves, just like the modern welfare state does with its citizens.

    There is yet another striking parallel between the welfare state and slavery. People such as George Washington and Thomas Jefferson believed that slavery was a terrible thing – Jefferson called it a “great political and moral evil” – yet they continued to hold slaves. They justified it by saying slaves were not capable of taking care of themselves. In the event that they set the slaves free, they argued, the slaves would fall into destitution and suffering.

    This argument made by Washington and Jefferson is exactly the same as that made by proponents of a welfare state. History is bound to repeat itself if people don’t pay attention the first time around.

    People in countries with a growing population, such as the US, or developing countries like India, should learn the lesson before it is too late, and take steps to roll back the welfare state while there is still time, or else end up slaves to the state.


    Jairaj Devadiga

    Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases.

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


  • Leftists Understand Economics When it Suits Them

    Leftists Understand Economics When it Suits Them

    What’s the right way to define good tax policy? There are several possible answers to that question, including the all-important observation that the goal should be to only collect the amount of revenue needed to finance the legitimate functions of government and not one penny above that amount.

    But what if we want a more targeted definition? A simple principle to shape our understanding of tax policy?

    I’m partial to what I wrote last year.

    the essential insight of supply-side economics…when you tax something, you get less of it.

    I’m not claiming this is my idea, by the way. It’s been around for a long time.

    Indeed, it’s rumored that Reagan shared a version of this wisdom.

    I don’t know if the Gipper actually said those exact words, but his grasp of tax policy was very impressive. And the changes he made led to very good results, even if folks on the left still refuse to believe the IRS data showing that Reagan’s lower tax rates on the rich generated more revenue.

    In any event, our friends on the nanny-state left actually understand this principle when it suits their purposes. They propose sugar taxes, soda taxes, carbon taxes, housing taxes, tanning taxes, tobacco taxes, and even “adult entertainment” taxes with the explicit goal of using the tax code to reduce the consumption of things they don’t like.

    I don’t like the idea of government trying to dictate what people do with their own money, but these so-called sin taxes generally are successful because supply-siders are right about taxes impacting incentives.

    The Belarusian Idleness Tax

    But that doesn’t mean it’s always popular when statist governments impose such policies. At least not in Belarus, according to a story from RFERL.

    Protests over a new tax aimed at reducing social welfare spread beyond the Belarusian capital, as thousands took to the streets in Homel and other towns. Along with similar protests two days earlier in Minsk, the February 19 demonstrations were some of the largest in the country in years. In Homel, near the border with Russia, at least 1,000 people marched and chanted slogans against the measure, known as the “Law Against Social Parasites.”

    But what are “social parasites” and what does the law do?

    …the law…requires people who were employed fewer than 183 days in a calendar year to pay a tax of about $200. …The measure is aimed at combating what President Alyaksandr Lukashenka has called “social parasitism.”

    For what it’s worth, the Washington Post reports that the government had to back down.

    The protesters won. On Thursday, Lukashenko announced that he won’t enforce the measure this year, though he’s not scrapping it. “We will not collect this money for 2016 from those who were meant to pay it,” he told the state news agency Belta. Those who have already paid will get a rebate if they get a job this year. The law, signed into effect in 2015, is reminiscent of Soviet-era crackdowns against the jobless, who undermined the state’s portrayal of a “workers’ paradise.”

    That’s good news.

    If people can somehow survive without working (assuming they’re not mooching off taxpayers, which is something that should be discouraged), more power to them. It’s not the life I would want, but it’s not the role of government to tax them if they don’t work. Or if they simply choose to work 182 days per year.

    Mr. Lukashenko should concentrate instead on taking the heavy foot of government off the neck of his people. According to the most-recent Index of Economic Freedom, Belarus is only ranked #104, with especially weak scores for “rule of law” and “open markets.”

    Given the low freedom ranking for Belarus, I suspect the real parasites in that country (just like in the U.S.) are the various interest groups that are feeding from the government trough.

    If Mr. Lukashenko turned his country into a Slavic version of Hong Kong with free markets and small government, people will be clamoring to work. But I’m not holding my breath expecting that to happen.

    P.S. While government shouldn’t tax people for not working, it’s also a bad idea to subsidize them for not working. Indeed, there’s even a version of the Laffer Curve for poverty and redistribution.

    P.P.S. On an amusing note, here’s the satirical British video on killing the poor instead of taxing them.

    Republished from International Liberty.


    Daniel J. Mitchell

    Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

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



  • Lowering Taxes Would Actually Increase Tax Revenue

    Lowering Taxes Would Actually Increase Tax Revenue

    For more than 30 years, I’ve been trying to educate my leftist friends about supply-side economics and the Laffer Curve.

    Why is it so hard for them to recognize, I endlessly wonder, that when you tax something, you get less of it? And why don’t they realize that when you tax something at high rates, the effect is even larger?

    And if the tax is high and the affected economic activity is sufficiently discouraged, why won’t they admit that this will have an impact on tax revenue?

    Don’t they understand the basic economics of supply and demand?

    But I’m not giving up, which means I’m either a fool or an optimist.

    In this Skype interview with the Blaze’s Dana Loesch, I pontificate about the economy and tax policy.

    I made my standard points about the benefits a lower corporate rate and “expensing,” while also warning about the dangers of the “border adjustable tax” being pushed by some House Republicans.

    But for today, I want to focus on the part of the interview where I suggested that a lower corporate tax rate might generate more revenue in the long run.

    That wasn’t a throwaway line or an empty assertion. America’s 35 percent corporate tax rate (39 percent if you include the average of state corporate taxes) is destructively high compared to business tax systems in other nations.

    Last decade, the experts at the American Enterprise Institute calculated that the revenue-maximizing corporate tax rate is about 25 percent.

    More recently, the number crunchers at the Tax Foundation estimated the long-run revenue-maximizing rate is even lower, at about 15 percent.

    You can (and should) read their studies, but all you really need to understand is that companies will have a greater incentive to both earn and report more income when the rate is reasonable.

    But since the U.S. rate is very high (and we also have very punitive rules), companies are discouraged from investing and producing in America. Firms also have an incentive to seek out deductions, credits, exemptions, and other preferences when rates are high. And multinational companies understandably will seek to minimize the amount of income they report in the United States.

    In other words, a big reduction in the corporate rate would be unambiguously positive for the American economy. And because there will be more investment and job creation, there also will be more taxable income. In other words, a bigger “tax base.”

    Though I confess that I’m not overly fixated on whether that leads to more revenue. Remember, the goal of tax policy should be to finance the legitimate functions of government in the least-destructive manner possible, not to maximize revenue for politicians.

    P.S. Economists at the Australian Treasury calculated the effect of a lower corporate rate and found both substantial revenue feedback and significant benefits for workers. The same thing would happen in the United States.

    Republished from International Liberty.


    Daniel J. Mitchell

    Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

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