• Tag Archives taxes
  • The Log Tax Is Harming Both Americans and Canadians

    The Log Tax Is Harming Both Americans and Canadians

    In early May, Vancouver in Canada’s far western province of British Columbia is a beautiful place. Full-bloom dogwoods, rhododendron, and azaleas blanket the city against the backdrop of a sky-blue harbor and beckoning snow-capped peaks.

    “What a contrast!” I thought as I walked the streets of Vancouver two weeks ago, “between the calming artistry of nature and the nastiness of politics.”

    I was there barely a week after President Trump’s imposition of 20% tariffs on logs imported from Canada. It was also just days before elections that would determine which party controlled the British Columbia Legislature and, thereby, who would serve as the province’s next Premier.

    The timing was superb for enjoying the sites of Vancouver but not so good for Trump’s tariffs.

    A Tax on Americans



    As Mark Perry explained, the new duties were ushered in amid plenty of bluster about “unfair” and cheap, subsidized lumber from our northern neighbors but they are actually taxes levied on Americans who buy Canadian lumber, especially American home builders, bed-frame and pallet manufacturers, and picket-fence makers. All the time-honored logic of trade economics applies here, suggesting that not much good, and perhaps a lot of harm, would likely ensue for parties on both sides of the border.

    I picked up a copy of the British Columbia edition of The Globe and Mail to see what the Canadians were saying about it all.

    As you might imagine, nobody was cheering for Trump and the U.S. In fact, the incumbent Liberal Party of Premier Christy Clark, locked in a battle for votes with the decidedly more socialist NDP (New Democratic Party) and the equally socialist Green Party, felt compelled to prove that its generally trade-friendly posture only went so far. Clark suggested retaliation in the form of restrictions or an outright ban on thermal coal from the U.S. The other parties promised an even “tougher” stance.

    Stooges

    Protectionism is like a Three Stooges episode: You slap me, I poke you in the eye. The one difference is that when a government slaps and pokes another government, each one ends up assaulting its own citizens as consumers and producers.

    Trump’s ill-timed tariffs were pushing all the major British Columbia political parties in the wrong direction. Voters ended up giving the Liberal Party a razor-thin plurality which may yet dissolve into a loss if the NDP and the Greens team up in a coalition. If that happens, both socialism and protectionism will get a boost in British Columbia while American lumber buyers get slammed.

    But lest we dump all the blame on Trump, let’s understand that this is really a “pox on both your houses” conundrum. In the same newspaper in which I read about Premier Clark’s threatened tit-for-tat, Canadian columnist Barrie McKenna pointed his finger at Canada’s existing policies for prompting the Trump tariffs.

    Export Restrictions

    One such policy is the practice of federal and provincial governments in Canada charging below-market rates when they sell lumber from their vast land holdings. That’s a subsidy, and if the land were owned privately it’s hard to imagine that private firms would charge less than the market will bear and encourage over-use of their resources through underpricing simply to be charitable.

    Likely more counter-productive than those subsidies, writes McKenna, are “log export restrictions that exist only in British Columbia.” (Though both British Columbia and the federal government in Ottawa restrict the export of logs from government land, British Columbia is the only government that restricts exports from private lands as well).

    I had to read that two or three times. Log export restrictions? What? So governments subsidize logging on their lands and then stifle the sale of logs to the U.S.? Yes. This is government, mind you, so it doesn’t have to make sense to anybody but politicians and their politically-connected friends.

    McKenna writes,

    Those restrictions, in place since the 1880s, are an aberration in Canada’s generally open economy. Indeed, logging is a rare example where governments dictate to private interests what they can export, for reasons other than national security … Economists in Canada have warned for years that the policy lessens competition for logs, increases the supply of timber available to mills in British Columbia and suppresses prices by up to 50 percent. And that lowers the cost of finished lumber (emphasis mine), such as two-by-fours, destined for the U.S. market.

    If that’s confusing, just think of it this way: What government gives loggers with one hand in British Columbia, it substantially takes with the other by telling them where they can sell their logs. Subsidized logs that can’t go to the U.S. because of export controls end up at Canadian mills at depressed prices. There, they are converted into planks and two-by-fours whose export is not restricted. And it’s those planks and two-by-fours that Trump just slapped a 20% tariff on.

    A Better Path

    You slap me, I poke you in the eye. Wouldn’t it be better for everybody if we all just stopped slapping and poking each other? Yes, and that’s called free trade. The problem is that even though “free trade” makes all the sense in the world, governments have both the power and the incentive, at least in the short term, to slap, poke, subsidize, and sell favors.

    Moreover, log export restrictions are not unique to British Columbia. “The United States, for example, has an export-licensing regime for trees cut on federal and state lands,” says McKenna. “What’s unusual about Canada’s regime is that it also covers trees on private land in British Columbia.”

    One of the reasons governments shouldn’t intervene in trade in the first place is that interventions become addictions. The benefits are targeted on a few at the expense of the many and when those benefits are offset by a government on the other side of the border, it’s hard to get the first government to call it quits. Intervention A leads to Intervention B, which provokes Intervention C, which in turn sparks Intervention D and so on, until the process is reversed or the alphabet and economic freedoms are exhausted.

    From another city in Canada – Montréal, in the eastern province of Quebec – comes an intriguing proposal to scale back some of this nonsense. The Montreal Economic Institute suggests that trade negotiators for Canada and the U.S. should work out a “lumber for cheese” swap: the U.S. would dismantle its barriers on Canadian lumber and in exchange, Canada would get rid of its barriers on American dairy and poultry.

    MEI says the crazy-quilt patchwork of subsidies, quotas, and export controls on both sides of the border cost consumers billions in higher prices. Since “supply management” by the two governments has been problematic from its inception, premised as it is on the insane notion that fines and penalties help the economy, let’s just negotiate them away. Tit-for-tat in the right direction, for a change.

    Free traders like myself see many advantages to abolishing protectionist devices unilaterally, regardless of what the other side does. As Frederic Bastiat explained, we should be grateful when the sun shines its light for free, even if it means candlemakers sell fewer candles. Forcing everybody to paint their windows black to keep out the free sunlight only deprives everybody of value and convenience. We can apply the savings to some other endeavor, stimulating yet other industries in the bargain. If that’s unrealistic, it’s only because of politics, not because of economics.

    Let’s rid ourselves of these senseless interventions as soon as we can, one way or the other.

    Thinking about all this as I departed beautiful Vancouver, I found myself shaking my head as I’ve done so many times when contemplating the policies of government. What a ridiculous, self-defeating racket this protectionist stuff is!

    Oddly enough, it was the 20th-century comedian Jimmy (“The Schnoz”) Durante who gave us a succinct answer to this recurring problem when he said, “Don’t put no constrictions on da people. Leave ’em da hell alone.”

    Additional recommended reading:

    Lawrence W. Reed

    Lawrence W. Reed is President of the Foundation for Economic Education and the author of the book Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.

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


  • The Taxpayers are Funding America’s “Shadow Bureaucracy”

    The Taxpayers are Funding America’s “Shadow Bureaucracy”

    As Ronald Reagan pointed out many years ago, Washington is a company town. But rather than being home to a firm or industry that earns money by providing value to willing consumers, the “company” is a federal government that uses a coercive tax system to provide unearned wealth to various interest groups.

    And the beneficiaries of that redistribution zealously guard their privileges and pay very close attention to any developments that might threaten their access to the public trough.

    Government Looking out for Itself

    Federal bureaucrats are particularly concerned whenever there is talk about spending restraint.

    They get lavishly compensated compared to folks in the private sector, so they definitely fret whenever something might happen to derail their gravy train.

    A recent segment on a local station in Washington, DC, focused on their angst, and I provided a contrary point of view.

    The Bureaucracy Keeps Growing

    Needless to say, my friends who work for the federal government generally don’t agree with my assessment. Some of them even sent me an article from the Washington Post that claims the number of bureaucrats hasn’t changed since the late 1960s.

    They claim this is evidence that the bureaucracy has become more efficient.

    But they’re wrong. The official federal workforce may not have changed, but research from the Brooking Institution reveals that this statistic is illusory because of a giant shadow bureaucracy.

    George Will’s latest column is about this metastasizing hidden bureaucracy, referencing author John J. DiIulio Jr. and his study on government growth:

    …government has prudently become stealthy about how it becomes ever bigger. In a new Brookings paper …government expands by indirection, using three kinds of “administrative proxies” — state and local government, for-profit businesses, and nonprofit organizations. Since 1960, the number of state and local government employees has tripled to more than 18 million, a growth driven by federal money: Between the early 1960s and early 2010s, the inflation-adjusted value of federal grants for the states increased more than tenfold …“By conservative estimates,” DiIulio writes, “there are about 3 million state and local government workers” — about 50 percent more than the number of federal workers — “funded via federal grants and contracts.” Then there are for-profit contractors, used, DiIulio says, “by every federal department, bureau and agency.” For almost a decade, the Defense Department’s full-time equivalent of 700,000 to 800,000 civilian workers have been supplemented by the full-time equivalent of 620,000 to 770,000 for-profit contract employees …the government spends more (about $350 billion) on defense contractors than on all official federal bureaucrats ($250 billion). Finally, “employment in the tax-exempt or independent sector more than doubled between 1977 and 2012 to more than 11 million.” Approximately a third of the revenues to nonprofits (e.g., Planned Parenthood) flow in one way or another from government.

    When you add it all together, the numbers are shocking.

    “If,” DiIulio calculates, “only one-fifth of the 11 million nonprofit sector employees owe their jobs to federal or intergovernmental grant, contract or fee funding, that’s 2.2 million workers” — slightly more than the official federal workforce. To which add the estimated 7.5 million for-profit contractors. Plus the conservative estimate of 3 million federally funded employees of state and local governments. To this total of more than 12 million add the approximately 2 million federal employees. This 14 million is about 10 million more than the estimated 4 million federal employees and contractors during the Eisenhower administration.

    Eliminate the Waste 

    In other words, the federal budget has expanded and so have the number of people with taxpayer-financed jobs.

    By the way, there’s nothing theoretically wrong with a government bureaucracy using non-profits or contractors. And that was the point I tried to make in the interview.

    I don’t care whether the Department of Agriculture or Department of Education is filled with official bureaucrats or shadow bureaucrats. What I do care about, however, is that they are part of an agency that should not exist.

    And the same is true for the Department of Energy, Department of Labor, Department of Transportation, Department of Veterans Affairs, and Department of Housing and Urban Development.

    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.



  • Should Taxpayers Be Fleeced Forever Because of the Deficit?

    Should Taxpayers Be Fleeced Forever Because of the Deficit?

    As anyone could have predicted, after President Trump released his tax proposal last week the response from the left was a familiar one about “tax cuts we can’t afford” and “mountains of debt” that will supposedly result from reduced penalties placed on work, investment, corporate profits, and of course, death.

    So while the left acted as expected, the truly unfortunate part of this story is that Republicans and conservatives responded to the criticism of Trump’s proposal in a similarly predictable fashion.

    The Ongoing Debate



    The Republicans said what they always say, that tax cuts will author booming growth and will lead to higher federal revenues. This included Treasury Secretary Steven Mnuchin who, as if coached by GOP automatons, responded that the “tax plan will pay for itself with economic growth.”

    And then, right on cue, deficit scolds from the Republican side of the aisle, including Douglas Holtz-Eakin, expressed skepticism that the proposed cuts would raise “$2 trillion in revenue.” Meanwhile, Greg Mankiw questioned the GOP math, telling the New York Times that according to accepted wisdom only “one-third of the cost of tax cuts is recouped via faster economic growth.”

    With the tax cut debate, nothing ever changes.

    Focus on the Spending

    Lost on many Republicans is that the moment they start talking about revenues they concede the taxation argument to the Democrats. And this is true even though their oft-stated statistics are correct.

    As the 1920s, 1960s, 1980s, late 1990s (capital gains cuts in ’97), and 2003 (income, capital gains cuts) reveal rather clearly, reduced penalties on work and investment lead to more taxable economic activity that leads to higher federal revenues. Ok, but federal revenues are not the point, and tax cuts are certainly not a “cost.”

    When Republicans talk about how much the treasury will collect they concede to the Democrats that we have a revenue problem that requires a taxation answer, as opposed to one of too much spending. Sorry, but government spends too much. It’s as simple as that.

    Seemingly forgotten by Republicans and conservatives long ago is that with government spending, it’s not their money. In that very real sense, all government spending is deficit spending.

    For governments to spend, they must tax or borrow precious resources from the private sector only to hand them over to Paul Ryan, Nancy Pelosi and Donald Trump, rather than intrepid investors putting more capital to work, or allowing those who earned the money to actually keep it.

    Reducing all of this to what’s basic, what would voters prefer? A balanced budget annually of $4 trillion, or $1 trillion in annual deficits based on $1.5 trillion in spending? This is not a trick question. It’s easy.

    The spending is the problem.

    Deficits Don’t Really Matter

    At least when governments borrow on our backs they’re paying for the right to waste resources we produce. So if the economy-sapping waste is going to happen, better for government to pay interest back to investors rather than simply confiscate the wealth with taxes.

    To state, what should be obvious is that budget deficits really don’t matter. No one is forcing investors or central banks to buy debt that is only attractive insofar as productive Americans are being fleeced.

    Republicans and conservatives who focus on deficits are wasting brain space on what is an accounting abstraction.They need to tape a note to their mirrors, reminding themselves that when politicians spend at the expense of the people’s freedom—and to the detriment of experimentation in healthcare advances, transportation advances, and technological innovation that would render WiFi an antique—they’re being wasteful with our money.

    When governments spend, we the taxpayers naturally have less to spend, and of even greater importance, less to save and invest.

    Real Cuts; Less Rhetoric

    Considering all of the above, Republicans invariably miss that it’s a very good thing when governments collect less revenue. Indeed, that should be the goal of tax cuts; to reduce the amount that the treasury takes in each year.

    Politicians can only waste precious resources insofar as we allow them to, so if Republicans want to live up to their lofty rhetoric about freedom, they should talk about tax cuts that reduce revenues as a feature of tax reform, not a bug.

    The above also speaks to another problem tied to the Republican approach to reduced taxation: They justify their actions by saying that economic growth will be the result. It’s fair to say that when work and investment are less restricted, we gain greater access to both. These arguments are true, but so what?

    Republicans should be for tax cuts even if they were proven to stagger economic growth because the core argument should always be about freedom. It’s through hard work that Americans express themselves and the fruits of their labor should not be taken from them without consent.

    Of course, there are always the deficit scolds who talk ad infinitum about “budget shortfalls,” debt as “far as the eye can see,” and “unfunded liabilities” that will soon enough, even making the most laughable prediction, “Make America Greece.”

    As much as the left confidently predicts global doom if we don’t do anything about an allegedly warming planet, so do the misguided “deficit hawks” on the right regularly inform us that America is doomed to follow in Greece’s footsteps if we don’t reduce the deficits. This silly argument fails in two ways.

    First, a focus on deficits once again places the taxation and spending argument squarely on the turf of the left. They’ll gladly discuss what isn’t a revenue problem as though it is.

    But the bigger problem with this mindless argument concerns something economists bereft of market knowledge seemingly miss all the time: rising revenues are what enable ever-growing federal “deficits.”

    The paradoxical truth missed by a right blinded by false balance is that real-world investors are always willing to buy debt that is backed by ever-increasing wealth creation and produced by the most productive people on earth.

    Of course that’s why actual tax cuts large enough to reduce federal revenues would be so wondrous for the confused hawks. When revenues into the treasury decrease, and continue decreasing, so will the relative willingness of investors to buy treasury debt. A benefit of the latter will be that the deficit hawks, who’ve been predicting doom for decades, will finally (one can hope) disappear into their campus and think tank cubicles never to be heard from again.

    The main point is, of course, that taxes are way too high. Taxes should ideally be so low that federal revenues plummet. Wouldn’t it be a nice change to see Republicans promote tax relief that penalizes American workers less while also reining in politicians?

    One can dream, but if history has proven itself to be any sort of indicator, Republicans are set to resume yet another debate about growth and revenues that will hand the terms of the debate over to the left on a silver platter. For all politicians, regardless of party alliance, freedom is always an afterthought.


    John Tamny

    John Tamny is a Forbes contributor, editor of RealClearMarkets, a senior fellow in economics at Reason, and a senior economic adviser to Toreador Research & Trading. He’s the author of the 2016 book Who Needs the Fed? (Encounter), along with Popular Economics (Regnery Publishing, 2015).

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