• Tag Archives taxes
  • Europe Can Only Afford Its Welfare State by Heavily Taxing the Non-Wealthy

    I argued last year that leftists should be nice to rich people because upper-income taxpayers finance the vast majority of the American welfare state according to government data. Needless to say, my comment about being “nice” was somewhat sarcastic. But I was making a serious point about the United States having a very “progressive” fiscal system. The top-20 percent basically pay for government and those in the bottom half are net recipients of that involuntary largesse.

    I also pointed out a huge difference between the United States and Europe. Governments on the other side of the Atlantic impose much higher burdens on lower-income and middle-class taxpayers.

    Here’s some of what I wrote:

    …the big difference between the United States and Europe is not taxes on the rich. We both impose similar tax burden on high-income taxpayers, though Europeans are more likely to collect revenue from the rich with higher income tax rates and the U.S. gets a greater share of revenue from upper-income taxpayers with double taxation on interest, dividends, and capital gains (we also have a very punitive corporate tax system, though it doesn’t collect that much revenue). The real difference between America and Europe is that America has a far lower tax burden on lower- and middle-income taxpayers. Tax rates in Europe, particularly the top rate, tend to take effect at much lower levels of income. European governments all levy onerous value-added taxes that raise costs for all consumers. Payroll tax burdens in many European nations are significantly higher than in the United States.

    So does this mean European politicians don’t like ordinary people?

    I could make a snarky comment about the attitudes of the political elite, but I’ll resist that temptation and instead point out that taxes in Europe are much higher for the simple reason that government is much bigger and that means some segment of the population has to surrender more of its income.

    But here’s the $64,000 question that we want to investigate today: Why are European governments pillaging lower-income and middle-class taxpayers instead of going after the “evil rich” and “greedy corporations”?

    Part of the answer is that there aren’t enough rich people to finance big government. But the most important factor is the Laffer Curve. Politicians can impose higher tax rates on upper-income taxpayers and companies, but that doesn’t necessarily translate into higher revenue. Simply stated, well-to-do taxpayers have considerable ability to earn less income and/or report less income when tax burdens increase, and they do the opposite when tax burdens decrease.

    That’s true in the United States, and it’s true in European countries such as SwedenFranceRussiaDenmark, and the United Kingdom.

    So even if politicians want to fleece upper-income taxpayers, that’s not a successful method of generating a lot of revenue.

    Which is why a shift from a medium-sized welfare state (such as what exists in the United States) to a large-sized welfare state (common in Europe) means huge tax increases on ordinary taxpayers.

    I’ve made this point before, but now I have some additional evidence thanks to a new report from the Organization for Economic Cooperation and Development. The Paris-based bureaucracy is probably my least-favorite international organization because of its advocacy for statism, but it collects and publishes lots of useful statistics about fiscal policy in the industrialized world.

    And here are three charts from the new study that tell a very persuasive story (and a depressing story for ordinary taxpayers).

    First, we can see how the average tax burden has increased substantially over the past 50 years.

    And who is paying all that additional money to politicians?

    As you can see from this second chart, income tax revenues have become a less-important source of revenue over time while social insurance taxes (mostly paid by lower-income and middle-class taxpayers) have become a more-important source of revenue.

    The third chart shows the evolution of the value-added tax burden. This levy takes a big bite out of the paychecks of ordinary people and the rate keeps climbing over time (and if we looked just at European governments that are part of the OECD, the numbers are even more depressing).

    Now let’s put this data in context.

    The United States now has a medium-sized welfare state financed mostly by upper-income taxpayers.

    But because of dramatic demographic changes, we are doomed to have a large-sized welfare state. At least that’s what will happen if we don’t reform entitlement programs.

    And if we leave policy on auto-pilot and there’s a substantial increase in the burden of government spending, it’s simply a matter of time before politicians figure out new ways of taking more money from lower-income and middle-class taxpayers.

    Yes, they may also impose higher rates on “rich” taxpayers, but that will be mostly for symbolic purposes since those levies won’t generate substantial revenue.

    Last but not least, don’t forget that European fiscal burdens will mean anemic European economic performance.

    Reprinted from Intentional Liberty

    Daniel J. Mitchell

    Daniel J. Mitchell is a Washington-based economist 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.

  • A Carbon Tax Won’t Stop Hurricanes

    In the midst of a severe hurricane season and the destruction wrought by Hurricanes Harvey and Irma, many people are claiming that man-made global warming has intensified rainfall and hurricanes. However, comprehensive facts show that rainfall and hurricane activity are well within the bounds of natural variation, and there is no cogent evidence that they have increased over the past century.

    Moreover, the United States contains only 1.9 percent of the world’s surface area, and the earth’s climate oscillates widely over time and place. Hence, focusing on US-area hurricanes that occur within a single year easily distorts the issue of climate change.

    The Claims

    While Hurricane Irma was razing the Caribbean and barreling toward Florida, climate scientist David Hastings told the Washington Post, “Hurricane Harvey and Irma should resolve any doubt that climate change is real.” Likewise:

    • CNN’s Ron Brownstein reported during Hurricane Harvey, “There is no doubt that climate change, particularly because of warming the ocean waters and the gulf waters, makes storms like this more common.”
    • Meteorologist Eric Holthaus wrote in Politico that “climate change is making rainstorms everywhere worse, but particularly on the Gulf Coast.”
    • The BBC’s Laura Trevelyan stated, “Of course we do have a changing climate we do have warming waters. With more warming waters, you get more moisture coming into the atmosphere, and what hurricanes absolutely love is moisture because that gives them rainfall. And that’s what’s happened in this situation with Hurricane Harvey.”

    In the same vein, FactCheck.org science writer Vanessa Schipani asserted that global warming “makes intense storms like Harvey more likely to occur.” In support of this statement, she declared that:

    • “A warmer world leads to greater moisture in the atmosphere, which leads to greater precipitation, which leads to more intense storms.”
    • A 2013 Intergovernmental Panel on Climate Change (IPCC) report “found that scientists are ‘virtually certain’ (99 to 100 percent confident) that there has been an ‘increase in the frequency and intensity of the strongest tropical cyclones since the 1970s’ in the North Atlantic Ocean.”
    • One of the “key findings” of a draft report by the U.S. Global Change Research Program is that “human activities have ‘contributed to the observed increase in hurricane activity’ in the North Atlantic Ocean since the 1970s.”
    • The same report says that “studies that have looked at this question have come up with a ‘fairly broad’ range of contributions for humans, but ‘virtually all studies identify a measurable, and generally substantial, [human] influence,’ it adds.”

    The claims above paint a distorted picture of reality by ignoring the most relevant and comprehensive facts about this issue.

    Global Rainfall Trends

    Contrary to the notion that global warming has caused more rain, the authors of a 2015 paper in the Journal of Hydrology studied rainfall measurements “made at nearly 1,000 stations located in 114 countries” and found “no significant global precipitation change from 1850 to present.”

    The paper also notes that previous studies had analyzed shorter timeframes and found rainfall changes that some people had attributed to global warming, but those results were generally not statistically significant and “not entirely surprising given that precipitation varies considerably over time scales of decades.”

    Beyond total rainfall, many climate models predict that global warming will cause the rain to fall in shorter periods, and thus, with more intensity. Yet, even according to the IPCC—which has engaged in deceitful actions to exaggerate global warming—evidence for such an outcome is highly questionable:

    Since 1951 there have been statistically significant increases in the number of heavy precipitation events (e.g., above the 95th percentile) in more regions than there have been statistically significant decreases, but there are strong regional and sub-regional variations in the trends. In particular, many regions present statistically non-significant or negative trends, and, where seasonal changes have been assessed, there are also variations between seasons (e.g., more consistent trends in winter than in summer in Europe).

    This issue becomes even murkier when looking at the bigger picture, because apparent changes in rainfall intensity sometimes vanish when examining longer timeframes that better account for natural variations. For example, the International Journal of Climatology published a paper in 2015 about extreme rainfall in England and Wales that revealed, “Contrary to previous results based on shorter periods, no significant trends of the most intense categories are found between 1931 and 2014.”

    Global Storms and Hurricanes

    A “tropical cyclone” is a circular wind and low-pressure system that develops over warm oceans in the tropics. Cyclones with winds ranging from 39 to 73 miles per hour are called “tropical storms,” and those with winds exceeding 73 miles per hour are called “hurricanes.” Technically, there are different names for cyclones with hurricane-force winds in different areas of the world, but for the sake of simplicity, this article refers to them as hurricanes.

    The datasets below, which were originally published in the journal Geophysical Research Letters in 2011, show that the global number and intensity of tropical storms and hurricanes have not increased over the past four decades:

    Corroborating this data, the IPCC reported in 2012, “There is low confidence in any observed long-term (i.e., 40 years or more) increases in tropical cyclone activity (i.e., intensity, frequency, duration), after accounting for past changes in observing capabilities.”

    In spite of these facts, a national scientific poll commissioned by Just Facts shortly before the 2016 presidential election found that 44% of Trump voters and 77% of Clinton voters believed that the global number and intensity of hurricanes and tropical storms have generally increased over the past 30 years. This sharp disconnect between reality and perception accords with a flood of global warming-related misinformation spread by the media and environmental groups.

    North Atlantic Storms and Hurricanes

    In the North Atlantic region, where hurricanes Harvey and Irma formed, tropical storm and hurricane activity has  significantly increased over the past four decades. However, this trend fades in the wider context of variation over the past century. As explained by the National Oceanic and Atmospheric Administration (NOAA):

    No robust trends in annual numbers of tropical storms, hurricanes and major hurricanes counts have been identified over the past 100 years in the North Atlantic basin.

    NOAA states that North Atlantic tropical storms show a “pronounced upward trend” since 1878, but this is because these records are “relatively sparse” in their early decades. After NOAA adjusts for the “estimated number of missing storms,” the trend in storm activity is “not significantly distinguishable from zero.” Furthermore, NOAA notes that the upward trend in the unadjusted data,

    Is almost entirely due to increases in short-duration (<2 day) storms alone. Such short-lived storms were particularly likely to have been overlooked in the earlier parts of the record, as they would have had less opportunity for chance encounters with ship traffic.

    With regard to the most intense storms, NOAA reports that “the reported numbers of hurricanes were sufficiently high during the 1860s-1880s that again there is no significant positive trend in numbers beginning from that era…. This is without any adjustment for ‘missing hurricanes.’”

    Even more relevant to the implications of Harvey and Irma, NOAA notes that the record of North Atlantic hurricanes that reach land are “more reliable” than for the entire North Atlantic, and they “show a slight negative trend beginning from 1900 or from the late 1800s.” In other words, the most reliable data shows the opposite of what many media outlets are reporting.

    NOAA emphasizes that one cannot logically assess hurricane trends based only on those that reach land because they are “much less common” than the full number of hurricanes that form at sea. This highlights the absurdity of drawing conclusions based on hurricanes that make landfall, much less hurricanes that make landfall in one region in a single year

    After reviewing the data above, NOAA states, “In short, the historical Atlantic hurricane record does not provide compelling evidence for a substantial greenhouse warming-induced long-term increase.”

    Similarly, the very same 2013 IPCC report cherry-picked by FactCheck.org states, “No robust trends in annual numbers of tropical storms, hurricanes and major hurricanes counts have been identified over the past 100 years in the North Atlantic basin.” This is word-for-word the same as stated by NOAA.

    “Scientists Say”

    Three times in her FactCheck.org article, Schipani used the phrase “scientists say” as if she were citing the universal opinion of scientists. Given the contents of her article, a longer but honest rewording of this phrase would be that “some scientists who have previously misled the public about global warming say so, but some scientists disagree.”

    For example, Schipani quoted climate scientist Michael Mann—creator of the notorious hockey stick chart and inventor of a “trick” to “hide the decline“ in temperatures—as though he were an unquestionable authority. Mann claimed that global warming may have caused Hurricane Harvey to stall over Houston and drop a devastating amount of rain in this location. However, Schipani failed to inform her readers that some other climate scientists, like Roy Spencer, disagree with Mann and write:

    I don’t know of any portion of global warming theory that would explain why Harvey stalled over southeast Texas. Michael Mann’s claim in The Guardian that it’s due to the jet stream being pushed farther north from global warming makes me think he doesn’t actually follow weather like those of us who have actual schooling in meteorology (my degree is a Ph.D. in Meteorology). We didn’t have a warm August in the U.S. pushing the jet stream farther north.

    Similarly, Schipani uncritically cited:

    • The IPCC, whose scientists wrote an array of incriminating emails in which they said things like, “I tried hard to balance the needs of the science and the IPCC, which were not always the same.”
    • Kevin Trenberth, an IPCC lead author who participated in a press conference where he misrepresented the facts about global warming and hurricanes. As a result, Chris Landsea, a scientist who Trenberth had tasked to draft a chapter on Atlantic hurricanes for the IPCC, quit the IPCC and stated, “I personally cannot in good faith continue to contribute to a process that I view as both being motivated by pre-conceived agendas and being scientifically unsound.”
    • The U.S. Global Change Research Program, which cited a certain paper as evidence that climate change is causing more floods, while in reality the paper states, “In none of the four regions defined in this study is there strong statistical evidence for flood magnitudes increasing with increasing” greenhouse gas levels.

    In Conclusion

    Certain media outlets have linked Hurricanes Harvey and Irma to global warming by ignoring wide-ranging facts and cherry-picking timeframes, geographical locations, report contents, and the opinions of scientists. As explained in an academic book about analyzing data, “One of the worst abuses of analytics is to cherry pick results. Cherry pickers tout analysis findings when the results serve the purpose at hand. But, they ignore the findings when the results conflict with the original plan.”

    Webster’s College Dictionary defines science as the “systematic knowledge of the physical or material world gained through observation and experimentation.” By this standard, there are no grounds to claim that global warming has increased rainfall or hurricane activity.

    James Agresti

    James D. Agresti is the president of Just Facts, a nonprofit institute dedicated to publishing verifiable facts about public policy.

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

  • Why the Rich Actually Love High Taxes


    So we always hear that the rich should pay taxes more, that our tax rates aren’t high enough. If only we raise taxes we can solve a lot of our problems – inequality would go down and maybe we’d even have more economic growth. Now the funny thing about this view is it really doesn’t comport with our historical experience at all. Whenever we have raised taxes on the rich, we have seen horrible offenses against inequality and economic growth.

    The most illustrative of these eras was the 1950s, when the top tax rate, the top income tax rate in the United States, went all the way up to 91%. Now I want to point out that that is no misprint. The top tax rate in the United States was 100% minus 9%, 91%. If you made $200,000 or more, your last income was subject to 91% confiscation by the United States government.

    There were also 26 brackets in the income tax code, and they ran from 20% all the way up to 90%. If you made any kind of money at all, you were paying 30%, 40%, 50%. If you started making more money, 60%, 70%, 80%, 90%. That was a high tax era.

    Now you may be thinking, “But wait a minute. The 1950s, they were the greatest economic era ever. That’s when everybody had a job. Those jobs were for life. People got to live in suburbia and go on vacation and do all sorts of amazing things. It was post-war prosperity, right?”

    Actually, all of these things are myths. In the 1950s, the United States suffered four recessions. There was one in 1949, 1953, 1957, 1960, four recessions in 11 years. The rate of structural unemployment kept going up, all the way up to 8% in the severe recession of 1957-58.

    So there wasn’t significant economic growth in the 1950s. It only averaged 2.5% during the presidency of Dwight D. Eisenhower, and the tax code spawned inequality that is even unheard of today. How so? Well, when you have a marginal rate of the income tax that is 91%, to have an exception from that income tax is very valuable. If you were able to get a statute written into the tax code that says you don’t have to pay that 91% and you’re high-income, you could either pay nothing, or pay a much lower rate. That exemption is very valuable.

    The tax code in the 1950s was 11,000 pages. The first two pages of the tax code said very simple things. The opening line of the tax code said that income is taxable from any and all sources derived. Okay, if you make income, it’s taxable. And then the second two pages of the tax code with a list of the rates, the rates that started at 20% on low income and went all the way up to 91% on high income.

    The next 11,000 pages after those first two pages were exceptions to those statements. They were pet statutes that were written into law by Congress at the behest of lobbyists that said, “This income is not subject to taxation.” And always, in almost every case, it had to do with the income of the rich. Let’s give some examples.

    One of the most notorious cases, perfectly legal, by the way, was that of the movie studio mogul Louis B. Mayer. In 1951, Louis B. Mayer retired from his studio in Hollywood, and he got a lump sum payment from the studio of $2.7 million, which is, you know, probably about $20 million dollars today, and that income was not subject to the 91% tax rate. It was only subject to a 25% tax rate. How did that happen?

    Louis B. Mayer hired a lobbyist who got a Congressman to write a pet statute into the law that exempted his income from taxation and it applied only to Mayer and his associate who got those lump sum payments. That’s what the 11,000 pages in the tax code were. They were a nest of cronyism.

    And the only way that those exemptions would ever be thought to be put in the tax code is if the marginal tax rate were high. The marginal tax rate was high, therefore all sorts of people wanted exemptions from it. There was a famous comment among the legal bar in the 1950s. It was recorded by John F. Kennedy’s SEC chairman, William Carey. And that comment was, “Once you become a millionaire, you don’t try to litigate a tax case. You don’t try to contest the IRS if you say … they think you owe more money than you do. You simply get the statute changed.” That’s how easy it was in the 1950s to get Congress to write the pet exemption for you in the tax code.

    So you can see what kind of pernicious effects that had on the inequality situation in the United States in the 1950s. The rich had all the money and they hid it from the tax man. Meanwhile, in doing so, they weren’t deploying their capital in ways that were productive for jobs and economic growth. They were hiding it in all these little ways that Congress permitted them to hide it. I mean, the Treasury estimate in the middle of this in 1957 said that only 43% of income in the United States is really subject to taxation. The other 57% is hidden in mortgage interest and all the other 11,000 pages of exemptions.

    Unions ended up calling the tax code the “Swindle Sheet,” because that’s where the rich were able to hide their income, and they weren’t making it available for productive growth. So when we talk about the era of high taxes, that it was associated with economic growth and jobs for everyone, that actually is not accurate at all. It was an era in which the rich deployed their income in ways that the government told them to so that they could keep it, and the net result was A, inequality, and B, slow economic growth. There’s a reason we dumped all that for tax rate cuts in the 1960s.

    Reprinted from Learn Liberty.

    Brian Domitrovic

    Brian Domitrovic is assistant professor of history at Sam Houston State University in Huntsville, Texas, and author of Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.

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