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  • 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.


  • If Trump Were Serious about Tax Cuts, He’d Be Serious about Spending Cuts

    If Trump Were Serious about Tax Cuts, He’d Be Serious about Spending Cuts

    I want tax cuts. I support tax cuts. I relish tax cuts.

    • I like tax cuts because I’m a curmudgeonly libertarian and I think people should have the first claim on the money they earn.
    • I like tax cuts because I’m an economist and we’ll get more growth if penalties on productive behavior are reduced.
    • I like tax cuts because the academic research supports the “starve-the-beast” theory of less revenue leading to less spending.

    This is why I wrote favorably about Trump’s campaign tax plan, and this is why I like Trump’s new tax plan (with a few exceptions).

    But I confess that my heart’s not in it. Simply stated, I don’t think the new plan is serious.

    If Trump really wanted a big tax cut, he would have a comprehensive plan to restrain the growth of government spending. He doesn’t.

    If Trump genuinely wanted lower taxes, he would be aggressively pushing for genuine entitlement reform. He isn’t.

    And Congress isn’t much better. At least in the absence of leadership from the White House.

    It’s not merely that I’m concerned lawmakers won’t put the brakes on spending. And it’s not just that I fear they won’t enact much-needed entitlement reform. I worry they’ll actually increase the burden of federal spending. Just look what’s happening as Congress and the White House negotiate a spending bill for the remainder of the 2017 fiscal year. The pending deal would trade more defense spending for more Obamacare subsidies. Everyone wins…except taxpayers.

    In this profligate environment, it’s hard to be optimistic about tax cuts.

    By the way, I fully agree we would get more growth if Trump’s tax plan was enacted. But the Laffer Curve doesn’t say that all tax cuts pay for themselves with faster growth. That only happens in rather rare circumstances.

    Yes, the lower corporate tax rate would have a big supply-side impact (and there’s plenty of evidence from overseas to support that notion), but many of the other provisions of his plan are sure to reduce revenue.

    Again, I don’t lose sleep about the prospect of less money going to Washington. But you can be sure that politicians pay attention to that issue.

    Which is why I’m pessimistic. I don’t think Congress is willing to approve a big tax cut.

    The bottom line is that there are three possible outcomes.

    1. Congress and the White House decide to restrain spending, which easily would create room for a very large tax cut (what I prefer, but I won’t hold my breath for this option).
    2. Congress decides to adopt Trump’s tax cuts, but they balance the cuts with dangerous new sources of tax revenue, such as a border-adjustment tax, a carbon tax, or a value-added tax (the option I fear).
    3. Congress and the White House decide to go for a more targeted tax cut, such as a big reduction in the corporate income tax (which would be a significant victory).

    Ultimately, I want to completely junk our corrupt system and replace it with a simple and fair flat tax. But for 2017, I’ll be happy if we simply slash the corporate rate.

    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.



  • Trump Just Imposed a New Tax on Lumber

    Trump Just Imposed a New Tax on Lumber

    There are a lot of news reports today about Trump’s decision to impose stiff tariffs on American companies (home builders) who buy Canadian lumber, here is a sample: “Trump slaps first tariffs on Canadian lumber,” “Tariff on Canadian lumber sends a stern message,” “Trump Administration To Impose 20 Percent Tariff On Canadian Lumber,” and “Trump slaps duty on lumber from Canada.” In each case, those news reports miss a few very critical points: a) Canadian lumber doesn’t pay the tariff, b) Canadian lumber companies won’t pay the tariff, and c) American lumber-buying companies (mostly home builders) will pay the tariff, which will be passed along to home buyers in the form of higher new home prices. Therefore, it’s more accurate to report that Trump has just slapped stiff 20% tariffs (lumber taxes) on the American people, not Canada.

    I’ve taken the liberty of making some edits to the New York Times article “In New Trade Front, Trump Slaps Tariffs on Canadian Lumber” to reflect more accurately the viewpoint of the American consumer and American lumber-buying companies (home builders), and expose tariffs for what they really are: price-raising, job-killing, prosperity-destroying trade policies that involve the government-sanctioned “legal plunder” of Americans (home buyers and home builders in this case) by domestic producers (domestic lumber producers):

    New Title: “In New Trade Front, Trump Slaps Stiff Import Taxes on American Home Builders Buying Canadian Lumber”

    WASHINGTON — The Trump administration announced on Monday that it would impose new tariffs taxes on Americans who purchase Canadian softwood lumber imports, escalating a longstanding conflict with America’s second-largest trading partner.

    The Commerce Department determined that Canada had been improperly generously subsidizing the sale of American companies who buy softwood lumber products to the United States from Canada, and after failed negotiations to keep lumber prices internationally competitive, Washington decided unfairly to retaliate against American lumber buyers with tariffs of 3 percent to 24 percent. The penalties (taxes) imposed on Americans will be collected retroactively on imports dating back 90 days.

    The decision came days after President Trump complained bitterly on behalf of U.S. dairy farmers about Canada’s dairy trade practice of slashing their milk prices (to the great benefit of Americans, especially the poor), and the tariffs on Americans signaled a harsher turn in his relationship with Canada the American people even as he seeks to renegotiate the North American Free Trade Agreement. While he has often assailed China, Mexico and others for their trade practices, he seemed to have forged a strong relationship with Canada’s prime minister, Justin Trudeau.

    The United States lumber companies and Canada have been rivals and at odds over softwood lumber in one form or another since the 19th century, with the current dispute tracing back to 1982. The United States imported $5.7 billion in softwood lumber last year alone, mainly for residential home building. Raising prices on imported Canadian lumber by 20 percent will likely lead to higher prices for new homes, and could slow home building and lead to layoffs for U.S. construction workers.

    Therefore, the tariffs taxes on American home builders buying Canadian lumber are likely to be opposed by American homebuilders, who say they raise the cost of new houses for American home buyers. A study last year by the National Association of Home Builders found that a 15 percent tariff tax on American home builders buying imported lumber would increase new home prices by 4.2 percent and cost 4,666 full-time construction jobs.

    When will the public finally come to understand these basic economic facts about trade protectionism and tariffs?

    1. Tariffs are simply taxes on imports, and those taxes are paid for by Americans, not foreigners. In this case, Canadian lumber producers aren’t paying the 20% tariff/tax, American lumber buyers (home builders) pay the tax on imported lumber from Canada, and those taxes on lumber are eventually paid for by American home buyers.

    2. Tariffs on imported lumber might help protect, save or create jobs in one US industry (lumber producers), but will destroy more jobs in other US industries (construction in this case).

    3. US producers only engage in rent-seeking to use government force to be protected against foreign rivals when foreign competitors (Canadian lumber producers in this case) offer lower prices to Americans than domestic producers. That’s why it’s called “protectionism” — it’s protection for high-cost domestic companies against low-cost foreign competition.

    4. It shouldn’t really matter why foreign producers are better able to serve American consumers with lower prices than domestic producers. If China “manipulates” its currency to offer Americans lower prices that otherwise would be the case, that policy provides net benefits for Americans. If Canada “unfairly” subsidizes its lumber producers, that’s a form of foreign aid, and a gift from the citizens of Canada to the citizens of the United States. If we wouldn’t complain about free lumber from Canada, we shouldn’t complain about low lumber prices that might be subsidized by Canadian citizens.

    5. Protectionism should be seen for what it really is: Trade policies that favor domestic producers over consumers, raise taxes and prices for Americans, and in the process destroy jobs and prosperity. In other words, it’s a sure formula to make a country poor, not great.

    Bottom Line: To paraphrase a comment Milton Friedman once made about minimum wage laws, trade protectionism is a monument to the power of superficial thinking. Superficial and short-sighted because it ignores the complexities and dynamics of world markets, and ignores all of the unseen, delayed and hidden costs of trade protectionism that will make the American economy weak again, not great again.

    Republished from AEI.


    Mark J. Perry

    Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

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