“Taxing Estates”

At the Scene, some thoughts on the justice of the estate tax.

Filed under: family, politics, taxation

“Libertarian Progressivism”

Like Ross and Will Wilkinson, I think there’s a ton to be said for Edward Glaeser’s case for “small-government egalitarianism”, which would be worth reading in its entirety even if the only thing you took away from it was this quotation from Woodrow Wilson:

“If the government is to tell big business men how to run their business, then don’t you see that big business men have to get closer to the government even than they are now?”

(Concerning which, a case in point.) The central focus of this particular post is the logic of economic stimulus, and Glaeser argues – as he has argued before – that things like cuts in payroll taxes for working-class families would be much more egalitarian forms of fiscal stimulus than most of the kind of infrastructure spending that Tim Carney discussed in his main page article this morning. But Glaeser points out that this sort of logic extends to many other areas of policy-making, too:

Current American political discourse labels people as either anti-government or pro-equality, but wanting to help the poor should not require the abandonment of sensible skepticism about expanding the size of the state. Many of my favorite causes, like fighting land use regulations that make it hard to build affordable housing, aid the poor by reducing the size of government. In the wake of Hurricane Katrina, I also argued that it would be far better to give generous checks to the poor hurt by the storm than to spend billions rebuilding the city, because those rebuilding efforts would inevitably help connected contractors more than ordinary people.

It’s easy, I think, to gloss most of this as nothing but a shift in rhetoric: rather than making the case for tax cuts or the repeal of overly restrictive land use regulations as economically effective, conservatives and libertarians should do more to point out the ways in which such policies can benefit those who are most in need. But ultimately there’s more going on here than that: Glaeser is arguing that policies like the ones he’s advocating here are also the most effective way to benefit those in need, and so are a better form of egalitarianism than the standard “progressive” fare that is so often put forward by big-government liberals:

Libertarian progressivism distrusts big increases in government spending because that spending is likely to favor the privileged. Was the Interstate Highway System such a boon for the urban poor? Has rebuilding New Orleans done much for the displaced and disadvantaged of that city? Small-government egalitarianism suggests that direct transfers of federal money to the less fortunate offer a surer path toward a fairer America.

This seems about right to me. Like I said, it’s good stuff, and well worth reading in its entirety.

Elsewhere: Ryan Avent on why progressives should listen to Ed Glaeser’s views on housing policy.

Filed under: economics, government/law, libertarianism, taxation, urbanism

Bridges, not bombs! (II)

Via Andrew, I see that Michael Goldfarb apparently hasn’t been reading me:

This idea [of a "defense stimulus"] is just starting to gain steam, but as yet there’s been no real argument made against such a program. Defense spending, as Donnelly explains, "not only make economic good sense, but would help close the large and long-standing gap between U.S. strategy and military resources…[and] would also satisfy the stimulus principles advanced by President-elect Obama: Military service and employment in the defense industry are jobs ‘that pay well and can’t be outsourced.’"

“No real argument”? Here’s Taxpayers for Common Sense, responding to a Martin Feldstein editorial that makes essentially the same argument as Goldfarb, Romney, and Donnelly:

… everyone knows money at the Pentagon moves more like molasses than a surging river. Severe increases in the cost and schedule of major weapons systems has been amply documented by DOD itself. Embedding expensive weapons in the DOD budget by overestimaing [sic] budgets and lowballing costs and production schedules has resulted in less military for more money, a problem detailed in the new Center for Defense Information book America’s Defense Meltdown. And more troops means billions of dollars in support costs for decades to come.

Feldstein says such wasteful spending can be avoided by doing things "that must eventually be done anyway," such as replacing the equipment lost in Iraq and Afghanistan. Yet he later plugs new Air Force fighter planes and the Army’s modernization program—the very systems legislators and budget watchdogs have targeted for cuts because of their runaway cost and dubious relevance to today’s security environment. Worse, a recent study by the nonpartisan Center for Strategic and Budgetary Assesssments [sic] found that that the military not only overstates "reset" needs but frequently spends wartime supplemental funds on expensive next-generation weapons rather than replacements. 

Feldstein ultimately believes these jobs will be created by ramping up manufacturing of, for example, shipbuilding materials. He must have missed the GAO report released just 12 days before his commentary that revealed the Navy averages nearly $8 billion in excess inventory per year. Feldstein admits that building up such inventory "would be wasteful under normal conditions," but "makes economic sense when there is temporary excess capacity." Unfortunately, the conditions that make DOD accounting wasteful in the best of times—such as the inability to track money—don’t fade away when times are tough. And no matter how tough the times, increasing military production for a couple of years to produce more stuff we may not even need does not constitute a sustainable jobs program.

Similarly, here’s Stan Collender on the same topic:

… dollar for dollar, military spending doesn’t provide as much an economic return as domestic spending.  Building an extra tank or missle [sic] that then sits idle because it’s not needed provides a one-time boost to the economy.  But building a road, bridge, tunnel, sewer, or information superhighway that is needed continues to provide benefits as people, goods, and information travel faster, less expensively, and far more productively than would have otherwise been the case.

As I’ve said before, I understand fully well that the rules of the games when it comes to “stimulus” packages – or any other sort of government spending, for that matter – tend to have much less to do with economics than the attempt to get handouts for whatever one’s pet projects may happen to be, but still: increased defense spending is (1) not an effective way to pump money into the economy, (2) not an investment that fuels genuine economic growth (as opposed to increased government spending) in the long term, and (3) not necessary. Aside from all that, though, Goldfarb is right: there’s absolutely no serious argument to be made against it.

Elsewhere: Your “defense” dollars at work!

Filed under: economics, government/law, taxation, war

Bridges, not bombs!

Okay, so I’ve been meaning for a few days to say something about this Martin Feldstein op-ed, which seems to do no better in arguing that defense spending is a good route to economic stimulus than the Bill Kristol column I slapped my forehead at a while back:

As President-elect Barack Obama and his economic advisers recognize, countering a deep economic recession requires an increase in government spending to offset the sharp decline in consumer outlays and business investment that is now under way. Without that rise in government spending, the economic downturn would be deeper and longer. Although tax cuts for individuals and businesses can help, government spending will have to do the heavy lifting. That’s why the Obama team will propose a package of about $300 billion a year in additional federal government outlays and grants to states and local governments.

A temporary rise in DOD spending on supplies, equipment and manpower should be a significant part of that increase in overall government outlays. The same applies to the Department of Homeland Security, to the FBI, and to other parts of the national intelligence community.

The increase in government spending needs to be a short-term surge with greater outlays in 2009 and 2010 but then tailing off sharply in 2011 when the economy should be almost back to its prerecession level of activity. Buying military supplies and equipment, including a variety of off-the-shelf dual use items, can easily fit this surge pattern.

For the military, the increased spending will require an expanded supplemental budget for 2009 and an increased budget for 2010. A 10% increase in defense outlays for procurement and for research would contribute about $20 billion a year to the overall stimulus budget. A 5% rise in spending on operations and maintenance would add an additional $10 billion. That spending could create about 300,000 additional jobs. And raising the military’s annual recruitment goal by 15% would provide jobs for an additional 30,000 young men and women in the first year.

Now maybe it’s just me, but … well, this is pretty silly, right? For one thing, if history is any guide then a natural lesson to draw from the Great Depression and the massive defense build-up at the start of World War II would be that if genuine economic stimulus is what you’re after, then military spending isn’t the best way to go: training soldiers or building bombs and bombers are certainly activities that “create jobs”, but then again so does having people dig ditches and then fill them back in again. And unlike things like roads, rails, bridges, and school systems, the things purchased through military expenditures don’t bring immediate economic benefits, but instead have this strange tendency to be blown up or shipped overseas – as, of course, do many of the people whom the military saves from unemployment. And so while I’m certainly in no position to speculate on where defense spending would fall on a chart like this one, I don’t imagine it would fare too well.

But of course I understand that “stimulus” and “job creation” aren’t really what this is about! Feldstein is arguing that we need to increase our spending on defense because he thinks we need to spend more on defense – the (perhaps tiny or mythical) benefits that such expenditures will bring to our economy are just a side effect. (Disaster militarism!) And that’s fine, I suppose – or rather, it’s the way this game of “stimulus” is played by everyone, and it’s not as if Feldstein lacks reasons for thinking that military expenditures are dollars well spent: it’s a dangerous world out there, and every dollar spent on defense is another dollar spent to keep us safer, right?

Right?

Well, I don’t think so. Here’s Bryan Caplan:

When you think about it, the prudential value of peace is one of the most amazing features of the modern world.  Stop scaring people in other countries, and they’ll leave you alone.  In the Middle Ages, if one princeling unilterally [sic] disarmed, he’d probably be invaded before he could say, "Doh!"  But when Russia disarmed after the Cold War ended, in contrast, not even North Korea saw a golden opportunity to attack.

Is preparing for peace always the best path to peace?  No.  But especially in the modern work, it works more often than you’d think.  And if you retort, "Yes, but that’s only true for our enemies," consider: How many of your enemies would admit that they would be safer if only they were weaker?  In all likelihood, they’d pant, "You’d like that, wouldn’t you?!  As soon as we lower our guard, you’ll slit our throats!"

The lesson: "If you want peace, prepare for war," may sound like a universal truth, but at least nowadays, it’s something we tend to believe whether or not it’s true.

The relationship between (real) national security and military spending is, in other words, similar to the one between tax revenue and rates of taxation that is illustrated by the Laffer curve: just as higher taxes can actually bring in fewer total tax dollars, so more spending on “defense” can actually end up buying you less actual safety. In any case, the possibility that we might be on the wrong side of such a curve is certainly one worth considering.

Sorry – that was a rambling post! Please note that beginning tomorrow, I’ll be on the road for a few days and Mark Thompson, of Publius Endures and – more recently – Culture11 and Donklephant fame, will be picking up the slack. Mark was one of my guest-bloggers while I was away over Thanksgiving, and he did a great job – be nice to him! I’ll be back on Wednesday the 31st and ready to get back in the groove …

Filed under: economics, government/law, taxation, war

The Ever-Dwindling Tax Base

Via Greg Mankiw comes a troubling picture of taxation in America:

Since the early 1990s, [...] lawmakers have increasingly used the tax code instead of government spending programs to funnel money to groups of people they want to reward. Credits have been enacted to subsidize families with children, college students, and purchasers of hybrid cars, just to name a few of the most well known. In terms of tax revenue, the most significant of these socially targeted credits was the $500 per-child tax credit enacted in 1997. The 2001 and 2003 tax bills doubled the value of the credit to $1,000 and added a refundable component.

Got that? More than two-fifths – two-fifths!! – of taxpayers filers may soon be in a position where they can agitate for new entitlement programs, increased federal spending, and more free money in the form of tax credits and economic “stimulus” packages, without facing any blowback in their paychecks or end-of-year tax returns. Megan McArdle explained the problem with this sort of arrangement a couple of months ago:

… people who vote for programs should not treat those programs as if they are free.  Society has limited resources, and it should not allocate them without regard to the cost of using up scarce human, physical, or financial capital.  I think that the tax system should be progressive–Warren Buffet sacrifices a lot less when he gives up 10% of his income than does his secretary when she gives up 10% of hers.  But no one should be voting as if new spending were costless.  Loading all the tax burden onto the rich practically guarantees that they will do just that.

To be clear: I agree with Megan that progressive taxation is a good thing, and it also seems reasonable that a certain class of citizens should be able to get away with paying no income taxes at all. But policies – which, it should be emphasized, have been pushed by Republicans and Democrats alike – that make it so that there are this many voters whose input on federal spending is detached from the realities of being a taxpayer are clearly a dangerous thing.

Right?

Filed under: government/law, taxation

"Recruiting Children"

From the Department of You Can’t Make This Stuff Up, I give you Lisa Schiffren:

FYI — As I recall, the original Disney animated movie of Robin Hood is a very hardcore examination of the evils of taxation, how it is used by tyrants, and how it impovershes [sic] the people and destroys freedom. It’s a great start.

In other news, Bambi is a crucial allegory on the importance of Second Amendment rights.

Other suggestions from the peanut gallery for unlikely sources for a conservative education?

Filed under: conservatism, taxation

Who Pays Taxes?

The Tax Foundation lectures Barack Obama on the basics of public finance:

Throughout the debate, Sen. Obama repeatedly showed an unfortunate ignorance of one of the fundamental principles of taxation: all taxes are paid by people. On multiple occasions, Obama claimed that businesses or corporations “can afford” to pay higher taxes. But such a statement is just ridiculous. Companies have no “ability to pay” taxes. Does the corporation’s building pay the tax? How about its fax machine or water cooler? No. People pay the taxes. [...]

What Sen. Obama doesn’t understand or doesn’t want to tell the American public is that when Exxon Mobil writes that check to Uncle Sam, some PERSON is paying the price for that. In the short-run, that person could be a shareholder, a worker, or a consumer. But the fact that Exxon Mobil has a lower after-tax profit means that some PERSON is worse off. For example, Exxon Mobil would likely reduce its dividend payment, or its share price could fall, and that hurts every PERSON who was invested in Exxon Mobil at the time the tax was enacted.

B-b-b-b-but they’d all be rich people, right?

(Via Greg Mankiw.)

Filed under: taxation

Post-Debate Thoughts

If nothing else, tonight’s debate made clear the extent to which the systematic exclusion of third-party candidates from our national political system is a travesty. On a whole host of issues – abortion, education, gun rights, excessive taxation, wasteful spending, government spying, and the limits of executive power – Bob Barr was consistently clearer and more direct than either of the candidates sitting on the stage in Hempstead, and when his 90 minutes were done he left no doubt as to his qualifications for the presidency. If higher spending, ever-increasing federal deficits, and the untrammelled growth of wasteful government agencies are your kind of thing, then go ahead and vote for McCain or Obama; if, however, you’re the sort who goes in for federalism, lower taxes, a respect for the Constitution, and individual liberty, then you’d do well to look elsewhere. There was only one authentically conservative candidate taking part in that discussion tonight, and he’s the one who talks about “liberty”, and whose voice the other two didn’t have to hear.

Take Obama’s incessant talk of “investment”, for instance, which McCain in his mavericky wisdom somehow managed not to pick up on: it’s a blatant euphemism for spending, and as I noted in my liveblog it’s a front for exactly the kind of thinking that got us into our current economic debacle. What Obama wants to do – on health care, education, teacher training, national “defense”, and all the rest – is make an investment with money that we don’t have, with the promise that it will turn a profit down the line. Never mind that in a great number of these cases – like early childhood and college education, for example, not to mention the cost of maintaining our empire abroad – there is every reason to think that the investment won’t pay off: we’ve got to invest, dammit, and the federal government has got to make the investment for you or otherwise you might do something stupid like keep the money for yourself. That’s theft, plain and simple, and it absolutely reeks of the very worst sort of paternalism.

That McCain was unable to bring any of this to light, but instead had to go on and on about hatchets and scalpels and the plight of Joe the plumber, says what needs to be said about the sorry state of the Republican Party. It’s hard to deny that on certain issues – drug policy, say, or military spending or even civil liberties – Bob Barr tends to have a hard time making good on his “I didn’t leave the GOP; the GOP left me” routine: but on taxation and spending he’s hardly moved an inch, and it was deeply satisfying to watch him sit there and mock McCain’s claim to “conservatism” time and time again. The same goes when it comes to the selection of Supreme Court justices or the need to limit executive power – and on the latter of those issues, it’s worth noting that Barr was perfectly comfortable in talking about impeachment, which is something that Obama and most of his Democratic colleagues have been strikingly unwilling to do.

Does the man have a chance? Of course not. Should he have one? Could he have, if the system weren’t so blatantly rigged against him? Yes, and perhaps – though Obama is the sort of politician who doesn’t come along that often. But there’s no getting around the fact that that so long as our political system keeps managing to marginalize figures like Bob Barr while giving hours of free air time to the John McCains and Barack Obamas of the world, very little is going to change in the way things run in Washington. We the voters can continue to acquiesce in that arrangement by voting for the candidates that the major parties set before us, or we can agitate loudly for something different and take steps to realize it by casting our votes elsewhere. The biggest losers in the debate tonight were the ones who weren’t faced with a choice.

Filed under: conservatism, education, government/law, libertarianism, media/culture, politics, taxation

You get your empire for nothing, and your bombs for free

Poor Pat Buchanan. Somehow he got the impression that America’s domestic troubles would mean that we’ll need to rein in the amount we spend on our empire abroad, when in reality all that stuff that we call military “spending” isn’t spending at all:

… the first rule of Washington budgeting is that money spent on the Department of Defense doesn’t actually count as money. I think that’s in the Blue Dog Charter, a poster on the wall in Fred Hiatt’s office, and somewhere in the Declaration of Independence.

See? With that out of the way, it’s clear that we’ve really got nothing to worry about.

P.S. On a serious note, my wife and I watched Why We Fight this past weekend, and it’s really good.

P.P.S. On another serious note, check out how Bob Barr’s spending proposals will impact the federal budget, as compared to John McCain’s and Barack Obama’s (pre-bailout!) ones. Crucially, though, I’m not sure if these numbers were drawn up under the standard misapprehension about the “costs” of defense spending; if they were, the National Taxpayers Union stands corrected.

Filed under: foreign affairs, government/law, taxation, war

Consensus (II)

According to the judgment of Alex Tabarrok, there is now a clear consensus among smooth-talking snake oil salesmen professional economists that holds that the bailout is not the right policy and indeed has a “substantial likelihood of failing”, and that a better approach would be to focus simply on recapitalization. Meanwhile, the House votes today on a policy that ignores those economists’ advice and is instead larded down with hundreds of pages – and tens of billions – in unpaid tax breaks. To quote my own bold prediction statement of the obvious from a week and a half ago:

Are the pundits all missing something that the pols are universally clued into? Uhh, probably not. Much more likely, a perfect storm of Chicken Littleing from the Bush Administration and the corporate sponsorship of legislators on both sides of the aisle means that when the dust settles, the Washington consensus will have been reached independently of any outside input, and its massive costs will fall overwhelmingly on the backs of those who were left entirely out of the loop.

That sound you hear is my pitchfork being sharpened.

P.S. More on the perils of the bailout and the promise of recapitalization here.

P.P.S. Read this and this, and tell me again why I should trust the gummint to “fix” things.

Filed under: economics, government/law, politics, taxation