Citizen Economists » Politics and Government

Is a Great Big New Tax Such a Bad Idea?

Winton Bates — Fri, 26 Feb 2010 20:10:48 +0000

‘Where have you been? Have you been hiding from me?’ I saw it was Jim speaking when I looked up from reading the paper. I hadn’t exactly been avoiding him, but then I hadn’t really missed not seeing him for a few months.

Jim asked me if I could give him a lift home. He gave me some long and convoluted explanation about why he needed a lift, but I thought he was probably just looking for a captive audience – someone to talk to about something that was on his mind.

He certainly did have something on his mind. As soon as we started off he asked me what I thought of the outcome of the Copenhagen climate change summit. I admitted that I thought it was fairly predictable. Given the way western governments were approaching the issue it would have been hard for China and India to accept that they were serious about achieving concerted action even if the science was settled. I said that if governments thought the stock of greenhouse gas emissions was a serious problem they would be focusing on the incentives needed to develop technologies that would reduce the stock of emissions, rather than just attempting to cap the growth of emissions.

Jim said: ‘I thought that emissions trading schemes, like the one Kevin Rudd is proposing were meant to provide appropriate incentives for firms to develop better technologies.’ I responded that in my view Rudd’s ETS stood for Enormous Transfer Scheme. I suggested that the Australian government was attempting to confuse welfare issues with environmental issues in order to smuggle income redistributions into the scheme. I added that it was crazy for Australia to go it alone without concerted international action and that if we are concerned about incentives for developing new technologies we should be thinking in terms of explicit taxes rather than cap and trade systems.

Jim said: ‘Ah, that’s Warwick McKibbin’s view isn’t it.’ While I was still pondering whether I had under-estimated Jim’s knowledge of the topic, he pointed to a house we were just passing. ‘Look at that abomination’ he said. I assumed that he was referring to the solar panels that covered a substantial part of the roof. I said: ‘I don’t think they look too bad, actually’. ‘It’s not how they look’, he replied. ‘Every time I pass that house it reminds me that the government subsidies that encourage people to put those things on their roofs are an abomination. Solar panels are about the most costly method there is of generating electricity. If governments were really serious about climate change they would be spending taxpayer’s money more wisely so we get bigger bangs for our bucks.’

I observed that Jim’s comment must mean that he was obviously not a fan of Tony Abbott’s winner-picking proposals to reduce CO2 emissions. Jim said: ‘I wouldn’t mind so much if Abbott could actually pick a winner to subsidize. The technologies that he has picked so far are either proven losers or have no track record. If he really wanted to pick a technology that had some hope of competing with fossil fuels without huge subsidies he would advocate the nuclear power option.’

I couldn’t help asking: ‘Does that mean that you would support revival of the proposal to build a nuclear power station at Murray’s beach on Jervis Bay?’ When I glanced across to see how Jim was reacting to the idea of a nuclear power station in his own back yard, he growled: ‘Look where you are going!’

After what seemed like a long silence, Jim asked: ‘What do you think of no regrets policies?’ I replied: ‘What, like the federal government’s home insulation scheme?’ Jim replied: ‘I think the government might actually be regretting introducing that scheme with so much haste last year. No, what I meant was a great big new tax on carbon emissions’.

I was dumbfounded. When I asked Jim to explain how this could be a no regrets policy he asked me whether I had supported the introduction of the GST as a broad-based tax to replace less efficient forms of taxation. When I nodded he then asked: ‘Do you think a tax on carbon emissions would be a more efficient way of raising revenue than existing taxes on insurance and stamp duties on property transfers?’ I had to admit that it would probably be more efficient than some other taxes. Jim then said: ‘So wouldn’t it make sense to introduce a great big new tax on carbon emissions as a no regrets policy? If we do this we might even be able to have an impact on global emissions by persuading governments in some other countries that this is a good idea’.

While I was pondering how to respond Jim laughed and said: ‘I don’t expect you to see anything about this on your blog. Judging from what you have written there about climate change I expect that the polar ice caps would need to melt before you would support introduction of a tax on carbon emissions as a precautionary measure’.

Pension Systems- A Growing Fiscal Bomb

Rok Spruk — Wed, 24 Feb 2010 19:46:56 +0000

From today’s edition of Economist (link):

Danny Tarkanian on Monetary Policy

Mark Alvarez-Anderson — Wed, 17 Feb 2010 13:36:25 +0000

This doesn’t represent an endorsement by me of Danny Tarkanian nor an endorsement of me by Danny Tarkanian. I invite all candidates to submit a position statement on this issue because I feel it is important. So far, Team Tark is the only campaign that has responded to my invitation. Below is a statement from U.S. Senate candidate Danny Tarkanian:

Congressional spending and Federal Reserve policy have teamed up to lock the U.S. economy into a downward cycle that may lead to catastrophic failure if left unchecked. Both Congress and the Federal Reserve have taken reckless abandon in their recent attempts to insert the federal government as a solution to the country´s economic woes. Rapid response and common sense solutions are required to counteract these irresponsible practices.

With the increase in federal spending, and the latest passage of a debt ceiling increase by Congress and subsequent signing into law by the White House, interest in investing in U.S. Government securities, like treasury bills, has begun to decline. The increase in deficit spending has created a growing loss of confidence in the government´s ability to repay its loans and threats from credit rating agencies of a potential downgrading of the US’s credit rating. As interest in the bond market decreases, interest rates on bonds automatically increase creating a higher cost to the U.S. government to sell its debt.

The Federal Reserve’s loose monetary policy to finance deficits and suppress interest rates indirectly contributes to what is known as the “carry trade” against the U.S. dollar. By borrowing dollars on the assumption that the dollar will decline and then using them to buy commodities, investors reap higher profits when paying back the initially borrowed dollars. With the continued decline in value of the dollar, the incentive to use the carry trade is increased which leads to a growth in speculation that the dollar will continue to be devalued.

Separately, the Federal Reserve is essentially subsidizing financial institutions by setting the benchmark interest rate at 0%. This initially spurred an increase in financial institution investment in treasury bills to shore up their balance sheets – a practice that served as probably the most under the radar bailout packages in federal government history. The ability of financial institutions to take Federal Reserve dollars at 0% interest and invest them in federal treasury notes with a set interest rate, essentially meant that the federal government was simply handing the financial institutions an allowance (or bailout). The Federal Reserve paying interest on bank reserves is not a solution. Not only is borrowing nearly free money from the Fed to then loan funds back to the Fed at a higher rate immoral, this will force up interest rates on treasuries which, ironically, present policy is trying to prevent.

In the case of a 30 year bond, this was 4.7% as of 1/6/09. Whether by design or by accident, this will serve as a creative federal subsidy until, due to a climbing deficit and reduced faith in the government´s credit, these institutions find it too risky to invest in treasury bills and look elsewhere, or the Fed is forced to raise interest rates due to concerns about creating an artificial bubble for the financial industry, or in housing. Either that, or the Federal Reserve will displace the market and become the exclusive buyer of treasuries.

The irresponsible lending practices of the Federal Reserve and the reckless spending levels of Congress will inflict greater damage than the country would have felt had the housing and financial institutions been allowed to find equilibrium on their own in the first place. The involvement of the federal government hasn´t saved the U.S. economy; it has simply prolonged and likely worsened the pain of the eventual economic reset. A structurally sound financial system shouldn’t need bailouts or rescues. Swift and steady action is required to help brace the country for a potentially worse decline.

Federal spending must be checked and reversed, including a plan to permanently eliminate the deficit and restore faith in the U.S. government´s credit, thus re-establishing confidence in the bond market. The Federal Reserve must also seek to raise interest rates to prevent inflation and offset any potential asset bubble bursting created as a result of the recent 0% interest rate. Entitlement spending must be decreased and non-essential programs phased out in order to help lessen the strain on the federal budget. All of these actions are necessary now to help soften, and potentially prevent, a predicted economic decline within the next 10-20 years.

Danny Tarkanian
Republican Candidate for the United States Senate
Tark2010.org

Here is a very good recent article that dovetails with this issue: Watchdog: Bailouts created more risk in system

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One of Three

Russ Nelson — Tue, 16 Feb 2010 13:05:02 +0000

When a government spends money, there are only three places that money could have come from:

Taxation — by taking the money away from someone.
Borrowing — by temporarily taking the money away from someone, with a promise of returning it at a higher value.
Inflating — by printing money, which reduces the value of all the other money that people hold.

Of these, the last is the most regressive and pernicious. Not only does it reduce the savings of the middle class, but it also causes people to think they have more money than they really have.

Which one, do you suppose, do politicians choose most often? Right: inflating and borrowing. That’s because taxpayers feel the pain of taxation most directly.

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A Time for Choosing

Thersites — Fri, 12 Feb 2010 16:10:29 +0000

You and I have a rendezvous with destiny.

We’ll preserve for our children this, the last best hope of man on earth, or we’ll sentence them to take the last step into a thousand years of darkness.

Thus spoke Ronald Reagan some forty-six years ago. Tragically, today in America it appears the time for choosing may have passed. As each day goes by our debt grows more unsustainable; our security further imperiled; our economy more shackled; our government more tyrannical.

These are symptoms of an America that has chosen the wrong path: the road to serfdom over the road to civilization. This plight is the result of a hundred-plus year campaign by the socialist sophists to slowly but surely undermine the principles that built our nation to its hegemonic place. While the ends of a nation are peace and prosperity, there has always been a difference in opinion as to the means to achieve these ends. This fundamental tension has rested upon the difference between liberty and tyranny.

As Frederic Bastiat argued, “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.” James Madison, perhaps slightly more optimistic shared Bastiat’s concerns, arguing, “If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.” Herein lies the problem of government. We grant government its privileges in order to protect our natural rights, yet it is difficult enough for man to govern himself let alone others. Thus, in devising a governmental system, our founders set up a Constitution of diffuse powers, ensuring that the majority of power rested with the states or the people.

As our country grew, slowly but surely the state consumed our rights instead of securing them. Government grew whilst the individual shrunk. Whereas the law was meant to protect against the diminution of the individual, instead it was used as an instrument of plundering him. Bastiat argued, “Legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest free credit, etc., etc. And it the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism.”

We allowed for the planting of these seeds of destruction. We have always had the better ideas, but we have failed to adequately defend them. Our ideological counterparts, realizing that they could not win on the basis of substance propagandized through academia and the media, and co-opted the poorest and the richest in their lust to undermine our rights for their personal gain. Anecdotally, we can see a clear difference in the logical ends of the policies the statists espouse. A good example would be in looking at West Germany and East Germany during the Cold War. Similarly, if we compare and contrast the liberal urban areas in America with more conservative suburban ones we see a clear difference in wealth, crime and quality of life. Yet even with the stark differences in results, somehow we have succumbed to the path to barbarism.

The battle lines between our sides are clear, but we have not articulated them well. We have not promulgated the dangers of liberalism, progressivism or socialism, nor the virtues of freedom. We have sacrificed the individual to the state. But if Americans were to examine the following questions, who would support this system? Do Americans believe in private self-reliance or public largess? Do we believe in meritocracy or a thugocracy? Do we reward success or failure? Do we stand upright or bow to the world? Do we wish to return America to fiscal order, or condemn future generations to debt slavery? Do we believe that solutions to our problems come through the ingenuity and toil of the American people, or from faceless bureaucrats in Washington? Do we wish to be the shining beacon of civilization, or a mere footnote in a history book? Do we believe in the individual, innovation, morality and the spontaneous and organic harmony of freedom or the collective, backward, perverted morality and destitution of centrally planned servitude?

The people of this nation know that the progress of man has always come from the individual, free to question, experiment and fail. In fact, it is often out of failure that opportunity arises. Our nation was built on principles derived from the wisdom of founders who had studied the failures of their predecessors. They understood that powerful centralized government could never advance man, but only restrain him. That the sole purpose of government was to protect man from tyranny, and build a foundation on the basis of property rights and the rule of law to allow man to flourish. But generation after generation, we have allowed our government to slowly but surely usurp our freedom — to steal from us the life, liberty and property that make us men. We have allowed politicians to weaken our constitution and dehumanize us.

While our intellectual foes have had over a hundred-year head start on us, we now have a populace galvanized against our largely corrupt stewards. We must capitalize on this time to educate a captive audience on history; on principles; on the ideals that we have allowed to grow decadent. In the meantime in trying to roll back years of ideological subversion that have numbed Americans to truth and morality, we must elect officials who will stop government from expanding. Then, we must go to work in stripping it back to the bare bones explicitly attributable to it by our Constitution. In order to achieve this monumental task, we will need to seek out those candidates who are unafraid of the censorship that is political correctness; who have a clear understanding that the state is always to be subservient to the individual; who are willing to stand for principle even if it means political pain; in other words, we will have to seek out the people that would have in the past avoided government and who do not stand to gain from serving in it.

This battle will take many, many years, and we may not be successful. But difficult as this struggle may be, appeasement and the choosing of the middle path will surely lead to failure. Reagan understood this when it came to the Cold War. He argued, ”every lesson of history tells us that the greater risk lies in appeasement, and this is the specter our well-meaning liberal friends refuse to face—that their policy of accommodation is appeasement, and it gives no choice between peace and war, only between fight or surrender. If we continue to accommodate, continue to back and retreat, eventually we have to face the final demand—the ultimatum.” We must fight this same war but on ideological grounds. For as Reagan further noted, “You and I know and do not believe that life is so dear and peace so sweet as to be purchased at the price of chains and slavery.” We might add that chains and slavery will never lead to a dear life or sweet peace.

We must express to all those who cherish this country that nothing less than our existence rests upon our fight against the tyranny of our democracy. Our state is a Leviathan, hurtling towards fiscal and moral bankruptcy and war. History will either remember us as the generation that twiddled our fingers while Rome burned, or the underdogs who overcame great evil to return this nation to its rightful place as a shining city on a hill. We lie very close to the precipice today. So as Reagan argued, though we may be late we still must still make the proper existential choice. We must choose to fight the fight for civilization or risk dishonoring our founders and men like Reagan, enslaving our children and debauching our once great nation. In a world being consumed by the ideologies of socialism and its ally in Islamism, we still remain the last best hope of man on Earth.

Legalized Plunder: Cigarette Tax Edition

Thersites — Thu, 11 Feb 2010 20:14:25 +0000

From Reuters:

WASHINGTON (Reuters) – Adding a $1 per pack tax to cigarettes could raise more than $9 billion a year for states, health advocates said on Wednesday, and a poll released with the study shows Americans would support such a tax.

The poll, conducted by International Communications Research, found 60 percent of voters would support the tax to help struggling states and would prefer it over other tax increases or budget cuts.

An increase in tobacco tax rates is not only sound public health policy but a smart and predictable way to help boost the economy and generate long-term health savings for states facing deepening budget deficits,” said John Seffrin, chief executive of the American Cancer Society Cancer Action Network.

“We have irrefutable evidence that raising the tobacco tax lowers smoking rates among adults and deters millions of children from picking up their first cigarette,” Seffrin said in a statement.

The report was released by the Cancer Action Network, the advocacy arm of the American Cancer Society, the Campaign for Tobacco-Free Kids, American Heart Association, American Lung Association and the Robert Wood Johnson Foundation.

All these non-profit groups have long supported taxing tobacco more as a way to discourage smoking.

The report, available here, projects the revenue that each state could earn by increasing cigarette taxes, based on research that shows a 10 percent cigarette tax increase reduces total consumption by 4 percent.

Now first off, let me just say that I am no fan of cigarettes. I have lived with smokers and I find it to be a repulsive habit. That being said, that people are advocating taxing cigarettes, junk food or anything else is wrong for numerous reasons. First, it is your choice whether or not you want to consume things that may be unhealthy. Forced “morality” through social engineering is immoral plain and simple. Second, these types of proposals that are sold as reducing consumption of these products (which is great so long as its voluntary) are also sold as being revenue generators, which is simply an insane concept when you think about it. The government would literally be coming up with rationalizations for taking money from you. Since the government has grown into such a Leviathan it will look for reasons to penalize the people to fund itself. This is legalized plunder. A state that has to search for things to tax is a state that has grown too big.

Now the argument that this is for the public good besides the fact that it makes our citizens healthier always falls along the following lines as mentioned in the Reuters article:

“Each year in the United States, smoking-caused disease results in $96 billion in health care costs, much of which is paid by taxpayers through higher insurance premiums and government-funded health programs such as Medicaid,” the report argues

“Indeed, higher Medicaid costs are one of the reasons states are facing budget difficulties.”

Again here, as with almost all of these proposed government fixes, that smoking or obesity for example contributes significantly to healthcare costs which in turn kills the fiscal health of the nation merely addresses a symptom, not the root cause of our ultimate insolvency which is the social welfare state itself. Smokers, drinkers and obese people would not cost us so much if the social programs didn’t exist in the first place. Keep people off the dole and you won’t have proposals for ridiculous social engineering nor will you have massive budgetary problems.

Federal Spending vs. Candidate Spending

Russ Nelson — Tue, 09 Feb 2010 16:07:13 +0000

Seems like every handful of years, somebody starts yammering about how much money candidates spend to get elected. About how that spending is going up and up and up. And they claim that that’s a sure sign of corruption.

Not likely. Look instead at the ratio of federal spending versus spending by presidential candidates over several decades:

See how the ratio varies between 1 and 2.5? That’s because candidates spend in proportion to the power they’ll have. If you want them to spend less, expect them to do less and spend less of your own money.

Danny Tarkanian’s Statement

Mark Alvarez-Anderson — Mon, 08 Feb 2010 17:20:34 +0000

Danny Tarkanian
Republican Candidate for the United States Senate
Tark2010.org

Here is a very good recent article that dovetails with this issue: Watchdog: Bailouts created more risk in system

Your Uplfiting Monday Message

Thersites — Mon, 08 Feb 2010 12:47:10 +0000

From Albert Jay Nock’s Our Enemy, the State:

What we and our more nearly immediate descendants shall see is a steady progress in collectivism running off into military despotism of a severe type. Closer centralization; a steadily growing bureaucracy; State power and faith in State power increasing, social power and faith in social power diminishing; the State absorbing a continually larger proportion of national income; production languishing, the State in consequence taking over one “essential industry” after another, managing them with ever-increasing corruption, inefficiency and prodigality, and finally resorting to a system of forced labour. Then at some point in this progress, a collision of State interests…will result in an industrial and financial dislocation too severe for the asthenic social structure to bear; and from this the State will be left to “the rusty death of machinery,” and the casual anonymous forces of dissolution will be supreme.

We’ve survived 75 years since this was written back in 1935 when lovers of liberty already thought we were doomed. Are we too far down the road to serfdom or can we still reclaim our nation?

Danny Tarkanian to Issue Statement on Economic Policy

Mark Alvarez-Anderson — Fri, 05 Feb 2010 15:55:35 +0000

Danny Tarkanian, GOP primary candidate for U.S. Senate in Nevada, will be issuing a statement on economic policy that will appear right here on CE. From what I can tell, Team Tark “gets it.”

If we continue down the current policy path - with the Fed propping up the bond market through massive Open Market operations – there will be no floor underneath the dollar and no roof on interest rates. Investors/lenders will be compelled to tack an inflation agio onto interest rates. The Fed undermines the very bond market that it is trying to prop up in order to hold interest rates artificially low. The beginning of the end will come when the short-end of the curve collapses even with Fed support.

The real issue isn’t even so much the direction of nominal prices, but what prices would otherwise be absent central bank manipulation. Prices are not falling to reflect wages, thus curtailing the market from clearing. The Fed’s efforts to prop up the bond market through more of the same poison that precipitated the illness in the first place has only served to delay the inevitable consequences that must eventually be reckoned with. By delaying the inevitable, the inevitable will become much worse.

I look forward to posting Team Tark’s position statement. I also invite every candidate – Sharron Angle, Sue Lowden, et al. - to submit a position statement on economic policy.