Last week, Steve Titch gave you a thorough run-down on the TechLiberationFront blog. Now Tim Carney has a quick primer on the push by big retailers to increase tax collection on goods sold online.
S. 1832, the Marketplace Fairness Act is Big Retail’s effort to increase tax collection obligations on their smaller competitors, increasing the taxes you pay along the way.
If my inbox is any indication, a lot of Americans apparently believe that an amendment to the Constitution would be necessary to privatize the U.S. Postal Service. That is simply not true.
Article 1, Section 8 says that [The Congress shall have the power] to establish Post Offices and Post Roads. It does not say that the federal government shall have the exclusive power to deliver mail. Nor does it require that the mail be delivered by an agent of the federal government to every home in the country, six days a week.
In a 1996 Cato book, The Last Monopoly, James I. Campbell writes the following in a chapter on the history of postal monopoly law:
The U.S. Constitution, in 1789, authorized Congress to establish “Post Offices and post Roads” but, unlike the Articles of Confederation, did not explicitly establish an exclusive monopoly. The first substantive postal law, enacted in 1792, listed post roads to be established, reflecting the traditional concept of postal service as a long-distance transport. It authorized the Postmaster General to enter into contracts for the carriage of “letters, newspapers, and packets” but limited the postal monopoly to “letter or letters, packet or packets, other than newspapers.”
According to Campbell, the Post Office “first began delivery of mail to a small portion of the U.S. population” in 1863:
Until the Postal Act of 1863, the Post Office remained essentially a contracting office for intercity transportation services. In fiscal 1862, costs of intercity and foreign transportation constituted 63 percent of all expenses. Before 1863, intercity letters were either held at the destination post office for collection or delivered by a “letter carrier” who acted as independent contractor and charged the addressee two cents, one of which went to the Post Office.
Then there’s the issue of intracity mail delivery:
A person could drop letters at a post for delivery by a letter carrier within the same city, but that was a secondary service as far as the Post Office was concerned; even after the 1863 act, such “drop letters” were considered “not transmitted in the mails of the United States.”
Delivery of local, intracity letters was pioneered by private companies such as Boyd’s Despatch in New York City and Blood’s Despatch in Philadelphia. One authority counted 147 private local postal companies. The “locals” introduced adhesive postage stamps at least as early as 1841. The Post Office did not introduce stamps until 1847 and did not require their use until 1851. Efforts by the Post Office to suppress the locals failed when, in 1860, a federal court ruled that the postal monopoly pertained only to the transportation of letters over “post roads” between post offices and did not prohibit the delivery of letters within a single postal district.
The Postal Code of 1872 extended the postal monopoly to the delivery of local letters.
I’m not a big fan on international bureaucracies, particularly the Paris-based Organization for Economic Cooperation and Development. The OECD, funded by American tax dollars, has become infamous for its support of statist pro-Obama policies.
But I’m a policy wonk, so I’ll admit that I often utilize certain OECD’s statistics. After all, if numbers from a left-wing organization help to advance the cause of liberty, that makes it harder for opponents to counter our arguments.
With that being said, let’s look at some truly remarkable statistics from the OECD website on comparative living standards in industrialized nations. This chart shows average levels of individual consumption (AIC) for 31 OECD countries. There are several possible measures of prosperity, including per-capita GDP. All are useful, but AIC is thought to best capture the well-being of a people.
As you can see from this chart, the United States ranks far ahead of other nations. The only countries that are even close are Norway, which is a special case because of oil wealth, and Luxembourg, which also is an outlier because it is a tiny nation that also serves as a tax haven (a very admirable policy, to be sure).
At the risk of making an understatement, this data screams, “THE U.S. SHOULD NOT BECOME MORE LIKE EUROPE.”
For all intents and purposes, Americans are about 40 percent better off than their European counterparts, in part because we have less government and more economic freedom.
Yet Obama, with his plans to exacerbate class-warfare taxation and further expand the burden of government spending, wants America to be more like nations that have lower living standards.
And don’t forget European living standards will presumably fall even further — relative to the U.S. — as the fiscal crisis in nations such as Greece, Spain, and Italy spreads to other welfare states such as France and Belgium
Here’s another chart that looks at the G‑7 nations. Once again, the gap between the U.S. and the rest of the world is remarkable.
Maybe, just maybe, the United States should try to copy nations that are doing better, not ones that are doing worse. Hong Kong and Singapore come to mind.
Getting there is simple. Just reduce the size and scope of government.
What Do Greece, the United States, and the Cayman Islands Have in Common?
At first, this seems like a trick question. After all, the Cayman Islands are a fiscal paradise, with no personal income tax, no corporate income tax, no capital gains tax, and no death tax.
By contrast, Greece is a bankrupt, high-tax welfare state, and the United States sooner or later will suffer the same fate because of misguided entitlement programs.
But even though there are some important differences, all three of these jurisdictions share a common characteristic in that they face fiscal troubles because government spending has been growing faster than economic output.
I’ve written before that the definition of good fiscal policy is for the private sector to grow faster than the government. I’ve humbly decided to refer to this simple principle as Mitchell’s Golden Rule, and have pointed out that bad things happen when governments violate this common-sense guideline.
In the case of the Cayman Islands, the “bad thing” is that the government is proposing to levy an income tax, which would be akin to committing fiscal suicide.
The Cayman Islands are one of the world’s richest jurisdictions (more prosperous than the United States according to the latest World Bank data), in part because there are no tax penalties on income and production.
So why are the local politicians considering a plan to kill the goose that lays the golden eggs? For the simple reason that they have been promiscuous in spending other people’s money. This chart shows that the burden of government spending in the Cayman Islands has climbed twice as fast as economic output since 2000.
Much of this spending has been to employ and over-compensate a bloated civil service (in this respect, Cayman is sort of a Caribbean version of California).
In other words, the economic problem is that there has been too much spending, and the political problem is that politicians have been trying to buy votes by padding government payrolls (a problem that also exists in America).
The right solution to this problem is to reduce the burden of government spending back to the levels in the early part of last decade. The political class in Cayman, however, hopes it can prop up its costly bureaucracy with a new tax—which euphemistically is being called a “community enhancement fee.”
The politicians claim the tax will only be 10 percent and will only be imposed on the expat community. But it’s worth noting that the U.S. income tax began in 1913 with a top rate of only seven percent and it affected less than one percent of the population. But that supposedly benign tax has since become a monstrous internal revenue code that plagues the nation today.
Except the results will be even worse in Cayman because the thousands of foreigners who are being targeted easily can shift their operations to other zero-income tax jurisdictions such as Bermuda, Monaco, or the Bahamas. Or they can decide that to set up shop in places such as Hong Kong and Singapore, which have very modest income tax burdens (and the ability to out-compete Cayman in other areas).
As a long-time admirer of the Cayman Islands, I desperately hope the government will reconsider this dangerous step. The world already has lots of examples of nations that are following bad policy. We need a few places that are at least being semi-sensible.
By they way, I started this post with a rhetorical question about the similarities of Greece, the United States, and the Cayman Islands. Let’s elaborate on the answer.
Here’s a post that shows how Greece’s fiscal nightmare developed. But let’s show a separate chart for the burden of federal spending in the United States.
What’s remarkable is that the federal government and the Cayman Islands government have followed very similar paths to fiscal trouble. Indeed, Caymanian politicians have achieved the dubious distinction of increasing the burden of government spending at a faster rate than even Bush and Obama. No mean feat.
This data for the U.S. chart doesn’t include the burden of state and local government spending, so the Cayman Islands still has an advantage over the United States, but I’ll close with a prediction.
If the Cayman Islands adopts an income tax—regardless of whether they call it a community enhancement fee (to misquote Shakespeare, a rotting fish on the beach by any other name would still smell like garbage), it will be just a matter of time before the burden of government spending becomes even more onerous and Cayman loses its allure and drops from being one of the world’s 10-richest jurisdictions.
Which will be very sad since I’ll now have to find a different place to go when America suffers its Greek-style fiscal collapse.
One possible solution offered up for the struggling U.S. Postal Service is to allow it to diversify into nonpostal commercial markets (e.g., insurance, logistics, banking, etc). After all, the share of revenue generated from diversified products at foreign posts has been on the rise and in many cases now accounts for the majority of a post’s revenue.
However, a new paper from postal expert Michael Schuyler concludes that the USPS entering “new nonpostal commercial ventures would probably end badly.” Here are some of the important takeaways from Mike’s paper:
In sum, it’s a really bad idea. Unfortunately, policymakers in Washington have a soft spot for bad ideas.
Last week I testified before the Senate Appropriations subcommittee that deals with education. The topic was sequestration, and my case was, frankly, overwhelming, showing that education spending has ballooned for decades while achievement for 17-year-olds — our schools’ “final products” — hasn’t budged.
At least I thought it was overwhelming. But apparently a Huffington Post reporter was underwhelmed by it and wrote the following:
Some lobbyists in the education reform camp note that U.S. education spending has skyrocketed, while test scores have stagnated. Neal McCluskey — an expert witness who serves as associate director for the Cato Institute’s education center — took this line, but a recent report from the nonpartisan Center on Education Policy shows that education spending has actually not grown at all as a share of the gross domestic product.
Aside from the odious implication that I am either a lobbyist or take my cues from them, the big problem with this rebuttal is that it is flat-out wrong. Open the link to the CEP report, go to page 35, and there you will see that the share of GDP taken by elementary and secondary education in fact grew between 1999 and 2009, from 4.4 percent to 4.6 percent.
Perhaps the writer thinks a 0.2 percentage point uptick isn’t big enough to constitute growth. If so, she should really take a look at the Digest of Education Statistics table that furnished the GDP data. It reveals just how big a spending increase that seemingly dinky rise was, a function of GDP starting very large and growing substantially. Indeed, there was an increase of over $237 billion, or a 57 percent ballooning, with spending rising from $413 billion in 1999 to $650 billion in 2009!
Those are current dollars so we should really adjust for inflation. Doing that moves the 1999 figure to $531 billion, but that still means there was a real increase of $119 billion, or a 22 percent move. That’s no growth by no means.
To her credit, the Huff Po reporter included one piece of context that’s crucial when discussing cuts to federal education spending, context that belies the irresponsible rhetoric of people like Education Secretary Arne Duncan, who said sequestration would “jeopardize our nation’s ability to develop and support an educated, skilled workforce that can compete in the global economy.”
Surely to justify such doomsaying cuts would have to be very large — perhaps 10 or 20 percent — right?
Nope. As Sen. Shelby (R‑AL) rightly noted at the hearing — and the Huff Po reported — the 7.8 percent cut to federal education programs likely under sequestration would only translate into about a 0.84 percent cut in total education spending. Why? Because the Feds — though spending far too much on education — still only supply about 10.8 percent of the total. Most funding comes from state and local governments.
When you look honestly at the numbers there really is no question: Sequestration should fully include education.
Considering that every economic theory agrees that living standards and worker compensation are closely correlated with the amount of capital in an economy (this picture is a compelling illustration of the relationship), one would think that politicians — particularly those who say they want to improve wages — would be very anxious not to create tax penalties on saving and investment.
Yet the United States imposes very harsh tax burdens on capital formation, largely thanks to multiple layers of tax on income that is saved and invested.
But we compound the damage with very high tax rates, including the highest corporate tax burden in the developed world.
And the double taxation of dividends and capital gains is nearly the worst in the world (and will get even worse if Obama’s class-warfare proposals are approved).
To make matters worse, the United States also has one of the most onerous death taxes in the world. As you can see from this chart prepared by the Joint Economic Committee, it is more punitive than places such as Greece, France, and Venezuela.
Who would have ever thought that Russia would have the correct death tax rate, while the United States would have one of the world’s worst systems?
Fortunately, not all U.S. tax policies are this bad. Our taxation of labor income is generally not as bad as other industrialized nations. And the burden of government spending in the United States tends to be lower than European nations (though both Bush and Obama have undermined that advantage).
And if you look at broad measures of economic freedom, America tends to be in — or near — the top 10 (though that’s more a reflection of how bad other nations are).
But these mitigating factors don’t change the fact that the U.S. needlessly punishes saving and investment, and workers are the biggest victims. So let’s junk the internal revenue code and adopt a simple and fair flat tax.