The Tax Foundation reported that Tuesday was Tax Freedom Day (TFD), which is the day that Americans stop “working for the government” through their tax payments and start working for themselves.

TFD is calculated by taking total federal, state, and local taxes and dividing by national income to get a ratio representing the share of income that the average person pays in all taxes. That ratio is applied to the 365-day calendar. This year the ratio is 29.2 percent, which translates into April 17 for TFD. Time to party!

But maybe not quite yet…

When I worked at Tax Foundation in 1993, I mailed a letter to Milton Friedman asking about his view on TFD. He kindly responded with a letter and a 1974 Newsweek article in which he proposed a “Personal Independence Day.” That day would be based on total government spending, which is larger than total taxes, and thus our day to celebrate freedom from the government hasn’t yet arrived this year.

In his letter to me, Friedman stressed that total spending is the important variable in assessing the burden of government: “If government spends an amount equal to 50 percent of the national income, only 50 percent is left to be available for private purposes, and that is true however the 50 percent that government spends is financed.” And while some economists focus on how government borrowing may “crowd out” private investment, Friedman said, “What does the crowding out is government spending, however financed, not government deficits.”

In its TFD report, Tax Foundation includes a supplemental calculation looking at spending. The thinktank figures that Americans will work until May 14 this year to be free from the burden of federal, state, and local spending. The Foundation is lacking a snappy name for that important day, but now we are reminded that Friedman has already suggested one. 

Friedman hoped that “Personal Independence Day” would complement our national Independence Day of July 4. The latter is the day we celebrate independence from the “Royal Brute of Britain,” as Tom Paine called him in Common Sense. But for Paine and the other Founders, the deeper goal of July 4, 1776 was to create a limited government to ensure the maximum space for the exercise of individual freedom. As Paine noted, private “society in every state is a blessing, but government, even in its best state, is but a necessary evil.”

So Milton Friedman’s Personal Independence Day can be our annual reminder that while our forefathers gave the boot to the “crowned ruffians” of Old Europe, we’ve still got work to do in limiting the power grabbing of our own elected ruffians in Washington.

The war in Afghanistan tragically feels like the movie Groundhog Day: reliving and retelling the same stories repeatedly, but with the situation worse than it was the previous time. The United States is perpetually stuck in a repetitive series of setbacks and scandals that damage the mission. It cannot escape the shadow that ruinous events cast over the prospect of defeating the Taliban.

Today, the Los Angeles Times published photos of U.S. soldiers posing with the mangled corpses of alleged insurgents. This latest grisly and embarrassing episode, much like the incidental burning of Qurans, the murder of 17 Afghan civilians by a U.S. Army Sgt., and the U.S. kill team that collected the fingers and teeth of Afghan corpses as trophies, is yet another scandal that damages what America stands for. Certainly, war breeds hatred for one’s enemies. But perhaps even more troubling is that over a decade of fighting has—as military expert Carl Prine and others have observed—led to a serious breakdown in military discipline, leadership, and chain of command.

These photos also come after a series of coordinated assaults rocked Kabul and three provincial capitals this past weekend. The Taliban’s annual spring offensive has commenced. These attacks do not bode well for America’s plan to transition to Afghan forces, or for the 2001 Bonn Agreement proclamations of bringing about “national reconciliation” and “lasting peace.” Of the many interpretations that one can glean about the significance of these recent the attacks in the heart of the capital city, three stand out.

First, they show that despite coalition night raids and drones strikes that have managed to eliminate the Taliban’s numerous shadow governors, mid-level commanders, and weapons facilitators the insurgents still have the upper hand in terms of local knowledge and connections with the Afghan people—including high-level officials. As a classified NATO report from January stated, the Taliban’s “strength, motivation, funding and tactical proficiency remains intact,” and, “Many Afghans are already bracing themselves for an eventual return of the Taliban.”

Second, these attacks send the unequivocal message to the Afghan people that their government is vulnerable and thus unable to protect them. While some commentators have pointed to the performance of the Afghan security forces, the attacks, if anything, underscore the fragility of a Kabul-centric government reliant on an endless stream of foreign-aid dollars. After all, in addition to these attacks, there was the coordinated assault on the U.S. Embassy and NATO headquarters last September, and the growing number of top Afghan leaders who have been assassinated one-by-one. These include Jan Mohhammed Khan, the former governor of Uruzgan province; Ahmed Wali Karzai, President Hamid Karzai’s half-brother; General Daud Daud, the governor of Takhar province; Khan Mohammed Mujahed, the police chief of Kandahar; and others I neglected to mention.

Third, as one astute observer has noted, the mainstream media has reported on the attacks in Kabul, Pol-e-Alam (Logar), Gardez (Paktia), and Jalalabad (Nangarhar), but overlooked the attempted attack in Kunduz in northern Afghanistan. This would have undercut the conventional narrative that the anti-Afghan government insurgency remains where the Obama administration’s “surge” was most focused: in the south. But rather than remaining in one pocket of the country, the complex blend of factions that include the Hezb-i-Islami militia, the Haqqani network, and other loosely affiliated groups that have spread to the north as well. Paradoxically, much of the international community’s development aid and military resources have gone to some of Afghanistan’s most insecure provinces. As Oxfam International’s former head of policy in Afghanistan Matt Waldman writes, if Helmand province were a state, it would be “the world’s fifth largest recipient of funds” from USAID.

As usual, political leaders and military commanders have downplayed these latest attacks as yet another “one-off” incident. Americans know better. To them, these attacks—and the photos—will serve as yet another stunning reminder of how poorly things are going, and why we need to leave.

Cross-posted from the Skeptics at the National Interest.

A few days ago, I explained why I’m a big fan of tax competition. Simply stated, we need to subject governments to competitive pressure to at least partially offset the tendency of politicians to over-tax and over-spend.

Tax havens play an important role in this liberalizing process, largely because they do not put themselves under any obligation to enforce the bad tax laws of other jurisdictions. They also use privacy laws to protect their sovereign control of what gets taxed inside their borders (this is what separates a “tax haven” from a more conventional low-tax jurisdiction). This means they are fiscal safe zones, particularly for people who want to protect their assets from the pervasive double taxation that exists in so many nations.

Not everybody agrees with my analysis (gee, what a surprise). To cite one example, the petty bureaucrats at the OECD got so agitated at me in 2009 (when I was offering advice to representatives of so-called tax havens while standing in a public lobby of a public hotel) that they threatened to have me thrown in a Mexican jail.

Now I have a new critic, though hopefully someone who would never consider thuggish tactics to suppress dissent. Ann Hollingshead writes for the Task Force on Financial Integrity and Economic Development, which (notwithstanding the name of the organization) seems to favor bigger government.

Anyhow, she wrote an article specifically criticizing my work on tax havens. So I figured it was time for a fisking, which means a point-by-point rebuttal. Here’s how she begins, and I’ll follow up her points with my responses.

Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self-appointed defender of so-called tax havens.”

No irony on my part. As I have openly stated, tax havens are a key part of tax competition, which is a necessary (though sadly not sufficient) process to restrain the greed of the political class.

Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States“could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non-resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non-resident deposits “makes the case for pro-market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.

Fair enough. We both recognize that the United States is a big tax haven. But we have different conclusions. I think it is unfortunate that only non-resident foreigners can benefit from these policies, while Ann wants to crack down on small low-tax jurisdictions such as Monaco, Bermuda, Liechtenstein, and the Cayman Islands, as well as big nations such as the United States. Sadly, Ann’s side has somewhat prevailed, and many of the havens have agreed to become deputy tax collectors for nations with bad tax law.

So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.

I guess I should be happy that she holds out the possibility that I’m “relatively intelligent.”

Mitchell implicitly takes the position that tax havens do enable tax evasion and this helps to lower tax rates. He argues “it is largely globalization—not ideology—that has driven [a] ‘race to the bottom’” where global top corporate tax rates now average about 27 percent, down from 67 percent in 1980. Mitchell does not only believe this has occurred, but also maintains it is a positive development. He argues tax competition drives tax policy in the “right direction” (i.e., lower tax rates), has called these developments “positive,” and has even likened policy makers to “thieves” and tax competition to home “alarm systems.”

Ann makes one minor error. Corporate tax rates have dropped from a high of about 48 percent (and are now down to less than 25 percent). Top personal tax rates, by contrast, used to be more than 67 percent (and have now dropped to about 41 percent).

Regarding these developments, I think they are very positive. And I also think that politicians are akin to thieves, though Godfrey Bloom, a British member of the European Parliament, says it with a much better accent.

Mitchell’s argument that lower tax rates are always better and that those who tax others are thieves, makes several implicit assumptions about the relationship of citizens to their government. From his line of reasoning, Mitchell either believes, on a philosophical level, that governments do not have the right to tax their citizens or, on an economic level, that lower tax rates are always better, or both.

I definitely believe that lower tax rates are better than higher tax rates.

Mitchell may believe that taxation is the equivalent of thievery—and therefore that governments do not have the right to tax their citizens, just a thief does not have the right to steal. But he is also (more than likely) not an anarchist, which is the next logical extension of this reasoning, because on a number of occasions he has advocated a flat tax.

Ann makes a good point here. I’ve already admitted, in this post featuring a funny video mocking libertarianism, that I don’t see how to privatize the justice system and national defense, so I’m not an anarcho-capitalist.

Mitchell also argues lower tax rates are universally better, so at what point does the tax rate become acceptable? Clearly he doesn’t believe the tax rate should be zero, because that would get back to the anarchism theory. And he did once offer tepid support for Herman Cain’s 9 percent rate.

Another fair point. If a 50 percent tax is confiscatory and if politicians who impose such a tax are akin to thieves, then why would a 10 percent tax be acceptable? And would politicians imposing low tax rates still be acting like crooks?

Those are tough questions. But at the risk of dodging thorny philosophical issues, I’ll claim it doesn’t really matter. Government is too big right now and taxes are too onerous and unfair. If I somehow manage to bring government down to 10 percent of GDP, as the Rahn Curve suggests if we want to maximize prosperity for the American people, then I’ll have the luxury of worrying about the moral legitimacy of a limited public sector.

Clearly there’s a disconnect. Taxation cannot both be thievery, but also acceptable at a lower level. There is no evidence that, if tax competition through tax evasion is real, it would cease to drive down tax rates at some level that has been deemed acceptable by Dan Mitchell. So at what point does the “race to the bottom” bottom out? And is that a point where the United States can still maintain services that I’m sure Mitchell doesn’t advocate giving up, like police and law courts?

If I understand this passage correctly, I disagree. Tax competition does not drive tax rates to zero. It just encourages better policy. There’s pressure to lower tax rates, and there’s pressure to reduce double taxation of income that is saved and invested. But there’s no reason to think that tax competition and/​or tax evasion forces the overall tax burden “to the bottom.”

But I would be remiss not to point out some internal inconsistencies in Mitchell’s arguments, in addition to his logical ones. While he argues tax competition through tax evasion in havens has fostered lower tax rates worldwide, he has also reckoned that “only a tiny minority” of people who keep their money in havens “are escaping onerous tax burdens.” First of all, I would be interested to see where Mitchell got that statistic because no one knows how much money is deposited in havens, let alone its origins. Such information isn’t publicly available. That’s actually the whole point. And secondly, and more importantly, I’m unclear on how such a “tiny minority” of oversees deposits could drive international tax policy to such an extent that the average corporate tax rates have dropped by more than half in thirty years.

Actually, there is considerable data about the amount of money in tax havens. The Bank for International Settlements is a good place for those who like to peruse such information.

But that’s a secondary point. Her main criticism is that I’m inconsistent when I say tax evasion is minor, so allow me to elaborate. Tax competition works by making politicians fearful that jobs and investment will migrate to jurisdiction with better tax law. It works just as well when people engage in legal tax planning and legal tax avoidance as it does with illegal tax evasion.

Places such as the Cayman Islands, for instance, rely on completely legal and transparent lines of business such as hedge funds and captive insurance companies. Places such as Panama have completely legal shipping registries. Places such as the British Virgin Islands specialize in completely legal company formation. Places such as the Channel Islands focus on completely legal trusts. Places such as Bermuda are known for completely legal reinsurance firms.

The “illegal” part of the offshore business does exist (at least as defined by high-tax nations), and it tends to be in the areas of private wealth management and banking. And even then, only in jurisdictions that have very strong human rights laws protecting financial privacy.

To be sure, there’s no way to precisely state how much tax evasion exists, but I can say with total certainty that the left’s claims are absurd. During the 2008 campaign, for instance, then-candidate Obama said that his anti-tax haven policies would generate $100 billion every year. When his law was enacted in 2010, that huge amount of money shrank to only $870 million per year. And even that estimate is a mirage because the President’s FATCA law is discouraging productive investment in the United States.

It is not my intention to demonize Mitchell and I hope you’ll notice that I’ve neither called him, nor implied that he is, a “careless and know-nothing hack.” I also have no interest in taking easy jabs that imply he is personally benefiting from tax evasion through havens or that he is seeking to destabilize theU.S.government by removing its ability to tax its citizens. Such attacks might generate readers, but they don’t generate thoughtful discussion and I’m much more interested in the latter than the former.

You may be wondering why she included the comment about a “careless and know-nothing hack.” It’s because I used that phrase to describe a journalist who wrote a very sloppy article. But I don’t automatically disparage those with different views. I’ll disagree with people and argue with them, but I don’t mock them if they have serious and substantive views.

I suppose I should also say, just for the record, that I fully comply with all the onerous demands imposed on me by the government. Not because I want to, but rather because I worry that my work on public policy sooner or later will attract some discriminatory and politically motivated attention from the IRS. It hasn’t happened yet, so I hope I’m being needlessly paranoid, but suffice to say that I go out of my way to even declare income that I know isn’t reported to the tax police.

So here are my questions, to anyone who will answer. 1) On what philosophical basis, if any, do governments draw the right to tax their citizens?; 2) Do citizens have a moral or philosophical right to evade taxation by using tax havens under any circumstances?; 3) If so, at what level of taxation do those citizens no longer have a moral right to evade tax?; and 4) what is the philosophical reasoning that justifies this level?

Now we’re back to the hard-to-answer questions. When is government too big and when does it impose so many demands that people are justified in evading taxation? I’m not sure, but I’ll fall back on what former Supreme Court Justice Potter Stewart said about pornography: “I know it when I see it.”

Put in context, I don’t blame people from France for evading confiscatory taxation. I don’t blame people in corrupt nations such as Mexico for evading taxation. I don’t blame people in dictatorial nations such as Venezuela for evading taxation.

But I would criticize people in Singapore,Switzerland, Hong Kong, or Estonia for dodging their tax liabilities. They are fortunate to live in nations with reasonable tax rates, low levels of corruption, and good rule of law.

Let me now circle back to the main point. In a world with vigorous tax competition, especially when augmented by the strong human rights laws of tax havens, nations will face some pressure to move their policies closer to Hong Kong and away from France. That’s something worth protecting and promoting, not something to be stamped out by high-tax nations seeking to create a tax cartel—sort of an OPEC for politicians.

Last but not least, if you haven’t yet overdosed on this topic, here’s my speech to a Capitol Hill audience on the valuable role of tax havens in the global economy.

In the late stages of a legislative battle, it often comes down to “talking points.” Whoever puts out the message that sticks wins the debate—damn the substance.

Rep. Mike Rogers (R‑MI) is prioritizing talking points over substance if a CQ report about a speech he gave to the Ripon Society is accurate. (He put it up on his Web site, from which one could infer endorsement. Rogers is not a cosponsor of SOPA, the Stop Online Piracy Act, so let’s not have the government taking down the house​.gov domain just now, mkay?)

From the report:

“We’re finding language we can agree on,” he said in a speech to the Ripon Society, a moderate Republican group. “Are we going to agree on everything? Probably not. They don’t want anything, anytime, ever.” But, Rogers said, he hopes to give the groups “language that at least allows them to sleep at night, because I can’t sleep at night over these threats.”

This seems to suggest that a few tweaks to language, well in the works with the privacy community, will make his version of cybersecurity legislation a fait accompli. I’m a keen observer of the privacy groups, and I see no evidence that this is so. The bill is so broadly written that it is probably unrepairable.

And that is a product of Congress’s approach to this problem: Congress does not know how to address the thousands of difference problems that fall under the umbrella term “cybersecurity,” so it has fixed on promiscuous (and legally immunized) “information sharing” with government security agencies as the “solution.” Privacy can rightly be traded for other goods such as security, but with no benefits discernible from wanton information sharing, one shouldn’t expect sign-off from the privacy community.

That is not actually the message of the privacy community, who, on average, trust the government more than most conservatives and libertarians. The mainstream privacy community probably would accept highly regulatory and poorly formed cybersecurity legislation if it had enough privacy protections. But Rogers’ talking points try to push privacy folk onto the “unreasonable” part of the chess board, saying, “They don’t want anything, anytime, ever.”

That’s closer to my view than anything the orthodox privacy advocates are saying. Cybersecurity is not an area where the federal government can do much to help. But even I said in my 2009 testimony to the House Science Committee that the federal government has a role in improving cybersecurity: being a smart consumer that influences technology markets for the better.

What Representative Rogers—and all advocates for cybersecurity legislation—have failed to do is to make the affirmative case for their bills. “I can’t sleep at night” is not an answer to the case, carefully made by Jerry Brito of the Mercatus Center at Cato’s recent Hill briefing, that the threat from cyberattacks is overblown.

The briefing was called “Cybersecurity: Will Federal Regulation Help?” That’s a place one can go for substance.

Somewhat belatedly, I’ve come upon this essay in which a “libertarian economist retracts a swipe at the left—after discovering that our political leanings leave us more biased than we think.” It presents a problem for anyone trying to communicate ideas that lack popular support: we are all “my-side biased,” tending to block out arguments and evidence that we know (or even suspect) will threaten any of our cherished convictions. How to overcome humanity’s natural ideological defense mechanisms?

Plato’s Socrates tried to do it by taking his interlocutors by surprise. First, get them to acknowledge all the key facts of a particular matter in isolation, in a way that does not present an obvious ideological threat, and only then tie them logically together so that the interlocutor cannot help but realize that his original presumption must be wrong. Hard to do.

An even tougher challenge is trying to minimize our own my-side bias so that we are not so thick-headed when one of our own convictions is contradicted by reality. Reading articles like the above from time to time no doubt helps.

As the New York Times reports today, mass filing of accessibility lawsuits against Main Street businesses, long a cottage industry for Florida and California lawyers, has now reached Gotham in a big way:

A small cadre of lawyers, some from out of state, are using New York City’s age and architectural quirkiness as the foundation for a flood of lawsuits citing violations of the Americans With Disabilities Act.

The lawyers are generally not acting on existing complaints from people with disabilities. Instead, they identify local businesses, like bagel shops and delis, that are not in compliance with the law, and then aggressively recruit plaintiffs from advocacy groups for people with disabilities.

The cases then settle for a few thousand dollars in what are described as legal fees, as well as a payment (token or otherwise) to the named client, and a promise to relocate or replace the shelf or doorknob or paper towel dispenser whose ADA-noncompliant status was complained of in the suit.

I’ve been covering these shakedown operations for years, and some other New York press outlets have already gotten to the same case histories in livelier fashion, as with the New York Post, which last June reported on the same attorney (Bradley Weitz) and client (Zoltan Hirsch) who figure prominently in today’s Times report. (Best detail from the Post: “[Hirsch] targeted a pedicure station at the Red & White Spa in SoHo—even though he has no feet.”) Still, the Times adds some helpful details, such as that the number of similar suits nationwide has more than doubled in five years (to 3,000, “including more than 300 in New York”) and that New York’s pro-plaintiff city and state Human Rights Laws encourage things by allowing damages for complainants, thus raising the suits’ extraction value beyond the level of attorneys’ fees. (California has the worst ADA shakedown racket—to the point where liberal Democratic senator Dianne Feinstein recently threatened to intervene unless Sacramento does something to clean it up—because of the distinctively high damages available under its Unruh Act).

Inevitably, the Times also quotes advocates including a law professor, in this case Ruth Colker of Ohio State, defending the use of the law in this fashion. That Colker and other top ADA specialists in legal academia actually defend the law’s use as a shakedown mechanism—after all, doesn’t that deter violations?—is about as severe a judgment on the ideological state of legal academia as anything in Schools for Misrule.

When it comes to discussing Latin America, Paul Krugman has a tortuous relationship with facts. Let’s take a look at a post he wrote last week on inequality in the region. Krugman claims that Latin America’s decline in inequality in the last decade is due to the region “partially turning its back on the Washington Consensus” (a term that has misleadingly become short hand for free market policies). Is that the case?

First, note how the graph in Krugman’s post actually shows inequality going up in Latin America during the 1980s, before the implementation of policies related to the Washington Consensus (which for most countries begins in the early 1990s), and then sharply declining before the arrival of what he calls the “new policy approach” of left-of-center governments. The rise of inequality in Latin America in the 1980s coincides with the periods of hyperinflation that crippled the economies of Argentina, Brazil, Nicaragua, Peru, and Bolivia. Central banks in Latin America were all too busy in those years financing the acute fiscal imbalances of their central governments through the emission of money. And Latin American countries were deep in the red precisely because their bloated public sectors became unsustainable, leading to the serious debt crisis of 1982. Thus, it was an inflationary spree, caused by the crisis of big government, that exacerbated inequality in the region. Of course, Krugman fails to mention this.

Can we assign the recent decline in inequality in Latin America to any specific ideology? A recent study by Kenneth Roberts of Cornell University on the politics of inequality in Latin America looked at inequality trends from 2000 to 2010 and found that “countries that experienced net declines in inequality were governed by diverse administrations of the left, centre, and right, including non-leftist governments in Colombia, Mexico, Peru, Paraguay, El Salvador, Guatemala, and Panama.” According to Roberts, “there was no strict correspondence between declining inequality and either the ideological profile of national governments or any specific set of redistributive initiatives.”

Second, it’s quite a stretch to state that Latin America as a region moved away from the Washington Consensus. I’m not going to dwell here on the virtues of all the policy recommendations identified by John Williamson back in 1989 or discuss the extent to which they were actually implemented by the various Latin American governments. However, even though some countries such as Venezuela, Ecuador, Bolivia, and Argentina have turned their backs on responsible macroeconomic policies in the last few years, most governments in the region, including those called “left of center,” still implement macroeconomic policies related to the Washington Consensus such as freer trade, fiscal and monetary discipline, and attraction of foreign direct investment.

It is telling that despite the serious deterioration in economic freedom in countries such as Venezuela, Ecuador, and Argentina economic liberty has actually increased—slightly—in Latin America as a region in the last decade. According to the Economic Freedom of the World , Latin America went from a regional average grade of 6.56 (out of 10) in 2000 to 6.62 in 2009. Implying that Latin America has somehow turned its back on market-friendly policies is misleading.

Third, Krugman looks at the economic performance of Latin American governments based on their ideological affiliation, suggesting that social democratic regimes have a better record than non-left-of-center governments. However, the study on which he bases his post relies too heavily on analyzing governments by their ideological labels, rather than looking at their actual economic policies. This can be very misleading. For example, during the period covered by the study (2000s), Chile is ranked as left of center, even though during that decade the country increased its level of economic freedom, moving up in the ranking of the Economic Freedom of the World index from 28th place in 2000 to 5th in 2009.

Finally, Krugman finished his post questioning Chile’s free market model and private pension system (even though the study he was referencing categorizes Chile as “left of center” and thus credited that ideological camp for Chile’s healthy economic indicators). Krugman doesn’t provide evidence to substantiate his criticism other than making a presumable reference to the recent student protests in Chile. If he looked at the facts, he would see a different picture. He would find that Chile is the country with the most impressive record in poverty reduction in Latin America (the poverty rate fell from 45 percent in the mid-1980s to just 15 percent in 2011), that it has tripled its income per capita since 1990 to $16,000 (the highest in Latin America), and that it is set to become the first developed nation in Latin America within a decade. What is it about this record that Krugman finds so annoying?