- Gary Johnson: the anti-Trump.
- Interventionists to the left.
- Interventionists to the right.
- There ain’t no such thing as free… parking.
- Vermont has a new universal health care proposal on the table. Michael Cannon joined WAMU’s The Diane Rehm Show (Washington, DC) yesterday to discuss the plan with a panel of other experts:
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A Tip of the Hat — or the Pitchfork? — to the Royal Wedding
In a remarkable coincidence, our friends at the Liberty Fund’s Online Library of Liberty have chosen this week to celebrate a couple of great moments in republican (anti-monarchy) history. The quotation of the week is from that great libertarian radical, Thomas Paine, leading up to this conclusion:
We cannot conceive a more ridiculous figure of government, than hereditary succession.
And then the image of the week features two playing cards
from a charming collection of new designs for a deck which were issued during the French Revolution (1793–94). They were designed by moderate liberal republican supporters of the revolution (which included people such as the Marquis de Condorcet) who believed in the rule of law, free markets, the equality of women under the law, and the emancipation of slaves. As they said in their pamphlet they wanted to reinforce the principles of the revolution in such everyday items as playing cards, since the traditional designs had face or “court” cards depicting Kings, Queens, and Jacks who were the beneficiaries of the old privileged political order which had just been overthrown. It seemed obvious to them that a new design even for such mundane things as playing cards was required under the Republic to reflect the new principles of government and which “the love of liberty demands.”
These cards depict “The Spirit of Peace” and “The Spirit of Commerce.”
The Online Library of Liberty is an amazing resource, with full electronic texts of many classic works on liberty plus articles, essays, biographies, bibliographies, and other educational material about the texts. Check it out.
White House to Propose 26 Percent Corporate Tax Rate?!? Look before You Leap
According to an article in the New York Times, the Obama Administration is seriously examining a proposal to reduce America’s anti-competitive 35 percent corporate tax rate.
The Obama administration is preparing to inject an unpredictable new variable into its economic policy clash with Republicans: a plan to overhaul corporate taxes. Economic advisers have nearly completed the process initiated in January by the Treasury secretary, Timothy F. Geithner, at President Obama’s behest. That process, intended to make the United States more competitive internationally, has explored the willingness of business leaders to sacrifice loopholes in return for lowering the top corporate tax rate, currently 35 percent. The approach officials are now discussing would drop the top rate as low as 26 percent, largely by curbing or eliminating tax breaks for depreciation and for domestic manufacturing.
This may be a worthwhile proposal, but this is an example where it would be wise to “look before you leap.” Or, for fans of Let’s Make a Deal, let’s see what’s behind Door Number 2.
To judge Obama’s plan, it is important to have the right benchmark. An ideal corporate tax system obviously should have a low tax rate. And it also should have no double taxation (tax corporate income at the business level or tax it at the individual level, but don’t tax it at both levels).
But it’s also important to have a simple and neutral system. The right definition of corporate income for any given year is (or should be) total revenue minus total costs. What’s left is income.
This may seem to be a statement of the obvious, but it’s not the way the corporate tax code works. The system has thousands of complicated provisions, some of which provide special loopholes (such as the corrupt ethanol credit) that allow firms to understate their income, and some of which impose discriminatory penalties by forcing companies to overstate their income.
Consider the case of depreciation. The vast majority of people understandably have no idea what this term means, but it sounds like a special tax break. After all, who wants big corporations to lower their tax bills by taking advantage of something that sounds so indecipherable.
In reality, though, depreciation simply refers to the tax treatment of investment costs. Let’s say a company buys a new machine (which would increase productivity and thus boost wages) for $10 million. Under a sensible and simple tax system, that company would include that $10 million when adding up all their costs, which then would be subtracted from total revenue to determine income.
But the corporate tax code doesn’t let companies properly recognize the cost of new investments. Instead, they are only allowed to deduct (depreciate) a fraction of the cost the first year, followed by more the next year, and so on and so on depending on the specific depreciation rules for different types of investments.
To keep the example simple, let’s say there is “10-year straight line depreciation” for the new machine. That means a company can only deduct $1 million each year and they have to wait an entire decade before getting to fully deduct the cost of the new machine.
Ultimately, the firm does deduct the full $10 million, but the delay (in some cases, about 40 years) means that a company, for all intents and purposes, is being taxed on a portion of its investment expenditures. This is because they lose the use of their money, and also because even low levels of inflation mean that deductions are worth significantly less in future years than they are today.
To put it in terms that are easy to understand, imagine if the government suddenly told you that you had to wait 10 years to deduct your personal exemption!
Let’s now circle back to President Obama’s proposal. With the information we now have, there is no way of determining whether this proposal is a net plus or a net minus. A lower rate is great, of course, but perhaps not if the government doesn’t let you accurately measure your expenses and therefore forces you to overstate your income.
I’ll hope for the best and prepare for the worst.
P.S. It’s also important to understand that a “deduction” in the business tax code does not imply loophole. If you remember the correct definition of business income (total revenue minus total costs), this means a business gets to “deduct” its expenses (such as wages paid to workers) from total revenue to determine taxable income. Some deductions are loopholes, of course, which is why a simple, fair, and honest system should be based on cash flow. Which is how business are treated under the flat tax.
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Look Who’s Back. Keynes and Hayek.
Keynes and Hayek are at it again in this new video from EconStories.tv.
According to the National Bureau of Economic Research, the Great Recession ended almost two years ago, in the summer of 2009. Yet we’re all uneasy. Job growth has been disappointing. The recovery seems fragile. Where should we head from here? Is that question even meaningful? Can the government steer the economy or have past attempts helped create the mess we’re still in?
The video was produced by Russ Roberts, advisor to the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, and John Papola for EconStories.tv. I could be mistaken, but I believe that’s Duke professor Michael Munger as the bumbling security guard.
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Dodging the High-Speed Bullet Train
President Obama’s dream of connecting 80 percent of Americans to a high-speed rail line appears to be dead. Congress appropriated $8 billion for high-speed rail in the 2009 stimulus bill and $2 billion more in the 2010 appropriations bill. But, after newly elected governors of Florida, Ohio, and Wisconsin rejected high-speed rail projects in those states, Congress declined to include any more funds in 2011 and it is unlikely to spend any more on this boondoggle as long as Republicans have a hold on the House.
What will Americans get for the $10 billion or so already committed?
- California appears ready to spend $5.5 billion building a 220-mph rail line from Corcoran–a town south of Fresno mainly known for the prison housing Charles Manson–to Borden–a ghost town north of Fresno. Considering that trains were not scheduled to stop in either Corcoran or Borden, this will truly be a train to nowhere.
- Illinois is spending more than $3 billion adding three trains per day (to the current five) between Chicago and St. Louis and increasing average train speeds from 51.6 to 56.8 mph, saving train travelers a half hour on the current 5.5‑hour trip. Illinois hopes to eventually boost average speeds to 72.6 mph, but that will require more money.
- Washington state is spending $700 million adding two trains per day (to the current three) between Seattle and Portland and increasing average train speeds from 53.4 to 56.1 mph, thus saving rail travelers 10 minutes on the current 3.5‑hour journey.
- North Carolina is spending $545 million adding two trains a day (to the current three) between Charlotte and Raleigh and increasing speeds from 54.1 to 57.7 mph, thus saving travelers 12 minutes on the current 3.2‑hour trip.
There are a few other even less-inspiring projects, and the administration has yet to decide what to do with the $2.5 billion that Florida turned back to the feds. But it is clear that the administration’s plan to dazzle Americans with an exciting new infrastructure project comparable to the Interstate Highway System has failed.
When first announced, Obama’s plan was well received by people who had taken high-speed trains in Europe and Japan. Obama’s strategy was to quickly build an 85-mile high-speed line connecting Tampa to Disneyworld in Orlando, which would open before the end of Obama’s presumed second term. This, he hoped, would inspire politicians elsewhere to demand similar lines in their states. He also hoped the fact that China was building a $400-billion high-speed rail network would be a “sputnik moment” forcing Americans to support our own rail system. Rarely mentioned was the total cost of Obama’s plan, though Transportation Secretary Ray LaHood finally offered an estimate of $500 billion.
Reports from Cato, Reason, and others attempted to dampen people’s enthusiasm for this expensive program. The real turning point, however, was the November, 2010 election. Republican gubernatorial candidates in Ohio and Wisconsin promised to kill the trains if elected. However, Rick Scott–the Republican candidate for governor in Florida–the linchpin of Obama’s plan–was on the fence.
The incumbent governor, Charles Crist, wanted to anchor the Tampa-to-Orlando train with light rail in Tampa and commuter rail in Orlando, and to do so light rail was on the ballot in Tampa. A few weeks before the election, Wendell Cox, who had written on high-speed rail for Reason, and I spoke to Tampa Tea Party members and inspired them to fight both the light rail and high-speed rail. Despite being outspent by 50-to‑1, light rail opponents prevailed at the polls in November, winning by 58 to 42. The momentum from this victory helped them persuade Scott, who narrowly won the governorship, to kill high-speed rail in February.
In April, National Review Online credited Cato, Reason, Heritage, and the Florida Tea Party with killing high-speed rail. The day after the article appeared, Congressional leaders agreed to zero-out funding for high-speed rail in the 2011 budget. It appears likely that, other than minor improvements to Amtrak’s Boston-to-Washington corridor, high-speed rail is dead, at least for now.
Once the darling of the media, high-speed trains are now closely scrutinized. The New York Times published an op ed calling Obama’s plan “a fast train to nowhere.” Instead of praising China’s high-speed trains, the Washington Post has declared them a “train wreck.”
The big question is California. The state currently has only about 10 percent of the funds it needs to build a line from Los Angeles to San Francisco. Scrambling to close a $28 billion deficit in its 2012 budget, the legislature is not likely to find any more state funds for this megaproject. Unless a miracle occurs, it appears the only added impact of Obama’s dream will be the cost to state taxpayers of running a few extra trains per day in Illinois, North Carolina, and Washington.
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A Weak Defense of Disclosure
In an earlier post, I wrote about the problems with the Obama administration’s executive order to force government contractors to reveal their political activity.
The administration defends the mandate by arguing “taxpayers deserve to know how contractors are spending money they’ve earned from the government.”
For the first (and perhaps last) time, I rise to the defense of government contractors. The President apparently believes that anyone who sells a good or service to the government must account for the uses of the money received in the transaction in perpetuity? Obama’s press secretary said the President’s “goal is transparency and accountability. That’s the responsible thing to do when you’re handling taxpayer dollars.”
I do not understand this. The government extracts taxes and spends the money. Indeed, government officials should be accountable for that spending. But once the exchange is made, the money belongs to a private firm. It is no longer the property of the taxpayers. Perhaps the use of a firm’s money should be disclosed, but you need a different argument to justify that mandate. The President seems to be proposing that anyone who does business with the government may have to account for the money they earn in those transactions. That assertion strikes me as a real expansion of government power.
The most troubling part of all this remains the President’s view that he can enact this mandate through an executive order. Americans should be wondering why a rule rejected by Congress can simply be enacted by fiat by the President. The President does not enjoy the power of a king, does he?
The President’s gambit may be in trouble. Sen. Susan Collins, a Republican from Maine, is questioning the content of the decree. I am glad she is concerned about the First Amendment. I would be happier if she questioned the Obama-Bush conception of executive power that informs this effort.
Not the Transparency I Was Hoping For
The Obama administration’s record on open government isn’t so hot, but the State Department expects the utmost in transparency from anyone applying for a passport. Here are the details on a proposed passport application:
The proposed new Form DS-5513 asks for all addresses since birth; lifetime employment history including employers’ and supervisors names, addresses, and telephone numbers; personal details of all siblings; mother’s address one year prior to your birth; any “religious ceremony” around the time of birth; and a variety of other information. According to the proposed form, “failure to provide the information requested may result in … the denial of your U.S. passport application.”
This document is only intended for those who do not have a birth certificate, so additional scrutiny is warranted. But compliance with the form is a mixture of the difficult and the impossible. Security clearances generally only require employment and residence information going back seven or ten years, but this form asks for a lifetime accounting of both. Providing details on the circumstances of your birth is asking a lot — but a listing of pre-natal appointments?
To cap it off, the State Department estimates that the average person will only require 45 minutes to compile the information for this form.