Alan Blinder has a distinguished resume. He’s a professor at Princeton and he served as Vice Chairman of the Federal Reserve.

So I was interested to see he authored an attack on the flat tax – and I was happy after I read his column. Why? Well, because his arguments are rather weak. So anemic that it makes me think there’s actually a chance to get rid of America’s corrupt internal revenue code.

There are two glaring flaws in his argument. First, he demonstrates a complete lack of familiarity with the flat tax and seemingly assumes that tax reform simply means imposing one rate on the current system.

Here’s some of what he wrote in a Wall Street Journal column.

Many useful steps could be taken to simplify the personal income tax. But, contrary to much misleading rhetoric, flattening the rate structure isn’t one of them. The truth is that 100% of the complexity inheres in the definition of taxable income, which takes up millions of words in the tax laws. None inheres in the progressive rate structure. If you don’t believe that, consider the fact that the corporate income tax is virtually flat once a corporation passes a paltry $75,000 in taxable income. Is it simple? Back to the personal tax. Figuring out your taxable income can be quite an effort. But once that is done, most taxpayers just look up their tax bill on an IRS-provided table. Those with incomes above $100,000 must perform a simple calculation that involves multiplying two numbers together and adding a third. A flat tax with an exemption would require precisely the same sort of calculation. The net reduction in complexity? Zero.

I can understand how an average person might think the flat tax is nothing more than applying a single tax rate to the current system, but any public finance economist must know that the plan devised by Professors Hall and Rabushka completely rips up the current tax system and implements a new system based on one tax rate with no double taxation and no loopholes.

Heck, the Hall/​Rabushka book is online and free of charge. But Blinder obviously could not be bothered to understand the proposal before launching his attack.

What about his second mistake? This one’s a doozy. He actually assumes that taxable income is fixed, which is a remarkable error for anyone who supposedly understands economics.

…flattening the rate structure won’t make the tax code any simpler. It would, however, make the tax system far less progressive. Do the math. …Someone with $20 million in taxable income pays nearly $7 million in taxes under the current rate structure, with its 35% top rate. Replace that with a 23% flat tax, and the bill drops to just under $4.6 million.

In other words, he assumes that people won’t change their behavior even though incentives to engage in productive behavior are significantly altered.

In a previous post, I showed how rich people dramatically increased the amount of income they were willing to earn and report after Reagan lowered the top tax rate from 70 percent to 28 percent.

To Blinder, this real-world evidence doesn’t matter – even though the rich paid much more tax to the IRS after Reagan slashed tax rates.

For more information, here’s my flat tax video.

And here’s the video on the global flat tax revolution. Interestingly, there are now about five more flat tax jurisdictions since this video was made – though Iceland abandoned its flat tax, so there are some steps in the wrong direction.

Makes you wonder. If the flat tax is such a bad idea, why are so many nations doing so well using this simple and fair approach?

But be careful, as this cartoon demonstrates, simplicity can mean bad things if the wrong people are in charge.

I’m seeing a lot of technology news sites reporting, in tones of shock and horror, on a recent court ruling holding that people generally waive their Fourth Amendment “expectation of privacy” in data collected on them by Internet sites, at least when the sites give some kind of notice (however buried in legalese) that they do collect that data. That means, in this instance, that the government can obtain detailed connection records from Twitter about users associated with Wikileaks without a full-blown Fourth Amendment warrant based on probable cause: A subpoena or a court order based on a far weaker claim of “relevance” to an investigation will suffice.

But this isn’t some shocking new precedent. It’s been the status quo since 1986, when our increasingly outdated electronic privacy laws were written, and arguably for longer than that.

There are plenty of problems with this most recent decision, to be sure. For one, as security researcher Chris Soghoian notes, the court based its opinion on the current Twitter privacy policy, even though the policy in effect at the time the targets of the investigation signed up for the site was significantly more protective. In a way, though, this seems unnecessary: Under the misguided Supreme Court decisions that established our modern “third party doctrine,” contractual promises of privacy don’t matter.

In other words, users are held to “assume the risk” that any third party might turn their information over to the government, effectively waiving their Fourth Amendment rights over that data, even if the third party explicitly promises not to do this. The one reason the privacy policy might be relevant here is that the “third party doctrine” covers information knowingly conveyed to third parties, and while it’s obvious that you “convey” a dialed phone number to the phone company when you make a call (for instance), it might not be as obvious that Web sites you visit are logging your Internet Protocol address.

Still, there’s nothing fundamentally new here: The government routinely obtains “transactional” information or “metadata” (as opposed to the contents of communication) without bothering with a search warrant. Google received nearly 6,000 government requests for user data in January–June of this year (not counting national security requests, which the company is gagged from reporting), and most experts believe the volume of requests to Internet Service Providers like Comcast or Verizon is vastly higher.

But unlike wiretaps—which totaled just over 3,000 for all criminal investigations in 2010—there’s no requirement that courts track and report aggregate numbers for such requests. That means a hugely more common form of government monitoring is effectively invisible. The only unusual thing about the demand for information from Twitter in the Wikileaks investigation is that the public has become aware of it.

A good first step toward a more sane policy—one that ought to be a no-brainer whatever one’s position on the desirable level of online privacy—would be to require statistics on these user data requests to be compiled, just as they already are for wiretaps. Perhaps Americans will be comfortable with the current levels of government spying on Internet activities, and perhaps they’ll demand change. Either way, though, citizens in a democracy surely have a right to be informed about the scope and scale of government spying on their digital activities—and the reactions to this court ruling make it obvious they aren’t.

Adedayo Thomas, Outreach Manager for Atlas Network’s AfricaL​ib​er​ty​.org, loads thousands of donated books from the Cato Institute, the Institute for Humane Studies, Reason and the Institute for Economic Affairs bound for a container shipment from Washington to Nigeria. These books will find their way to remote universities throughout Africa.

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Photo by Kristina Crane[/caption]

I know it’s unseemly to brag, but I just couldn’t help but feel vindicated when I read this article in the Wall Street Journal today about recent complaints by the Air Transport Association to the Export-Import Bank of the United States regarding their loan guarantees to foreign airliners.

On page 15 of my recent Trade Policy Analysis, “Time to X Out the Ex-Im Bank”, I warn: “…the billions of dollars the bank authorizes each year in financing to foreign airlines to buy American aircraft could be seen as a way of helping foreign airlines compete against American ones.”

Behold, buried on page B4:

In a letter to Ex-Im Bank Chairman Fred Hochberg earlier this month, the Air Transport Association, a trade group for America’s biggest carriers, called on the federal agency to slash subsidies to all overseas buyers of Boeing jets.

“The bank’s support for foreign airlines injures U.S. carriers,” said ATA outside counsel Michael K. Kellogg…

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This morning, as expected, the Supreme Court agreed to take up Obamacare. What was unexpected — and unprecedented in modern times — is that it set aside five-and-a-half hours for the argument. Here are the issues the Court will decide:

1. Whether Congress has the power to enact the individual mandate. — 2 hours
2. Whether the challenge to the individual mandate is barred by the Anti-Injunction Act. — 1 hour
3. Whether and to what extent the individual mandate, if unconstitutional, is severable from the rest of the Act. — 90 minutes
4. Whether the new conditions on all federal Medicaid funding (expanding eligibility, greater coverage, etc.) constitute an unconstitutional coercion of the states. — 1 hour

In addition to the length of argument, which we can expect to be heard over multiple days in March or April, perhaps the biggest surprise is the Court’s decision to review that fourth issue. There is no circuit split here — in large part because 26 states are already in this one suit — and no judge has yet voted to uphold what also be described as a claim that the federal government is “commandeering” the states to do its bidding. The Court probably took the case precisely because so many states have brought it; that former solicitor general Paul Clement is their lawyer also doesn’t hurt. As a practical matter, this could be a bigger deal than the individual mandate because, while Congress had never before tried an economic mandate, it certainly does attach plenty of strings to the grants it gives states — and the spending power is thought to be even broader than the power to regulate commerce.

In any event, the Supreme Court has now set the stage for the most significant case since Roe v. Wade. Indeed, this litigation implicates the future of the Republic as Roe never did. On both the individual-mandate and Medicaid-coercion issues, the Court will decide whether the Constitution’s structure — federalism and enumeration of powers — is judicially enforceable or whether Congress is the sole judge of its own authority. In other words, do we have a government of laws or men?

NPR started a three-part series this morning on influential intellectuals. They looked at Ayn Rand this morning, and there are reports that they will cover F. A. Hayek tomorrow and John Maynard Keynes Wednesday. The segment quotes Rand from a televised interview with Mike Wallace (which you can view at the link) and then comments on the prevalence of her ideas today:

“Both parties today are for socialism, in effect — for controls. And there is no party, there are no voices, to offer an actual pro-capitalist, laissez-faire, economic freedom and individualism,” she said. “That is what this country needs today.”

If Rand were alive today, she might be pleased to see that, more and more, Americans do have that choice. And her ideas are alive and well-represented in the U.S. Capitol.

If by “well-represented,” you mean “often heard in protest as Congress passes Wall Street bailouts, corporate takeovers, health care takeovers, and trillion-dollar spending bills,” then yes.

NPR’s commenters weren’t very happy to hear Ayn Rand discussed. I especially appreciated this one:

The “objectivity” of ruthless plunderers from a displaced Russian bourgoise who refused to acknowledge the punishment of her class was brought on by its crimes against the people. Objective thinking people accept responsibility for their actions and the consequences that follow.

Marxism may be dead in Russia, but not in the NPR listener community! No doubt this commenter is knitting the names of American bourgeoisie who will one day be sent to gulags.

One of the unambiguously good results from last Tuesday’s off-year elections came in Mississippi, the state I called home the year before I moved to D.C. By the impressive margin of 73% to 27%, voters in the Magnolia State took a stand against judicially sanctioned eminent domain abuse, specifically the government’s taking of private property in the name of so-called “economic development.” 

By passing Measure 31, which prohibits most transfers of condemned land to private parties for 10 years after condemnation, Mississippi joins 44 other states in enacting legislation that strengthens property rights in the wake of the Supreme Court’s horrific ruling in Kelo v. New London. In Kelo (2005), you’ll recall, the Court held that state and local governments can condemn private property not for some sort of public project like a highway or military base nor because it is a “blight” that creates a health or safety risk, but simply to transfer to another private party who claims to put it to better economic use. 

We at Cato are all in favor of economic development, of course, but not if that development comes via raw government power that treads on constitutionally protected individual rights. If a developer thinks he can put a given piece of land to a higher-value use, let him buy that property fair and square from the owner rather than effectively forcing a sale at below-market value.

Indeed, Kelo’s holding was flawed precisely because its rationale that transferring ownership of “economically blighted” property would promote economic development is bad economics. If a proposed project were actually a better use of a given property, the developer would be willing to pay a price sufficient to induce the current owners to leave.

Kelo also undermines property security, making owners less willing to invest in their property and use it productively, lest the government swoop in, declare it “blighted,” and sell it to someone else. And securing property rights is not just a good thing economically. It also helps prevent powerful private interest groups from undercutting the property rights of minorities and other groups who may be vulnerable due to prejudice or political disadvantage.

And the American people agree: Kelo turned out to be a Pyrrhic victory for developers and their public-official cronies, such that most of the country is now better protected against eminent domain abuse than it was before Kelo. Notably absent from the list of states where property rights are better off, however, is New York (see my comment on a recent instance of eminent domain abuse in the Empire State).

The judiciary’s abdication of its role as a protector of property rights is bad enough, but our elected officials haven’t done much better. Tellingly, the drivers of successful anti-Kelo legislation have tended not to be state legislators (with some exception) but rather citizen-activists. While special-interest groups, such as big car companies in Mississippi, may pressure legislators to avoid anti-Kelo legislation, even as referenda show that popular opinion is on the side of the property rights activists.

Measure 31 is not perfect, but it is a step in the right direction. The Founders took care to protect private property rights in the Constitution, and it’s heartening to see citizens taking an active role to vindicate those protections even when the Supreme Court abdicates its duty to do so.

For more commentary on the Mississippi vote, see Ilya Somin’s recent op-ed.