In the New York Times, David Leonhardt cheerleads for a new plan by left-wing economists Emmanuel Saez and Gabriel Zucman to raise taxes on the rich by $750 billion a year. Leonhardt, Saez, and Zucman want to spend on a range of new government programs, such as pre‑K education.

Liberals dream of a larger welfare state like they have in some other high-income countries. But if the United States goes down that road, the new spending probably wouldn’t be funded by taxes on the rich but by taxes on the middle class. We know that by looking at experiences abroad.

For its 36 member countries, the OECD publishes data on federal-state-local tax revenues as percent of gross domestic product (GDP). OECD average tax revenues are higher than tax revenues in the United States. Where do other countries get the extra money? Not from income taxes, but from consumption and payroll taxes that hit the middle class hard.

Figure 1, below, shows that total tax revenues were similar in the United States and the OECD in the 1960s. In subsequent decades, OECD countries grew their governments, and by 2017 average OECD tax revenues were 34.2 percent of GDP compared to 27.1 percent in the United States.

Figure 2 shows total personal and corporate income and capital gains taxes. By 1975, the OECD caught up to the United States on these revenues, and since then the trend has been fairly flat in the OECD and the United States. These are the taxes that U.S. leftists want to raise, but in other countries concerns about economic damage and tax competition have restrained them.

Figure 3 includes all taxes other than those in Figure 2. In the OECD, these revenues soared between 1975 and 2000 as governments expanded. Other taxes are 22.7 percent of GDP in the OECD today (Figure 3), which is almost double the OECD income tax grab of 11.5 percent (Figure 2). Taxes other than income taxes are much lower in the United States than in the OECD.

What are these other taxes? In 2017, taxes on goods and services (including value-added taxes) were 10.9 percent of GDP in the OECD and 4.3 percent in the United States. Social security taxes were 9.2 percent in the OECD and 6.3 percent in the United States. These two types of taxes pummel lower- and middle-income households.

If Leonhardt, Saez, Zucman, Bernie Sanders, Elizabeth Warren, and others eventually get the larger government they dream about, it will probably be funded by higher taxes on everyone, including heavier payroll taxes and new value-added taxes.

Soak-the-rich rhetoric today may morph into a tax flood that drowns everybody tomorrow.

Data notes:

I used the OECD averages as published, but note that the number of OECD members has expanded over time and so the averages constitute a changing group of countries.

Two countries did not have data for 2017. I used the 2016 values for those countries to calculate the 2017 OECD averages.

The 2017 spike in other taxes for the United States is property taxes. But this OECD figure seems dubious because U.S. national accounts data does not show such a spike.

The United States and Japan signed a trade agreement yesterday. The U.S. Trade Representative’s Office has provided the legal texts here. Based on the various fact sheets released along with those texts, it looks like the agreement contains a modest amount of tariff liberalization. In this post, I’ll look briefly at what’s in the deal, focusing on four questions: (1) How much liberalization is in there? (2) Is this deal legal under World Trade Organization rules? (3) What is the impact of doing a U.S. trade deal as an executive agreement without Congressional approval? And (4) without dispute settlement provisions, how will the agreement be enforced?

First, with regard to how much liberalization is in there, it is much less than a comprehensive free trade agreement, as services, procurement, etc. are not covered by this deal. In terms of the liberalization on trade in goods, any precise quantification of the benefits will take some time, but from what I can gather so far from the fact sheets, the liberalization on trade in goods is less than what would have existed in the Trans-Pacific Partnership. Japan is lowering tariffs on some agricultural sectors (as it would have under the TPP, but slightly less in this deal), and the United States will lower tariffs on a few industrial products, as well as some agricultural products.

With regard to other tariffs, during the negotiations on this agreement, there was talk of a promise by the Trump administration not to use Section 232 to impose additional tariffs on imports of Japanese autos/​auto parts, something the administration is currently considering in relation to several countries. But I don’t see any such promise in the texts released yesterday. The practical answer might be that if the Trump administration imposes these auto/​auto parts tariffs, Japan will just withdraw from the agreement, pursuant to Article 10 (“Either Party may terminate this Agreement by providing written notice of termination to the other Party. The termination shall take effect four months after the date on which a Party has provided that written notice to the other Party, or on such other date as the Parties may decide.”)

Lastly on liberalization, there is a separate digital trade agreement, which at first glance roughly mirrors the digital chapters of the Trans Pacific Partnership and the renegotiated NAFTA (the USMCA) currently awaiting approval by Congress. My sense is that nobody expects this part to have much impact on current Japanese or U.S. policy in this area, as these countries are in general agreement on the issues.

Second, there is the question of how an agreement with such limited coverage could be consistent with WTO rules, which allow such bilateral agreements only if they cover “substantially all trade.” Would this deal qualify as an “interim agreement” under GATT Article XXIV? Article XXIV:5(c) says: “any interim agreement referred to in sub-paragraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time.” So far, I don’t see “a plan and schedule” for a comprehensive FTA, but perhaps one is coming (a fact sheet says only this: “The United States looks forward to further negotiations with Japan for a comprehensive agreement that addresses remaining tariff and non-tariff barriers and achieves fairer, more balanced trade”).

A related issue is, what will other governments think of all this? For all of the products at issue, there are likely to be producers in other countries who will be adversely affected by the U.S.-Japan tariff reductions. Will they be aggressive about enforcing WTO rules against both Japan and the United States? Or will they just be happy the Trump administration is liberalizing and too afraid to complain?

Third, what exactly is the significance of not having Congress sign off on this? One clear implication is that the president can withdraw from the agreement without getting the permission of Congress, which seems like a power President Trump would want, given his frequent threats to withdraw from this or that trade agreement. I can see why the Trump administration would prefer this type of short-term, political agreement.

This arrangement is also interesting in terms of the digital trade agreement. One could imagine that, for example, a future President Warren would want to regulate the tech sector in a way that infringes on these digital trade rules. Having this agreement as an executive agreement would be less constraining (not that I think the Trump administration had this in mind; I’m just saying that would be the impact).

And fourth, what we have here seems to be a bilateral agreement to reduce tariffs, but without all the usual governance chapters, such as a chapter on dispute settlement. In terms of disputes, it appears that there is only this:

Article 6

No later than 30 days after a request by either Party, the Parties shall enter into consultations regarding any matter that might affect the operation or interpretation of this Agreement, with a view to arriving at a mutually satisfactory resolution of the matter within 60 days.

Without a full set of litigation, implementation, and compliance provisions, will any of these new legal obligations be enforceable? Perhaps the idea is that these tariff commitments are so narrow and clear that there are not likely to be any violations, so a full dispute settlement chapter is not necessary. Or perhaps the idea is to continue the push away from international dispute settlement, and rely instead on negotiations and/​or unilateral tariffs as the enforcement mechanism.

Clearly, there are still some open questions about this deal. As of this moment, it looks like the deal will be implemented, but whether it will expand into a comprehensive trade agreement, and even how long it will last, remains unclear.

The Cato 2019 Welfare, Work, and Wealth National Survey finds that Americans under 30 stand out from their parents and grandparents’ in their attitudes toward socialism, capitalism, and resentment toward the rich. These results may help explain the striking success of self-described democratic socialist Bernie Sanders in capturing the support of the young.

Young Americans Are Equally Favorable toward Capitalism and Socialism

Young Americans under age 30 stand out from their elders with their relative ambivalence toward capitalism and much greater support for socialism. Barely half of Americans under 45 have favorable views of capitalism compared to 58% of those ages 45–54, 65% of people ages 55–64, and 76% of seniors (ages 65+). In reverse fashion, 50% of Americans under 30 have favorable views of socialism, compared to 43% of those 30–44, and a third of Americans over age 45.

Young Democrats Are Far More Supportive of Bernie Sanders

Consistent with attitudes toward capitalism and socialism, young Democrats are about three times more likely to support self-described democratic socialist Sen. Bernie Sanders (I‑VT) for the Democratic nomination for president. As of spring 2019, 40% of under-30 Democrats supported Bernie Sanders compared to 14% of Democrats over age 65. In reverse, older Democrats were nearly three times as likely as younger Democrats to prefer that former Vice President Joe Biden be the party’s nominee (28% vs. 11%).

Young Americans Feel More Resentment toward the Rich

Young Americans are the only cohort in which a majority believe the wealthy didn’t earn their wealth. A slim majority (52%) of Americans under 30 say that “most” rich people in the United States got rich “by taking advantage of other people.” In contrast, a strong majority (72%) of seniors (65+) say that most wealthy people in America “earned their wealth” without exploiting people.

Across the board, younger people are more likely than older people to hold negative attitudes toward the rich. Americans under 30 are about 20–35 points more likely than Americans age 65 and older to feel “angry” when they read or hear about rich people (44% vs. 11%), to feel more “resentment” than “admiration” of rich people (39% vs. 16%), to believe it’s “immoral” for society to allow people to become billionaires (39% vs. 13%), and to believe that citizens taking violent action against the rich is sometimes justified (35% vs. 10%). Young people are also about 10–25 points more likely than older people to believe billionaires are a threat to democracy (51% vs. 26%), to disagree that billionaires earned their wealth by creating value for others (39% vs. 26%), and to disagree that rich people make society better off by investing in new businesses that create jobs and invent technology (38% vs. 21%).

Young People Are More Supportive of Taxes on the Rich

Consistent with these findings, young people are also more supportive than older Americans of raising taxes on the rich. Wealth redistribution produces the greatest age gap. Americans under 30 are the only age cohort with a majority (53%) in favor of redistributing wealth from the rich to the poor. In contrast, 20% of Americans 65 and over agree.

Young Americans are also nearly 20 points more likely than older Americans to support raising top marginal tax rates. Nearly two-thirds (62%) of young Americans favor raising the top marginal tax rate on income over $10 million to 70%, while less than half (43%) of seniors favor the policy. Instead, a majority (55%) of those 65 and over oppose returning top marginal tax rates to 70%.

Young Americans in 1978 Also Were More Supportive of Income Redistribution

Are young people today unique? Perhaps not. A General Social Survey conducted in 1978 found that Americans under 30 were also more supportive of wealth redistribution. At that time, Americans under 30 were the only age cohort in which a majority (54%) supported the government “reducing income differences between rich and poor” by “raising the taxes on wealthy families or by giving income assistance to the poor.” In contrast, only about a third (36%) of Americans 65 and over agreed.

These data suggest that Americans may change their minds as they get older about the rich and how much to tax them.

Full survey results and report found here.

Read more of the survey report here.

The Cato Institute 2019 Welfare, Work, and Wealth Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online March 5 to 8, 2019 from a representative national sample of 1,700 Americans 18 years of age and older. The margin of error for the survey is +/- 2.2 percentage points at the 95% level of confidence.

Nina and Frank Bottini are young parents who for nearly a decade have been fighting the city of San Diego to build a single-family residence in the suburban community of La Jolla. At the time of their purchase of the lot, the land was occupied by a dilapidated house, which the city first deemed not historic, then declared unsafe and a public nuisance, and then ordered demolished. In a reality-defying flip flop, only after the non-historic, dilapidated house was demolished and removed from the property did the city mandate an infeasible time-traveling historical resource review of the then empty lot.

The city has at every turn delayed the couple’s efforts to build a home, goaded by local historical-preservationist groups upset over the Bottinis’ demolition of the cottage on the now-vacant property. Now, the city refuses to grant a permit to build a single-family residence until the Bottinis undertake an expensive environmental-impact review. The couple has sued, arguing that the city’s prolonged delays and irrational permit requirements amount to a “regulatory taking” under the Fifth Amendment.

The Bottinis lost in the California Court of Appeal, even though the court ruled that the city council acted unlawfully. Despite the city’s malfeasance, the court ruled that the Bottinis’ didn’t have “distinct investment-backed expectations”—a concept that comes from a case called Penn Central—that were thwarted by the city’s actions. That was because they did not know—and could not have known—at the time of purchase whether they would be required either to fix up the old home as a historical landmark or rip it down as a public nuisance. The Court of Appeal held that these uncertain expectations, wrought solely by government action, doomed the Bottinis takings claim.

Two pillars of Takings Clause jurisprudence have, in recent decades, proved untenable. One is the test from the 1978 Penn Central case. That test was meant to determine when a “partial regulatory taking” occurs if a government action or delay deprives owners of certain uses of their property. The second, from the 1987 case of First English, exempts “normal delays” in the land-use regulation process from takings scrutiny.

While these cases are oft-invoked by lower courts, both offer little practical guidance to judges who apply them. Delays in the land-use permitting process are a common occurrence across the country, but that does not mean that all such delays are “normal.” And the part of the Penn Central test that looks at “investment-backed expectations” of purchasers asks judges to identify an ill-defined concept that can be easily manipulated to produce whatever outcome a court desires.

Cato has filed a brief in support of the Bottinis’ petition to the Supreme Court. We argue that the Court should take the case to clarify the meaning of “investment-backed expectations,” particularly at what point in time courts should “measure” the property owner’s expectations. The city argues the expectations should be measured from the time of purchase. The Bottinis argue it begins to run after the demolition, at which point construction of a single-family residence on a vacant lot is exempt under the relevant state environmental law.

The difficulty in identifying the point in time at which a purchaser formulates “investment-backed expectations” is one of Penn Central’s fatal flaws—one that warrants the Court’s review. How could a purchaser, for example, account for the unexpected interplay between two regulatory regimes—in this case, between a local public-nuisance process and state environmental laws? The Bottinis could not have predicted, at the time of purchase, how exactly the two would interact, and that the application of one would negate the other. Because the old cottage is gone, whatever environmental impact its demolition might have had has already occurred.

The Bottinis’ case is a good vehicle for highlighting one of Penn Central’s major deficiencies and replacing it with a more precise test. Moreover, the question of what delays are “normal”—the Bottinis have been fighting the city for almost a decade—should be revisited. Unfortunately, the Bottinis bizarre fight against city hall is not uncommon. The Court should step in to make sure both the Bottinis and other property owners get compensated when the value of their property is regulated away.

In response to the White House's announcement last night regarding the re-deployment of U.S. troops in Syria, and President Trump's tweets early this morning, I issued the following statement:

President Trump’s decision amounts to a green light for Turkey to conduct military operations in northern Syria against a group, the Syrian Defense Forces, that the United States has previously supported. It is a stark reminder of the conflicting -- and, at times, contradictory -- nature of America’s commitments to foreign actors, both state and non-state.

Turkey is a formal NATO ally, a matter that should have elicited scrutiny long ago, but especially since the ascendancy of President Recep Tayyip Erdogan who has systematically subverted human rights and the rule of law in Turkey. Meanwhile, however, the Syrian forces (mostly Kurds) are not formal treaty allies. They are non-state actors operating within a recognized sovereign state, Syria. As it currently stands, therefore, under the NATO treaty, especially the critical Article 5, it was reasonable for policymakers in Ankara to expect the United States to privilege their security concerns over others. President Trump has effectively signaled as much to President Erdogan, while simultaneously attempting to wash his hands of the entire Syria mess.

The Syrian civil war is an epic humanitarian catastrophe, one that U.S. policy since at least 2011 has inadvertently exacerbated. President Trump’s decision will mostly compound these errors, and add to massive suffering, both within Syria and well beyond.

The entire unhappy episode should cause us all to reconsider America’s commitments abroad, and to be more careful about how U.S. policymakers define allies, and what promises they make, or might appear to be making, on behalf of the American people. It is also a stark reminder that America’s heavy involvement in the Middle East has caused much suffering there, without advancing Americans’ safety or liberty.

I likely will have more to say about this over the next few days. In the meantime, I would call your attention to a passage in our forthcoming book, Fuel to the Fire: How Trump Made America's Broken Foreign Policy Even Worse (and How We Can Recover):

restraining the impulse to use force—may require Washington to accept that the United States can’t always get the results it wants. Nor will the dividends always come quickly. Diplomacy is a slow business in the best of times, and, as we have seen in cases like Syria, diplomacy cannot always prevent or resolve conflicts. But, as the Syrian case also shows, military intervention was not a reasonable option for the United States. The Syrian civil war did not represent a direct threat to the United States, certainly not one that justified risking American lives, and the underlying problems in Syria were simply not susceptible to resolution through U.S. military action. Indeed, limited meddling on behalf of all sides in Syria exacerbated and prolonged the fighting. The only responsible answer is to encourage negotiations among the various factions in the hope of eventually producing a durable peace.

RELATED

Fuel to the Fire provides an assessment of Trump's America First doctrine, its performance to date, and its implications for the future.

In recent months Democratic presidential candidates likeSen. Bernie Sanders and Sen. Elizabeth Warren have proposed imposing wealth taxes while lawmakers like Rep. Alexandria Ocasio-Cortez have suggested returning top marginal tax rates to 70%. However, some have cautioned that such proposals would not do much to raise government revenue. However, supporters of these tax proposals have argued that raising revenue isn’t really the point.

For instance, economists Gabriel Zucman and Emmanuel Saez argued in the New York Times that raising taxes on the wealthy was to safeguard “democracy against oligarchy.” Vanessa Williamson from the Brookings concurred arguingthat “the purpose of high tax rates on the rich is the reduction of vast fortunes that give a handful of people a level of power incompatible with democracy.”

The Cato 2019 Welfare, Work, and Wealth National Survey investigates what the public think about the rich and their impact on democracy. The survey of 1,700 Americans finds that 62% of Americans disagree that “billionaires are a threat to democracy” while 37% agree.

Phrased differently, similar shares disagree (57%) “we shouldn’t let people get too rich in this country because rich people have too much political power and threaten democracy,” while 42% agree.

Overall, Americans don’t think that it’s worth restricting a person’s wealth because of the risk they might pose to the democratic process. Instead, Americans are comfortable with people getting rich. Thus, 84% believe there is “nothing wrong with a person trying to make as much money as they honestly can.”

54% of Democrats Worry the Rich Pose Threat to Democracy

Democrats stand out with 54% who agree that billionaires are a threat to democracy; 45% disagree. In contrast, 63% of independents and 79% of Republicans reject the claim that billionaires threaten the democratic process.

This question divides the Democratic coalition, however. Nearly two-thirds (66%) of strong liberals agree that billionaires threaten democracy compared to 48% of moderate liberals.

Young Americans ages 18–29 are also more likely to accept the claim, with 51% who believe billionaires threaten democracy, compared to 40% of those ages 30–44, a third of people ages 45–64, and 26% of seniors.

Full survey results and report found here.

Read more of the survey report here.

The Cato Institute 2019 Welfare, Work, and Wealth Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online March 5 to 8, 2019 from a representative national sample of 1,700 Americans 18 years of age and older. The margin of error for the survey is +/- 2.2 percentage points at the 95% level of confidence.

Sign up here to receive forthcoming Cato Institute survey reports.

The Cato 2019 Welfare, Work, and Wealth National Survey of 1,700 Americans investigated if Americans prioritize seeking personal fulfillment or fulfilling obligation.

A slim majority (52%) say it’s more important for them to “work hard and do what is expected of you,” while 47% say it’s more important for them to do things that “give you personal satisfaction and pleasure.”[1]

Republicans Prioritize Fulfilling Obligation; Democrats Prioritize Seeking
Personal Satisfaction

Partisans are starkly divided. Nearly two-thirds (65%) of Republicans say it’s more important in their own lives to work hard and do what is expected of them. In contrast, a solid majority (57%) of Democrats say it’s more important for them to pursue things that give them personal satisfaction and pleasure.

Ideological differences are even more pronounced. Two-thirds (66%) of strong liberals say it’s more important to pursue pleasure and satisfaction while about two-thirds (65%) of strong conservatives say working hard and doing what is expected of them is more important.

Young Americans Seek Personal Fulfillment, Older People Say Hard Work and Fulfilling Obligation Matter More

Younger people, especially those under 45, are more likely to prioritize personal fulfillment while those over 45 say it’s more important to fulfill obligations. Fifty-three percent (53%) of Americans ages 18–44 say they prioritize the pursuit of personal satisfaction and pleasure. People ages 45–54 are evenly divided. Sixty-percent (60%) of those over 55 say that working hard and doing what’s expected of them matters more.

These results are remarkably similar to a Los Angeles Times survey from 30 years ago.[2]In 1989, most young Americans under 45 said they prioritized personal fulfillment over working hard and obligations (50% vs. 44%). However, a majority of Americans over 55 said working hard and doing what’s expected of them mattered more (57%) than pursuing personal satisfaction and pleasure (35%). Those in the young 1989 cohort who prioritized personal satisfaction then are about 50–75 years old today and now say hard work and fulfilling obligation matter more. This suggests that Americans change their minds about what’s more important as they get older.

Beliefs About Capitalism and Socialism Linked to Attitudes Toward Hard Work and Personal Fulfillment

Attitudes toward obligation and personal fulfillment are related to views of capitalism and socialism. Americans very favorable to capitalism (65%) say it’s more important to work hard and do what’s expected of them. Conversely, Americans very favorable toward socialism (59%) say it’s more important to seek personal satisfaction and pleasure.

Perhaps some are drawn to capitalism or socialism based on their personal expectations: seeking personal fulfillment or to fulfill obligation. If one prioritizes hard work and obligation, they might be drawn to a capitalist system because that system would reward production and hard work. But if one prioritizes pursuing personal satisfaction, perhaps they are drawn to a socialist system because it would provide for their needs irrespective of what they produce, thereby offering the autonomy to pursue endeavors that provide personal satisfaction.

Full survey results and report found here.

Read more of the survey report here.

The Cato Institute 2019 Welfare, Work, and Wealth Survey was designed and conducted by the Cato Institute in collaboration with YouGov. YouGov collected responses online March 5 to 8, 2019 from a representative national sample of 1,700 Americans 18 years of age and older. The margin of error for the survey is +/- 2.2 percentage points at the 95% level of confidence.

Sign up here to receive forthcoming Cato Institute survey reports.

[1]A 1958 survey found that 63% of Americans agreed that “people should place more emphasis on working hard and doing a good job than on what gives them personal satisfaction and pleasure.” About a quarter (23%) disagreed and 15% were unsure, cited in McCloskey and Zaller, The American Ethos, p. 108.

[2]Los Angeles Times, National Survey, 1989, accessed via the iPoll Database at the Roper Center for Public Opinion Research, Cornell University, Ithaca, NY.