Freedom Line Blog

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

Yes, you read that right. New York City Mayor Michael Bloomberg (who, let’s be honest, is the most irritating politician in America) has an ingenious campaign strategy for Barack Obama that’s totally going to spellbind the room at his next cocktail and caviar soiree. From a phone interview Bloomberg gave to the Huffington Post:

“What Obama should do is say he’s going to veto any change to the end of the expiration of the Bush era tax cuts for everybody, and I feel very strongly about the everybody because you don’t want to split the country — that’s not what America is all about,” said Bloomberg.

“Obama would win this election going away if he’d stand up and say, ‘I’m gonna do this,’ and then turn to Republicans and say, ‘You know, you didn’t want any more revenues … I just outfoxed you. Now work with me on cutting expenses, and we’ll actually balance the budget in 10 years, and we’ll do it responsibly.'”

Bloomberg here reminds me a bit of Walter Mondale, who thought it was utter genius to declare in his 1984 acceptance speech at the Democratic Convention that he would raise taxes (Newt Gingrich, who was part of a Republican rapid response team during that convention, has noted that his group decided to pack up and go home after Mondale’s declaration, figuring they couldn’t damage him any worse than he had himself). Mondale’s theory was that both he and Reagan would end up hiking taxes, but that voters would give him points for being honest about it (for a thorough understanding of the truth of Reagan’s tax record, by the way, this Matt Lewis piece is indispensable). Later, after losing 49 states in the Electoral College, he probably thought better of that.

Here’s the foundational error in both cases: the tax argument is about substance, not style. Mondale thought he’d be rewarded for being honest about the fact that he was going to take more money away from the American people. But we don’t generally reward honesty when it’s a truthful admission of nefarious intent. Similarly, Bloomberg seems to think that “unity” is more important than tax rates, and that the American people will reward Obama if he makes clear that he’s going to put the screws to all of them with equal force. But, to paraphrase Obama from 2008, no one much cares what shade of lipstick you apply to a pig. The equal distribution of suffering is not a compelling campaign rationale (although it might be the most honest slogan Obama could devise).

There’s another irony at work here, of course: if Bloomberg thinks that tax rates should be harmonized in order to avoid “splitting the country,” the most logical step he could take would be to promote a flat tax. But that probably wouldn’t fly at the open-bar receptions of the Upper East Side.

A nefarious trend coming out of Washington, as reported by Politico:

Democrats on K Street are warning their corporate clients: Give to Republican challengers in the 2012 election, and you’ll regret it come tax reform time.

Lobbyists are getting that message from allies of powerful Democrats such as Senate Finance Chairman Max Baucus (D-Mont.), who is closely watching support for Rep. Denny Rehberg, a Republican challenging Sen. Jon Tester (D-Mont.). Baucus supporters fear that if Rehberg ousts Tester, Baucus could be next to face a serious Republican challenge in the state.

One K-Streeter close to the Baucus operation said the senator considers a gift to Rehberg a contribution against him. Another Democratic lobbyist told a client to take his name off a Rehberg fundraising event because it would be hurtful to his company, according to sources.

The case K-Streeters are making to their clients: It will be a hard sell next year to get Baucus’s support on business-friendly tax perks set to expire or the Bush-era tax cuts that must get through his committee.

Old D.C. hands that they are, the folks at Politico are quick to note that this is routine procedure on Capitol Hill, where the nexus between campaign contributions and favorable policy outcomes is an implicit rule of the game. That’s all true, of course, and Republicans have committed precisely these kinds of sins in the past. It doesn’t follow, however, that we have to accept it.

One of the most heartening aspects of the rise of the Tea Party has been the fact that there is now a powerful political coalition organized around a philosophy rather than a pecuniary interest. That philosophy is stripping power from Washington. And it’s precisely what’s needed here.

These kind of abuses are a powerful argument for the sagacity of a flat tax. Conservatives generally tend to focus on the economic benefits of a single income tax rate (which, because it eliminates so many distortions, are legion), but they may not pay enough attention to its virtues as a matter of political science. Having a single, across-the-board rate would keep politicians from turning the tax code into a byzantine apparatus meant to subsidize their friends and persecute their enemies. At that point, our elected officials might actually have to find an alternative to scaring their constituents into submission.

Quin writes below, quite sensibly, that, when it comes to reforming the tax code, changing corporate rates should take precedence over reforming individual rates, reasoning that the economic anemia in private sector business is one of the largest obstacles to renewed growth. I find that analysis completely salutary, although I differ with him on a few particulars in the post.

First, Cain, Perry, and Gingrich all have corporate tax reform as a part of their plans. Cain, of course, would reduce it to 9 percent (although his addition of a federal sales tax would offset some of those savings). Perry would drop it to 20 percent, while Gingrich would take it down to 12.5 percent. As Quin notes, Santorum’s plan is quite good too, although I recoil a little at the fact that he eliminates the tax only for the manufacturing sector. There’s not a particularly good economic rationale for such differential treatment of industries under the tax code (not to mention that it’s a kissing cousin to the “picking winners and losers” criticism that the right has correctly embraced of late — although at least in this case it’s about who gets rewarded the most, not punished).  This leads me to believe that this section of the plan is politically motivated, aimed at boosting Santorum with blue-collar voters of the type that are essential to winning elections in labor-heavy states like his native Pennsylvania.

I’m also not convinced that passing personal income tax reform would be a heavier legislative lift than corporate tax reform, for reasons that Quin lays out. Personal rates are visceral and instantly understandable. Because there are several intellectual steps one has to go through to understand the effect of corporate rates on personal income, I think that may be the harder sell.

These are extraordinarily minor differences in the big picture, however. We all agree on the broad thrust of the argument: without flatter, fairer, more transparent taxes, America will be unnecessarily suppressing the ingenuity that could lead to an economic renaissance. But that change won’t come unless the keys to the White House change hands in January 2013. That’s just one more reason why next year’s election is so vitally important.

I’ve posted before on the difficulty that Texas Congressman Ron Paul’s presidential candidacy presents: while Paul is utterly at sea on foreign policy issues and too philosophically pure to countenance the type of compromise that real political progress requires, his libertarian beliefs also make him one of the best candidates in the Republican race on economic issues. Thankfully, Paul has no hope of being the nominee, but let’s hope that his “Restore America” economic plan, unveiled earlier today, has an influence on the GOP field. This is solid stuff, as the Wall Street Journal’s Washington Wire blog reports:

Mr. Paul does get specific when he calls for a 10% reduction in the federal work force, while pledging to limit his presidential salary to $39,336, which his campaign says is “approximately equal to the median personal income of the American worker.”  The current pay rate for commander in chief is $400,000 a year.

The Paul plan would also lower the corporate tax rate to 15% from 35%, though it is silent on personal income tax rates, which Mr. Paul would like to abolish. The congressman would end taxes on personal savings and extend “all Bush tax cuts…”

While promising to cut $1 trillion in spending during his first year, Mr. Paul would eliminate the Departments of Education, Commerce, Energy, Interior and Housing and Urban Development…

Mr. Paul would also push for the repeal of the new health-care law, last year’s Wall Street regulations law and the Sarbanes-Oxley Act, the 2002 corporate governance law passed in response to a number of corporate scandals, including Enron.

What’s most remarkable is that Paul — long considered an ideological outlier — is now in line with the majority of the Republican establishment (the movement was on their end, not his). With the exception of his call to abolish the federal income tax and a few of his cabinet department eliminations, these are all priorities that a Republican congress could support coming from a GOP president. That man won’t be Ron Paul … but let’s hope he’s read his plan.

Arthur Laffer brought us the famed Laffer Curve, which plotted how higher tax rates can paradoxically reduce incoming revenues by inhibiting economic growth.

In today’s Wall Street Journal, Laffer adds to his legacy by showing how state income taxes lead to lower economic growth, personal income and population growth.  The impetus for Laffer’s analysis is ballot Initiative 1098 in the state of Washington, which would impose a new 5% income tax on individuals earning over $200,000 or couples over $400,000 per year.  An additional 4% would be heaped upon individuals earning over $500,000 or couples earning over $1 million.  Laffer crunches the real-world economic numbers, which clearly demonstrate that this is a destructive idea.  He shows that the nine states without a personal income tax enjoy 26.5% higher economic growth, 13.1% higher personal income growth and 9.4% higher population growth than the nine staes with the highest personal income tax rates. The highest-tax states also suffer 22% lower tax revenue growth and underperform in standard of living.

As Laffer neatly summarizes, “Each and every state that introduced an income tax saw its share of total U.S. output decline.”  He can’t stop states from descending into economic self-destruction, but he provides a great service by providing this warning beacon.

The first step to recovery is admitting that you have a problem. Here it goes: my name is Troy and I geek out at the intersection of sports and economics.

Today’s example — catnip for conservatives — comes from NBA superstar LeBron James’s much-anticipated announcement of where he’ll be playing next season now that he’s a free agent.

Apart from the option of staying in Cleveland (which won’t be habitable until the folks at Reason are through with it), Lebron’s two most prominent options look to be the New York Knicks or the Miami Heat. But even if both teams offer him identical contracts, his take-home pay will look dramatically different. As a New York Post blog posting notes:

If LeBron James goes to the Miami Heat instead of the Knicks, blame our dysfunctional lawmakers in Albany, who have saddled top-earning New Yorkers with the highest state and city income taxes in the nation, soon to be 12.85 percent on top of the IRS bite. There is no state income tax in Florida.

Total state taxes on a 5-year, $96 million contract? $12.34 million in New York; $0 in Florida.

If LeBron ends up in Miami (and the influence of joining Dwyane Wade and Chris Bosh in the Heat’s starting lineup shouldn’t be underemphasized), this blogger may be one of the only sports fans in America who traces the development to a rather obscure, short-lived economist from the Eisenhower era.

Charles Tiebout’s greatest contributions to economics was the “Tiebout Hypothesis” — which in essence stated that federalism matters because citizens vote with their feet. If a state wants productive people (and make no mistake, LeBron is an economic dynamo), they create the conditions that will bring them there. Thus, Florida has a recipe for fostering entrepreneurship, while New York has a recipe for disaster.

Of course, there are mitigating factors. Kobe Bryant stays in Los Angeles despite California’s confiscatory tax rates because of the prestige of playing with a successful legacy franchise like the Lakers. But for those of us with a more conventional cut to our jibs, the calculation is simpler.

If you have a business you can run from anywhere, would you rather do it at New York’ s 12.85% rate or for free in one of the nine states that don’t have income taxes (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — just in case you’re looking to flee blue state insanity).

By the way, take a look at the business climates in these states and you’ll notice which model works and which model doesn’t.

How will we halt the growth of big government when a majority of citizens contribute less than they receive in benefits from the state?

As Congressman Paul Ryan (R – Wisconsin) and others note, when that “tipping point” is reached, it will incentivize voters to perpetually increase government spending and taxes, since “the rich” are the only ones paying for the largess.  Unfortunately, we continue to approach that dangerous point in America.  According to the Tax Policy Center, an astonishing 47% of Americans owed the federal government no income taxes in 2009.  In other words, almost half of Americans are immune from actually paying income tax for the benefits everyone enjoys, such as national defense, education, police, fire and highways.  Moreover, despite absurd claims that “the rich don’t pay their fair share,” the top 10% of income earners pay almost 75% of the nation’s income taxes.  In contrast, the bottom 40% of income earners actually profit from the federal income tax, because they receive more dollars in tax credits than they otherwise owe.

Those on the left welcome this phenomenon, because it encourages voters to further enlarge the nanny state (as in, Nanny Pelosi state?).  And why not?  The suckers who actually work hard and increase their incomes will have to pay for it all, anyway.