Monday, August 21, 2017

Why the Rich Actually Love High Taxes

Why the Rich Actually Love High Taxes

 

So we always hear that the rich should pay taxes more, that our tax rates aren't high enough. If only we raise taxes we can solve a lot of our problems – inequality would go down and maybe we'd even have more economic growth. Now the funny thing about this view is it really doesn't comport with our historical experience at all. Whenever we have raised taxes on the rich, we have seen horrible offenses against inequality and economic growth.

The most illustrative of these eras was the 1950s, when the top tax rate, the top income tax rate in the United States, went all the way up to 91%. Now I want to point out that that is no misprint. The top tax rate in the United States was 100% minus 9%, 91%. If you made $200,000 or more, your last income was subject to 91% confiscation by the United States government.



There were also 26 brackets in the income tax code, and they ran from 20% all the way up to 90%. If you made any kind of money at all, you were paying 30%, 40%, 50%. If you started making more money, 60%, 70%, 80%, 90%. That was a high tax era.

Now you may be thinking, "But wait a minute. The 1950s, they were the greatest economic era ever. That's when everybody had a job. Those jobs were for life. People got to live in suburbia and go on vacation and do all sorts of amazing things. It was post-war prosperity, right?"

Actually, all of these things are myths. In the 1950s, the United States suffered four recessions. There was one in 1949, 1953, 1957, 1960, four recessions in 11 years. The rate of structural unemployment kept going up, all the way up to 8% in the severe recession of 1957-58.

So there wasn't significant economic growth in the 1950s. It only averaged 2.5% during the presidency of Dwight D. Eisenhower, and the tax code spawned inequality that is even unheard of today. How so? Well, when you have a marginal rate of the income tax that is 91%, to have an exception from that income tax is very valuable. If you were able to get a statute written into the tax code that says you don't have to pay that 91% and you're high-income, you could either pay nothing, or pay a much lower rate. That exemption is very valuable.

The tax code in the 1950s was 11,000 pages. The first two pages of the tax code said very simple things. The opening line of the tax code said that income is taxable from any and all sources derived. Okay, if you make income, it's taxable. And then the second two pages of the tax code with a list of the rates, the rates that started at 20% on low income and went all the way up to 91% on high income.

The next 11,000 pages after those first two pages were exceptions to those statements. They were pet statutes that were written into law by Congress at the behest of lobbyists that said, "This income is not subject to taxation.” And always, in almost every case, it had to do with the income of the rich. Let's give some examples.

One of the most notorious cases, perfectly legal, by the way, was that of the movie studio mogul Louis B. Mayer. In 1951, Louis B. Mayer retired from his studio in Hollywood, and he got a lump sum payment from the studio of $2.7 million, which is, you know, probably about $20 million dollars today, and that income was not subject to the 91% tax rate. It was only subject to a 25% tax rate. How did that happen?

Louis B. Mayer hired a lobbyist who got a Congressman to write a pet statute into the law that exempted his income from taxation and it applied only to Mayer and his associate who got those lump sum payments. That's what the 11,000 pages in the tax code were. They were a nest of cronyism.

And the only way that those exemptions would ever be thought to be put in the tax code is if the marginal tax rate were high. The marginal tax rate was high, therefore all sorts of people wanted exemptions from it. There was a famous comment among the legal bar in the 1950s. It was recorded by John F. Kennedy's SEC chairman, William Carey. And that comment was, "Once you become a millionaire, you don't try to litigate a tax case. You don't try to contest the IRS if you say ... they think you owe more money than you do. You simply get the statute changed." That's how easy it was in the 1950s to get Congress to write the pet exemption for you in the tax code.

So you can see what kind of pernicious effects that had on the inequality situation in the United States in the 1950s. The rich had all the money and they hid it from the tax man. Meanwhile, in doing so, they weren't deploying their capital in ways that were productive for jobs and economic growth. They were hiding it in all these little ways that Congress permitted them to hide it. I mean, the Treasury estimate in the middle of this in 1957 said that only 43% of income in the United States is really subject to taxation. The other 57% is hidden in mortgage interest and all the other 11,000 pages of exemptions.

Unions ended up calling the tax code the "Swindle Sheet," because that's where the rich were able to hide their income, and they weren't making it available for productive growth. So when we talk about the era of high taxes, that it was associated with economic growth and jobs for everyone, that actually is not accurate at all. It was an era in which the rich deployed their income in ways that the government told them to so that they could keep it, and the net result was A, inequality, and B, slow economic growth. There's a reason we dumped all that for tax rate cuts in the 1960s.

Reprinted from Learn Liberty.


Brian Domitrovic


Brian Domitrovic is assistant professor of history at Sam Houston State University in Huntsville, Texas, and author of Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity.

This article was originally published on FEE.org. Read the original article.

Sunday, August 20, 2017

The Best Anti-Nazi Strategy Is to Let Them Speak

The Best Anti-Nazi Strategy Is to Let Them Speak

 

While the country is still reeling from shocking images of the violence in Charlottesville, VA last weekend, CNN reports the so-called “Alt Right” is planning nine events for this weekend, including a “free speech rally” in Boston. As expected, counter-protests are being planned, although local police in most areas are planning to take measures to keep the adversarial groups apart to avoid violence.

I’m sure this strategy will be criticized because it will give White Supremacists, Neo-Nazis and others of their ilk a safe space to “spew hate.” That’s right; it will. And that’s precisely why it’s the right strategy, for a number of reasons. It should have been employed in Charlottesville. Everyone involved would have been both freer and safer.

The ACLU Is Right on This

A wise man once said, “We don’t have the First Amendment so we can talk about the weather. We have it so we can say very controversial things.” No reasonable person believes the attorneys for the ACLU have any sympathy for what the speakers at the Unite the Right rally were going to say last weekend. But they recognized how important it was to defend their right to assemble and exercise their rights, even to say things the overwhelming majority of Americans find offensive. So, the ACLU went into federal court to get a local decision to revoke the group’s permit overturned.

The pertinent question isn’t “Why let them speak?” It’s “Why not let them speak?” The answer to the latter question is fear. Well-meaning people are genuinely afraid of these people growing their movement. After all, it happened before, right? And it didn’t happen in some Third World backwater, but in one of the leading industrial nations of the world. There are still people alive today who survived that horror.

It comes down to whether Americans are going to trust each other with freedom or not. The media has used all its cinematic arts to paint last weekend’s march as the bellwether of a dark political movement that could sweep the country. Really? Does anyone really believe that a few hundred losers looking and sounding like the Illinois Nazis from the Blues Brothers movie are going to persuade a significant percentage of Americans they’re right? “The Jew is using the black as muscle against you.” That’s literally what they were saying in Charlottesville. We used to lampoon this stuff.

Mockery, Not Muscle

For all the criticism President Trump has absorbed for his statements about last week, there were some surprising moments of clarity. It’s true that not all the people who showed up to protest removing the statue were White Supremacists or Nazis. And it’s also true not all the counter-protestors were peaceful. It takes quite a bit of self-righteous denial to not see Antifa seizing an opportunity to do what they always do – assault people and destroy property – just as the Nazis seized the opportunity of the statue’s removal to preach their idiotic message. Americans don’t need to take a side in that fight.

But we should take the First Amendment’s side regarding similar events in the future. If we’ve lost trust in our neighbors even to reject the arguments of Nazis, we’ve acquiesced to giving up freedom itself. We may as well accept the rest of the arguments of central planners looking to rule over every aspect of our social and economic lives. Theirs is the same reasoning: we rubes can’t be trusted with freedom.

The Nazis should be allowed to speak and have video of their events widely disseminated by the media. Had that approach been taken last weekend, we might all be laughing at them now instead of mourning the death of an innocent woman.


Tom Mullen


Tom Mullen is the author of Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? and A Return to Common  Sense: Reawakening Liberty in the Inhabitants of America. For more information and more of Tom's writing, visit www.tommullen.net.

This article was originally published on FEE.org. Read the original article.


Saturday, August 19, 2017

My Lunch with a Nazi

My Lunch with a Nazi

 

College made me profoundly aware and disdainful of leftist socialist ideology. It was everywhere in every discipline: history, psychology, sociology, ethics, and even economics. The alternative I knew about was called “right wing” or conservatism/libertarianism. 

These were the days of the Cold War. Everything was clear. To be pro-American meant to be pro-freedom and certainly not a leftist. The bad guys blamed America for everything and never stopped putting down freedom.

Where do the Nazis fit in here? They didn’t matter in the slightest, except as a matter of history. I took a class in World War II. The impression I had was that Nazis were a cult that came out of nowhere, killed a lot of people, and were then vanquished by the Allied troops. And that was the end. There was little discussion of the ideological structure, its meaning, its import. It was just some weird junta that came and went.

Nazis Exist



That’s where things stood until a very strange lunch in Alexandria, Virginia. Years had gone by. I was perhaps 26 years old. A journalist in Washington, D.C., an acquaintance with some odd views that I couldn’t quite place, had arranged a meeting. He told me of a wealthy philanthropist who I really needed to meet. She could make some good connections for me.

I wasn’t sure I understood what all this was about but I was up for it.

I arrived at the brightly lit and elegant tea room where the waitstaff were bustling around, serving high-end clientele. I sat and waited, and then a hand touched my shoulder.

“Jeffrey Tucker?”

“I am he,” I said and stood up to greet a beautiful woman in her 60s, gorgeously dressed, blonde hair pinned up top. She had flawless manners, a pretty way of speaking, and all the signs of “high birth,” as they say, on top of the classic “beauty that money buys.” I held her chair and seated her. We ordered some small sandwiches and tea and began to talk.

We began with the problem of leftism and how terrible it all is. I was intrigued at the polished cadence of her language. And the way she moved her hands. And her bright and pretty eyes. Her perfume. And the way she smiled and connected with me so personally. I was enjoying this, feeling special.

The nature of the conversation began to shift gradually. The problem was not the left as such, she said, but the global elites. It is they who are behind the corruption of the culture through Hollywood and the media generally. Their power is bad enough, she explained, but the real problem is within the banking system and the world financial system that they own.

I didn’t really understand what she meant by “they” but I didn’t like every movie, so I was okay with a solid attack on Hollywood. And I certainly didn’t like the Fed. I would respond in each case with a point about the problems of government. Each time, she would gently explain to me that the problem is not the government but the people who occupy the government who are building a world order to benefit only one tribe.

I still didn’t entirely understand. Finally, she put a fine point on it.

“The real problem, Jeffrey, and I hope you can come to understand this more fully, is the Jews.”

Ok, now I’m rolling my eyes. Here we go with the cranky stuff. I’ve heard this kind of talk before but mostly from uncouth and uneducated malcontents who seem consumed by class resentment. It was boring and dumb. I must say, however, that I had never heard someone of her beauty and intelligence speak this way. I found it embarrassing more than anything. 

I didn’t argue with her, mostly because I wouldn’t even have known where to begin. Mostly I had no real understanding of her outlook, where it came from, what it meant, where she was going with talk of this. In the world I grew up in, I had no consciousness of Jews or non-Jews or anything at all related to this topic.

Above all, I would stop and wonder: why am I having lunch with this person?

She shifted again to talk about her personal biography. Her husband left her a substantial amount of money. She set up her own philanthropic empire. She supported journalists, magazines, institutions, conferences. She is highly careful in her spending, she explained, making sure that she backs people and institutions who know both the problem and the answer.

Now I understood where this was going. She was recruiting me, testing me. Maybe if I studied and learned, and deepened the sophistication of my personal philosophy, I too could benefit from her generosity.

From there, things ramped up quickly. She said, “well, that’s enough serious talk. Let’s offer a small toast to the greatest man of our century.”

Maybe she meant Reagan? We lifted our glasses. Then she finally came out with it.

“Adolf Hilter.”

Well, now that seemed to come from nowhere. I made a sheepish face and slowly lowered my glass. She knew that she had shocked me but gave a playful smile and engaged in more small talk. I wasn’t listening anymore, simply because I was just a bit distracted by her toast.

At some point in the remaining minutes of this meeting I realized: I was having lunch with a real Nazi. It was not a frothing-at-the-mouth thug with a club and torch. It was a beautiful, erudite, and highly educated woman of high breeding. 

Goodbyes 

Fortunately, lunch time ended. We did air kisses and polite goodbyes and said we would stay in touch. I walked to my car as quickly as I could without seeming to rush. I sat down and exhaled as much air as I could and took another deep breath. What had just happened? Who was this woman and what did she believe? Why was I sitting there with her?

I never saw her again. Over the coming weeks, I gradually came to realize that this was a very important person, the main source of money for what was then a nascent Nazi movement in America. At the time, the whole thing seemed ridiculous. Today, not so much.

I never had a Nazi professor, never heard a Nazi media commentator, never read a mainstream book promoting Nazism. Until recently, such a bloodthirsty political longing has had to live in dark corners or come in beautifully deceptive packages such as this women. For this reason, it has mostly escaped the notice of several generations. That doesn't mean it is not a danger to rationality, decency, and freedom. And it doesn't mean that it cannot grow and infect the ideological outlook of a new generation.

Another 20 years would go by before I seriously began to study and learn about this warped and freaky branch of totalitarian thought which today goes by many names (fascism, alt-right, neoreaction, and so on). I've learned that Nazism was and is the culmination of dangerous ideological tendencies from a century earlier. They didn't die after the war.

As Ludwig von Mises (one of the most consistent anti-Nazi intellectuals of the 20th century) warned repeatedly: bad ideas are never entirely gone; they come back and back, which is why the friends of liberty must never rest in learning about them and being true champions of the free society.

Over time, I’ve also learned that it is not enough to hate the left, or even to hate the government as it is (occupied or not). It is all about what we love. If we can identify and describe what we love, and with a clean conscience and sincere hope for the good of ourselves and everyone, we are where we need to be to recognize and resist all threats to liberty, from whatever source, beautiful or not. 

As for my lunch partner that day, I assume that she is gone from this earth by now. But her ideological children are more numerous than ever.


Jeffrey A. Tucker


Jeffrey Tucker is Director of Content for the Foundation for Economic Education. He is also Chief Liberty Officer and founder of Liberty.me, Distinguished Honorary Member of Mises Brazil, research fellow at the Acton Institute, policy adviser of the Heartland Institute, founder of the CryptoCurrency Conference, member of the editorial board of the Molinari Review, an advisor to the blockchain application builder Factom, and author of five books. He has written 150 introductions to books and many thousands of articles appearing in the scholarly and popular press.

This article was originally published on FEE.org. Read the original article.

Thursday, August 17, 2017

How Middle-Class Europeans Fare Under the Welfare State

How Middle-Class Europeans Fare Under the Welfare State

According to progressives like Bernie Sanders, European nations have wonderfully generous welfare states financed by high tax rates on the rich.

They’re partly right. There are very large welfare states in Europe (though I wouldn’t use “wonderfully” and “generous” to describe systems that have caused economic stagnation and high levels of unemployment).

But they’re wrong about how those welfare states are financed. Yes, tax rates on the rich are onerous, but not that much higher than in the United States. Instead, the big difference between America and Europe is that ordinary people pay much higher taxes on the other side of the Atlantic.

The US Has the Most “Progressive” Tax System



Indeed, I’ve previously cited Tax Foundation data showing that the United States arguably has the most “progressive” tax system in the developed world. Not because we tax the rich more, but simply because we impose comparatively modest burdens on everyone else.

And now we have some new evidence making the same point. Joseph Sternberg of the Wall Street Journal has some very sobering data on how the German tax system imposes a heavy weight on poor and middle-income taxpayers.
Europeans believe their tax codes are highly progressive, giving lower earners a break while levying significant proportions of the income of higher earners and corporations to fund generous social benefits. But that progressivity holds true only for direct taxes on personal and corporate income. Indirect taxes, such as the value-added tax on consumption and social-security taxes (disguised as “contributions”), are a different matter. The VAT disproportionately affects lower earners, who spend a higher proportion of their incomes. And social taxes tend to kick in at lower income levels than income taxes, and extract a higher and more uniform proportion of income. …if you look at the proportion of gross household income paid in all forms of tax, the rate varies by only 25 points. The lowest-earning 5% of households pay roughly 27% of their income in various taxes—mainly VAT—while a household in the 85th income percentile pays total taxes of around 52%, mostly in social-security taxes that amount to nearly double the income-tax bill.
Here’s a chart the WSJ included with the editorial.

As you can see, high payroll taxes and the value-added tax are a very costly combination.



And the rest of Europe is similar to Germany.
…Germany is not unique. The way German total revenues are split among income taxes, social taxes and the consumption tax is in line with the rest of Western Europe, as are its tax rates, according to OECD data. If other countries are more progressive than Germany, it’s only because Germany applies its second-highest marginal income-tax rate of 42% at a lower level of income than most.
Percent of Economic Output

Speaking of the OECD, here’s the bureaucracy’s data on the burden of government spending.

Germany is in the middle of the pack, with the public sector consuming 44 percent of economic output (Finland edges out France and Greece for the dubious honor of having the most expensive government).



The overall burden of the public sector is far too high in the United States, but we’re actually on the “low” side by OECD standards.

According to the data, total government spending “only” consumes 37.7 percent of America’s GDP. Only Ireland, Switzerland, and Latvia have better numbers (though my friend Constantin Gurdgiev explains we should be cautious about Irish economic data).

But I’m digressing. The point I want to emphasize is that punitive taxes on poor and middle-income taxpayers are unavoidable once politicians decide to impose a large welfare state.

Which is why I’m so inflexibly hostile to any tax increase, especially a value-added tax (or anything close to a VAT, such as the BAT) that would vacuum up huge amounts of money from the general population. Simply stated, politicians in Washington will have a hard time financing a bigger burden of government if they can only target the rich.

Sternberg makes the same point in his column.
Tax cuts have emerged as an issue ahead of Germany’s national election next month, with both major parties promising various timid tinkers… Not gonna happen. The VAT and social taxes are too important to the modern welfare state. The great lie is that there are a) enough “rich people,” b) who are rich enough, that c) taxing their incomes heavily enough can pay for generous health benefits and an old-age pension at 65. None of those propositions are true, and the third is especially wrong in an era of globally mobile capital and labor. That leaves the lower and middle classes, and taxes concealed in price tags or dolled up as “insurance contributions” to obscure exactly how much voters are paying for the privilege of their welfare states. …reform of the indirect taxes that impose such a drag on European economies awaits a more serious discussion about the proper role of the state overall.
Exactly.

There’s no feasible way to ease the burden on ordinary German taxpayers (or regular people in other European nations) unless there are sweeping reforms to reduce the welfare state.

And the moral of the story for Americans is that we better enact genuine entitlement reform if we don’t want to suffer the same fate.

P.S. If you don’t like German data, for whatever reason, I wrote last year about Belgium and made the same point about how a big welfare state necessarily means a bad tax system.

P.P.S. By the way, even the OECD admitted that European nations would grow faster if the burden of government was reduced.

Reprinted from International Liberty.


Daniel J. Mitchell


Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

This article was originally published on FEE.org. Read the original article.

The iPhone in Your Pocket Is Worth Millions

The iPhone in Your Pocket Is Worth Millions

Several years ago, I had a bit of fun estimating how much an iPhone would have cost to make in the 1990s. The impetus was a story making the rounds on the web.

A journalist had found a full-page newspaper ad from RadioShack dating back to 1991. He was rightly amazed that all 13 of the advertised electronic gadgets – computer, camcorder, answering machine, cordless phone, etc. – were now integrated into a single iPhone. The cost of those 13 gadgets, moreover, summed to more than $3,000. Wow, he enthused, most of us now hold $3,000 worth of electronics in the palm of our hand.

I saluted the writer’s general thrust but noted that he had wildly underestimated the true worth of our modern handheld computers. In fact, the computing power, data storage capacity, and communications bandwidth of an iPhone in 2014 would have cost at least $3 million back in 1991. He had underestimated the pace of advance by three orders of magnitude (or a factor of 1,000).

Well, in a recent podcast, our old friend Richard Bennett of High Tech Forum brought up the $3 million iPhone 5 from 2014, so I decided to update the estimate. For the new analysis, I applied the same method to my own iPhone 7, purchased in the fall of 2016 – 25 years after the 1991 RadioShack ad.

My iPhone 7 has 128 gigabytes (GB) of flash memory, which would have cost around $5.76 million back in 1991. Its A10 processor, which includes a CPU and GPU, has 3.3 billion transistors, running at 2.34 gigahertz (GHz) and delivering roughly 120,000 million instructions per second (MIPS). This amount of computing power would have cost something like $3.6 million back in 1991.

The iPhone 7 also delivers astonishing communications speed via 4G LTE mobile networks. Peak and average mobile speeds vary, depending on geography, network load, and other factors, so I just decided to use the speed I normally get on my mobile LTE connection (not Wi-Fi) at my office. With just two of five dots’ worth of signal strength, I enjoy a connection of 33 megabits per second (Mbps). That kind of wireless bandwidth might have cost something like $3.3 million back in 1991.

Adding it up, we get $5.76 + $3.6 + $3.3 = $12.66 million to produce today’s iPhone back in 1991. And that’s just for the three components that are easiest to measure and compare across time. This estimate doesn’t include the camera, display, random access memory (RAM), MEMS gyroscope and accelerometer, or any of the other amazing parts and features packed into an impossibly compact package. Nor does this account for inflation, which means our comparison may understate the effect.

These are fairly rough estimates. Yet it’s interesting that the new $12-million figure is four times the $3-million estimate from three years ago – which just happens to be the pace of Moore’s law, a doubling every 18 months or so. By many accounts, Moore’s law is slowing down or is even “dead.” Yet these types of cost-performance improvements suggest Moore’s law, at least for now, lives on.

Reprinted from American Enterprise Institute.


Bret Swanson


Bret Swanson is a visiting fellow at AEI’s Center for Internet, Communications, and Technology Policy and president of Entropy Economics LLC, a strategic research firm specializing in technology, innovation, and the global economy.

This article was originally published on FEE.org. Read the original article.