Problems with soak-the-rich taxes. Kyle Pomerleau writes:
According to the IRS, about 46 percent of all income reported by those earning more than $10 million is made up of capital gains, meaning income from the sale of assets such as stocks. Under current law, capital gains are taxed only when they are "realized" — that is, when the assets are sold, not every time they gain value. This means that individuals can effectively choose when to pay the tax. And individuals who hold on to assets until death can have their gains completely erased through what is called "step-up in basis."
Researchers at the Joint Committee on Taxation found that there is a strong negative relationship between the tax rate on capital gains and realizations. They found that over the long run, a 10 percent increase in the tax rate on capital gains reduces realizations by around 7 percent. This implies that the revenue-maximizing capital gains rate is around 29 percent; a rate approaching 70 percent would likely reduce federal revenue from changes in capital-gains behavior. [...]
If we look across the Atlantic at countries with significant revenue collections as a percent of GDP, taxes are generally high for everyone. Denmark, Sweden, and Finland all raise more than 40 percent of GDP in tax revenue. These countries have broad-based value-added taxes over 20 percent and high payroll taxes. Their income taxes have high marginal tax rates, but they apply to much more personal income than what Ocasio-Cortez is proposing. For example, in 2015, Denmark's top marginal tax rate of 60 percent started applying at 1.2 times the average income. If that were enacted here, all taxable income over $56,500 would face a 60 percent tax rate.
Broad-based taxes would be a better way to raise significant revenue for the federal government. However, the need to raise revenue from everyone, not just the highest earners, increases the burden of proof on proponents of new government programs. If they are to get voters behind a middle-class tax increase, they need to convince the public that their new policies are worth it. Simply claiming that someone else will pay for it is not enough.
[Kyle Pomerleau, "The Unworkable 70 Percent Tax," National Review, January 9]
Another problem with the argument for a 70 percent tax bracket. Ryan Bourne writes:
[T]hese sorts of analyses tend to focus on (a) the very short-term, and (b) what to do with income after it's been produced. They do not ask why we receive income in a market economy. (Answer: because we produce something someone else wants or needs, generating consumer surplus.) The idea that the value of rich people to the rest of society solely rests on their tax contributions, as Krugman implies, is bizarre. In fact, the risk that higher tax rates might deter entrepreneurial activity by reducing the future payoff to innovation should worry us greatly. The economist Charles Jones thinks that incorporating this effect into the model might lower the optimal tax rate to 28 percent, simply because innovations—think Uber, Amazon—deliver huge gains to everyone.
[Ryan Bourne, "No, Economists Don't Agree a 70 Percent Top Marginal Tax Rate Is a Good Idea," Reason, January 9]
The Mexican government is part of the problem, and should be part of the solution. Victor Davis Hanson writes:
Mexico is a naturally rich country. It ranks 19th in the world in proven oil reserves and is currently the 12th-largest oil producer. Mexico certainly has significantly more natural advantages than do far wealthier per capita Singapore, Taiwan, or Chile.
Mexico also is one of the world's most popular tourist destinations and earns billions in foreign exchange from visitors. It enjoys a temperate climate, is rich in minerals, and has millions of acres of fertile farmland and a long coastline.
In addition to being strategically located as a bridge between North America and South America, Mexico has ports on both the Atlantic and Pacific oceans.
It is not an overcrowded country: Mexico ranks in the lower half of the world in population density. Too many people and too little land are certainly not the reasons why millions of Mexicans either emigrate or wish to emigrate to the United States. [...]
Mexico—unlike, say, Japan or Switzerland, which are far less naturally endowed and yet far wealthier—has never fully adopted Western paradigms of free-market economics, constitutionally protected free speech, due process, gender equity, private property rights, an autonomous press, government transparency, an independent judiciary, and religious diversity and tolerance.
To the degree that Mexico can make strides toward these goals, its population will stabilize and become more affluent—and also become less likely to emigrate.
[Victor Davis Hanson, "The Ironies of Illegal Immigration," The Daily Signal, January 10]
"Leapfrogging" fossil fuels is a way to continue poverty. Bjorn Lomborg writes:
Modern energy access transforms lives in a myriad of ways. Energy not only powers lights that allow children to do homework and light streets to make them safer, but also the fridges that keep food hygienic and vaccines usable, the technology that brings healthcare and education into the modern age, and allows the economic development that can only be achieved through modern farming, commercial enterprise and industrialization.
By allowing the poor to stop cooking and heating with wood, cardboard and dung, modern energy also helps eliminate indoor air pollution, the world's biggest environmental killer claiming 4.3 million lives annually. [...]
The provision of modern energy through grid electrification and provision of LPG and cleaner cookstoves is overdue. But this progress is imperiled by a movement among rich countries that threatens to slow progress.
The well-intentioned but dangerous trend is for rich world thought leaders to declare that poor nations should 'leapfrog' the old technologies that industrialized the developed world.
This boils down to neglecting full grid access, which almost everywhere relies on fossil fuels, and instead peppering countries with 'micro-grids' like small rooftop solar panels. These can power a lightbulb and cellphone charger, but are nowhere near enough to power cooking and heating, let alone agriculture and industry.
The most prominent (and very rare) example of leapfrogging actually taking place is with cell phones. This is used to illustrate how poor countries have circumvented the rich world's cumbersome landlines and ended up with cheaper and better communication. However, as a metaphor for how solar and wind can help, it fails miserably: Sure, you can charge your cell
phone with a solar panel, but that only constitutes about 1% of the cell phone's energy consumption. The other 99% comes from powering the cell phone tower, the production of the cell phone and servers, all of which is far too much for micro-grid access and almost everywhere requires fossil fuels.
[Bjorn Lomborg, "It's Immoral to Leave the World's Poor in the Dark," Forbes, January 4]
What's the Securities and Exchange Commission Hiding? Clark Neily writes
Earlier today, Cato sued the Securities and Exchange Commission in federal court challenging the SEC's policy of imposing perpetual gag orders on settling defendants in civil enforcement actions. The clear point of that policy is to prevent people with the best understanding of how the SEC uses its vast enforcement powers from sharing that knowledge with others. But silencing potential critics is not an appropriate use of government power and, as explained in Cato's complaint, it plainly violates the First Amendment's protections of free speech and a free press.
The case began when a well-known law professor introduced us to a former businessman who wanted to publish a memoir he had written about his experience being sued by the SEC and prosecuted by DOJ in connection with a business he created and ran for several years before the 2008 financial crisis. The memoir explains in compelling detail how both agencies fundamentally misconceived the author's business model—absurdly accusing him of operating a Ponzi scheme and sticking with that theory even after it fell to pieces as the investigation unfolded—and ultimately coerced him into settling the SEC's meritless civil suit and pleading guilty in DOJ's baseless criminal prosecution after being threatened with life in prison if he refused.
The author now wants to tell his side of the story, and Cato wants to publish it as a book—but both are prevented from doing so by a provision in the SEC settlement agreement that forbids the author from "mak[ing] any public statement denying, directly or indirectly, any allegation in the [SEC's] complaint or creating the impression that the complaint is without factual basis." This provision appears to be standard not only in SEC settlements, but with the CFTC, the CFPB, and possibly other regulatory agencies as well. Thus, when the federal government unleashes its immense financial regulatory power in a civil enforcement action, the price of settling—as the vast majority of cases do—is a perpetual gag order that prohibits the defendant from ever telling his or her side of the story.
This is a wildly inappropriate use of government power, and it is directly contrary to the spirit of accountability and transparency that permeates our founding documents.
[Clark Neily, "Cato Sues SEC Over Gag Orders," Cato Institute, January 9]
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