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Escape the Moral Matrix with the Red Pill of Intellectual Diversity

Intellectual diversity can free us from our moral blinders and foster creativity and innovation.
by  Aaron Tao

Back in 2012, before the ascendance of Donald Trump to the U.S. presidency and before neologisms such as “trigger warnings,” “microaggressions, and “safe spaces” became part of regular college campus discourse, New York University social psychologist Jonathan Haidt published a groundbreaking book titled The Righteous Mind: Why Good People Are Divided by Politics and Religion.

Today, America’s political polarization is deeper than ever. But there is hope and a way forward.

As a bibliophile who reads extensively on a wide array of subject matters, I can declare without hesitation that Haidt’s book is by far the most fascinating and important work on social science that I’ve read within the last five years. It is a book that I have given away to a dozen of my friends working in the political realm or who are regular politicos, and one that I’ve recently reread given the profound insights of its central thesis. Today, America’s political polarization is deeper than ever. But there is hope and a way forward.

Intuitions Come First and Reasoning Second

Haidt’s tireless efforts through his book and other writings provide a promising path towards understanding the psychological causes behind our tribal politics. Drawing upon his background in social psychology and twenty-five years of original research on moral psychology, Haidt shows how evolution is responsible for shaping people’s morality that both binds and divides and how politics and religion create conflicting communities of shared morality.

Most profoundly, moral attitudes and judgments originate from intuition, not calculated logic. In his 1739 magnum opus A Treatise of Human Nature, the philosopher David Hume mused that, “Reason is, and ought only to be the slave of the passions, and can never pretend to any other office than to serve and obey them.” According to Haidt, the findings of modern social psychology research have largely vindicated Hume.

To illustrate his point, Haidt uses the metaphor of a rider and an elephant. The rider represents the conscious mind with its rational functions and controlled processes. But the domineering elephant is everything else outside the rider’s control: automatic processes that include emotions and intuitions. Although the rider can do “several useful things” such as planning for the future and learning new skills, ultimately “the rider’s job is the serve the elephant.” As a result of this one-sided relationship, the rider mostly “fabricat[es] post hoc explanations for whatever the elephant has done, and it is good at finding reasons to justify whatever the elephant wants to do next.” In short, “conscious reasoning functions like a lawyer or press secretary.”

What does this mean for political discourse? If people are asked to believe something that conflicts with their intuitions, you can almost certainly expect them to reflexively find an escape route – any reason to doubt the argument or conclusion they’re confronted with – and they’ll usually succeed. Haidt takes pains to emphasize that:

Moral judgment is not a purely cerebral affair in which we weigh concerns about harm, rights, and justice. It’s a kind of rapid, automatic process more akin to the judgments animals make as they move through the world, feeling themselves drawn toward or away from various things. Moral judgment is mostly done by the elephant.

Thus, if you’re trying to change someone’s mind, especially when it concerns a moral or political issue, you have to “talk to the elephant first.” [Dale Carnegie’s 1936 classic, How to Win Friends and Influence People is a good pairing with Haidt’s book and is referenced in the latter’s work. It contains many psychological insights that remain relevant today and in fact, are reinforced by modern findings.]

Moral Foundations Theory

Through his interdisciplinary research, Haidt and his colleagues uncovered six moral foundations that are shared across human cultures:

1) Care/harm: This foundation is related to our long evolution as mammals with attachment systems and an ability to feel (and dislike) the pain of others. It underlies virtues of kindness, gentleness, and nurturance.
2) Fairness/cheating: This foundation is related to the evolutionary process of reciprocal altruism. It generates ideas of justice, rights, and autonomy. [Note: In our original conception, Fairness included concerns about equality, which are more strongly endorsed by political liberals. However, as we reformulated the theory in 2011 based on new data, we emphasize proportionality, which is endorsed by everyone, but is more strongly endorsed by conservatives]
3) Loyalty/betrayal: This foundation is related to our long history as tribal creatures able to form shifting coalitions. It underlies virtues of patriotism and self-sacrifice for the group. It is active anytime people feel that it’s “one for all, and all for one.”
4) Authority/subversion: This foundation was shaped by our long primate history of hierarchical social interactions. It underlies virtues of leadership and followership, including deference to legitimate authority and respect for traditions.
5) Sanctity/degradation: This foundation was shaped by the psychology of disgust and contamination. It underlies religious notions of striving to live in an elevated, less carnal, more noble way. It underlies the widespread idea that the body is a temple which can be desecrated by immoral activities and contaminants (an idea not unique to religious traditions).

6) Liberty/oppression: This foundation is about the feelings of reactance and resentment people feel toward those who dominate them and restrict their liberty. Its intuitions are often in tension with those of the authority foundation. The hatred of bullies and dominators motivates people to come together, in solidarity, to oppose or take down the oppressor. We report some preliminary work on this potential foundation in this paper, on the psychology of libertarianism and liberty.

Most intriguingly, Haidt found that left-liberals and progressives recognize primarily the first two moral foundations, Care/harm and Fairness/cheating. For the political Left, Loyalty, Authority, and Sanctity, are perceived not as proper morals at all but base human traits responsible for patriarchy, racism, sexism, xenophobia, and other forms of oppression. However, this stance is an outlier compared to most other parts of the world.

Haidt provides many examples from ethnographies and cross-cultural studies that show that in “Western, educated, industrial, rich, and democratic (WEIRD) cultures,” the moral spectrum is “unusually narrow” and largely limited to the ethics of individual autonomy.

Given that human nature is tribal, people automatically form teams when they share values and morals.

In contrast, many non-WEIRD societies and conservatives use all five moral foundations that include embracing the ethics of divinity and community. Libertarians or (classical) liberals in the European sense are a truly unique political species and are not easily placed on the Left-Right political spectrum in that they prize the last moral foundation, Liberty, above all other values.

These are extraordinary differences and would explain the growing political polarization in the United States and why liberals can’t understand conservatives (and vice versa). In today’s political discourse, partisans often seem to argue not so much against each other, but past each other (an observation that forms the basis of Thomas Sowell’s eye-opening work A Conflict of Visions: Ideological Origins of Political Struggles, also alluded to in Haidt’s book).

Given that human nature is tribal, people automatically form teams when they share values and morals. While morality can “bind” people together through benefits such as group cohesion and unity, it also “blinds” them to the possibilities or even the existence of other legitimate perspectives akin to The Matrix. This kind of “moral matrix” can be so strong that it “provides a complete, unified, and emotionally compelling worldview, easily justified by observable evidence and nearly impregnable to attack by arguments from outsiders.”

As challenging as it may be to see through one’s own ideological blinders, empathy is crucial for successful outreach, acts as an “antidote to righteousness,” and has the added benefit of expanding one’s own intellectual horizons.

Why Intellectual Diversity Matters

Because of the inherent limits of human reason, Haidt reminds us that “we should not expect individuals to produce good, open-minded, truth-seeking reasoning, particularly when self-interest or reputational concerns are in play.”

However, under the right circumstances and conditions, people can use their reasoning powers to check the claims of others. Furthermore, when people “feel some common bond or shared fate that allows them to interact civilly, you can create a group that ends up producing good reasoning as an emergent property of the social system.” Thus, it is especially “important to have intellectual and ideological diversity within any group or institution whose goal is to find truth (such as an intelligence agency or a community of scientists) or to produce good public policy (such as a legislature or advisory board).”

Embracing intellectual diversity is of paramount importance to companies that wish to attract top talent and stay innovative.

Universities, most of which are still committed to their timeless mission to search for truth and push the boundaries of human knowledge, in particular must embrace complete freedom of speech, open inquiry, epistemic humility, and tolerance for the most radical and eccentric. Championing viewpoint and philosophical diversity goes hand in hand with these fundamental principles that form the bedrock of a liberal education.

Speaking as an entrepreneur, I would further add that embracing intellectual diversity is of paramount importance to companies especially if they wish to attract top talent and stay innovative in an increasingly competitive world. Haidt’s findings from moral psychology are consistent with research from other fields highlighting the value of those who “think different.”

Saras Sarasvathy at the University of Virginia’s Darden School of Business profiled some of the most successful entrepreneurs and found them to be spontaneous contrarians who have “confidence in their ability to recognize, respond to, and reshape opportunities as they develop” to the point that they “thrive on contingency.” Unsurprisingly, entrepreneurs relish bucking conventional wisdom whether it be following standard management practices or any other kind of defined linear process.

Adam Grant at the University of Pennsylvania’s Wharton School has extensively researched how “originals” move the world. Startups, which by their very nature are nonconformist, have a special obligation to hire originals who can seed a resilient culture, anticipate market movements under conditions of extreme uncertainty, and repurpose dissenting ideas in alternative ways. Grant emphasizes how originals can mitigate the risks every company faces:

Conformity is dangerous – especially for an entity in formation. If you don’t hire originals, you run the risk of people disagreeing but not voicing their dissent. You want people who choose to follow because they genuinely believe in ideas, not because they’re afraid to be punished if they don’t. For startups, there’s so much pivoting that’s required that if you have a bunch of sheep, you’re in bad shape.

Launching a startup requires boldness, imagination, and a contrarian streak. Perhaps then, it is not surprising that immigrants, individuals who leave the land of their birth for the unknown, have had a disproportionate impact on American entrepreneurship and may even be predisposed towards creativity. In trying to pin down the “secret of immigrant genius,” Eric Weiner speculates that intellectual development is stimulated when one’s world is turned upside down:

Many immigrants possess what the psychologist Nigel Barber calls “oblique perspective.” Uprooted from the familiar, they see the world at an angle, and this fresh perspective enables them to surpass the merely talented. To paraphrase the philosopher Schopenhauer: Talent hits a target no one else can hit. Genius hits a target no one else can see.

Beyond Identity Checkboxes

Broad liberal attitudes towards risk-taking, unorthodox thinking, and entrepreneurship are among the reasons why the United States is still the richest country in the world. In his wide-reaching book The Rational Optimist: How Prosperity Evolves, science writer Matt Ridley traced the origins and spread of economic prosperity. He credits voluntary exchange and specialization, specifically what happens when different ideas meet, mate, and recombine to create new ideas, for being the main drivers of human economic and social progress.

As summarized by John Daly at the University of Texas at Austin’s McCombs School of Business:

Innovations often happen when you combine two or more things in unexpected ways. When you have a diverse group of people working on something, magic often happens because each person brings a different perspective and experience to the table.

Authentic diversity must go beyond identity checkboxes to fully include diversity in ideas. Viewpoint diversity drives creative tension, cross-cultural understanding, and the ability to identify and solve problems from multiple perspectives. Creativity and innovation ultimately depend on people stepping outside of comfort zones and trying new things including getting exposed to radical and unorthodox ways of thinking.

Companies that actively work to prevent the dangers of groupthink and foster a welcoming culture for weirdos and mavericks are better positioned to become more resilient and innovative environments. Cultivating the right processes and organizational norms may make the final difference in stronger financial returns. Whether it’s a feisty little startup looking to challenge the dominant players or an established Fortune 500 company looking to defend its position, any company can gain an edge over its competitors by unleashing the “gale of creative destruction.”

Moving Forward

Intellectual diversity creates awareness of our own blinders.

Besides its obvious economic benefits, intellectual diversity creates value that extends beyond material gains. A marketplace of ideas is one of the key underpinnings of a free society. Truth can emerge when views are freely exchanged, challenged, and refined. People’s individual reasoning have inherent limits but through our collective intelligence, we can achieve the impossible.

Even though our intuition-based morality divides our allegiances into different tribes that seemingly cannot coexist with others, accepting and encouraging intellectual diversity creates awareness of our own blinders and provides a possible escape path out of our moral matrices. Jonathan Haidt’s The Righteous Mind is an invaluable starting point. He and other courageous “heterodox” scholars working to advance viewpoint diversity, mutual understanding, and constructive disagreement fill me with hope.

If we were to understand the moral foundations on which all our moral interests are based, we just might be able to restore civility, learn how to disagree more constructively, promote genuine tolerance, and ultimately advance human progress on every front.

 

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A Simple Question

 

Are those so eager to tear down various monuments willing to do so to the fullest and logical extent of your reasoning? Are you?

If indeed, historical monuments, erected decades or more ago, are so offensive due to their ties to slavery, segregation and all its vile wretchedness, then are those of you so willing to demand with equal fervor that every Democratic Party member who promoted or defended slavery, who refused to support desegregation, aided and abetted “separate but equal”, who had been members of the KKK, who resisted every legislative effort to literally remove the physical and political shackles from  people of color also have their names and likenesses removed from the sight of all?

Only one party literally has blood on its hand for the stain of bigotry and racism. One. It fought to keep slavery, segregation and institutionalized racism as a lawful right. That party used every means possible both legal and illegal, force and coercion, the courts and police, to take rights from people of color. That Party has a long and vivid history of legislators, jurists, congressman, senators and Presidents who, with vigorous conviction of the rightness of their view, denigrated people of color. But they would have us ignore that, vigorously pointing fingers in the direction of their political opposition whether it means distortion of facts, outright fabrications and vacuous verbal character assassination at any opportunity.

It is even said that the welfare state was designed to keep folks enslaved in the new plantation of the national state. One thing for sure, the Great Society of LBJ, not known for his racial fondness, was not put forth as scheme to bolster the lives of those he looked down upon (“they’re getting uppity”). One has only to look at the societal harm done by those legislative efforts. (See: https://goo.gl/yZEXfG)

For those so eager to denigrate a sitting President, who over his entire public life has denounced white supremacy (please understand this phrase to be as expansive as it need be to cover every possible iteration or group) in general as well as specifically, this outrageous display moral self-righteousness is utterly and distastefully repugnant.

Look at us! We are literally tearing at one another due to a misrepresentation of what someone said, over misrepresentation of the facts of events, due to either an unwillingness to hear the plain spoken words of an individual or the prejudice of mind that precludes the ability to listen without casting personal perceptions and feelings on them. How did we become such a hateful, spiteful and ruthlessly intolerant society? Neither white supremacists or Antifa are without blame. For that matter, how does a Governor and a Mayor come off so high and mighty when clearly they exacerbated events by their dereliction of duty regarding the appropriate implementation of law enforcement in the prevention of conflict.

And yet, all the uproar over what is not said? To quote someone far better than I, “Let he who has ears to hear, hear. Let he who has eyes to see, see.” The same person said, “If you would remove the thorn from your brother’s eye, you must first remove the beam from your own.”

How can we survive as a society when a news reporter is threatened for recounting events accurately? Even after she modified her report, she was still castigated (see: https://goo.gl/FXyxfD). How is this anything but mob rule and anarchy? Is this the kind of nation you wish to leave your children and grandchildren? I don’t.

The way out of this mess and bile, is first to step back and take a deep breath. Then to merely respect that we will all differ in our views on a whole host of subjects and issues. But to treat each other as idiots or less than human, then to resort to verbal and physical abuse on account of disagreement? Really? So much for a civilized society! So much for a lawful, much less, society! As for using law to compel others to get their minds right one need only look to Stalin, Mao, Che, PolPot and ISIS to appreciate where that leads. Even within our own recent history here, the FBI undercover testimony disclosed that the Weather Underground estimated that up to 25% of the population would have to be eliminated because at least many would not be “re-educated”. Is that what we really want?

We are at a crossroads, a watershed moment.

Will we embrace respect and deference when we disagree? Or will we devolve into mongrels and devour ourselves?

Why, when our nation was founded on the preeminent ideal of equality for all would we permit the desire, the pursuit and the means of potentially achieving it, cast it aside for the mob and despotism?

Robert Frost wrote: “Two roads diverged in a yellow wood, and I, I took the one less traveled by. And that has made all the difference.”

I for one choose the less traveled road of liberty and respect. You’re more than welcome to join me. Those who choose otherwise: leave those of us who love life and liberty, respect our fellow man, even when we disagree, who will not use force to compel another individual’s loss for their own benefit, but seek justice against those who would….those who prefer another way of life, leave us alone.

You may choose to grovel with the mongrels of the mob who would bite and snip at every difference natural and learned. What a pitiful lot. All the best to you. Just leave the rest of us alone and quit meddling in our lives.

 

The Systematic Errors of the Man (and Woman) of System

I found this article by Don Boudreaux on July 12, 2017

in Adam Smith, Health, Man of System

In my latest Pittsburgh Tribune-Review column I join Adam Smith in denouncing the man (and woman) “of system”‘s pretensions and as well as that arrogant person’s unflattering view of ordinary people.  A slice:

In short, the “man of system” forgets that ordinary people are active, reasoning, creative individuals. They generally do not need government prodding to take actions that improve their lives. When they are so prodded, it is almost always to press them to take actions they would prefer to avoid. Conflict thus arises between ordinary people and those men (and women) “of system” who arrogantly fancy that they’re entitled to order others about.

Consider today’s brouhaha over repealing parts of ObamaCare, whose fans treat the typical American as a mindless, inert blob. If this American loses government health-insurance funding, he’s believed to have no ability or wish to find private insurance. And private insurers are believed to be so uninterested in his business that they refuse to make him attractive offers. The “man of system,” therefore, concludes that all individuals removed from Medicaid rolls are doomed to live the rest of their days not only without health insurance, but without health care itself. It’s a short step from there to the accusation that those who wish to scale back government’s role in the health-care market are little better than homicidal maniacs.

Of course, real people are not mindless, inert chess pieces whose only principle of motion is government’s guiding hand — or, more accurately, kicking foot. The awful irony, alas, is that when government treats people like witless chess pieces, too many of them do eventually lose the ability to think and act for themselves.

Professor Boudreaux’ full Pittsburgh Tribune-Review Article

A Theory of Moral Sentiments by Adam Smith (free PDF)

It continues to amaze me, the abject arrogance of many today who consider thinkers of prior generation invalid for today’s issues on the premise they couldn’t understand modern society. Our gadgets today may vastly exceed what they may have imagined possible. However, when one reads paragraphs such as these written many years ago, it cannot but expose the modern arrogance of presumption they we are so much smarter that our predecessors.

“The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us novel and plausible, have been tested before, not once but many times and in innumerable guises; and discovered to be, at great human cost, wholly false.” –Paul Johnson

Tax Apologists Don’t Even Believe Their Own Rhetoric

Whenever I debate my left-wing friends on tax policy, they routinely assert that taxes don’t matter.

It’s unclear, though, whether they really believe their own rhetoric.

After all, if taxes don’t affect economic behavior, then why are folks on the left so terrified of tax havens? Why are they so opposed to tax competition?

And why are they so anxious to defend loopholes such as the deduction for state and local taxes?

Eliminating Estate Taxes

Perhaps most revealing, why do leftists sometimes cut taxes when they hold power? A story in the Wall Street Journal notes that there’s been a little-noticed wave of state tax cuts. Specifically reductions and/or eliminations of state death taxes. And many of these supply-side reforms are happening in left-wing states!

In the past three years, nine states have eliminated or lowered their estate taxes, mostly by raising exemptions. And more reductions are coming. Minnesota lawmakers recently raised the state’s estate-tax exemption to $2.1 million retroactive to January, and the exemption will rise to $2.4 million next year. Maryland will raise its $3 million exemption to $4 million next year. New Jersey’s exemption, which used to rank last at $675,000 a person, rose to $2 million a person this year. Next year, New Jersey is scheduled to eliminate its estate tax altogether, joining about a half-dozen others that have ended their estate taxes over the past decade.

This is good news for affected taxpayers, but it’s also good news for the economy.

Death taxes are not only a punitive tax on capital, but they also discourage investors, entrepreneurs, and other high-income people from earning income once they have accumulated a certain level of savings.

But let’s focus on politics rather than economics. Why are governors and state legislators finally doing something sensible? Why are they lowering tax burdens on “rich” taxpayers instead of playing their usual game of class warfare?

I’d like to claim that they’re reading Cato Institute research, or perhaps studies from other market-oriented organizations and scholars.

But it appears that tax competition deserves most of the credit.

Cutting Taxes Is Trendy

This tax-cutting trend has been fueled by competition between the states for affluent and wealthy taxpayers. Such residents owe income taxes every year, but some are willing to move out of state to avoid death duties that come only once. Since the federal estate-and-gift tax exemption jumped to $5 million in 2011, adjusted for inflation, state death duties have stood out.

I don’t fully agree with the above excerpt because there’s plenty of evidence that income taxes cause migration from high-tax states to zero-income-tax states.

But I agree that a state death tax can have a very large impact, particularly once a successful person has retired and has more flexibility.

Courtesy of the Tax Foundation, here are the states that still impose this destructive levy.

Though this map may soon have one less yellow state. As reported by the WSJ, politicians in the Bay State may be waking up.

In Massachusetts, some lawmakers are worried about losing residents to other states because of its estate tax, which brought in $400 million last year. They hope to raise the exemption to half the federal level and perhaps exclude the value of a residence as well. These measures stand a good chance of passage even as lawmakers are considering raising income taxes on millionaires, says Kenneth Brier, an estate lawyer with Brier & Ganz LLP in Needham, Mass., who tracks the issue for the Massachusetts Bar Association. State officials “are worried about a silent leak of people down to Florida, or even New Hampshire,” he adds.

I’m not sure the leak has been silent. There’s lots of data on the migration of productive people to lower-tax states.

But what matters is that tax competition is forcing the state legislature (which is overwhelmingly Democrat) to do the right thing, even though their normal instincts would be to squeeze upper-income taxpayers for more money.

As I’ve repeatedly written, tax competition also has a liberalizing impact on national tax policy.

Following the Reagan tax cuts and Thatcher tax cuts, politicians all over the world felt pressure to lower their tax rates on personal income. The same thing has happened with corporate tax rates, though Ireland deserves most of the credit for getting that process started.

I’ll close by recycling my video on tax competition. It focuses primarily on fiscal rivalry between nations, but the lessons equally apply to states.

P.S. For what it’s worth, South Dakota arguably is the state with the best tax policy. It’s more difficult to identify the state with the worst policy, though New Jersey, Illinois, New York, California, and Connecticut can all make a strong claim to be at the bottom.

P.P.S. Notwithstanding my snarky title, I don’t particularly care whether there are tax cuts for rich people. But I care a lot about not having tax policies that penalize the behaviors (work, saving, investment, and entrepreneurship) that produce income, jobs, and opportunity for poor and middle-income people. And if that means reforms that allow upper-income people to keep more of their money, I’m okay with that since I’m not an envious person.

Reprinted from International Liberty.

Daniel J. Mitchell


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.

By permission from International Liberty

The Federal Tax Code Shouldn’t Subsidize and Encourage Profligacy by State and Local Governments

The federal income tax is corrosive and destructive. It’s almost as if a group of malicious people decided to deliberately design a system that imposes maximum damage while also allowing the most corruption.

The economic damage is not only the result of high tax rates and pervasive double taxation, but also because of loopholes that exist to bribe people into making economically unwise decisions.

These include itemized deductions for mortgages and charitable contributions, as well as the fringe benefits exclusion and the exemption for municipal bond interest. And there are many other corrupt favors sprinkled through a metastasizing tax code.

But there’s a strong case to be made that the worst loophole is the deduction for state and local taxes. Why? For the simple reason that it encourages, enables, and subsidizes bad policy.

Here’s how it works. State and local lawmakers can increase income taxes or property taxes and be partially insulated from political blowback because their taxpayers can deduct those taxes on their federal return.

And it’s a back-door way of giving a special break to upper-income taxpayers because the deduction is more valuable to people in higher tax brackets.

Let’s look at an example that’s currently in the news. Democrats in the Illinois state legislature want a big increase in the personal income tax. If they succeed and boost taxes by an average of $1000, high-income taxpayers who take advantage of the deduction may only suffer a loss of as little as $600 since their federal tax bill may fall by almost $400.

For politicians, this is an ideal racket. They can promise various interest groups $1000 of goodies while reducing take-home pay by a lesser amount.

Let’s review some recent commentary on this topic.

The Wall Street Journal opined on the issue last weekend.

Chuck Schumer aspires to raise taxes on every rich person in America, save one protected class: coastal progressives. …Like many other Democrats, he’s apoplectic about a plan to end the state and local tax deduction. …One goal of tax reform is to reduce unproductive tax loopholes, and ending the state and local deduction would generate revenue to finance lower rates: The deduction is worth about $100 billion a year… About 88% of the benefits in 2014 flowed to taxpayers who earn more than $100,000, while 1% went to those who earn less than $50,000. California alone reaps nearly 20% of the benefit…and a mere six states get more than half. …The folks underwriting this windfall are in Alaska, South Dakota, Wyoming and other places without a state income tax. …Eliminating the deduction would be a powerful incentive for Governors to cut state taxes on residents who are suddenly exposed to their full liability. …killing the state and local deduction would pay a double dividend: The first is creating a more equitable tax code with a broader base and lower rates. The second is spurring reform in states that are long overdue for a better tax climate.

Writing earlier this year for National Review, Kevin Williamson was characteristically blunt.

It’s time for…blue-state…tax increases that would fall most heavily on upper-income Americans in high-tax progressive states such as California and New York. …eliminate the deduction for state income taxes, a provision that takes some of the sting out of living in a high-tax jurisdiction such as New York City (which has both state and local income taxes) or California, home to the nation’s highest state-tax burden. Do not hold your breath waiting for the inequality warriors to congratulate Republicans for proposing these significant tax increases on the rich. …allowing for the deduction of state taxes against federal tax liabilities creates a subsidy and an incentive for higher state taxes. California in essence is able to capture money that would be federal revenue and use it for its own ends, an option that is not practically available to low-tax (and no-income-tax) states such as Nevada and Florida. It makes sense to allow the states to compete on taxes and services, but the federal tax code biases that competition in favor of high-tax jurisdictions.

And Bob McManus adds his two cents in an article for the Manhattan Institute’s City Journal.

Voters in all heavy-tax, high-spending states have no one to blame for their situation save themselves. At a minimum, it seems clear that deductibility—by softening the impact of federal taxation—encourages outsize state and local spending. States that take advantage of deductibility—mostly in the Northeast and on the West Coast—are in effect subsidized by states that have kept tighter control on their spending. …New York’s top-of-the-charts spending puts the state at the pinnacle…with New Yorkers paying a national high of 12.7 percent of income in state and local levies. Local property taxes in New York are astronomical and not coming down any time soon. …deductibility has powerful friends—among them the public-employee unions… New York and the nation would benefit if deductibility was jettisoned. …end the incentive for the tax-and-spend practices that have been so economically corrosive to big-spending Blue states.

Let’s close with the should-be-obvious point that the goal isn’t to repeal the state and local tax deduction in order to give politicians in Washington more money to spend. Instead, every penny of that revenue should be used to finance pro-growth tax reforms.

That creates a win-win situation of better tax policy in Washington, while also creating pressure for better tax policy at the state and local level.

For what it’s worth, both Trump and House Republicans are proposing to get rid of the deduction.

P.S. I mentioned at the start of this column that it would not be unreasonable to think that the tax code was deliberately designed to maximize economic damage. But even a curmudgeon like me doesn’t think that’s actually the case. Instead, our awful tax system is the result of 104 years of “public choice.”

P.P.S. Itemized deductions and other loopholes create distortions by allowing people to understate their income if they engage in approved behaviors. There are also provisions of the tax code – such as depreciation and worldwide taxation – that force taxpayers to overstate their income.

Reposted from International Liberty

Cut Subsidies, Get Rich

Ever since President Trump and budget director Mick Mulvaney released a proposed federal budget that includes cuts in some programs, the Washington Post has been full of articles and letters about current and former officials and program beneficiaries who don’t want their budgets cut. Not exactly breaking news, you’d think. And not exactly a balanced discussion of pros and cons, costs and benefits. Consider just today’s examples:

[O]ver 100,000 former Fulbright scholars, among them several members of Congress, are being asked to lobby for not only full funding but also a small increase.

As a former Federal Aviation Administration senior executive with more than 30 years of experience in air traffic control, I believe it is a very big mistake to privatize such an important government function.

On Thursday, all seven former Senate-confirmed heads of the Energy Department’s renewables office — including three former Republican administration officials – told Congress and the Trump administration that the deep budget cut proposed for that office would cripple its ability to function.

This is nothing new. Every time a president proposes to cut anything in the $4 trillion federal budget — up from $1.8 trillion in Bill Clinton’s last budget — reporters race to find “victims.” And of course no one wants to lose his or her job or subsidy, so there are plenty of people ready to defend the value of each and every government check. As I wrote at the Britannica Blog in 2011, when one very small program was being vigorously defended:

Every government program is “well worth the money” to its beneficiaries. And the beneficiaries are typically the ones who lobby to create, expand, and protect it. When a program is threatened with cuts, newspapers go out and ask the people “who will be most affected” by the possible cut. They interview farmers about whether farm programs should be cut, library patrons about library cutbacks, train riders about rail subsidy cuts. And guess what: all the beneficiaries oppose cuts to the programs that benefit them. You could write those stories without going out in the August heat to do the actual interviews.

Economists call this the problem of concentrated benefits and diffuse costs. The benefits of any government program — Medicare, teachers’ pensions, a new highway, a tariff — are concentrated on a relatively small number of people. But the costs are diffused over millions of consumers or taxpayers. So the beneficiaries, who stand to gain a great deal from a new program or lose a great deal from the elimination of a program, have a strong incentive to monitor the news, write their legislator, make political contributions, attend town halls, and otherwise work to protect the program. But each taxpayer, who pays little for each program, has much less incentive to get involved in the political process or even to vote.

A $4 trillion annual budget is about $12,500 for every man, woman, and child in the United States. If the budget could be cut by, say, $1 trillion — taking it back to the 2008 level — how much good could that money do in the hands of families and businesses? How many jobs could be created? How many families could afford a new car, a better school, a down payment on a home? Reporters should ask those questions when they ask subsidy recipients, How do you feel about losing your subsidy?

Republished from Cato Institute.

David Boaz


David Boaz

David Boaz is the executive vice president of the Cato Institute and the author of The Libertarian Mind: A Manifesto for Freedom and the editor of The Libertarian Reader.

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