Tag Archives: free speech

Are We About To Throw The Baby Out With The Bath Water?

Tom Kite is PGA Tour player whose low Major total belies his resume as a player….He only led the Tour in earnings twice, but he was the second Tour player to crack $1 million in a season (1989, a year after Curtis Strange did it), he finished in the Top 20 in money 17 times, and he was the first player to accumulate $6 million, $7 million, $8 million, and $9 million in career earnings.1 Tom, although an excellent player was not Greg Norman, Ben Crenshaw, Arnold Palmer or Jack Nicklaus; names one might expect to head that list. How? He did it by having a considerably higher finishing average than other players and naturally earned more prize money as a result.

In 1960, the New York Yankees lost to the Pittsburgh Pirates, 3 games to 4. Amongst the Yankees’ roster were future Hall of Fame Players Berra, Maris and Mantle. Still the Yankees lost despite having scored a total of 55 runs to the Pirates’ 27 runs.

These stories seem relevant to today’s political campaign rhetoric. We are told our system is corrupt. It may be; but wouldn’t it be a good thing to look at where and how? In light of the twisted language of our politically correct consciousness, which makes honest substantive discussions on issues difficult at best, it would likely be prudent to ensure my words here are clear.

Ever since our nation’s founding, we, the average citizen, have had a say in our national elections and discourse. But, aside from our votes, it has never been direct. Our votes, other than on state and local initiatives, nearly always involve our selection of someone to represent us. We delegate our political desires to someone who, hopefully, will reflect our views when they cast their votes on specific legislation.

We are not, as a political structure, a pure democracy. Never have been, although it could be argued that we have moved more in that direction. Our founders did not trust a pure democracy: structurally, we are a representative republic.

“what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.”

– Federalist No. 51, James Madison

As Franklin, replying to a woman who asked as he left the Constitutional Convention, “Well Doctor what have we got, a republic or a monarchy?,” stated, “A republic . . . if you can keep it.”

Note Madison states the obvious: government is necessary due to the flaws of humanity generally. Not that people are evil per se (though some most certainly are – Hitler & Stalin come to mind), but that self interest is a universal human characteristic. Yet, government, established to prevent individual self interest from becoming anarchy or rule of the jungle, is an organization run by people. So how do you prevent the very self interest government is set up to protect against from becoming a tool of those who work in government?

A republic. A pure democracy is essentially mob rule: 50%, plus one negates the 50% less 1 in all matters. That is law of the jungle, lynch mob governance. A republic on the other hand is a layered form of democracy that attempts to mitigate the aggregation of political power. This form is still imperfect because people are still people.

I’ve recounted all of this because we’re being told nearly every day how corrupt the delegate system is. When, in truth, if any one cared to go beyond the railings and look into the process, it is actually a full demonstration of the principles of our founders’ efforts to keep us from being our own worst enemy. How?

First, the delegate selection is NOT controlled, at least in one political party’s structure1, by one centralized entity or small group of elites. Each state has it own rules, means and methods. This means that no one person or small group can control the outcome. A successful candidate must be able to navigate many different process rules, from state to state. It is much the same as a business in one state seeking to expand its offices to another state – they have to look at how the laws, taxes, etc., impact how they conduct business in order to successfully operate there.

This multi-faceted, variable process is accidentally brilliant. Accidentally because the states themselves and the state party structures were set up independently, over a period of decades, and through their own localized self interest developed whatever delegate process they thought would serve their own constituents best. Each of these statewide party representatives are individuals who got involved in the process because they wanted to influence the outcome however they could.

Perfect? Not at all. But it does keep political power less concentrated and more diverse. And that benefits us all.

Confusing? Yes. Corrupt? Not likely; it is just too diversified, too disconnected for full centralized control. Those who argue for pure democracy would do well to recognize the dangers of mob rule. Is that what you really want? How long would our society survive if that were how we decided things?

Don’t like the outcomes? Get involved. But regurgitating easy and disingenuous slogans which tend only to stoke emotional fervor is destructive. It is the very thing that lead to the rise of some of history’s most wretched atrocities. One only need look to 1789 France to appreciate the horror of the mob. Our elected officials, particularly in the last three election cycles, have not been as representative as many had hoped they would be as to the direction of the country, the size, scale and scope of government’s influence in our daily lives. But to allow that disappointment and frustration to literally blow up the layered system meant to protect us from ourselves is precisely what some advocate for – an utter collapse of the system allowing for who knows what.

It should be noted that what makes government necessary is at the same time the very thing that requires government be restrained and limited in size, scale and scope. Otherwise, we cease being even the imperfect representative republic.  The Constitution acknowledges the imperfections of humanity and attempts to allow each of us to enjoy individual liberty to pursue life as we envision it. It seeks to protect our God-given, unalienable rights by preventing each of us from using political power to our own advantage over one another. And while, we’ve done considerable damage to that bulwark, it is not yet fully lost.

But, if the tone and language, accompanied by blind, emotional outrage and verbal assaults are any indication, we could inadvertently usher in that which disassembles the very thing that ensures each and everyone of us are able to continue being a free people, to enjoy life as we would pursue it.

“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety.”

– Benjamin Franklin

  1.  PGA Tour Career Money Leaders History
  2. The Democratic Party delegate process has what are known as “super delegates”. These delegates are solely controlled and assigned by the DNC directly to the candidate the Party decides, not the voters. CNN interview DNC Chair Debbie Wasserman Schultz explaining this: https://youtu.be/w5llLIKM9Yc

Lex Rex
April 20, 2016

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Why it Matters that the United States Is (Supposed to Be) a Republic, not a Democracy

Why it Matters that the United States Is (Supposed to Be) a Republic, not a Democracy

If you want to go to a Presbyterian church instead of a Baptist church, should the government be able to interfere with that choice? Even if, for some bizarre reason, 95 percent of the population doesn’t like Presbyterians?

If you want to march up and down the sidewalk in front of City Hall with a sign that says the Mayor is an idiot, should the government be able to throw you in jail? Even if 95 percent of the population somehow has decided the Mayor is a genius?

Most Americans instinctively understand that the answer to all these question is no. Not just no, a big emphatic NO!

That’s because certain rights are guaranteed by our Constitution, regardless of whether an overwhelming majority of our fellow citizens feel otherwise.

And that’s what makes us a republic rather than a democracy.

But the bad news is that many of our rights in the Constitution no longer are protected.

For instance, Article I, Section 8, specifically enumerates (what are supposed to be) the very limited powers of Congress.

Our Founding Fathers thought it was okay for Congress to have the power to create courts, to coin money, to fund an army, and to have the authority to do a few other things.

But here are some things that are not on that list of enumerated powers (and certainly not included in the list of presidential powers either):

And the list could go on for several pages. The point is that the entire modern Washington-based welfare state, with all its redistribution and so-called social insurance, is inconsistent with the limited-government republic created by America’s Founders.

These programs exist today because the Supreme Court put ideology above the Constitution during the New Deal and, at least in the economic sphere, turned the nation from a constitutional republic into a democracy based on unconstrained majoritarianism.

Here’s some of Walter Williams wrote on the topic.

Like the founders of our nation, I find democracy and majority rule a contemptible form of government. …James Madison, in Federalist Paper No. 10, said that in a pure democracy, “there is nothing to check the inducement to sacrifice the weaker party or the obnoxious individual.” …John Adams said, “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There was never a democracy yet that did not commit suicide.” …The word “democracy” appears nowhere in the two most fundamental documents of our nation — the Declaration of Independence and the U.S. Constitution. …the Constitution’s First Amendment doesn’t say Congress shall grant us freedom of speech, the press and religion. It says, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press…” …In a democracy, the majority rules either directly or through its elected representatives. …Laws do not represent reason. They represent force. The restraint is upon the individual instead of government. Unlike that envisioned under a republican form of government, rights are seen as privileges and permissions that are granted by government and can be rescinded by government. …ask yourself how many decisions in your life would you like to be made democratically. How about what car you drive, where you live, whom you marry, whether you have turkey or ham for Thanksgiving dinner?

And click here for a video that explains in greater detail why majoritarianism is a bad idea.

But perhaps these cartoons will make it even easier to understand why 51 percent of the population shouldn’t be allowed to rape and pillage 49 percent of the population.

We’ll start with this depiction of modern elections, which was featured on a friend’s Facebook page.

And here’s one that I’ve shared before.

It highlights the dangers of majoritarianism, particularly if you happen to be a minority.

P.S. George Will has explained that the Supreme Court’s job is to protect Americans from democracy.

P.P.S. Here’s more analysis of the issue from Walter Williams.

P.P.P.S. Some leftists are totally oblivious about America’s system of government.

P.P.P.P.S. Though Republicans also don’t really understand what the Constitution requires.

P.P.P.P.P.S. Looking at the mess in the Middle East, I’ve argued we would be in much better shape if we promoted liberty instead of democracy.

Reposted from International Liberty.

Even the IRS Admits that the Tax Code Is Very Biased against Successful Taxpayers

Even the IRS Admits that the Tax Code Is Very Biased against Successful Taxpayers

When I debate class warfare issues, here’s something that happens with depressing regularity.

I’ll cite research from a group like the Tax Foundation on how an overwhelming share of the income tax is borne by upper-income taxpayers.

The statist I’m arguing with will then scoff and say the Tax Foundation is biased, thus implying that I’m sharing bogus data.

I’ll then respond that the group has a very good reputation and that their analysis is directly based on IRS data, but I may as well be talking to a brick wall. It seems leftists immediately close their minds if information doesn’t come directly from a group that they like.

So I was rather happy to see that the Internal Revenue Service, in the Spring 2015 Statistics of Income Bulletin, published a bunch of data on how much of the income tax is paid by different types of taxpayers.

I’ll be very curious to see how they respond when I point out that their favorite government agency admits that the bottom 50 percent of earners only pay 2.8 percent of all income tax. And I’ll be every more curious to see how they react when I point out that more than half of all income taxes are paid by the top 3 percent of taxpayers.

There’s a famous saying, generally attributed to Daniel Patrick Moynihan, that “Everyone is entitled to his own opinion, but not his own facts.”

With this in mind, I’m hoping that this data from the IRS will finally put to rest the silly leftist talking point that the “rich” don’t pay their “fair share.”

This doesn’t mean, by the way, that the debate about policy will be settled.

Getting statists to accept certain facts is just the first step.

But once that happens, we can at least hope that their minds will be opened to subsequent steps, such as understanding the economic impact of punitive tax rates, recognizing that high tax rates won’t necessarily collect more revenue, or realizing that ordinary workers suffer when harsh tax policies reduce economic vitality.

Though I’m not holding my breath and expecting miracles. After all, some leftists openly state that they don’t care if the economic damage of high tax rates is so significant that government doesn’t collect any tax revenue.

You can see an example of one of these spite-motivated people at the 4:20 mark of the video I narrated on class-warfare taxation.

P.S. Shifting to another tax topic, some of you may have heard about the massive data breach at the IRS. Here’s some of what CNN is reporting.

The Internal Revenue Service believes that a major cyber breach that allowed criminals to steal the tax returns of more than 100,000 people originated in Russia, Rep. Peter Roskam confirmed to CNN on Thursday. …The IRS announced Tuesday that organized crime syndicates used personal data obtained elsewhere to access tax information, which they then used to file $50 million in fraudulent tax refunds.

I suppose I could use this opportunity to take a few potshots at the IRS, but there’s a far more important issue to raise.

I’m guessing the IRS probably has the best computer security of any tax bureaucracy in the world. Yet even all the IRS’s expertise couldn’t stop hackers from obtaining sensitive information.

Now let’s contemplate something truly frightening. The Obama Administration wants the United States to be part of an OECD pact that obligates participating nations to promiscuously share information with dozens of other governments, including untrustworthy, hostile, and/or corrupt regimes such as Russia and China, not to mention make information available to jurisdictions that presumably will have very little technical capacity to guard data from hackers and identity thieves. Here’s the list of participating nations on the OECD website, and it includes Azerbaijan, Cameroon, Greece, Indonesia, Mexico, Nigeria, Romania, Saudi Arabia, and Ukraine.

Yet none of this reckless endangerment would be an issue if we had a simple territorial tax system like the flat tax. Under such a simple and fair system, only income inside America’s borders would be taxed (unlike the wretched system of worldwide taxation we have now), so there would be no need to have risky information-swapping deals with dodgy foreign governments.

P.P.S. Senator Rand Paul is one of the few lawmakers fighting to protect Americans from having their information shared with foreign governments.

P.P.P.S. Shifting back to the original topic of class-warfare taxation, here’s a lesson on the Laffer Curve I offered to President Obama.

Reposted from International Liberty.

In the Left’s Orwellian World, Taxpayers Who Get to Keep their Income Are Getting “Handouts”

In the Left’s Orwellian World, Taxpayers Who Get to Keep their Income Are Getting “Handouts”

I’ve sometimes asserted, only half-jokingly, that statists believe all of our income belongs to the government and that we should be grateful if we’re allowed to keep any slice of what we earn.

This is, at least in part, the mentality behind the “tax expenditure” concept, which creates a false equivalence between spending programs and provisions of the tax code that allow people to keep greater amounts of their own income.

Here’s how I characterized this moral blindness when criticizing a Washington Post columnist back in 2013.

Hiatt presumably thinks that the government’s decision not to impose double taxation is somehow akin to a giveaway. But that only makes sense if you assume that government has a preemptive claim to all private income. …Hiatt wants us the think that there’s no moral, ethical, or economic difference between giving person A $5,000 of other people’s money and person B being allowed to keep $5,000 of his or her own money.

Today, I have a particularly absurd real-world illustration of this statist mindset.

Two writers for the Wonkblog section of the Washington Post recently wrote an article entitled, “The rich get government handouts just like the poor. Here are 10 of them.”

Did their list of 10 “handouts” include the Export-Import Bank, which lines the pockets of big corporations? Nope.

Did it include agriculture subsidies, which provide unearned goodies for big agribusiness firms? Nope.

Did it the TARP bailout, which shielded Wall Street fatcats from capitalism? Nope.

And how about subsidized terrorism insurance, ethanol goodies, and green energy subsidies? Nope, nope, and nope.

Or the handouts in Obamacare for major pharmaceutical companies and big insurance companies? Nope and nope.

Instead, every single “handout” that the rich “get” from government is nothing more than a provision of the tax code that lets people keep more of their own money.

I’m not joking. Here’s the list, followed by my two cents.

1. The mortgage interest deduction for big houses and second homes.

As I’ve previously explained, I don’t think the tax code should be tilted in favor of residential real estate. But a handout is when the government takes money from Person A and gives it to Person B.

2. The yacht tax deduction.

There actually isn’t a yacht tax deduction, but if you can live in something, it can be eligible for a mortgage interest deduction. I don’t think that’s wise tax policy, but it’s not an example of government taking from Person A and giving to Person B.

3. Rental property.

The authors appear to be upset that people running a business get to subtract costs from gross income when calculating net income. But that’s exactly how businesses are supposed to be taxed. And even if one thought, for some odd reason, that gross income was the right tax base, this still isn’t an example of government taking from Person A to give to Person B.

4. Fancy business meals.

As just noted, businesses should be taxed on profits rather than gross receipts. Well, profits are the difference between total income and total costs, including the cost of business-related meals. And even if one thinks that folks in business are lying and mischaracterizing personal meals, they’re not spending other people’s money. No funds are being taken from Person A and being given to Person B.

5. The capital gains tax rate.

In a good tax system, there’s no double taxation of income that is saved and invested, so the capital gains tax should be abolished. As such, the “preferential” rate in the current system is more accurately characterized as a mitigation of a penalty. But even if one believes that saving and investment should be double taxed, a lower capital gains tax rate doesn’t take money from Person A to give to Person B.

6. The estate tax.

The death tax is triple taxation, so it also should be abolished. Regardless, letting a family hold onto its own money is not the same as taking from Person A to give to Person B.

7. Gambling loss deductions.

The government taxes gamblers on their net winnings (if any), which is the proper approach. And even if the government gave a deduction for net losses (which isn’t the case), this wouldn’t be an example of taking from Person A and giving to Person B.

8. The Social Security earnings limit.

The Social Security system is supposed to be social insurance, and one of the implications of this approach is that there’s a limit on the benefits one can receive and the payments one has to make. As such, it’s silly to assert that the “wage base cap” is somehow improper. But even if one believed in turning Social Security into a pure redistribution scheme, the existing earnings limit simply means a cap on what the government takes. There’s no coerced handout from Person A to Person B.

9. Retirement plans.

The bad news is that we have pervasive double taxation in the internal revenue code. The good news is that some forms of retirement savings, such as IRAs and 401(k)s, are protected from double taxation. That protection does not require any money being taken from Person A and given to Person B.

10. Tax prep.

I’m not a fan of companies like H&R Block that benefit from an unfair and convoluted tax code. Under a simple and fair system like the flat tax, they would go out of business. But a deduction for tax preparation costs simply allows a taxpayer to keep more of his or her income. There’s no handout from Person A to Person B.

In case you didn’t notice, there’s a strong moral component to my argument. The leftists think you’re getting a handout if you get to keep more of your own money.

I think that’s absurd.

And it’s also economically illiterate when applied to provisions of the tax code that make sense, such as companies getting to subtract expenses when calculating taxable income.

Or individuals not being subjected to double taxation.

P.S. Here’s some pro-Second Amendment humor, which cleverly uses the left’s “undocumented” terminology for illegal aliens and applies it in a much better fashion.

And if you like pro-gun humor, you can find lots of good links by clicking here.

P.P.S. Since I mentioned immigration, here’s a fascinating graphic that shows immigration trends over the past two centuries.

There’s no policy lesson of philosophical point. I just think this graphic is very informative and well designed.

But if you want my two cents, I like immigration but want to make sure we attract people who want to work and assimilate rather than scroungers (and worse) who want welfare and handouts.

Reposted from International Liberty.

The Empirical Case for a Much Smaller Public Sector

The Empirical Case for a Much Smaller Public Sector

As a fiscal policy economist who believes in individual liberty and personal responsibility, I have two goals.

1. Replace the corrupt and punitive internal revenue code with a simple and fair flat tax that raises necessary revenue in the least-destructive and least-intrusive manner possible.

2. Shrink the size of the federal government so that it only funds the core public goods, such as national defense and rule of law, envisioned by America’s Founding Fathers.

Needless to say, I haven’t been doing a great job. The tax code seems to get worse every year, and even though we’ve made some progress in recent years on spending, the long-run outlook is still very grim because there’s hasn’t been genuine entitlement reform.

But I continue with my Sisyphean task. And part of my efforts include educating people about the Rahn Curve, which is sort of the spending version of the Laffer Curve. it shows the non-linear relationship between the size of government and economic performance.

Simply stated, some government spending presumably enables growth by creating the conditions (such as rule of law and property rights) for commerce.

But as politicians learn to buy votes and enhance their power by engaging in redistribution, then government spending is associated with weaker economic performance because of perverse incentives and widespread misallocation of resources.

I’ve even shared a number of videos on the topic.

The video I narrated explaining the basics of the Rahn Curve, which was produced by the Center for Freedom and Prosperity.

A video from the Fraser Institute in Canada that reviews the evidence about the growth-maximizing size of government.

A video from the Centre for Policy Studies in the United Kingdom that explores the relationship between prosperity and the size of the public sector.

Even a video on the Rahn Curve from a critic who seems to think that I’m a closeted apologist for big government.

Now we have another video to add to the collection.

Narrated by Svetla Kostadinova of Bulgaria’s Institute for Market Economics, it discusses research from a few years ago about the “optimal size of government.”


If you want to read the research study that is cited in the video, click here. The article was written by Dimitar Chobanov and Adriana Mladenova of the IME

The evidence indicates that the optimum size of government, e.g. the share of overall government spending that maximizes economic growth, is no greater than 25% of GDP (at a 95% confidence level) based on data from the OECD countries. In addition, the evidence indicates that the optimum level of government consumption on final goods and services as a share of GDP is 10.4% based on a panel data of 81 countries. However, due to model and data limitations, it is probable that the results are biased upwards, and the “true” optimum government level is even smaller than the existing empirical study indicates.

Two points in that excerpt are worth additional attention.

First, they understand that not all forms of government spending have equal effects.

Spending on core public goods (rule of law, courts, etc) generally are associated with better economic performance.

Spending on physical and human capital (infrastructure and education) can be productive, though governments often do a poor job based on a money-to-outcomes basis.

Most government spending, though, is for transfers and consumption, and these are areas where the economic effects are overwhelmingly negative.

So kudos to the Bulgarians for recognizing that it’s particularly important to restrain some types of outlays.

The other point that merits additional emphasis is that the growth-maximizing size of government is probably far lower than 25 percent of economic output.

Here’s what they wrote, citing yours truly.

…the results from the above mentioned models should not be taken as the “true” optimal level of government due to limitations of the models, and lack of data as already discussed. As Dan Mitchell commented, government spending was about 10% of GDP in the West from the end of the Napoleonic wars to World War I. And we do not have any data to think that growth would have been higher if government was doubled or tripled. However, what the empirical results do show is that the government spending should be much less than is the average of most countries at the moment. Thus, we can confidentially say the optimum size of general government is no bigger than 25% but is likely to be considerably smaller because of the above-mentioned reasons.

And here’s their version of the Rahn Curve, though I’m not a big fan since it seems to imply that government should consume about one-third of economic output.

I much prefer the curve to show the growth-maximizing level under 20 percent of GDP.

Though I often use a dashed line to emphasize that we don’t really know the actual peak because there unfortunately are no developed nations with modest-sized public sectors.

Even Singapore and Hong Kong have governments that consume about 20 percent of economic output.

But maybe if I someday achieve my goal, we’ll have better data.

And maybe some day I’ll go back to college and play quarterback for my beloved Georgia Bulldogs.

P.S. Since I shared one video, I can’t resist also including this snippet featuring Ronald Reagan talking about libertarianism.


What impresses me most about this clip is not that Reagan endorses libertarianism.

Instead, notice how he also explains the link between modern statism and fascism.

He had a much greater depth of knowledge than even supporters realize. Which also can be seen in this clip of Reagan explaining why the Keynesians were wrong about a return to Depression after World War II.

And click here if you simply want to enjoy some classic Reagan clips. For what it’s worth, this clip from his first inauguration is my favorite.

Given my man crush on the Gipper, you also won’t be surprised to learn that this is the most encouraging poll I’ve ever seen.

Reposted by International Liberty.

America’s Anti-Competitive and Anti-Comity International Tax System, Part II

 

America’s Anti-Competitive and Anti-Comity International Tax System, Part II

by Dan Mitchell

Last September, I wrote that America’s business tax system is a nightmare that simultaneously undermines the competitiveness of American companies while also causing lots of irritation in other nations.

Both of those bad things happen because politicians in Washington think the IRS should be able to tax income that is earned (and already subject to tax) in other countries. This approach, known as “worldwide taxation,” is contrary to good tax policy.

Indeed, all good tax reform plans, such as the flat tax, are based on “territorial taxation,” which is the common-sense principle that governments should only tax activity inside national borders.

Given the self-inflicted wound of worldwide taxation, particularly when combined with the world’s highest corporate tax rate, it’s easy to understand why some companies engage in “inversions” and become foreign-domiciled firms. Simply stated, that’s their best option if they care about the best interests of their workers, customers, and shareholders.

Well, the same problem exists for households. And it exists for the same reason. The United States also imposes “worldwide taxation” on individual taxpayers. But it’s even worse, because there are specific laws, such as the infamous Foreign Account Tax Compliance Act, that impose absurdly high costs on Americans with cross-border economic activity, particularly those who live and work in other nations.

And just as our senselessly punitive corporate tax system drives corporations to re-domicile, the same is true for the personal tax code. As CNN reports, record numbers of Americans are officially giving up their citizenship.

The number of Americans choosing to give up their passports hit a record 3,415 last year, up 14% from 2013, and 15 times more than in 2008, when only 231 people renounced their citizenship. Experts say the recent surge is coming from expats who no longer want to deal with complicated tax paperwork, a burden that has only gotten worse in recent years. Unlike most countries, the U.S. taxes all citizens on income, no matter where it is earned or where they live. The mountain of paperwork can be so complicated that expats are often forced to fork over high fees to hire an accountant… “More and more are considering renouncing,” said Vincenzo Villamena of Online Taxman, an accountant who specializes in expat taxes. “There are a lot of uncertainties about FATCA…I don’t think we’ve seen the full effect that FATCA can have on people’s lives.” As both expats and financial institutions rush to understand the new law, some banks have chosen to kick out their Americans clients rather than comply. If a bank mistakenly fails to report accounts held by Americans outside the U.S. — even checking and savings accounts — they can face steep penalties.

Here’s a chart from the CNN article.

As you can see, there was a pause in 2012, perhaps because people were waiting to see what happened in the election.

But ever since, the number of people escaping U.S. citizenship has jumped dramatically.

To better understand how bad tax law is hurting people with U.S. passports, let’s look at the plight of Americans in Canada, as reported by the Vancouver Sun.

…many Ameri-Canadians are feeling rising anger, fear and even hatred toward their powerful country of origin. …The U.S. is the only major country to tax based on citizenship, not residency. …open displays of American pride in Canada are becoming even less likely as Ameri-Canadians seek shelter from the long reach of FATCA. …In addition, the flow of Americans leaving the U.S. for Canada more than doubled in the decade up until 2011, according to Statistics Canada. …Now — with FATCA causing investigators to scour the globe to hunt down more than seven million broadly defined “U.S. persons” it claims should be paying taxes to Uncle Sam — even more people in Canada with U.S. connections are finding another reason to bury their American identities.

Now let’s be even more focused and look at the impact on a single Englishman who happens to be the Mayor of London.

Johnson was characteristically forthright, describing FATCA as “outrageous”, and a “terrible doctrine of taxation.” Born in New York and having never given up his US citizenship, the London mayor cannot escape the clutches of FATCA, which requires that foreign financial institutions report the financial information of Americans. Those affected include many so-called “accidental Americans” like Johnson… What has seemingly brought FATCA to the front of Boris’s mind is the sale of his UK home, on which he is liable to pay tax in America. …What it does do – because of its host of serious, unintended, adverse consequences – is brand Americans, and accidental Americans choosing to live or work overseas, as financial pariahs. …Similarly, American businesses working in international markets are now often branded with a leprosy-like status. Clearly, this can only be detrimental to the country’s global competitiveness, and could, in turn, hit American jobs and the long-term growth of the economy. Questions should be asked about the imperialist characteristics of FATCA. Governments and foreign financial institutions have been coerced into complying with its expensive, burdensome, privacy-infringing, sovereignty-violating regulations by the US – or they have to face heavy penalties and the prospect of being effectively frozen out of US markets. And all this to “recover” an estimated $1bn (£637m) per year, which is enough, according to reports, to run the federal government for less than two hours.

As you can see, FATCA is a major problem.

And not just for specific taxpayers. The law is also bad for economic growth since it throws sand in the gears of global commerce.

Here are some excerpts from another news report, which includes some of my thoughts on the FATCA issue.

Critics say the FATCA has gone too far, is too draconian and is imposing an undue hardship on Americans living overseas. So says Dan Mitchell of the Cato Institute, a libertarian think tank in Washington. He says the law is “causing lots of headaches and heartaches around the world, not only for foreign financial institutions but also for overseas Americans, who are now being treated as Pyrrhus because financial institutions view them as too costly to service.” The U.S. is one of the few countries that tax its citizen on the basis of nationality, not residency. And faced with a larger tax bill, thousands of Americans living overseas would rather give up their passports then pay a new tax to Uncle Sam. The Taxpayer Advocate’s Office of the IRS has reported that the FATCA “has the potential to be burdensome, overly broad and detrimental to taxpayer rights.” Mitchell says, “An American living and working in some other country is required to not only pay tax to that country where they live but also file a tax return to the U.S. No other civilized country does that.”

By the way, I didn’t say that the law was causing overseas Americans to be treated as “Pyrrhus.” I said they were being viewed as “pariahs.” But that’s the risk you take when doing oral interviews.

Returning to matters of substance, you’ll also be happy to know that FATCA is making people more vulnerable to identity theft. It’s gotten so bad that even the IRS was forced to issue an official warning.

The Internal Revenue Service today issued a fraud alert for international financial institutions complying with the Foreign Account Tax Compliance Act (FATCA). Scam artists posing as the IRS have fraudulently solicited financial institutions seeking account holder identity and financial account information. …These fraudulent solicitations are known as “phishing” scams. These types of scams are typically carried out through the use of unsolicited emails and/or websites that pose as legitimate contacts in order to deceptively obtain personal or financial information. Financial institutions or their representatives that suspect they are the subject of a “phishing” scam should report the matter to the Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484, or through TIGTA’s secure website. Any suspicious emails that contain attachments or links in the message should not be opened.

Gee, nice of them to be so concerned about potential victims.

Though perhaps it would be better if we didn’t have intrusive laws in the first place.

The law is even so destructive that the Associated Press reported that it might be used as a weapon against the Russians!

As the United States attempts to punish Russia for its actions in Ukraine, the Treasury Department is deploying an economic weapon that could prove more costly than sanctions: the Internal Revenue Service. This summer, the U.S. plans to start using a new law that will make it more expensive for Russian banks to do business in America. “It’s a huge deal,” says Mark E. Matthews, a former IRS deputy commissioner. “It would throw enormous uncertainty into the Russian banking community.” …beginning in July, U.S. banks will be required to start withholding a 30 percent tax on certain payments to financial institutions in other countries — unless those foreign banks have agreements in place… But after Russia annexed Crimea and was seen as stoking separatist movements in eastern Ukraine, the Treasury Department quietly suspended negotiations in March. With the July 1 deadline approaching, Russian banks are now concerned that the price of investing in the United States is about to go up. …For Russia, the penalties could be more damaging to its economy than U.S. sanctions, said Brian L. Zimbler, managing partner of the Moscow office of Morgan Lewis, an international law firm. …The 2010 law is known as FATCA.

So what’s the bottom line?

As you can see, America’s worldwide tax system is bad policy, and it’s a nightmare for millions of innocent people thanks to ill-considered laws such as FATCA.

What’s really remarkable – in a bad way – is the complete lack of proportionality.

Back during the 2008 campaign, Obama claimed that laws like FATCA would generate $100 billion per year. From the perspective of tax collectors, that amount of money may have justified an onerous law.

But when the dust settled, the revenue estimators predicted that FATCA would bring in less than $1 billion per year.

In other words, the amount of money the IRS will collect is dwarfed by the damage to the overall economy and the harm to millions of taxpayers. Not to mention all the negative feelings against America that have been generated by this absurd law.

Yet very few politicians are willing to fight FATCA because they’re afraid that their opponents will engage in demagoguery and accuse them of being in favor of tax evasion. Senator Rand Paul is an admirable exception.

P.S. Since this has been such a depressing discussion, here is some good IRS humor to lighten the mood.

Reposted from International Liberty.

A Libertarian Valentine’s Day Message for Venezuela | International Liberty

A Libertarian Valentine’s Day Message for Venezuela

Last year, I shared some libertarian humor relating to Valentine’s Day.

This year, we’re going to be a bit more on the wonky side.

Using roses as an example, we’re going to explore how the invisible hand of the market produces amazing results.

Here’s a great new video from Marginal Revolution University. Narrated by Professor Alex Tabarrok of George Mason University’s economics department, it explains how consumers have amazing access to millions of roses even though (actually because) there’s no agency or department in charge of Valentine’s Day.

And here’s a related video from MRU elaborating on the role of the price system.

The moral of the story in these videos is that a free and unfettered market is far and away the best method of allocating resources.

And the flip side of that lesson is that you get very bad results when politicians replace the invisible hand of the market with the visible foot of government.

Here’s some of what I wrote, for instance, when discussing proposals to give politicians power over wage levels.

…what’s really at stake is whether we want resources to be allocated by market forces instead of political edicts. This should be a no-brainer. If we look at the failure of central planning in the Soviet Union and elsewhere, a fundamental problem was that government officials – even assuming intelligence and good intentions – did not have the knowledge needed to make decisions on prices. And in the absence of a functioning price system, resources get misallocated and growth suffers. So you can imagine the potential damage of giving politicians, bureaucrats, and courts the ability to act as central planners for the wage system.

And here are some excerpts from a post about the damaging impact of subsidies to higher education.

Interfering with the price system is an especially pernicious form of intervention. When functioning properly, prices enable the wants and needs of consumers to be properly channeled to producers and suppliers in a way that promotes prosperity and efficiency. Unfortunately, governments hinder this system with all sorts of misguided policies such as subsidies and price controls. One of the worst manifestations of this type of intervention is the system of third-party payer, which occurs when government policies artificially reduce the perceived prices of goods and services.

And I could cite lots of other examples on issues such as the minimum wage, health care, housing, and agriculture.

Simply stated, you get all sorts of perverse results when politicians interfere with prices.

And that means lower living standards over time as the economy operates less efficiently.

Especially if a government really goes overboard and tries to regulate and control the entire economy rather than “just” interfere with a few sectors. Let’s look at the case of Venezuela. I’ve already written about how first Chavez and now Maduro have turned that nation into an economic hellhole.

It’s so bad that even the establishment media are taking notice.

Here are some passages from Matt O’Brien’s Wonkblog column in the Washington Post.

Venezuela…has the largest oil reserves in the world. It should be rich. But it isn’t, and it’s getting even poorer now, because of economic mismanagement on a world-historical scale. The problem is simple: Venezuela’s government thinks it can have an economy by just pretending it does. That it can print as much money as it wants without stoking inflation by just saying it won’t. And that it can end shortages just by kicking people out of line. It’s a triumph of magical thinking that’s not much of one when it turns grocery-shopping into a days-long ordeal that may or may not actually turn up things like food or toilet paper.

The government is trying to paper over its incompetence by printing money.

…the Bolivarian regime is to blame. The trouble is that while it has tried to help the poor, which is commendable, it has also spent much more than it can afford, which is not. Indeed, Venezuela’s government is running a 14 percent of gross domestic product deficit right now, a fiscal hole so big that there’s only one way to fill it: the printing press. But…paying people with newly printed money only makes that money lose value, and prices go parabolic. It’s no wonder then that Venezuela’s inflation rate is officially 64 percent, is really something like 179 percent, and could get up to 1,000 percent, according to Bank of America, if Venezuela doesn’t change its byzantine currency controls. Venezuela’s government, in other words, is playing whac-a-mole with economic reality.

And there’s also a pervasive system of price controls.

Venezuela’s government wants to wish away the inflation it’s created, so it tells stores what prices they’re allowed to sell at. These bureaucrat-approved prices, however, are too low to be profitable, which is why the government has to give companies subsidies to make them worthwhile. Now when these price controls work, the result is shortages, and when they don’t, it’s even worse ones. …it’s not profitable for the unsubsidized companies to stock their shelves, and not profitable enough for the subsidized ones to do so, either.

In the ultimate triumph of big government, Venezuela is even imposing controls on rationing!

…shortages, which had already hit 30 percent of all goods before the central bank stopped keeping track last year, have gone from being a fact of life to the fact of life. …People have lined up for days to try to buy whatever they can, which isn’t much, from grocery stores that are even more empty than usual. The government has been forced to send the military in to these supermarkets to maintain some semblance of order, before it came up with an innovative new strategy for shortening the lines: kicking people out of them. Now they’re rationing spots in line, based on the last digit of people’s national ID cards.

But you won’t be surprised to learn that all the problems are the fault of the private sector.

It’s a man-made tragedy, and the men who made it won’t fix it. Maduro, for his part, blames the shortages on the “parasitic” private sector.

It goes without saying, of course, that Maduro and the rest of the political elite avoid the consequences of bad economic policy. They all enjoy luxurious lifestyles, financed at the expense of ordinary Venezuelans. Moreover, I’m sure that Maduro and his cronies all have big bank accounts in New York or London.

So I can understand why they like the current system.

I’m genuinely mystified, though, why there are still people who think statism is better than capitalism.

I guess it’s mostly naiveté, a triumph of good intentions over real-world results.

Even though most of these leftists presumably would go crazy if they had to live without the products made possible by capitalism.

Just as portrayed in this video. And this satirical image.

Those of us who reside in the real world, by contrast, already understand the difference between capitalism and statism.

P.S. Venezuela is an economic basket case, but that apparently means it ranks higher than the United States on the “happy planet index” put together by some clueless statists.

Reposted from International Liberty.

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