It’s hard for most people to imagine spending $137 billion, but the government improperly spent that much money last year alone

By Veronique de Rugy. Excerpt:

"In fiscal year 2018, $137 billion was paid “improperly” by the federal government, according to a recent report. That number sums all the improper payments by what the government calls high-priority programs. They are programs with improper-payments estimates exceeding $2 billion annually.

If it makes your head spin, it should.

Always the optimist, I have tried hard to find some good news in this year’s number. I have been tracking such improper payments for a while, and I am happy to report that, while they grew dramatically between their FY2013 level ($106 billion) and FY2015 ($137 billion), they haven’t gone up since.

Now that’s where the good news stops, I am afraid. In 2015, the $137 billion was spread over 15 programs. The $137 billion in improper payments in 2018 is spread over 12 programs. In other words, each program’s improper payments have grown.

Now, not all of these improper payments are the result of fraudulent activities. Some of them, which include overpayments as well as underpayments, might result from clerical error, from an innocent failure to confirm that a recipient is eligible to receive the amount of money that is disbursed, or from any violation of federal guidelines or rules.

While that may not sound as bad, these are still large-scale mistakes, errors that Uncle Sam continues making year after year in all impunity.

Interestingly, although not surprisingly, most of the government’s “high-error programs” are social welfare programs, which are fairly well-known for having low administrative costs in part because of poor oversight. The highest dollar amount of improper payments comes from Medicaid. The program registered $36.2 billion in improper payments, or almost 10 percent of the $370 billion paid out to beneficiaries in 2018 in total. Second-highest is Medicare’s fee-for-service program, with improper payments totaling $31.8 billion (or 8.12 percent of that program’s total payments). If you add the $15.6 billion in improper payments under Medicare Advantage (Part C) to the other two health care programs, you get 60 percent of all improper payments on the list.

Traditionally, the highest rate of improper payments comes from the Earned Income Tax Credit (EITC) program. Not this time. In 2018, the distinction goes to the Veterans Health Administration VA Community Care Program, with an error rate of 105 percent! Basically, all of this program’s $8 billion in payments were improper. The tremendous level in this program’s improper payments (and the program wasn’t on the list of high-error programs before) isn’t the result of a sudden increase in payments going to the wrong parties, or paid in the wrong amounts, or paid twice or more for the same service. Instead, it seems to be the result of changes made in what the VHA is counting as improper payments —  for instance, all the “transactions that did not follow acquisition regulations.” Nevertheless, such a stupendous error rate should make us wonder what’s going on.

The EITC is hardly off the hook, though. The $18.4 billion in improper EITC payments represents a substantial portion — 25.06 percent — of the EITC’s total 2018 spending of $73.6 billion. That’s right. A full quarter of the program’s payments were improper.

This high error rate is not new. In fact, the EITC is well-known for its high error rate. Ironically, the program is administered by the Internal Revenue Service, a government agency that isn’t known for its leniency toward taxpayers making reporting mistakes. Unfortunately, this fact has had no impact whatsoever on the unconditional support and praise the program receives from both the political left and right. In fact, not only has EITC funding expanded, from $65 billion in FY2015 to its current level, but this program is on everyone’s wish list for yet further expansion. Chris Edwards of the Cato Institute and I do not share this wish; indeed, we have written that the EITC should be terminated."

Texas town’s environmental narcissism makes Al Gore happy while sticking its citizens with the bill

By Chuck DeVore the Texas Public Policy Foundation. Excerpt:

"Political leaders in a college town in central Texas won wide praise from former Vice President Al Gore and the larger Green Movement when they decided to go “100 percent renewable” seven years ago. Now, however, they are on the defensive over electricity costs that have their residents paying more than $1,000 per household in higher electricity charges over the last four years.

That’s right - $1,219 per household in higher electricity costs for the 71,000 residents of Georgetown, Texas, all thanks to the decision of its Republican mayor, Dale Ross, to launch a bold plan to shift the city’s municipal utility to 100 percent renewable power in 2012 when he was on the city council.

In short order, Ross was elevated to celebrity status, appearing in scores of articles and videos, both at home and abroad. Al Gore made it a point to feature the Texas Republican mayor at renewable energy conferences as well. Ross was even featured in one of Gore’s documentaries.

But while Ross was being lauded far and wide, the residents of his town were paying a steep price. His decision to bet on renewables resulted in the city budget getting dinged by a total of $29.8 million in the four years from 2015 to 2018. Georgetown’s electric costs were $3.5 million over budget in 2015, ballooning to $6.3 million in 2016, the same year the mayor locked his municipal utility into 20- and 25-year wind and solar energy contracts to make good on his 100 percent renewable pledge.

By 2017, the mayor’s green gamble was undercut by the cheap natural gas prices brought about by the revolution in high-tech fracking. Power that year cost the city’s budget $9.5 million more than expected, rising to $10.5 million last year, according to budget documents reported by The Williamson County Sun.

Whether Mayor Ross and his colleagues on the Georgetown City Council were motivated by good intentions, political machinations, or mere vanity is unknown. What is known is that Georgetown’s municipal utility, an integral part of the city budget, is hemorrhaging red ink thanks to those long term renewable energy contracts.

The deficits were triggered by the drop in natural gas prices—now the mainstay of the U.S. electric grid, having displaced coal—which caused the city to sell its surplus wind and solar power at a steep discount into Texas’ wholesale energy market. City leaders had to lock in a large excess of wind and solar power to be able to lend credibility to their 100 percent renewable claim, since wind and solar power can’t be relied on to keep the lights on 24/7/365. And, even with that surplus, there are times when Georgetown draws traditional fossil fuel power from the Texas grid, making the city’s “100 percent renewable” claim nothing more than spurious sloganeering.

That a city in Texas (which voted for President Trump) claimed to be “100 percent renewable” generated significant “man bites dog” notoriety. But as University of Houston energy expert Charles McConnell noted, “It’s not kind of misleading, it’s very misleading, and it is for political gain.”

Most Texas residents have the ability to choose their electricity provider in a competitive statewide market, leading to electricity prices that are among the lowest in the nation: 18 percent below the national average in 2018, and 48 percent below prices in green energy pacesetter California.

But Texas’ electricity market excludes municipal utilities like Georgetown’s from competition, leaving consumers without choice and allowing political decisions – rather than market forces – to determine the mix of electricity suppliers."

Working Americans sense that taxes and transfers now leave them little better off than those who work less

See How Income Equality Helped Trump by Phil Gramm and Robert B. Ekelund Jr. Excerpts:

"The new analysis was published in April by the Cato Institute’s John F. Early, a former assistant commissioner of the Bureau of Labor Statistics"

"The bottom quintile earned 2.2% of all earned income in 2013, but after adjusting for taxes and transfer payments, its share of spendable income rose to 12.9%—six times its proportion of earnings. The second quintile’s share more than doubled, rising from 7% of earned income to 13.9% of spendable income. For the third quintile, middle-income Americans, the increase was much smaller, from 12.6% to 15.4%."

"Not surprisingly, high earners lost a considerable share of their earnings after taxes and transfers are taken into account. The fourth quintile’s share fell from 20.5% to 18.6%, while the top quintile dropped from 57.7% of earnings to 39.3% of consumable income. In other words, the top quintile’s share of earnings was 26 times that of the bottom quintile, but after taxes and transfer payments its share of spendable income was only three times as much."

"Even more startling is the near equality among the bottom three quintiles. The bottom quintile, which earned only 2.2% of all earned income, had virtually the same share of spendable income as the second quintile, lower-middle-income Americans. This equality is despite the fact that lower-middle-income workers earned more than three times the share of income and worked 21/2 times as much, measured by comparing each group’s number of full-time workers relative to its working-age population. Middle-income workers earned almost six times the share of income and worked almost four times as much compared with the bottom quintile, but they enjoyed only about 20% more spendable income."

Laws over the last 50 years, including the Endangered Species Act and National Environmental Policy Act, have hampered tree-clearing, controlled burns and timber sales on federal land which increas forest fires

See California’s Paradise Lost: Trump is a bully, but he’s right about bad forest management. WSJ editorial. Excerpt:

"About 57% of California forestland is owned by the federal government while most of the rest is private land regulated by the state. Nearly 130 million trees died in California between 2010 and 2017 due to drought and a bark beetle infestation. Dense forests put trees at greater risk for parasitic infection and enable fires to spread faster. When dead trees fall, they add more combustible fuel.

Once upon a time the U.S. Forest Service’s mission was to actively manage the federal government’s resources. Yet numerous laws over the last 50 years, including the Endangered Species Act and National Environmental Policy Act, have hampered tree-clearing, controlled burns and timber sales on federal land.

California also restricts timber harvesting and requires myriad permits and environmental-impact statements to prune overgrown forests. As the state Legislative Analyst’s Office (LAO) dryly noted in April, “project proponents seeking to conduct activities to improve the health of California’s forests indicate that in some cases, state regulatory requirements can be excessively duplicative, lengthy, and costly.”

One problem for landowners is disposing of deadwood. Dozens of biomass facilities that burn tree parts that can’t be used for lumber have closed due to emissions regulations and competition from subsidized renewables and cheap natural gas.

To burn leaves and tree limbs, landowners must obtain air-quality permits from “local air districts, burn permits from local fire agencies, and potentially other permits depending on the location, size, and type of burn,” the LAO explained. “Permits restrict the size of burn piles and vegetation that can be burned, the hours available for burns, and the allowable moisture levels in the material.”"

Let’s Not Kid Ourselves about 70 Percent Tax Rates

By Edward Conard, an American Enterprise Institute visiting scholar. Excerpt:

"During Saez’s exalted period from 1950 to 1980, for example, when high marginal tax rates ruled America, growth of total factor productivity — the portion of growth driven by innovation, which is the chief source of growth today — fell from nearly 3.5 percent per year in the decade prior to the 1950s to less than 0.5 percent per year by the 1970s. America reduced marginal tax rates during the 1980s, and total factor productivity growth doubled to about 0.75 percent per year. That hardly makes his case that lower marginal taxes, higher income inequality, and greater influence by successful investors over the government necessarily endanger democracy and threaten prosperity."

See also Marginal Tax Rate above 30% Likely Suboptimizes Social Welfare by Edward Conard. Excerpt:

"Stanford’s Charles Jones corrects glaring shortcomings in the Diamond/Saez’s optimal tax analysis to show why top marginal tax rates of 30% or less likely maximize social welfare in an innovation-driven economy. Jones concludes:

“Because ideas are nonrival, each person’s wage is an increasing function of the entire stock of ideas. A distortion that reduces the production of new ideas therefore impacts everyone’s income, not just the income of the inventor herself. These conditions lead to a new term in the Saez (2001) formula for the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone’s income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, in a baseline calculation, the revenue-maximizing top tax rate that ignores the innovation spillover is 92%. In contrast, the rate that incorporates innovation and maximizes a utilitarian social welfare function is just 29%. Moreover, if ideas play an even more important role than assumed in this baseline, it is possible for the optimal top income tax rate to turn negative: the increase in everyone’s income associated with subsidizing innovation exceeds the gains associated with redistribution.”"

See also Taxing Top Incomes in a World of Ideas by Charles I. Jones of Stanford & NBER. Here is the abstract:

"This paper considers the taxation of top incomes when the fol lowing conditions apply: (i) new ideas drive economic growth, (ii) the reward f or creating a successful innovation is a top income, and (iii) innovation cannot be perfectly targeted by a separate research subsidy — think about the business method s of Walmart, the creation of Uber, or the “idea” of Amazon.com. These conditions lead to a new term in the Saez (2001) formula for the optimal top tax rate: by slowing the creation of the new ideas that drive aggregate GDP, top income taxation reduces everyone’s income, not just the income at the top. When the creation of ideas is the ultimate source of economic growth, this force sharply constrains both revenue-maximizing and welfare-maximizing top tax rates. For example, for extreme parameter values, maximizing the welfare of the middle class requires a negative top tax rate: the higher income that results from the subsidy to innovation more than makes up for the lost redistribution. More generally, the calibrated model suggests that incorporating ideas and economic growth cuts the optimal to p marginal tax rate substantially relative to the basic Saez calculation."

Evidence Indicates 75% of Business Pass-Through Income Is Owners’ Labor Income by Conrad.

"Contrary to Thomas Piketty’s far-fetched claim that “[human capital] is far less consequential than one might imagine,” a new NBER paper finds “top earners are predominantly working rich,” mainly “undiversified working-age owners of midmarket firms in skill-intensive industries,” who “derive most of their income from human capital, not physical or financial capital,” and that, “Less than 13% of people in the 99.9^th percentile derive most of their income from interest, rents, and other capital income.”

“Match[ing] 83% of top 1% individuals born in 1980-1982 to their parents,” and “classif[ing] an individual as self-made if her parents were not in the top 1%,” the researchers find, “More than three out of four of these top earners did not have top 1% parents.” They authors note, “This is a conservative classification, as many children of the top 1% do not work for their parents’ firms and do not receive especially large financial inheritances.”

To estimate the share of business income attributable to owners’ labor, the researchers measure the effects of owner deaths and retirements on firm profitably. They find a “-72:9% impact of top 1% owner-deaths [on profits] and a noisier -92:3% impact of top 0.1% owner-deaths.” Their “preferred owner-retirement percentage impact of -82:5% … is nearly identical to [their] owner-deaths estimate. 

 From this, they conclude, “Three-quarters of private business profit” is “human capital income.” They caution, “We may in fact understate the working-rich share of top owners because pass-through income is not the only form of “capital” income that includes disguised wages.” 

Superior firm profitability is a persistent and systematic characteristic of high earners. Firms owned by top 0.1% earners enjoy profitability ($14K per worker) that is over twice as large as the profitability ($5K per worker) of firms owned by individuals in the bottom half of the top decile. 

The authors note:

Our classification of three-quarters of pass-through income as labor income reverses the earlier finding in [Piketty, Saez and Zucman] that a minority (45%) of top 1% imputed national income is labor income. Even among million-dollar earners, 71% of fiscal income and 50% of imputed national income is labor income. In the top 0.1%, labor income shares fall to the still large numbers of 69% and 46%, respectively.

Turning to growth in the share of business income, the authors conclude:

Growth in entrepreneurial income is explained by both rising labor productivity and a rising share of value added accruing to owners. In contrast, after accounting for the growth due to organizational form changes, rising firm scale in the form of employment plays no role in the growth of top entrepreneurial income. From 2001 to 2014…63% of the growth in top 1% entrepreneurial income … comes from rising labor productivity, -24% comes from lower employment, and the remaining 61% comes from a growing owner share of value added.

The authors note:

If 0% of pass-through income is labor income…a minority of top-earners are wage earners. For example, among million-dollar earners … 46.8% are wage earners in the fiscal income definition and only 34.6% are wage earners in the imputed national income definition. That conclusion reverses when classifying 75% of pass-through income as labor income. For example, among million-dollar earners, 89.2% are working in the fiscal income definition and 69.8% are working in the imputed national income definition. Even among the top 0.1% in the imputed national income series, 59.3% are working. 

They explain their reasoning for using two estimates:

Fiscal income has the advantage of being directly observed on personal income tax returns, but has the disadvantage of understating top capital income because some components do not appear on personal tax returns. Imputed national income has the advantage that it sums to national income, but has the disadvantage of relying on imputation assumptions. Retained earnings ($649bn in 2014) are a substantial part of national income but do not appear on personal tax returns and thus are not in fiscal income. PSZ allocate the household share of aggregate retained earnings to individuals in proportion to the sum of the individual’s observed dividends and realized capital gains. However, published IRS reports indicate that at least 25% and as much as 75% of realized capital gains are not from the sale of C-corporate stock and are instead gains from real estate and other asset sales or carried interest. This fact can explain how total realized capital gains ($732B in 2014) vastly exceeds the total household share of retained earnings ($306B in 2014). Realized capital gains are much larger than dividends and much more concentrated among top earners. Hence, imputing retained earnings in proportion to each individual’s sum of dividends and 100% of realized capital gains may allocate too much retained earnings to top earners and not enough to lower earners. These competing considerations motivate the presentation of our findings in both series, likely (in our view) bounding the truth."

Wealth Tax: Sen. Warren's Latest Bad Idea Will Slow Growth And Kill Jobs

Investor's Business Daily editorial.

"Taxes: Hand it to the all-new, far-left Democratic Party: They're not short on bad ideas. On the heels of Rep. Alexandria Ocasio-Cortez's plan to tax "the rich" at 70% or higher, comes Sen. Elizabeth Warren's idea to also impose a wealth tax on those at the top.

In the case of Warren, she says "economists" estimate her proposed 2% tax on those with more than $50 million in wealth, 3% for billionaires, will produce a gusher of revenue over 10 years, $2.75 trillion to be exact. It won't happen.

Warren calls her plan to seize the wealth of the top 0.1% the "Ultra-Millionaire Tax." The economic illiteracy of this baby-step toward socialism is stunning.

Believe it or not, wealthy people get that way because they work hard, take risks and are clever with money. They won't willingly hand their hard-won generational wealth over to the ditzy leftist spendthrifts in Washington, D.C. By the time the IRS gets around to confiscating it (part of the Warren plan), the wealthy will have put their money into untaxable or sheltered domestic investments, or removed it from the U.S. entirely.

The plan is deceitful. As always, Democrats will target the wealthy for higher taxes, but make sure that generous loopholes will let their rich friends — that is, Democratic contributors — escape. Meanwhile, it's sold to middle-class voters as "fairness" or "reducing inequality" or "fighting for the little guy."

Wealth Tax: It's About Envy

In fact, it's really something as old as civilization itself, and one of the Seven Deadly Sins: Envy.

The tragedy of all this, of course, is that the envious among us who shout "right on, take their money" will be hurt most by it. As we've noted many times before, anything you tax, you get less of. Put a tax on someone's wealth, and you'll get less savings, investment and wealth. Those with wealth and know-how if threatened will, in essence, go on strike.

Sadly, those who now say "right on, take their money" will soon be saying, if it's passed, "dude, what happened to my job?" As the American Enterprise Institute noted, a 2014  Tax Foundation study  of a similar plan from economist Thomas Piketty found GDP growth would shrink by half a percentage point each year. Meanwhile, in "The Wealth Tax and Economic Growth," looking at 20 OECD countries with wealth taxes, Swedish economist Asa Hansson found a one percentage point increase in wealth taxes  reduced economic growth by 0.02 to 0.04 point.

In short, slower growth equals fewer jobs and lower incomes. Americans shouldn't be fooled by this class-warrior rhetoric. These aren't really "wealth" taxes; they're envy taxes. And envy taxes are a terrible idea, one that won't make wealth more equal, but will make all of us more miserable."

Sen. Warren’s Wealth Tax Is Problematic

By Nicole Kaeding & Kyle Pomerleau of The Tax Foundation.

"Today, Senator Elizabeth Warren (D-MA), Democratic presidential hopeful for 2020, announced plans for a wealth tax on high-net-worth individuals, a type of tax that is flawed economically and administratively. (There are also constitutional questions about assessing a wealth tax.)

According to The Washington Post, Senator Warren’s proposal would assess a 2 percent annual wealth tax on individuals with more than $50 million in net worth, increasing to 3 percent on those with more than $1 billion in wealth.

Wealth taxes are not a new idea—they date back hundreds of years—but have been used less and less frequently. In 1990, 12 member countries of the Organisation for Economic Co-Operation and Development imposed a wealth tax; today, only four do. Countries have dropped the taxes due to the challenges they pose.

First, these taxes are difficult to administer. The uber wealthy tend to have very hard-to-value assets. They own more than publicly-traded stock, such as real estate holdings, trusts, and business ownership interests. It is difficult to value these assets on an ongoing basis. Imagine a large privately-held company—its value could change almost daily. How would the tax handle these fluctuations?

This is a challenge currently facing the Internal Revenue Service (IRS) when administering the estate tax, but one faced only once by an individual. Here, the problems would multiply as the tax would be assessed annually on a much larger share of individuals.

Second, these are poorly targeted taxes on capital. Usually when designing a tax on capital or capital income (these are ultimately the same) you want to target what are called super-normal returns—returns over and above the amount needed to compensate someone for saving and delaying their consumption. At the same time you want to exempt, or lightly tax, normal returns to investment.

Normal returns are effectively the returns to waiting; that is, the rate of return an individual requires to make it worthwhile to save their money and delay consumption. The taxation of normal returns can ultimately impact an individual’s investment decisions. This is why economists generally favor exempting these returns from taxation.

In contrast, super-normal returns can include highly successful business ventures, economic rents, returns to patents, and luck. This is the type of capital income a system should target for taxation, because it is believed to be less sensitive to tax. Taxation of super-normal returns doesn’t necessarily distort investment decisions.

Imagine a saver who expects a normal return and makes an investment. Her decision was based on the after-tax return. But suddenly, the investor receives a super-normal return, which, in her case, would be unexpected. Getting taxed on those surprise super-normal returns doesn’t have much of an impact on her decision to save.

Exempting normal returns, while taxing super-normal returns, is the principle underlying why expensing of capital investment for businesses is such a good idea. It preserves the tax on capital but targets it at a less sensitive tax base.

Unfortunately, a wealth tax does a poor job targeting this type of income. In fact, it gets it exactly backwards: a wealth tax lightly taxes super-normal returns while heavily taxing normal returns.

You can think of a 1 percent wealth tax as a 1 percent subtraction from annual returns. If we earn a return of 5 percent, but there is an annual wealth tax of 1 percent, our return is really 4 percent. This low-return asset is hit hard—a 20 percent(!) tax on its returns. In contrast, an asset earning 20 percent gets reduced to a return of 19 percent. That’s only a 5 percent tax on those returns.

And these issues matter for more than just the wealthy individuals directly impacted by the tax. The capital owned by these high-net-worth individuals is used to employ others, to make products consumed by other individuals, or to generate returns for pensions and retirement accounts owned by others. While the legal incidence of the tax would be on the wealthy individuals, the economic impacts (incidence) would be much more dispersed.

This is another example of why policymakers, when discussing issues such as income inequality, should consider the limitations and negative consequences created by using the tax code as a fix."

Colorado restaurants make changes to cope with minimum wage increase

By Jacob Laxen of the Fort Collins Coloradoan. Excerpts:

"At the two Fort Collins Krazy Karl’s Pizza locations that employ about a combined 140 people, the minimum wage increase has costed the pizzeria more than $100,000. Krazy Karl’s pays minimum wage to dishwashers and the tipped minimum wage to its servers, bartenders and delivery drivers.

“We’ve really had to prepare ahead for the changes,” said Krazy Karl’s owner Nate Haas, whose staff has dwindled from about 200 in just over a year's span. “We want everyone’s living wage to be where it needs to be, but we have to be meticulous about keeping labor at about 27 percent of our sales.”"

"“You either have to raise prices on your food or try to do more with less staff,” said Ryan Houdek, who co-owns Fort Collins’ Union, Social and Melting Pot. “You have to become more efficient or see a hit with your bottom line.”

Houdek’s establishments have looked to more efficiently staff its locations.

Similarly, Krazy Karl’s is operating with a leaner staff and has nixed nearly all overtime as a cost saving measure — Colorado law requires employers to pay time-and-a-half for overtime hours.

William Oliver’s halted table-side service at its Lafayette rooftop as a way to staff two fewer employees every night.

Stuft a burger bar — which has Fort Collins, Windsor and Greeley locations — is looking to technology to help bridge the gap.

Stuft co-owner Tiffany Helton said she’s currently testing out tablet ordering systems that would be operated at each table to send a ticket directly to the kitchen. The system would theoretically save enough time that the restaurants could each staff one less server every night.

“I think what you will see is integration of technology into the service model wherever possible,” Helton said.

The California Restaurant Association has said similar minimum wage increases have caused Golden State establishments to add service charges to dinner bills. Data also shows that in regions with the highest minimum wages in California, there’s been a drop in teen and youth employment at restaurants because they cannot offer first-time employment opportunities to relatively untrained youths at such a high cost. 

Some Colorado restaurateurs feel similar trends could come to the Centennial State as a way to combat increasing payroll budgets.

“This is really hard on restaurants,” Colorado Restaurant Association spokesperson Carolyn Livingston said. “They can only raise prices so high before folks will stop coming in.”"

Crime Did Fall, So We Don’t Need a Wall

By Scott Shackford of Reason.

"We blog about crime stats enough here at Reason that this is an easy one: Crime has been going down steadily (with a few recent bumps) since the 1990s. Here's a nice handy selection of charts from Pew Research Center showing the actual truth:

Pew Research

If crime has been going down steadily throughout much of America without this wall, isn't that evidence we actually don't need it? Or evidence that whatever influences crime rates, it's most certainly not illegal immigration numbers? The illegal immigration population in America actually increased as the crime rate was dropping (now both crime rates and illegal immigration numbers are dropping slightly):

Pew Research

Trump is both a reflection of and a contributing factor to a common attitude among Americans: People think there's much more crime than there actually is. In polling, huge numbers of Americans—we're talking more than 50 percent of those who were polled—believe that crime is up over previous years' numbers even when the exact opposite is true:

Pew Research

So, in that sense, Trump's tweets are wildly out of step with the facts, yet also likely compelling to a certain number of Americans, and that's frustrating. He's far from the first politician who uses fear as a way of selling bad policy prescriptions, and he won't be the last. But he's also completely and utterly wrong about crime and what's causing it."

Minimum Wage Hikes in New York City Cause Restaurants to Eliminate Jobs, Cut Hours, Raise Prices

By Billy Binion of Reason.

"New York is known for its incredible food scene, but legislators in the Big Apple may have bitten off more than they can chew with the newest minimum wage hike.

The city's mandated increase, which took effect on December 31, requires businesses that employ 11 or more people to boost wages from $13 to $15 per hour. But most restaurants operate with the tipped wage, offering servers and bartenders a lower hourly base pay and the opportunity to rake in the rest in tips, which often yields better pay overall. If workers don't earn enough this way, employers are required to make up the difference.

That tipped minimum just rose from $8.65 to $10 an hour. A 16 percent jump is fairly punishing, considering the industry operates on razor-thin profit margins.

A new study conducted by the New York City Hospitality Alliance lends credence to the idea that substantial increases made to the tipped wage are far costlier than they are beneficial. After surveying 574 restaurants, they found that 2019 looks bleak: 75 percent of full-service establishments plan to cut employee hours, and 47 percent will eliminate jobs entirely in response to the forced minimum wage hikes. That follows closely on the heels of a dreary 2018, when 77 percent of full-service restaurants reduced employee hours and 36 percent cut jobs, both of which were also in response to the mandated wage increases.

Susannah Koteen, who runs Lido Restaurant in Harlem, has already had to make do with less by getting rid of her busboys, the lowest employees on the restaurant totem pole. Customer-facing but non-tipped, these workers now reap the full benefits of a $15 minimum wage, but only if they're lucky enough to stay employed.

"A server can bus their own table, but you can't ask a busboy to open a bottle of wine and talk about what it can be paired with," Koteen told CBS News.

Such policies not only disadvantage the most vulnerable in the short-term, but they also close a pathway to the middle class in the long-term. "Our current general manager started as a busser the day we opened. English is not his first language, he has his GED. He is smart, hardworking and cares about customer service," said Koteen. Those success stories—of the "American Dream" ilk—grow fewer and farther between as higher labor costs block avenues to success.

Consumers can expect to pay the price as well—quite literally. According to the NYC Hospitality Alliance Survey study, 87 percent of restaurants will increase prices in 2019, and 90 percent said they already did so last year. Both Per Se and Eleven Madison Park can count themselves among that cohort, as their menu prices rose in January 2018 and again at the start of the new year, directly after the annual wage increases set in. The Grill, another Manhattan establishment, started charging $38 for a mushroom omelet in 2018—a 52 percent jump from the $24 price tag in 2017. (That better be a really, really good omelet.)

All three are decidedly on the ritzier side, so it's feasible that their clientele have deep enough pockets to keep up with the stratospheric food and drink prices. But for lower-end restaurants, price increases can be prohibitive for their patrons.

That is, if they're fortunate enough to stay above water. Two researchers at Harvard Business School found that a median rated restaurant—one with about 3.5 stars on Yelp—has an additional 14 percent chance of closing for every dollar added to the tipped wage. The kneejerk reaction is that such restaurants must be mediocre at best and therefore deserve to close. But many of those establishments operate in underserved communities where money is tight and restaurant-goers have few affordable options. Business owners should be able to enter the marketplace without a boatload of cash, and customers shouldn't be stripped of their access to inexpensive dining.

To add insult to injury, Mayor Bill de Blasio recently unveiled a new policy which would require all businesses with five or more employees to guarantee two weeks of paid time off. That includes restaurants.

"This is an extraordinary step forward, especially because 35 percent of restaurant workers are parents who have already had to skip too many of their children's plays, recitals and games because of lack of paid time off," said Sekou Siby, executive director of Restaurant Opportunities Centers United, an organization that wants to abolish the tipped wage in favor of a higher minimum.

Siby isn't completely wrong. If these laws continue to rack up expenses for restaurant owners at top speed, then it's true that many workers may find themselves with more time on their hands. But it won't be because of paid time off. It will be because they're unemployed."

Matt Welch On Trump's Misleading Claims On Terrorists Caught At The Border

See Trump Will Probably Lie About Immigration Tonight: The president and his administration have a long track record of basing policy on dystopian falsehoods about terrorists and criminals streaming north. Excerpt:

"On Friday, White House Spokeswoman Sarah Huckabee Sanders asserted on Fox News that "nearly 4,000 known or suspected terrorists that CPB picked up [in fiscal year 2017] came across our southern border." That assertion is both false and familiar.

During the pre-election migrant-caravan panic, Vice President Pence told a Washington Post forum that "in the last fiscal year we apprehended more than 10 terrorists or suspected terrorists per day at our southern border from countries that are referred to in the lexicon as 'other than Mexico'―that means from the Middle East region." That 10-a-day stat is a staple of administration propaganda about the southern border. And it's "eye-poppingly bogus," in the words of The Washington Post's Aaron Blake.

In fact, according to an NBC News report yesterday, "U.S. Customs and Border Protection encountered only six immigrants at ports of entry on the U.S-Mexico border in the first half of fiscal year 2018 whose names were on a federal government list of known or suspected terrorists, according to CBP data provided to Congress in May 2018." More:

Overall, 41 people on the Terrorist Screening Database were encountered at the southern border from Oct. 1, 2017, to March 31, 2018, but 35 of them were U.S. citizens or lawful permanent residents. Six were classified as non-U.S. persons.
On the northern border, CBP stopped 91 people listed in the database, including 41 who were not American citizens or residents.
Border patrol agents, separate from CBP officers, stopped five immigrants from the database between legal ports of entry over the same time period, but it was unclear from the data which ones were stopped at the northern border versus the southern border.

Further, the State Department concluded in July 2017 that there was "no credible information that any member of a terrorist group has traveled through Mexico to gain access to the United States." So where does that 10-a-day stat come from?

It seems to be the conflation of two separate numbers—the 3,755 people from the government's Known and Suspected Terrorist (KST) list who were stopped at all points of entry (mostly at airports) in fiscal 2017, and the 3,028 "special interest aliens" (SIAs) who were flagged at the southern border. So who are those eight (not 10) SIAs we're catching every day down south?

The Department of Homeland Security's own press release from yesterday trying to put the best possible gloss on recent numerical/classification controversies acknowledges that "the term SIA does not indicate any specific derogatory information about the individual," and that "[not] all SIAs are 'terrorists.'" What are they, then?

Generally, an SIA is a non-U.S. person who, based on an analysis of travel patterns, potentially poses a national security risk to the United States or its interests. Often such individuals or groups are employing travel patterns known or evaluated to possibly have a nexus to terrorism. DHS analysis includes an examination of travel patterns, points of origin, and/or travel segments that are tied to current assessments of national and international threat environments.

As The Washington Post's Salvador Rizzo reported in a useful explainer yesterday:

Alan Bersin, an assistant homeland security secretary in the Obama administration, described them in 2016 as "unauthorized migrants who arrive in the United States from, or are citizens of, several Asian, Middle Eastern, and African countries." For example, a GAO report from 2010 lists "Afghanistan, Iran, Iraq, and Pakistan" as special interest countries.
"While many citizens of these countries migrate for economic reasons or because they are fleeing persecution in their home countries, this group may include migrants who are affiliated with foreign terrorist organizations, intelligence agencies, and organized criminal syndicates," Bersin testified in March 2016. (Emphasis ours.)
Bersin also testified that "the majority of individuals that are traveling, be they from special interest alien countries or other places, we found the large majority of these individuals are actually fleeing violence from other parts of the world[."]

So we've gone from 10 "known or suspected terrorists" caught on the southern border each day to eight people who show up on a not-necessarily-terrorist watchlist, a "large majority" of whom are "actually fleeing violence." No wonder Nielsen is backpedaling behind a cloud of authoritative-sounding vagueness:

The threat is real. The number of terror-watchlisted individuals encountered at our Southern Border has increased over the last two years. The exact number is sensitive and details about these cases are extremely sensitive. But I am sure all Americans would agree that even one terrorist reaching our borders is one too many.

Those italics, contained in the source material, are a useful reminder of what Trump and his administration have really been up to: trying to spin ghastly and all-too-real criminal anecdotes into stubbornly elusive data, in order to sell impossible-to-attain zero tolerance policies that remain popular (solely) among his core base of supporters despite sacrificing the rights of U.S. citizens. Trumpian conservatism, which is the type that currently holds sway in the national GOP, apparently requires vast presidential power grabs and the obliteration of private property rights in rural Texas in order to achieve its politically unpopular goals.

Exaggerating and lying is what the unscrupulous do when they lack confidence in the persuasive power of existing facts. There's no reason not to expect more of it tonight."

Peter Suderman On Why The Government Shutdown Is No Great Libertarian Experiment

See Sorry, Paul Krugman, the Government Shutdown Is No Great Libertarian Experiment: Trump’s shutdown is a temporary, political fight that won’t save any money or reduce the size of government.

"In The New York Times, columnist Paul Krugman declares that the current government shutdown can be understood as "a big beautiful libertarian experiment." Government programs have been forced to pause, federal workers aren't being paid, the swamp of Washington is relatively quiet. Isn't this exactly what libertarians want?

Even Krugman understands that it isn't. As he acknowledges in the column, the sudden nature of a shutdown like this means private sector companies that might take over some of the federal government's current activities "don't exist now and can't be conjured up in a matter of weeks. So even true libertarians wouldn't necessarily celebrate a sudden government shutdown." To be clear: A temporary, unplanned shutdown of an undetermined length that probably won't save money is not what most libertarians have in mind when they talk about limited government.

For one thing, shutdowns like this one are shortlived and limited in scope: During the shutdown, much of the government—including automatic spending on the major entitlement programs that make up the bulk of government spending and the biggest drivers of long-term debt—remains open. And although it is at least theoretically possible that the impasse lasts for months, it increasingly looks as if President Donald Trump will declare a state of emergency, continue fighting for a border wall in the courts, and move on to ending the shutdown. So whether it lasts another two days or another two months, the rest of the government will eventually reopen. When it does, no significant long-term progress toward reducing the size of government will have been made.

Federal workers affected by the shutdown are almost certain to eventually receive backpay. That's what happened during previous shutdowns, and given that the Senate has already approved a backpay resolution for after the current shutdown ends, that's what is likely to happen this time as well.
At the same time, the federal government will, by law, owe interest on contract payments and other fiscal obligations it didn't meet during the shutdown. Which means that ultimately, the shutdown won't save taxpayers money. If anything, it might actually cost more than if the government had stayed open.

There's also public opinion to consider: Government shutdowns tend to be unpopular, and, if anything, drive support for expanding government.

Consider what happened in October 2013, when Sen. Ted Cruz (R–Texas) led a push to shut down the government over Obamacare.


The shutdown started the same day that the health law's insurance exchanges opened for business. The federal exchange system, however, crashed on launch and was barely operable for months. But initially, the shutdown drew more attention, and Obamacare, despite its obvious technical problems, actually grew more popular.

It's not too hard to imagine that keeping the government open would have led to even more intense scrutiny and criticism of the exchange failures, and stronger out-of-the-gate public disapproval. Instead, the shutdown served as a distraction. Forcing a shutdown was meant to serve as an impediment to Obamacare, but it probably made no difference, and might have been an own goal.
Which illustrates the biggest problem with shutdowns: As a tool for promoting limited government, they are nearly always tactically ineffective.

That's why I largely agree with Jeff Miron, the director of economic studies at the libertarian Cato Institute, when he writes at Vox that "shutdowns distract from the serious conversations that need to be had about fiscal reform and the size of government."

That's particularly true of this shutdown, which is happening mostly because President Trump is demanding roughly $5 billion for a border wall (sorry, "steel barrier"). The border wall is a pointless boondoggle, premised on lies, that Trump wants mainly to fulfill an insipid campaign promise. The showdown over the wall is a partisan food fight, not a way of drawing attention to the problems with a government that is too expensive and too powerful.

Yes, some libertarians might appreciate shutdowns as form of political theater, but if your goal is to actually reduce the size of government, mere theatrics won't get you very far. As Miron writes, "libertarians will only succeed in reducing the size of government when they convince non-libertarians that smaller government is better. A government shutdown does little to nothing to change minds." If anything, the opposite is true. A shutdown comes across as chaotic, and creates the opportunity for someone like Krugman to declare that this haphazard, partial government closure is a demonstration of an ideal libertarian government.

The government should be smaller on a permanent basis, ideally with public buy-in and plenty of time for everyone to prepare. A shutdown that hijacks the federal government's broken budget process so the president can make a futile attempt to fulfill a foolish and wasteful campaign promise is little more than a cheap political stunt, not a substantive libertarian victory."

High Tax Rates Won’t Work in Today’s Economy

By Chris Edwards of Cato.

"Rep. Alexandria Ocasio-Cortez is making headlines calling for raising the top individual income tax rate to 70 percent to fund a Green New Deal. Sympathetic commentators are saying that such a high rate on the wealthy is no big deal because the top tax rate used to be 70 percent and above. Noah Smith at Bloomberg says the congresswomen’s plan would be “a return to the 20th century norm.”

The problem is that globalization has dramatically changed the economy over recent decades. High tax rates were not a good idea back then, but they would be disastrous now.

Before the 1980s, capital controls under fixed currency exchange rate regimes kept money bottled up within countries, keeping taxpayers in national economic prisons. That regime broke down, and today trillions of dollars flows over borders under flexible exchange rate systems, while industries and entrepreneurs have become highly mobile. Tax bases are far too movable these days for governments to sustain yesteryear’s excessive tax rates, as I discuss in Global Tax Revolution.

Every industrial country has figured that out, and their policy decisions refute the soak-the-rich tax dreaming of Rep. Ocasio-Cortez. Top income rates have plunged around the world since 1980 under governments of both the political left and right.

The chart shows the average top federal-state income tax rate for 26 core OECD countries that have good data back to 1980. The average top rate among these high-income nations fell from 68 percent in 1980 to 47 percent today. The average rate for all 35 OECD countries today is 43 percent. The top U.S. federal-state tax rate at 46 percent in 2017 was above the OECD average. The recent GOP tax cut dropped the top federal rate a few points, but raised the effective state rate by capping deductibility. On individual income taxes, America is not a low rate country.

 

The 26 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States. Data for 2000-2017 from the OECD. Data for 1980-1995 from Global Tax Revolution."

Why Ocasio-Cortez's 70% Marginal Tax Rate Wouldn't Generate the Revenue She Thinks

By Daniel J. Mitchell. Excerpt:

"First, this approach isn’t practical, even from a left-wing perspective. Simply stated, upper-income taxpayers have considerable control over the timing, level, and composition of their income, and they can take very simple (and completely legal) steps to protect their money as tax rates increase.

This is one of the reasons why higher tax rates don’t translate into higher tax revenue.

If you don’t believe me, check out the IRS data on what happened in the 1980s when Reagan dropped the top tax rate from 70 percent to 28 percent. Revenues from those making more than $200,000 quintupled.

Ms. Ocasio-Cortez wants to run that experiment in reverse. That won’t end well (assuming, of course, that her goal is collecting more revenue, which may not be the case)."

New World Bank Study Shows the Economic Damage High Income Tax Rates Cause

The new analysis notes that higher tax rates are the wrong way to address fiscal shortfalls

By Daniel J. Mitchell. Excerpt:

"I was very interested to see a new study on this topic from the World Bank. It starts by noting that higher tax rates are the wrong way to address fiscal shortfalls:

…studies have used the narrative approach for individual or multi-country analyses (in all cases, focusing solely on industrial economies, and mostly on industrial European countries). These studies find large negative tax multipliers, ranging between 2 and 5. This recent consensus pointing to large negative tax multipliers, especially in industrial European countries, naturally entails important policy prescriptions. For example, as part of a more comprehensive series of papers focusing on spending and tax multipliers, Alesina, Favero, and Giavazzi (2015) point that policies based upon spending cuts are much less costly in terms of short run output losses than tax based adjustments.

The four authors used data on value-added taxes to investigate whether higher tax rates did more damage or less damage in developing nations:

A natural question is whether large negative tax multipliers are a robust empirical regularity… In order to answer this highly relevant academic and policy question, one would ideally need to conduct a study using a more global sample including industrial and, particularly, developing countries. …This paper takes on this challenge by focusing on 51 countries (21 industrial and 30 developing) for the period 1970-2014. …we focus our efforts on building a new series for quarterly standard value-added tax rates (henceforth VAT rates). …We identify a total of 96 VAT rate changes in 35 countries (18 industrial and 17 developing).

The economists found that VAT increases did the most damage in developing nations:

…when splitting the sample into industrial European economies and the rest of countries, we find tax multipliers of 3:6 and 1:2, respectively. While the tax multiplier in industrial European economies is quite negative and statistically significant (in line with recent studies), it is about 3 times smaller (in absolute value) and borderline statistically significant for the rest of countries.

Here’s a chart showing the comparison:

Now here’s the part that merits close attention. The study confirms that the deadweight loss of VAT hikes is higher in developed nations because the initial tax burden is higher:

Based on different types of macroeconomic models (which in turn rely on different mechanisms), the output effect of tax changes is expected to be small at low initial levels of taxation but exponentially larger when initial tax levels are high. Therefore, the distortions and disincentives imposed by taxation on economic activity are directly, and non-linearly, related to the level of tax rates. By the same token, for a given level of initial tax rates, larger tax rate changes have larger tax multipliers. …In line with theoretical distortionary and disincentive-based arguments, we find, using our novel worldwide narrative, that the effect of tax changes on output is indeed highly non-linear. Our empirical findings show that the tax multiplier is essentially zero under relatively low/moderate initial tax rate levels and more negative as the initial tax rate and the size of the change in the tax rate increase. …This evidence strongly supports distortionary and disincentive-based arguments regarding a nonlinear effect of tax rate changes on economic activity…the economy will inevitably suffer when taxes are increased at higher initial tax rate levels."

Despite the stereotype of heavy European income taxes on the rich, Paris relies disproportionately on social-insurance, payroll and property taxes

See WSJ editorial All the Taxes in France Even before the fuel tax, France had the highest burden in the West. Excerpts:

"The Organization for Economic Cooperation and Development (OECD) released its annual Revenue Statistics report this week, and France topped the charts, with a tax take equal to 46.2% of GDP in 2017. That’s more than Denmark (46%), Sweden (44%) and Germany (37.5%), and far more than the OECD average (34.2%) or the U.S. (27.1%, which includes all levels of government).

France doesn’t collect that revenue in the ways you might think. Despite the stereotype of heavy European income taxes on the rich, Paris relies disproportionately on social-insurance, payroll and property taxes. Social taxes account for 37% of French revenue; the OECD average is 26%. Payroll and property taxes contribute 3% and 9%, compared to the OECD averages of 1% and 6%.

This is another reminder that rapacious states can’t support themselves solely with progressive income taxes. The rich aren’t rich enough to fund the modern welfare state’s ambitions, and their labor and wealth are too mobile to pin down in high-tax jurisdictions. The real money is in the middle class, whose labor income is far easier to tax, especially if the tax is disguised as a social “contribution.”

Then Europe adds a regressive consumption tax, the value-added tax. In France, VAT and other consumption taxes make up 24% of revenue, and that’s on the low side compared to an OECD average of 33%. Consumption taxes often fall hardest on the poor and middle class, who devote a greater proportion of their income to consumption."

"Increases in charges on gasoline and diesel clobber the same rural and exurban French who already pay in so many other ways."

"Mr. Macron may now cave by re-imposing a wealth tax he killed last year. The tax helps drive productive French out of the country, though it raised only some €5 billion a year, compared to the €372 billion Paris raised via social taxes in 2016."

Tyler Cowen On 70% Tax Rates

See The Democrats’ Latest Idea on Taxes Will Only Help Trump: A top marginal income tax rate of 70 percent is bad economics and even worse politics. Excerpts:

"Let’s consider the economics of such a tax reform. Most of the income of America’s super-wealthy comes not from labor but from capital. It can be earned through capital gains, exercising stock options, and from corporations with possible foreign domiciles. Raising the marginal income tax rate to 70 percent will not, for better or worse, squeeze them very much.

Who then is most likely to pay more? Well, it depends on exactly which income level the higher rate would set in. But say you had a 70 percent rate at $500,000 and above. The biggest losers would be high-earning professionals in major cities and suburbs. Think doctors, lawyers, business consultants and the like, mostly on the coasts. A lot of those people live in blue states and are highly educated. More and more of them are educated women. All of these groups tend to be strongly anti-Trump, often passionately so.

And they are not just voters, they are donors, fundraisers, organizers and prominent voices in their communities. Some of them are even columnists for newspapers and web sites, or TV pundits. In essence, the Democrats would be giving some of their most influential supporters a huge pay cut. The party also would be telling them they can’t ever hope to build up much of a financial cushion for the future.

You might think this is all fair compared to what the government does to address the travails of a single mother trying to get by on $27,000 a year. But I don’t think that message will be especially well-received.

Keep in mind the 70 percent marginal tax rate is on the federal level. If you live in, say, California, the maximum state income tax rate is over 12 percent, which could increase your total marginal rate to more than 82 percent. (Just imagine if the 12 percent were added to an 80 percent marginal income tax rate.) If you then consider that some cities have income taxes, and the effect of sales taxes, then the true marginal rates go higher yet."

"By the way, you might be tempted to boost taxes on capital income too, or maybe instead of hitting the high-income professionals. But keep in mind that a lot of capital is internationally mobile, and the social democracies of Western Europe typically have low tax rates on capital income. (They tend to fund their additional expenditures through value-added taxes.) “Soak the rich,” however easy it may sound, doesn’t automatically make the government more just or responsible. Finally, Democrats should remember this: Their last president proposed cutting the corporate tax rate to 28 percent."

No, Economists Don't Agree a 70 Percent Top Marginal Tax Rate Is a Good Idea

By Ryan Bourne of Cato.

"Economic commentators Matt Yglesias, Paul Krugman, and Noah Smith believe Rep. Alexandria Ocasio-Cortez's (D–N.Y.) call for a 60 to 70 percent top marginal income tax rate is uncontroversial. According to all three, the New York Democrat's proposal simply reflects the consensus of mainstream economics.

Their argument rests on two historical factoids. The first is that the rich paid higher taxes in the 1950s, and the economy grew just fine. The second "fact" is that an array of economists, from Nobel Prize winner Peter Diamond, to Thomas Piketty and Emmanuel Saez, have produced peer-reviewed research showing combined marginal rates as high as 70 to 80 percent are "optimal."

But dig into these three papers, and you'll find the results reflect philosophy as much as economics. These economists think they can plan the distribution of income to maximize "social welfare." But they arrive at the decision to impose extremely high top marginal tax rates because they uniformly decide to put almost zero weight on the welfare of the rich.

That means the sole aim of this cluster of economists is to maximize revenue collected from high earners in order to transfer to others. Presuming we could design a tax system from scratch that eliminates the possibility of people avoiding taxes or hiding or reclassifying income, they estimate the single combined marginal tax rate that would generate maximum revenue to "soak the rich." Incorporating other wishful thinking about how the rich respond to taxes, these economists wind up calculating that the "optimal" top tax rate is about 70 percent, if you are also willing to imagine closing off special treatment for capital gains and the possibility of incorporation.
The astute reader can probably see some problems with extrapolating from this theoretical calculation.

First, what if one thinks the welfare of the rich is actually an important policy consideration? According to a paper by Jonathan Gruber and Emmanuel Saez, if we instead pursued a "compassionate conservative" agenda—caring about the very poor a bit more than others in society, but everyone else equally, the optimal top rate might be as low as 30 percent. If we were philosophically opposed to redistribution altogether, the optimal rate tumbles to 3 percent. What counts as optimal varies tremendously based on the philosophical assumptions the economist starts with.

Second, what if we were not able to redesign the tax code to eliminate avoidance? A 73 percent rate, the optimal rate calculated by Diamond and Saez in 2011, is a combined rate (not just a marginal federal income tax rate, as Ocasio-Cortez seems to be proposing) that assumes we eliminate all deductions and exemptions. If we presume instead that the current deductions and exemptions continue, and high earners were as responsive to tax rates today as they were in the '80s, then the supposed optimal combined tax rate falls to 54 percent. After state, local, sales, and other taxes are taken into account, this translates to a top federal income tax rate of 48 percent—much higher than today's rate of 37 percent, but nowhere near the 60 to 70 percent rate advocated by Ocasio-Cortez. (Also notable: Phil Magness and Nick Gillespie have shown, very few people actually paid the highest rates in the 1950s, precisely because deductions and exemptions existed that these economists assume we'd be able to abolish.)

Third, these 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.

This all might seem technical and theoretical, but it matters. Most of the venerated papers that seem to support super high tax rates for top earners assume we share progressive preferences, that we can implement a new wholly combined tax system (or hike other taxes) to eliminate the possibility of any form of tax planning, and that these huge tax hikes won't have longer term effects on growth or human capital accumulation.

Given all this, Krugman, Yglesias, and Smith could easily have said, "There's a progressive case, grounded in economics, for major tax reform, eliminating all deductions, and having one single progressive tax with very high rates, especially on top earners." But they could instead have said, "There's a progressive case, grounded in economics, for modestly higher top tax rates within the current code." But they cannot claim simultaneously that Ocasio-Cortez's big idea merely echoes the 1950s and that her recommendation is backed up by these economists."

Canada's Laffer Curve Lesson: Government Collects Less Revenue from High-Income Earners after Trudeau Tax Hike

Trudeau’s tax hike was a big mistake. The only tangible results are that the private sector is now smaller and the country is less competitive.

Daniel J. Mitchell. Excerpts:

"The nation’s current top politician, Justin Trudeau (a.k.a., Prime Minister Zoolander), increased the top tax rate from 29 percent to 33 percent after taking office in late 2015."

"Here are some excerpts from a story in the Globe and Mail:

The Liberal government’s tax on Canada’s top 1 per cent failed to produce the promised billions in new revenue in its first year, as high-income earners actually paid $4.6-billion less in federal taxes. …The latest available tax records show that revenue from Canadians earning about $140,000 or more – which had previously been the fourth and highest tax bracket – dropped by $4.6-billion in 2016, the first full year that the Liberal tax changes were in effect. Further, 30,340 fewer Canadians reported incomes in that range for 2016 compared with the year before. …The new top bracket with a 33-per-cent tax rate was predicted to raise about $3-billion a year in new revenue… Critics of the Liberal plan say the CRA’s 2016 numbers justify their concern that a new top tax bracket hurts Canadian efforts to boost competitiveness and attract top talent.

It’s quite possible, as noted in the article, that some of the foregone revenue might be the result of one-time changes, such as upper-income taxpayers shifting income from 2016 to 2015 (rich people do have considerable control over the timing, level, and composition of their income).
A report from Global News reviews an analysis about the degree to which revenues dropped for transitory reasons:

The Liberal government’s 2016 tax hike on Canada’s top one per cent not only failed to yield the promised billions, but resulted in a net revenue loss for government coffers… After adjusting for economic changes and one-time factors, the paper estimates, based on 2016 tax data, that the Liberals’ new tax bracket for top earners creates $1.2 billion in new revenue for the federal government but a $1.3 billion loss for provincial governments. …Finance Minister Bill Morneau’s office, however, has maintained that the revenue drop for 2016 was a one-off event. …But an analysis of the data that adjusts for the impact of the dividends maneuver and economic factors still shows that the tax hike would have fallen far short of the hype… Studies have shown that top earners are more likely than lower-income taxpayers to react to tax increases by reducing their taxable income. This may be because the wealthy have access to more sophisticated tax advice, are more easily able to shift assets to lower-tax jurisdictions or can afford to simply decide to work less given that they get to keep less of their money.

Much of the data in this story came from an analysis by the C.D. Howe Institute."

"The bottom line is that the experts at the C.D. Howe Institute believe the central government will eventually collect more revenue from the higher tax rate, but:

1. The revenue will be less than projected by static revenue estimates because of permanently lower levels of taxable income.
2. The added revenue for the central government is more than offset by lower tax receipts for subnational levels of government."

Why Is Behavioral Economics So Popular? The recent vogue for this academic field is in part a triumph of marketing

By David Gal in The New York Times. David Gal is a professor of marketing at the University of Illinois at Chicago.

"For example, in a classic experiment, participants who were given a mug demanded, on average, about $7 to sell it, whereas participants who were not given a mug were willing to pay, on average, about $3 to acquire one. This finding has been interpreted by behavioral economists as evidence for loss aversion: The loss of the mug was anticipated to be more painful than its gain was anticipated to be pleasurable.

But Dr. Rucker and I note that there is an alternative explanation: The participants may not have had a clearly defined idea of what the mug was worth to them. If that was the case, there was a range of prices for the mug ($4 to $6) that left the participants disinclined to either buy or sell it, and therefore mug owners and non-owners maintained the status quo out of inertia. Only a relatively high price ($7 and up) offered a meaningful incentive for an owner to bother parting with the mug; correspondingly, only a relatively low price ($3 or below) offered a meaningful incentive for a non-owner to bother acquiring the mug.

In experiments of our own, we were able to tease apart these two alternatives, and we found that the evidence was more consistent with the “inertia” explanation. Dr. Thaler has dismissed our argument as a “minor point about terminology,” since the deviant behaviors attributed to loss aversion occur regardless of the cause. But a different account for why a behavior occurs is not a minor terminological difference; it is a major explanatory difference. Only if we understand why a behavior occurs can we create generalizable knowledge, the goal of science.

The lack of sufficient attention to understanding why behavior occurs matters in practical contexts, too. For example, advertisers influenced by the idea of loss aversion have focused on framing their messages in terms of loss (“you will lose out by not buying our product”) rather than in terms of gain. But such framing techniques have been shown to be ineffective: A meta-analysis of 93 studies found “no statistically significant differences” in the persuasive power of public-health messages when framed in terms of loss as opposed to gain.

The effects of this kind of intervention are often small. Recent studies have found that providing households with information on how their electricity usage compared to that of other households — a classic “nudge” — reduced electricity consumption by only 2 percent or less."

The Yellow Jackets Are Right About Green Policies

They have distinguished company in questioning the science behind climate-change dogma

By George Melloan. Excerpt:

"The voter rebellion is on solid scientific ground. The global expenditure to curb CO2 emissions, estimated in 2009 by Danish scientist Bjorn Lomborg to cost $180 billion a year, stems from the U.N.-engineered 1997 Kyoto Protocol. That treaty was always about politics, not science. In recent years global weather stations have measured ups and downs, but data from U.S. and British monitoring agencies showed that global temperatures in 2017 were roughly what they were 20 years earlier. 

Climatology is mostly guesswork. There’s no way to conduct a controlled experiment to ascertain scientific validity. Climatologists have learned a lot about climate and weather in the past century, but actually controlling the climate is something else entirely.

In a lecture this year, Massachusetts Institute of Technology meteorologist Richard Lindzen posited two immense, complex and turbulent fluids—the oceans and the air in the atmosphere—are in constant reaction with each other and the land, causing what we experience as storms and temperature changes. Variations in the sun’s radiation and the rotation of the planet play parts as well. And yet, he said, climate modelers claim that only one tiny component of this enormous churning mass, CO2, controls the planet’s climate. 

This borders on “magical thinking,” he said, and yet it is a narrative that has been widely accepted. The story begins with Maurice Strong, a Canadian oil tycoon who believed the Club of Rome’s doomsday forecast in 1972 that a rising global population would soon exhaust the planet’s resources. Strong persuaded the U.N. to put him in charge of an environmental program to save the planet.

In the 1980s, the Reagan State Department, seeking to get more science into the climate debate, prodded the U.N. to create the Intergovernmental Panel on Climate Change. Its mission was to assemble scientists and assess whether mankind was having an effect on climate. The first assessment, in 1990, could find no “signal” of such an effect. Neither could the second assessment, in 1995. But the U.N. issued a separate “report to policy makers” saying essentially the opposite—human activity is making the climate hotter.

Frederick Seitz—a pioneer in solid-state physics, former president of the National Academy of Sciences and recipient of the National Medal of Science—was furious. He wrote an op-ed for the Journal in June 1996 alleging the report had been edited after being peer reviewed “to deceive policy makers and the public into believing that the scientific evidence shows human activities are causing global warming.” He and some colleagues circulated a petition to Congress with their complaint and ultimately received the signatures of more than 32,000 scientists and engineers."

Hoover did far more than any previous president to alleviate economic suffering during a depression

See ‘Winter War’ Review: Hard Times for Hoover and FDR: The four months between Franklin Roosevelt’s election and his inauguration were one of the darkest moments of the American Century by John Steele Gordon (he reviews a book by Eric Rauchway). Excerpt:

"In fact, Hoover did far more than any previous president to alleviate economic suffering during a depression. As early as the spring of 1930, long before the Great Depression had begun to really bite, he proposed increasing federal construction spending by a whopping $140 million (more than 4% of the total federal budget) while urging state governments to increase their own construction spending. In 1931, he proposed a moratorium on both Germany’s payment of war reparations to the Allies and on loan repayments by the Allies to the United States. It was a politically brave thing to do, for while it was the right thing to do—easing budgetary pressures on hard-pressed European countries—it would inevitably be seen domestically as a move that would force America to bear more of the costs of World War I. In the event, Congress never acted on Hoover’s proposal, but the payments stopped of their own accord and never resumed.

Hoover also pushed for the Home Loan Bank Act, finally passed in the summer of 1932, which allowed banks to greatly increase their liquidity by using their mortgage portfolios as collateral. His Reconstruction Finance Corp. was empowered to make emergency loans to banks, farm mortgage associations, railroads and insurance companies to prevent their collapse. Fiorello La Guardia, then a New York congressman, called the Reconstruction Finance Corp. a dole for millionaires, but it would do much to prevent still greater economic collapse. Mr. Rauchway barely mentions the RFC, which in many ways was a precursor of several New Deal programs, and doesn’t even mention other Hoover efforts.

If Hoover and Roosevelt are to be compared, it should be noted that Hoover never had FDR’s political freedom. Hoover had to work hard to get his proposals through Congress, especially after Republicans lost the House in the election of 1930. Roosevelt had overwhelming majorities in both houses of Congress and sky-high public backing. The result, for FDR, was the remarkable “hundred days” when no fewer than 16 major bills passed Congress. Just consider: Roosevelt’s banking bill was presented to the House at 1 p.m. on March 9, 1933. It was signed into law that evening at 8:36. No member of Congress could have had time to read it. No president, and certainly not Hoover, had ever had such power (or would again, not even Roosevelt)."