Posts tagged with: Public finance

“You are a slow learner, Winston.”
“How can I help it? How can I help but see what is in front of my eyes? Two and two are four.”
“Sometimes, Winston. Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once. You must try harder. It is not easy to become sane.” – George Orwell, 1984

In a calculation that surely qualifies as “new math,” the government has created an equation in which $29,000 is equal to $69,000. Within the current welfare structure a single mother is better off making $29,000 per year in income and subsequent welfare benefits, than she is making $69,000 per year in income alone. This perverse incentive is what perpetuates the cycle of poverty and condemns impoverished moms to dependence on a paternalistic state. Social Security, Medicare, Medicaid, and SNAP (food stamps) are all larger than ever before with no subsequent reversal in the level or scope of poverty.

The “Welfare Cliff,” an economic model developed by Gary Alexander, the Secretary of Public Welfare in Pennsylvania, shows the amount of net income a person would need to receive in order to match their current net income plus welfare benefits. This is called a cliff, as there are drastic drop-offs in welfare benefits as one increases their income. In this graph, “the single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income & benefits of $57,045.” In fact, if a single mother were to raise her income from $29,000 to just $30,000, she would lose nearly $10,000 in welfare benefits per year.

The incentives provided under this system replace the desire for individual development with the maintenance of the status quo.  A single mother is highly unlikely to spend the time, effort, or capital in order to gain skills that result in receiving a lower disposable income. (more…)

Blog author: jcarter
posted by on Tuesday, April 15, 2014

7figures[Note: '7 Figures' is a new, occasional series highlighting data and information from a variety of surveys and reports.]

1. The average federal tax rate for all households (tax liabilities divided by income, including government transfer payments) before taxes is 18.1 percent.

2. Households in the top quintile (including the top percentile) paid 68.8 percent of all federal taxes, households in the middle quintile paid 9.1 percent, and those in the bottom quintile paid 0.4 percent of federal taxes. (Quintiles — fifths — contain equal numbers of people.)

3. Social insurance taxes (e.g., Social Security, Medicare) account for the largest share of taxes paid by households in all but the top quintile.

4. The U.S. tax code is approximately 2,600 pages long (about 1.5 times longer than Tolstoy’s War and Peace and 2.5 times longer than Ayn Rand’s Atlas Shrugged).
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Blog author: jcarter
posted by on Wednesday, April 2, 2014

money-and-justice-scales“If a society regards governmental manipulation of money as the antidote to economic challenges,” writes Acton research director Samuel Gregg at Public Discourse, “a type of poison will work its way through the body politic, undermining justice and the common good.”

Money: it’s on everyone’s mind sometimes. In recent years, however, many have suggested there are some fundamental problems with the way money presently functions in our economies.

No one is seriously denying money’s unique ability to serve simultaneously as a medium of exchange, a measure and store of value, and a means of calculation. Yet deep reservations about the current workings of the world’s monetary systems, both foreign and domestic, have been expressed by people ranging from Senator Rand Paul (who is fiercely critical of the Federal Reserve), to Pope Francis (who has denounced what he calls “the cult of money”) and France’s François Hollande (who once described “big finance” as his “greatest adversary”).

Read more . . .

Remember the “fiscal cliff”? It wasn’t a cliff.

Over at Neighborhood Effects, James Broughel asks the question, “Has the Sequester Hurt the Economy?”

So have the sequester cuts hurt the economy? One possible answer comes from a new paper by Scott Sumner of Bentley University. Sumner argues that cuts to government spending don’t have serious deleterious macroeconomic effects when the Federal Reserve is targeting inflation. This is because the Fed ensures that prices stay stable under an inflation targeting regime, which keeps demand stable even in the face of government spending cuts. Similarly, when the Fed stabilizes the price level it also offsets any beneficial effects that fiscal stimulus might have, which helps explain the lackluster results from the 2009 American Recovery and Reinvestment Act (aka the “stimulus”).

Implicit in Sumner’s theory is that expansionary austerity, or the idea that the economy can grow even in the face of large government spending cuts, is indeed possible. Some of my colleagues at the Mercatus Center have described other ways in which expansionary austerity is possible.

First of all, I would like to be clear that I do not disagree that “expansionary austerity” may be possible. Nor do I disagree that the sequester cuts have not significantly hurt the economy. However, while the sequester included spending cuts and, therefore, technically qualifies as “austerity,” it was not what everyone was making it out to be. (more…)

As occurrences of preventable diseases increase and the debt deepens, some look to “sin taxes” as an easy to solution to both problems. Thirty-three states have even gone as far as to implement a soda tax in an attempt to curb obesity. At first glance sin taxes seem to be a good idea, but they can actually cause more harm than good.

The Mercatus Center at George Mason University has just published a working paper on sin taxes and their negative effects. The study was conducted by Adam J. Hoffer, William F. Shughart II, and Michael D. Thomas.  They have found that taxing specific goods or services based on perceived “negative externalities their consumption generates”  is an ineffective source of revenue.

The authors summarize their findings in a recent U.S. News and World Report op-ed:

  • Lobbying: Millions of dollars have been spent to thwart taxation of the soft drink industry’s products and to prevent existing taxes from being raised. In 2009 alone, the industry spent more than $57 million on lobbying. Such lobbying expenditures are socially wasteful. How much money is now being spent attempting to block Mayor Bloomberg’s ban on 32-ounce soft drink containers?
  • Regressive taxation: Far from being income-neutral, such taxes are regressive because their burden falls most heavily on people with the fewest options—the poor. Low-income households who continue to purchase goods that are sin-taxed will have even less money left over to spend on other items.
  • Revenue not used for its intended purpose: Sin taxes raise revenue by transferring money from those who continue to buy the taxed items straight to the coffers of the public treasury. Taxing sin might be reasonable if the revenue from these taxes was used to address the underlying negative consequences of consumption. In the real world, however, money generated by the tobacco settlement financed general spending and not smoking cessation programs or treating smoking-related diseases. The social security trust fund has been replaced with treasury IOUs, and the highway trust fund filled by taxing the sin of driving will fail to meet obligations as early as 2015.

You can read the entire working paper, “Sin Taxes: Size, Growth, and the Creation of the Sindustry” here. Acton president and co-founder, Rev. Robert Sirico has also written about the consequences of sin taxes. You can read his “Hate the Sin, Tax the Sinner?” here.

Is spartan austerity driving us over the fiscal cliff?

The latest step in the budget dance between House Republicans and the White House has to do with where tax increases (or revenue increases in general, depending on what is called what) fit with a deal to avoid the so-called “fiscal cliff.” As Napp Nazworth reports, President Obama has apparently delivered an ultimatum: “there would be no agreement to avert the ‘fiscal cliff’ unless tax rates are increased on those making more than $250,000 per year.”

On one level it seems reasonable to talk about addressing a deficit from both directions: cutting spending and raising revenue. But as Ray Nothstine put it so well earlier this week, without some structural (and cultural) changes to the way Congress works, it would be insane to think that giving politicians more money is going to change how they spend it. One definition of insanity is doing the same thing over and over again and expecting a different result. Historically “politicians spend the money as fast as it comes in – and a little bit more.” Without some kind of balanced budget agreement, something with real teeth, why should we think things will be any different this time around? (I’ve talked about a more promising “both/and” budget solution before.) As Ray and I have concluded elsewhere, “In the case of the federal spending, the government has proved to be untrustworthy with very much. It’s time to see if the politicians in Washington can learn to be trustworthy with less.”
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Jordan Ballor looks at the bipartisan lack of discipline in Washington on debt and spending, and the effect on future generations. “Christians, whose citizenship is ultimately not of this world and whose identity and perspective must likewise be eternal and transcendent, should not let our viewpoints be determined by the tyranny of the short-term,” he writes. “If we continue the current course of American politics, the fiscal cliff will end up being nothing more than a bump in the road toward the cultural, economic and political bankrupting of America.” The full text of his essay follows. The full text of his essay follows. Subscribe to the free, weekly Acton News & Commentary and other publications here.

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This week I wrote about the dignity of paying taxes (among other ways of contributing to social flourishing). But as we know, not all taxes are created equal. Indeed, as Antony Davies and James Harrigan write this week at US News, “Politicians are in the business of buying votes with tax breaks and sweetheart deals for their preferred constituencies, and they have to offset these deals by taxing disfavored constituencies at increased rates. The longer this game is played, the more convoluted the tax code becomes.”

As I argued previously at Capital Commentary, this amounts to a kind of back door social engineering (as well as playing favorites, picking winners, and so on). The fundamental purpose of taxation is not to buy votes and give preference to lobbies and special constituencies. Instead, as I write, “The point of taxation is to raise funds to enable the government to fulfill its moral, political, and social responsibilities.” Such a view is ultimately at odds with a Utilitarian theory, which considers taxation to be a tool rather used “to maximize overall well-being in society.” Matthew Weinzierl argues for greater attention to a theory of Equal Sacrifice, which on Weinzierl’s account “assumes individuals have the first claim to their output, and that they voluntarily agree to form societies that collect taxes in order to purchase public goods.”
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Writing on The American Spectator website, Acton Research Director Samuel Gregg looks at the strange notion of European fiscal “austerity” even as more old continent economies veer toward the abyss. Is America far behind?

Needless to say, Greece is Europe’s poster child for reform-failure. Throughout 2011, the Greek parliament passed reforms that diminished regulations that applied to many professions in the economy’s service sector. But as two Wall Street Journal journalists demonstrated one year later, “despite the change in the law, the change never became reality. Many professions remain under the control of professional guilds that uphold old turf rules, fix prices and restrict opportunities for newcomers.” In the words of one frustrated advisor to German Chancellor Angela Merkel, “Even when the Greek Parliament passes laws, nothing changes.”

Politics helps explain many governments’ aversion to reform. Proposals for substantial deregulation generates opposition from groups ranging from businesses who benefit from an absence of competition, union officials who fear losing their middle-man role, to bureaucrats whose jobs would be rendered irrelevant by liberalization. The rather meek measures that Europeans call austerity have already provoked voter backlashes against most of its implementers. Not surprisingly, many governments calculate that pursuing serious economic reform will result in ever-greater electoral punishment.

In any event, America presently has little to boast about in this area. States such as Wisconsin have successfully implemented change and are starting to see the benefits. But there’s also fiscal basket-cases such as (surprise, surprise) California and Illinois that continue burying themselves under a mountain of debt and regulations.

Read “Why Austerity Isn’t Enough” by Samuel Gregg on The American Spectator.

Why do democracies struggle with debt? One reason, as John Coleman notes, is that one of the problems is that debt is essentially an intergenerational wealth transfer:
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