Posts tagged with: Tax reform

Blog author: jcarter
posted by on Friday, January 10, 2014

68-wimpyIn a comment last month on the proposed federal budget deal, Sen. Rand Paul quoted one of the foremost economic thinkers of the twentieth century. “There is a recurring theme in Washington budget negotiations. It’s I’ll gladly pay you Tuesday for a hamburger today. I think it’s a huge mistake to trade sequester cuts now, for the promise of cuts later,” Sen. Paul said.

“I’ll gladly pay you Tuesday for a hamburger today,” was a catchphrase made famous by J. Wellington Wimpy, a character in the comic strip Popeye. But it also describes, with slight modification, the attitude of Americans to funding government: “I’ll begrudgingly pay you in the future for services provided today.”

Several years ago economist Steve Landsburg made an astute observation about our nonsensical idea about tax relief:

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Acton’s director of research Samuel Gregg has a piece over at The American Spectator that may surprise big government liberals. (We know you read this blog.) In “Free Market Sweden, Social Democratic America,” he lays out the history of Sweden’s social democracy — its nature and its effects on the country’s economy — and then draws lessons for the United States. The Scandinavian country isn’t quite the pinko nanny state Americans like to look down upon, and we’ve missed their reforms of the last two decades.

Gregg explains that Sweden’s dramatic mid-century expansions of government were portrayed as rooted in the traditional values of the homeland, so Social Democrat governments escaped the soft-Marxism tag, and were able to do pretty much as they pleased. Social programs were also characterized as coverage of universal rights, to be imposed by general taxation. Then came

the decision of governments in the 1970s to hasten Sweden’s long march towards the Social Democratic nirvana. This included expanding welfare programs, nationalizing many industries, expanding and deepening regulation, and — of course — increasing taxation to punitive levels to pay for it all.

Over the next twenty years, the Swedish dream turned decidedly nightmarish. The Swedish parliamentarian Johnny Munkhammar points out that “In 1970, Sweden had the world’s fourth-highest GDP per capita. By 1990, it had fallen 13 positions. In those 20 years, real wages inSweden increased by only one percentage point.” So much for helping “the workers.”

Economic reality was painful, but Sweden responded, and began to unravel some of its “progress,” reducing the public sector and even allowing private retirement savings. Unemployment was still high though — about 20 percent — in large part because the country’s tax structure encouraged joblessness.

But with a non-Social Democrat coalition government’s election in 2006, Sweden’s reform agenda resumed. On the revenue side, property taxes were scaled back. Income-tax credits allowing larger numbers of middle and lower-income people to keep more of their incomes were introduced.

To be fair, the path to tax reform was paved here by the Social Democrats. In 2005, they simply abolished — yes, that’s right, abolished — inheritance taxes.

But liberalization wasn’t limited to taxation. Sweden’s new government accelerated privatizations of once-state owned businesses. It also permitted private providers to enter the healthcare market, thereby introducing competition into what had been one of the world’s most socialized medical systems. Industries such as taxis and trains were deregulated. State education and electricity monopolies were ended by the introduction of private competition. Even Swedish agricultural prices are now determined by the market. Finally, unemployment benefits were reformed so that the longer most people stayed on benefits, the less they received.

By 2010, Sweden’s public debt had fallen dramatically and its rate of economic growth was 5.5 percent. Compare that with America’s 2.7 percent growth in 2010, and just try to restrain your jealous impulses.

Gregg cautions that Sweden’s economy is still hampered the Social Democrats’ legacy. High minimum wages keep a full quarter of the country’s youth unemployed, and a carbon tithe to the religion of environmentalism retards growth, but

It’s surely paradoxical — and tragic — that a small Nordic country which remains a byword for its (at times obsessive) commitment to egalitarianism has proved far more willing than America to give economic liberty a chance.

Full article here.

Blog author: jballor
posted by on Friday, June 17, 2011

Today at Capital Commentary I discuss the size and scope of the tax code in the US relative to its basic purposes.

In “Back Door Social Engineering,” I argue, “When governments run huge deficits in part because of the complexity of its tax system and the ability of people and institutions to engage in large-scale (and legal) tax avoidance, there is something deeply wrong with the system.”

The basic purpose of taxes is to raise money for the government, not to determine social behavior. We have laws for that.

Read the whole thing here.