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What Is Economic Repression? It’s The Squeeze On Our Individual Incomes Due To Excessive Regulation and Taxation.

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The U.S. economy may be headed for recession in the next year or two and policymakers are fretting about how to combat it even though an obvious answer stares them in the face — economic freedom.Why the worry? For starters, we are overdue for a downturn in historical terms. According to the National Bureau of Economic Research (NBER), the U.S. economy rarely goes more than a decade without backsliding for at least a couple of quarters and it has been growing, though often anemically, since the end of the Great Recession in June 2009.Moreover, uncertainty about election results and policy paths can impede business investment. Maybe the Senate will boot the President and his V.P. from office. Maybe Don John will survive his impeachment trial but lose re-election only to be replaced next January by … a socialist? A moderate? Maybe he will win and claim a mandate to justify yet more destructive economic policies. Nobody knows, so it may be best to hold off building that new headquarters, investing in that new computer network, buying that fleet of trucks, and so forth. Not good!In addition, a few technical warning signs, like the yield curve, have blinked yellow or red, further increasing uncertainty.Finally, panic over the coronavirus, even if overblown, may hurt too.The only consolation in all this is the knowledge that the economy will rebound automatically through standard economic processes. When recession strikes, the prices of equities, capital equipment, labor, and so forth decrease until somebody with cash says, “I’ll buy that!”

But for the last century or so, policymakers in the United States, like much of the world, have not been content to allow the economy to self-correct. They want to fudge around with tax and interest rates, even if that means countenancing absurdities like more rounds of quantitative easing, negative interest rates, or dropping money out of helicopters.

Cutting taxes is always a good idea and Trump’s tax cuts may have kept the U.S. out of recession thus far despite his onerous trade war. But fiscal and monetary policies are political minefields and hence cannot be relied upon.

Instead of cutting taxes or already super-low interest rates, many so-called progressives want to combat recession by increasing “automatic stabilizers,” like unemployment insurance and SNAP, and thus “save” an economy that does not need saving with their preferred social policies. While arguably preferable to another Great Corporate Bailout a la 2009, automatic bailouts to individuals redistribute resources rather than increaseing production.

So why not combat recession by increasing economic freedom (reduce economic repression) instead? After all, income redistribution does not cause economic growth. The world’s richest countries redistribute the most income because they can afford to, not because the redistribution helps their economies, which thrive due to the increases in productivity that occur wherever peace, easy taxes, and a tolerable administration of justice reign.

Economic growth and economic freedom are also highly correlated but not because rich countries can afford to buy more freedom the way they can afford more redistribution. In fact, economic freedom causes economic growth by providing people with incentives to work longer, harder, and, most importantly, smarter.

Best of all, economic freedom can be increased today, before recession strikes, leaving us better off in recession than we would otherwise be without recession.

Policymakers usually talk about rates of economic growth or shrinkage but that is misleading in many ways. What ultimately matters to individual quality of life are income levels, not rates of change. You would rather live in a society with a $50,000 per capita income and 2 percent rate of growth than a society growing at 10 percent per year with a per capita income of $1,000, wouldn’t you? If you hesitated to answer for even a second, consider this: per capita income in the richer economy grew by $1,000 ($50,000*.02), while that in the poorer one increased by only $100 ($1,000*.10). More importantly, though, you would be better off living in the richer society even if per capita incomes were temporarily shrinking there.

A rich society that is not living up to its potential due to economic repression, i.e., restrictions on economic freedom, is a tragedy, even if it is more difficult to commiserate with people in such societies compared to those forced to live (often literally) in impoverished lands. As Bob Lawson and Ben Powell point out in Socialism Sucks, the victims of economic basket cases like Cuba, North Korea, and Venezuela are easy to pity because they have no beer, or it’s warm, or it tastes like an ass’s ass (to be as blunt as the authors are throughout their instructively hilarious tale!).

But it also sucks that even after a decade of economic growth, the per capita income of the United States today is much lower than it would have been if the New Deal, Great Society, and “wars” on this, that, and the other had never occurred. Compared to that counterfactual world where economic freedom remained sky high throughout the twentieth and twenty-first centuries, America today is in a wicked economic slump. We still might not have flying cars, but our per capita income today could easily be north of $100,000 real dollars.

The economic costs of our nation’s many past policy mistakes are sunk, i.e., irrecoverable. The proverbial ship has sailed, and the water has passed under the bridge. But we do not have to continue making the same mistakes day after day forever and a day. Let’s fight the next recession today by ridding ourselves of the collected policy detritus of the past and allow human, financial, and physical capital to flow freely to their most highly valued uses.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University in Sioux Falls, South Dakota.

Urban Democrats Are Driving Jobs And Prosperity Out Of American Cities.

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Finance giant JPMorgan is considering moving its headquarters out of New York City and its gleaming skyscraper buildings. While the company is playing coy with these reports, it has already been slowly relocating many of its operations and jobs to lower tax locations in Ohio, Texas, and Delaware. The Lone Star State currently hosts 25,000 of its employees, and Texas will likely surpass the New York portion in coming years.

The resulting move will harm the middle earners of New York far more than that of the wealthy, who can easily move to a better tax climate. Not only is the state tax structure prohibitive, but Alexandria Ocasio Cortez may be responsible for the pink slips at JPMorgan, which anticipated thousands of educated technology workers to come to the area as part of the planned Amazon headquarters in Queens. But after the freshman lawmaker lobbied against the project, the retailer changed plans. Many good jobs and the growth they sustain at JPMorgan will likely follow.

The exodus is part of a trend sweeping traditionally Democratic states over the last several years. Whether it is the state and local tax deduction changes or burdensome regulations, the trend is becoming increasingly clear. General Electric pulled up stakes from Connecticut awhile ago, and Cigna is considering doing the same. A whopping 1,800 businesses left California in 2016 alone, while manufacturing firm Honeywell moved its headquarters from New Jersey to greener pastures in North Carolina.

None of this is news to businesses or to readers of my columns. However, there seems to be no learning curve among the liberal governments of these tax happy locales. So why are we looking to federalize this model? Democratic presidential candidate Elizabeth Warren has proposed this tax model on steroids should she be elected next year. For her, along with many of the politicians in these blue states and cities, the planned taxes and regulations are meant to be targeted mainly at wealthy citizens.

However, the primary losers in this formula are middle class workers. Between the loss of jobs and revenue, these states and cities press even harder on millions of middle income taxpayers to make up the difference. There is a pervasive ripple effect of driving large companies from former business hubs. Not only does each corporation create thousands of jobs, but the business is a critical part of the local economic foundation.

What will happen when JPMorgan leaves Manhattan? The cumulative effects of rents unpaid, restaurants not frequented, and investment in the surrounding area will jeopardize much smaller businesses dependent on corporate employee dollars. JPMorgan will likely be the vanguard of the coming business exodus. It is not just a hypothetical situation, as changes in corporate taxes have had this effect before. Consider the effects of an anchor business leaving a city, just as the financial sector may consider darting New York under the tax plans of Warren or Bernie Sanders.

The loss of an industry harms the middle class far more than corporate stakeholders, as seen in Rochester, New York, when one of the largest employers, Eastman Kodak, hit hard times. Once a center of filmmaking technology, Rochester grew as Eastman Kodak did. At its peak in the early 1980s, the company employed more than 60,000 people in the area. Over the next few decades, it fought a losing battle with digital technology, employment costs, and the New York tax and regulatory scheme. After years of steep decline, the company filed for bankruptcy in 2012.

Today, Rochester is in dire straits. The average household income is only half of the national average and its once burgeoning middle class is now a hollow shell of its former self. Its population has fallen by a full third since 1960. The city ranking as the 16th sharpest population decline between 2010 and 2017, according to census figures, It is also ranked as one of the worst cities to live in the country. The effects of the fall of Eastman Kodak cascaded into other businesses in Rochester. Pensioners dependent on the company face uncertainty. Restaurants, services, and real estate companies all languish as the local economy continues to sputter.

Many of the Democrats running for president, or who are in charge of the blue state economic models, do not see the next Eastman Kodaks. By making it impossible for businesses to operate, they will inevitably harm middle class workers they seek to help. Corporate boards can create golden parachutes for themselves or declare bankruptcy. A shift worker awaiting a corporate pension does not have the same financial luxury.

Politicians love to preach that their proposals will make the economy fairer by targeting the most productive members of their states and cities. However, the encompassing butterfly effect spells bad news for people like you and me. Every time you vote for a proposition or a candidate promising a repeat of bad policy, just remember that it will ultimately be the middle class that will pay the largest share. So much for fair taxes.

Kristin Tate is a writer and an analyst for Young Americans for Liberty. She is an author whose latest book is “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.” 

A Great Way For Kids To Learn About The Implacable Opposition Of Government To Individual Initiative.

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Twelve-year-old Lucie Wise couldn’t wait to open her own business. On three separate occasions, she had accompanied her mother to the Children’s Entrepreneur Market—an expo of child-run businesses hosted annually by the Utah nonprofit Libertas Institute—dreaming of the day she could set up her own booth and sell her wares to curious passersby.

Lucie’s experience as a spectator at prior markets had given her time to think long and hard about what kind of company she wanted to start. Getting a jumpstart on the summer, when she would make her debut at the Children’s Entrepreneur Market, she planted 500 flower seeds in the months leading up to her first event. Once the flowers bloomed, she arranged them into beautiful bouquets to sell to her customers.

Lucie’s enthusiasm for running her own business is exactly the kind of mindset the Children’s Entrepreneur Market has been trying to cultivate in the three years since it began.

Hosted throughout the summer in different cities across Utah, these events give kids the opportunity to learn entrepreneurship firsthand while also getting to earn and manage real money. And these aren’t just your typical lemonade stands and bake sales.

Lucie and her fellow kidtrepreneurs are receiving a crash course in runaway taxation from local officials who came to collect sales tax.

Like Lucie, many children are coming up with original ideas for products and services, bringing them to life, paying for booth space, and trying their luck in the marketplace. While the Children’s Market is intended to teach children to love entrepreneurship, one thing it isn’t supposed to do is crush their spirit with the harsh realities of government overreach.

Unfortunately, that’s precisely what’s happening. Lucie and her fellow kidtrepreneurs are receiving a crash course in runaway taxation from local officials who came to collect sales tax on each of their businesses—an action one activist calls unlawful.

Utah’s Entrepreneurial Spirit

Entrepreneurship is inextricably woven into the culture of Utah. Nicknamed the “Beehive State” as a nod to the incomparable work ethic of bees and with its state seal featuring the word “industry,” Utah was founded on the belief that individuals should take pride in hard work and the freedom to provide for themselves. This belief has helped foster an environment where entrepreneurs feel empowered to create value and provide mutual benefit for consumers in the state.

To keep this entrepreneurial spirit alive and inspire the next generation of Utahns, each year the Libertas Institute—an organization dedicated to government accountability, economic freedom, and individual liberty—organizes the Children’s Entrepreneur Market.

Since it began, the Market has been held in 10 locations across the state, housed 1,400 booths, attracted 5,000 customers, and given 3,000 children the rare chance to engage in voluntary exchange with their patrons.

Take nine-year-old Ezra Callis, for example, who charges customers $1 to take a picture with his goats. For an additional 25 cents, you can purchase food to feed the goats. Unlike other children participating in the event, who knew exactly what they were going to spend their earnings on, Callis said, “I have no clue what I am going to do with my money. I just like earning money.”

As the event came to a close, city officials came around with something veteran participants had never encountered before: tax forms.

Amalyssa Sudweeks is 15 years old and has turned her love of making decorative jewelry into a profitable business. Her experience at the Children’s Entrepreneur Market has inspired her to set her sights higher. “I’m trying to start an Etsy store,” she said. Other examples of child-run businesses featured at the market include homemade meat rubs, homemade wall organization calendars, carnival games, strawberry jam, tooth fairy boxes, and 3D-printed Pokemon.

On August 7, the Children’s Entrepreneur Market was held in Spanish Fork, where thousands of people walked past booths sampling products and purchasing goods from these young business people. As the event came to a close and the children began to close up shop, city officials came around with something veteran participants had never encountered before: tax forms.

To everyone’s surprise, the city is insisting that each child pays sales tax revenue to the State Tax Commission this year. In fact, even kids who did not earn a dime at the market are still obligated to file tax forms with the state.

After years of hosting this event in different cities in the state, this is the first instance of any municipality trying to collect sales tax from these kids, organizers and attendees say. Danyelle Payne, mother to two kidtrepreneurs who participated in the event, expressed her disdain for what Spanish Fork is doing, especially since it is the parents who will truly have to deal with this.

“We work on this all summer. We sold out last year. It looks like mom’s taking the hit on the taxes this year,” she said.

This isn’t sitting well with Libertas founder and president Connor Boyack, either. He insists that the city’s action is unlawful.

Since the Market is only a four-hour long event, asking children to pay sales tax would be akin to asking a child-run lemonade business to fork over a portion of their earnings to the state.

Boyack points out that subsection 13 of the state sales tax statute protects businesses of this nature from being made to report or pay sales tax since they are not engaging in regular commerce. Since the Market is only a four-hour long event, asking children to pay sales tax would be akin to asking a child-run lemonade business to fork over a portion of their earnings to the state—something almost no one would stand for in good conscience if it started happening.

“The law is pretty clear that if a child sells lemonade on their sidewalk, they don’t have to collect and remit the sales tax because they’re not a regular business—their activity is inherently irregular and infrequent,” Boyack told FEE.

But the Utah Tax Commission argues—apparently without any law to back them up—that if that same child sells their lemonade as part of our Children’s Entrepreneur Market, or another organized event, they magically lose their exemption and have to fill out complicated tax forms and pay the tax.

Spanish Fork spokesman Scott Aylett commented, “We’re pretty objective with the law. We expect vendors to pay taxes to the state.”

Yet, this seems a bit odd since the subsection actually explicitly protects businesses of this kind from being subject to paying sales tax. However, since the Children’s Market is an organized event, Aylett and other Spanish Fork officials argue, this subjects the children to taxation.

“At the end of the day it’s between them (the entrepreneurs) and the Tax Commission,” Aylett commented. “It doesn’t matter if they’re 10 or 100 (years old).”

Boyack is refusing to take this lying down. Libertas is working with State Sen. Jacob Anderegg to open a bill fill to address this issue and, as Boyack hopes, shut it down before more kids are burdened with tax forms. Boyack sees this as laziness on the part of the commission, which would rather make everyone fill out the forms and pay taxes instead of looking at which individuals are actually legally required to file paperwork.

Boyak commented:

It’s one thing to force kids to do this if it’s the law, but in this case it’s not—it’s a handful of bureaucrats lazily wanting to make all event vendors pay the tax rather than going to the trouble of identifying which ones are exempt and which ones aren’t.

In the meantime, Boyack has instructed parents to claim “0” on the tax forms before sending them back to the state.

As Boyack himself once said, “Let’s at least give kids a taste of the free market before the crushing bureaucracy weighs in upon them.”

In Defense of Entrepreneurship and Liberty

Unfortunately for Spanish Fork, Boyack is well versed in standing up for child entrepreneurs against the long arm of the state. Libertas has already been extremely successful in working with the state legislature to create and pass laws that favor economic liberty—like protecting children entrepreneurs from excessive regulation.

Boyack has decided to use this as a teaching moment.

Just two years ago, Libertas was integral in the creation and passage of Senate Bill 81, which amended existing laws requiring occupational licenses and permits for certain businesses, specifically those run by minors under the age of 18. However, the new law also helps adults by demolishing any fees associated with the required permits. Utah residents over 18 still have to obtain the government’s permission before operating a home-based business, but they are no longer forced to pay exorbitant fees—a win for entrepreneurs within the state.

Boyack, who is also the author of the Tuttle Twins book series that teaches children about entrepreneurship, economics, and the free market in easy to understand terms, has decided to use this as a teaching moment.

“As upset as we are over this, the government’s overreach provides an opportunity to educate these children even further about the misdeeds of government and the injustices inherent in the tax system,” he told FEE.

In Praise Of Selfishness, With A Little Criticism Of Taxation, And A Rejection Of Collectivism.

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Taxation is something that is steeped into the secular consciousness. It is rarely questioned, and to even consider questioning it is often met with a disapproving reaction, as if you are failing or betraying your society by doing so. You’re not fulfilling your civic duty, or your “social contract”, so to speak. I’ve always found this puzzling, this idea that it’s selfish to want to keep all of the fruits of my labor for myself. Or at least if I’m going to redistribute it charitably, I’m the one making the decision to do so.

On face value, this doesn’t seem like something that anyone would disapprove of, but what I have found is more people than not seem to find the idea of not paying taxes to be absurd and preposterous. An individual who wants to keep their wealth as their own is frowned upon as greedy and non-caring to the community that surrounds them, especially if they have a lot of money.

Whether it’s selfish or not itself is just a matter of perspective of being good or bad, however. Being more concerned about what you will do to eat today as opposed to your neighbor is inherently selfish, but it’s a survival instinct. Everyone by nature cares more immediately about their own well-being than all the billions of others on the planet. This isn’t to say that you don’t care about others, whether they’re friends, family members, or complete strangers, and you may even voluntarily choose to sacrifice yourself for them given the circumstances. But what it is saying is that if your own well-being weren’t of the most immediate and intimate concern, then you would have no fight or flight instinct, and no will to live and survive.

This brings us back to overall selfishness. When you live your life “for the society” first and put your own needs second, it’s ultimately toxic for you AND society. This is because one is going against their intrinsic nature. If you aren’t satisfying your own needs first, and pursuing your own happiness and liberty first, your energy and efficiency in contributing to your environment will significantly decrease, if not transform into something purely destructive.

These ideas about selfishness expand into private property and what you own. The car that you drive is more important for you than anyone else’s car, for example. Your house getting flooded will be of a higher concern for you than if another stranger’s house a mile away floods. This is just the stuff of nature. It’s why you would get angry and perhaps worse if someone just came into your room and started taking your belongings.

Of course, theft can also be considered selfish. But the conflict that occurs during theft happens because one person’s will is clashing against another person’s will. So it’s not selfishness per se that is the problem, but the way that one acts upon it. The question is whether one is being honest with themselves about their intrinsic selfishness or not, and then behaving accordingly. Pretending that it’s not there out of some twisted sense of “altruism” is unhealthy, just as using it in a distorted sense to obtain what you want to the exclusion of the will of others is also unhealthy. Free trade leads to a harmony of will, while theft leads to a clash of will.

Back to taxation.

Interestingly, one may realize that taxation is a twisted sense of altruism via obtaining what is wanted (money for public services) by clashing with the will of others. Sure, there are plenty of enthusiastic citizens out there who will gladly pay their taxes while touting, “who will pay for the roads if I don’t?”, but what is important to note is what their personal consequences will be if they don’t. They will be jailed. No contract was signed that was agreed upon that justifies those consequences. It’s just imposed on the populace through coercive force. (Also, it should be noted that privately funded roads do exist. Crazy, I know.)

Essentially, my commentary boils down to individualism vs. collectivism, which has been at center stage of the core of philosophical and political debates all through human history. Perhaps we need to revisit this age-old debate and contemplate a little deeper. I’m certainly not the first to write about it, but I’m writing about it now because collectivism, which utilizes taxation, is so casually accepted in the coarse consciousness of society at the present time, especially for those who politically lean left and consider themselves “liberal”.

Many younger Americans think collectivism is the answer to all of our current problems. Redistribute everything and spread the wealth. End inequality. Tax the rich harshly to help the poor. It sounds nice and liberal on the surface. But it falls apart when dissected. Is it really liberal to use identity politics as a means of judging people about whether they fall under your mental compartmentalization of being part of the “oppressed class” as opposed to the “capitalist class” (as if capitalism is a class at all)? Identity politics is a collectivist movement. Is it really liberal to use mob mentality and demands to pressure policies into place through harassment of lawmakers and creating spectacles, all in the name of “social justice”? Mob mentality is a collectivist mentality. Is it really liberal for a society to not want to create wealth but to rather just evenly distribute it, which will eventually halt all growth? Socialism is a collectivist movement.

The problem is that collectivism is based on an underlying illusion. For, it is the individual who exists and who strives for the pursuit of happiness and liberty, not “the society”, which is nothing more than a phantom concept. It’s a useful concept, but ultimately it’s a ghost with no literal reality to it. How can a philosophy that is based on a phantom concept be the best answer? Individuals, on the other hand, do have a tangible reality, and the liberties of individuals timelessly get eroded by the sweeping attitudes of collectivism.

Gold and silver being treated as currency is something else that has lasted all through human civilization, up until very recently, that is. Since metals are an element of the Earth, they’re not owned by any central authority. This decentralized nature is the brilliance of it. Decentralization should be the default of any legitimate currency because it keeps the power out of the hands of a small minority who create and control the distribution.

We have temporarily strayed into pure centralization and manipulation of fiat currency, as the dollar is no longer backed by anything (such as precious metals). But I see an inevitable return back to the metals being acknowledged as legitimate at some point in the near future. Why? Because the fact of history is that every fiat currency collapses at some point, and one must remember this at all times, especially at this point in our global economy; the dollar is no longer backed by anything and hyperinflation runs rampant. In the course of the remainder of my lifetime, I could very well see the dollar collapse entirely. The precious metals will then make a huge comeback; hence the inevitability. Whether this ‘near future’ is 5 years, 25 years, or 50 years isn’t relevant in the overall bigger picture. It’s the inevitability that matters.

Cryptocurrency entered this world from the cypher punks. Just as with the metals, a unique and key feature of the idea of cryptocurrency is its decentralization. The first attempt at Bitcoin was BitGold, and indeed, its being treated as digital gold is what was aimed for. Although the original intention of it as a peer-to-peer form of electronic payment that completely supersedes any need for a centralized middle man, such as a bank, has remained, I do believe there is another half of the equation.

Many of the other cryptocurrencies out there, the altcoins, have already started forms of centralization. Some use a system called “governance”, where a select chosen few represent the overall project, as well as maintain ultimate control over all funds, to the trust of everyone else. I find it unbelievable not only that this is taking place at all, but that it is ALREADY taking place in the very early stages of cryptocurrency’s development. This seems to completely defeat the point of what cryptocurrency was all about in the first place, as its very nature is meant to be trustless and without centralization.

I also believe that these movements towards “governance” have to do with a larger conspiracy. I think that it’s an overarching movement to invoke a paperless society on a global scale, so that everything can be tracked and watched on a connected grid. What was initially an extremely libertarian, anarchist idea got taken by other forces for their own benefit. This is what I believe is happening, and it is a form of selfishness that clashes with the will of others. Not surprisingly, this globalist drive towards a paperless society is a collectivist movement. There seems to be a huge pool of two different forces at work in the crypto space. Both have radically different intentions on the uses of cryptocurrency.

Taxation on precious metals and cryptocurrency is what stops them from being true contenders with the dollar, and is just yet another form of control from those who want to run the world. Instead of being acknowledged as legitimate secondary options of currency, which is what a healthy free market capitalist society would allow, taxing in the form of sales tax on precious metals and income tax on cryptocurrency is thwarting and undermining them both to the benefit of the dollar. Gold and silver are sound money, used for millennia and truly decentralized, thus having no need to be taxed. Cryptocurrencies are in high demand from consumer interest and speculation, and are their own currency due to peer-to-peer agreement and growing mass adoption. Taxation undermines these facts. The only way to legitimize a competition of currencies is to remove extortion methods imposed on the trading of these currencies.

 

This article originally appeared on Medium: https://medium.com/@cosmosaic/taxation-on-precious-metals-and-cryptocurrency-is-toxic-collectivism-ae24cf1d5267

 

Politicians Spend Profligately Today, And Stick Our Children And Grandchildren With The Bill.

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Who bears the burden of government indebtedness? Prior to the Keynesian revolution in the mid-20th century, most economists understood that the burden of government (or “public”) debt falls on those citizens who, in the future, must repay the debt. The funds for such repayment can come in the future from higher taxes, from reduced government expenditures on programs other than debt servicing, or from some combination of the two.

But Keynesianism destroyed this consensus. According to what my late Nobel-laureate colleague James Buchanan called the “new orthodoxy” about government debt, all such debt that is owed to fellow citizens – that is, debt that “we owe to ourselves” – is no burden at all upon the generations who must service and repay it.

Three Prongs of the Keynesian Orthodoxy

There are three prongs to this Keynesian orthodoxy. The first prong is rooted in the Keynesian insistence that the main driver of economic activity is the volume of total spending, or what economists call “aggregate demand.” And so if American citizen Smith is taxed an extra $1,000 in order to retire a $1,000 U.S. government bond held by American citizen Jones, there’s no reason to believe that total spending in the American economy will change. While Smith’s spending will fall because his after-tax income falls by $1,000, Jones’s spending will rise upon his receipt of this $1,000. Retiring the debt, therefore, has no effect on economic activity as a whole.

(Because people in, say, France who hold bonds issued by the U.S. government redeem those bonds for U.S. dollars – and because those dollars will eventually be spent in the United States – the commonplace qualification that government debt is no burden “if we owe it to ourselves” is actually unnecessary. This detail, however, need not detain us.)

The second prong of the Keynesian orthodoxy is that the burden on society of government debt is shouldered at each of the moments when programs that are funded with debt are undertaken. If, say, Uncle Sam borrows $10 billion to build 100 F-35 fighter jets today, all of the labor, metals, plastics, and other real resources that would otherwise have been used differently are consumed today to produce the fleet of fighter planes. The 100 commercial jet liners – or the 500,000 automobiles, or the 10,000,000 sets of patio furniture, or some quantity of whatever – that would otherwise have been built are not built. Society today gets 100 F-35s in exchange for giving up whatever else would have been, but was not, built and consumed.

The third prong is that government deficit financing imposes no burden – none! – at any time at all, on anyone at all, when it is done during periods of unemployment. According to Keynesians, if Uncle Sam borrows $10 billion to build a fleet of F-35 fighter planes (or whatever) during a recession, nothing is sacrificed. Keynesians assume that all of the labor and other resources used to build the planes would otherwise have remained in involuntary idleness. And so by pulling those resources out of their unwelcomed idleness, the debt-financed production of the F-35s actually cost nothing at all!

Keynesians believe that during recessions lunches really are free.

This last prong of the Keynesian treatment of government deficit-financing is the most well-known and controversial of the three. It’s also the most far-fetched. If correct, one of the keystones of economics – namely, the ubiquity and inescapability of scarcity – is cast aside and, along with it, the wisdom of heeding lessons taught by economists from Adam Smith in the 18th century through Vernon Smith in the 21st. Yet although incorrect, I hereby ignore this third prong by assuming that the economy is at full employment.

Debt Financing by Government Imposes Burdens on Future Generations

Even at full employment, however, the claim that deficit financing today imposes no burden on future generations is mistaken. Explaining this incorrectness was among the earliest of Jim Buchanan’s many theoretical breakthroughs.

It’s true, of course, that when government borrows money to build fighter jets today it diverts resources away from the production of other goods and services. But – and here’s Buchanan’s key insight – the creditors who today lend money to the government do so voluntarily. As Buchanan explained in his 1958 book, Public Principles of Public Debt, each of these creditors expects to be made better off – in the form of repayment in the future of principal and interest – by his or her purchase of government bonds.

And so while these creditors do indeed reduce their ability to consume goods and services today, their expectation of higher future consumption makes this sacrifice, for them, worthwhile. These creditors, as such, thus are clearly not the people who pay for the fighter jets. These creditors do not bear the burden of supplying government with these new military weapons.

So who does bear the burden of this debt? Buchanan’s correct answer is this: the taxpayers who repay the debt. These taxpayers, in order to transfer resources to the creditors, are compelled to reduce their consumption when payments on government bonds come due. If the bonds all come due one year after they are issued, the burden of financing this debt falls on taxpayers one year later. If instead no payments of interest or principal are due on the bonds until 30 years after they are issued, then the burden of this debt falls on taxpayers starting 30 years hence.

Buchanan noted that future-generations’ bearing of the burden of government debt does not necessarily mean that debt financing was a bad deal for these taxpayers. It’s possible for the government to spend its borrowed funds in ways that taxpayers in the future find to be worth the higher tax bill. If the borrowed funds are indeed spent in this prudent manner, then the debt financing is economically justified.

But Buchanan also showed that this possibility is not a probability. The reason was nicely summarized by the Royal Swedish Academy of Sciences in its announcement of Buchanan’s Nobel Prize: “He showed how debt financing dissolves the relation between expenditures and taxes in the decision-making process.”

In effect, debt financing allows government to spend money today while foisting the tab on future taxpayers – many of whom, literally, aren’t yet born. Politicians eager to win votes are thus prone to borrow and spend excessively because borrowing allows the current generation to free-ride on the incomes of future generations.

Unfortunately, too few people bother to think carefully through the economics of government taxing, spending, and borrowing decisions, yet everyone can easily see the programs funded with today’s expenditures.

Today’s looming fiscal mess is the predictable consequence of politicians’ ability to spend today and to stick our children and grandchildren with the bill.

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University

Billionaires Already Gave Their Fair Share.

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It is becoming increasingly fashionable to agitate against the very existence of billionaires. Recently, for instance, Business Insider summarized a statement of Congresswoman Alexandria Ocasio-Cortez as follows: “[she] said a society that “allows billionaires to exist” while some Americans live in abject poverty is “immoral.” Echoing this sentiment, Elizabeth Warren repeated a very popular sentiment among the mainstream and far left; namely, that it was time that billionaires pay “their fair share in taxes.”

While both of these narratives are commonly held and frequently expressed, they are completely wrongheaded and misunderstand the role that billionaires actually play in society.

Government-Made Billionaires vs. Market-Made Billionaires

We must be clear in our analysis that the State often has a hand in the creation of billionaires; not because it “allows” billionaires to exist, but because the western world suffers from a framework that actually redistributes resources — via taxation and monetary expansion — from the poor and middle class to the well-connected. These recipients of State redistribution, often called “crony capitalists” are excluded in our praise of billionaires and to whatever extent a billionaire (or millionaire) is a net recipient of government redistribution, to that extent we are critical of them.

Given the complexities of the owners of big business and their relationship with the state, the consideration of whether a wealthy CEO of a company is to be criticized or praised becomes a difficult exercise. Nevertheless, the libertarian position on this is to eradicate the confusion by unraveling the involvement in industry that characterizes the modern United States Federal Government (and most other western governments). Any positive subsidies that are transferred, via the government, from the taxpayers to the capitalists must be eliminated if we are to benefit from the role of the billionaire capitalist, as discussed below.

Now that we have that out of the way, we can analyze the existence of billionaires who have achieved such a status on the market. Far from being the cause of inequality and poverty, it is actually the billionaire who has contributed, in one way or another, to the well being of society. It is the billionaire, who has bestowed upon his fellow man the goods and services that raise their standard of living.

On the market, the source of the billionaire’s billions is the hundreds of thousands, perhaps even millions, of people who have decided that whatever the billionaire was offering was more important to them than the money it cost to obtain it. But even before the consumers made this judgement, the billionaire had to anticipate their preferences and he had to risk the prospects of a loss in order to bring forth the goods and services that the people desired.

The Role of the Billionaire in the Marketplace

On the market, there are no guarantees. As Ludwig von Mises once noted, the consumers do not offer assurances as to their commitment to the goods and services that the billionaire produces— they change their minds, they shift their preferences, and they choose goods of alternative quality at their own whim. The billionaire then, before he makes his billions, faces the prospects of a loss; that is, the market has a built in set of financial consequences as a penalty to the capitalists who choose unwisely in their allocation of resources.

Capitalists either succeed in providing things that people want or they do not. If they do, then not only are they rewarded, but by definition other people’s lives are improved. This improvement is not politically determined and judged, but determined by actual and demonstrated preferences of the consumers. If the capitalist does not succeed in making people better off, he is penalized and suffers the financial and other consequences of his poor decisions.

In this way, those politicians and commentators who push the idea that billionaires need to “give back” or pay their fair share do not understand that there is nothing to “give back” and that the “fair share” has already been contributed to society. There is nothing to “give back” because an exchange took place; value for value, with the capitalist giving a good or service and the consumer reciprocating with a transfer of funds. There was an even exchange such that there is no deficit or surplus in what one party continues to owe the other.

Further, the idea that billionaires must pay their fair share via taxation is similarly interpreted. The fair share, the wealth that the capitalist created on the path toward his billions, has been bestowed upon society in the course of his receiving the reward for his accurate anticipation of the wants and needs of consumers he has likely never even met.

If a capitalist earns billions of dollars in the course of his investment and subsequent selling of the goods and services he produces, he paid out his fair share in the form of the very goods and services he sold! If the capitalist earns a billion dollars, he contributed a billion dollars worth of goods. If he earns a million dollars, he contributed a million dollars worth of goods. If he earns a negative return (a loss), he has contributed nothing and is therefore penalized for this.

Thus, a wealth tax, by its very coercive nature is not only a breach of the private property rights that a capitalist has in his wealth, but it is also definitely not about “fair share.” It is an additional obligation above the fair share and diminishes the future investment capabilities that the capitalist has. And to diminish the capital stock is literally to undermine the potential wealth-creating activities of the capitalist billionaires.

The future of western civilization depends on the socio-economic framework of capitalism and free markets. It depends on people understanding that the wealth we see around us is a result of capitalism– of the “rich” seeking profits by investing their capital into the structure of production to produce goods for people and profit as they do it. In the words of George Reisman, “the protesters and all other haters of capitalists hate the foundations of their own existence.”

Thus, to launch an attack against the capital stock of capitalists of all wealth levels, is to undermine the very tool that mankind has in fighting impoverishment long term. If we want to overcome poverty, nothing is more important than investment into the structure of production; this is how goods are made more affordable to more people that have never before been to attain them. To siphon capital in preference for consumption is to siphon the very goods that bring mankind out of its natural state of impoverishment. In order to address the eternal struggle over scarcity of resources, we need capitalists and billionaires. They are the providers of a better tomorrow.

This article appeared in mises.org. C.Jay Engel  is the creator and editor of AustroLibertarian.com.

Now Georgia Is Pursuing a “Netflix Tax” to Cash in on Digital Streaming. Is It Time to Worry?

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As always, the government is seeking to penalize innovation by taxing it rather than celebrating

When the private sector needs to generate more revenue, entrepreneurs innovate and create in order to draw in consumers and raise profits. When the government needs to generate additional revenue, they are left with only one option: Extort through fees and taxation. And after it has taxed everything feasibly within its grasp, it has to get creative.

California lawmakers have sunk so low, there is now a tax on fruit purchased from vending machines. It should be noted that regular fruit purchased at a store is not subject to this tax, only those purchased from a vending machine. Following this line of absurdity, Indiana has an instituted a candy tax on marshmallows. Maine has a fruit tax specifically on blueberries. Unfortunately, Georgia may be the next state to fall victim to absurd government attempts to generate revenue by taxing digital streaming services like Netflix and Hulu.

At the end of last year, California tried to pull a fast one on its residents when local policymakers attempted to levy a 4 percent tax on text messaging. Just weeks prior, Chicago became a target for criticism after PlayStation’s decision to begin enforcing the city’s new 9 percent amusement tax was brought to the public’s attention. While most were aghast at the lengths these states were willing to go to in order to create new taxes, local governments were taking notes.

This week, the Georgia legislature will reconvene for the 2019 legislative season, during which state legislators will discuss the merits of passing and instituting a new 4 percent tax on Netflix and other streaming services. The proposal comes just after Georgia residents saw a cut to their income tax rate. But instead of letting Georgians celebrate keeping more of their hard-earned money, the state has found a new way to use taxpayers to fund new initiatives.

The “digital goods and services” tax, as it is called, is being proposed by the state House’s Rural Development Council. In order to soften the blow to taxpayers, the state has plans to lower its current communications service tax, which levies a tax on cell phone usage as well as cable television services, down to 4 percent. However, between this tax and the new proposed tax on streaming services, this still results in an additional 8 percent tax for residents. And this is only in this one narrow “communications” sphere.

To make matters worse, the proposed tax will apply to a wide range of streaming platforms. It is likely that both video and music streaming services will fall under the new digital goods and services tax, though PlayStation appears to be safe—at least for now. Services like Amazon’s video and music streaming platforms, Spotify, Pandora, and Apple, however, will be included in the new tax.

Unfortunately, Georgia is not the only state to consider instituting a tax on digital services. Florida, North Carolina, Pennsylvania, and Washington have each imposed their own form of streaming tax on digital media, as well. Chicago’s aforementioned amusement tax is currently being fought by Apple on the grounds that it violates the Internet Tax Freedom Act, but it is unclear if the lawsuit will go anywhere.

Since many states, Georgia included, have seen slashes to their income tax rates recently, politicians have been looking for creative ways to make up for the loss in revenue. And since the world is becoming increasingly more digital, it has become pointless for policymakers to attempt to tax physical purchases from brick and mortar establishments. No longer can the government profit from consumers renting movies, for example, since physical movie rental stores are not as plentiful as they used to be. Instead, governments have begun seeking to institute new forms of sales tax—like taxing digital rentals from Amazon or iTunes. And it’s easy to see why they are going after digital streaming.

A CNBC All-American Economic Survey found that 57 percent of the public uses some form of streaming platform, making this a very lucrative area to tax. The same report noted that the increase in streaming helped propel the value of Netflix to $124 billion, up from $63 billion just a year earlier. The surge in valuation occurred even though Amazon emerged to challenge Netflix. Reports suggest that now Walmart is looking to move into the digital streaming space.

The concept of taxing digital platforms might be a brilliant idea, really, if it wasn’t so slimy in nature. A tax on digital streaming is a tax on innovation itself.

Georgia is still largely a fiscally conservative state, so it is unknown as to whether this legislation will pass. However, it does appear to have the backing of House leadership. Senate Finance Committee Chair Chuck Hufstetler (R) told Bloomberg Tax:

It is controversial, but the world is changing. I don’t want that loss of sales tax that we’re seeing to mean a greater income tax. We’ll have to look at the details.

Hufstetler and others assert that instituting this tax would actually allow the state to make further cuts to the income tax rate. But this doesn’t seem to make a whole lot of sense since residents are unlikely to save any money if what they save in income taxes is made up with a higher sales tax. In 2018, the legislature approved cuts that lowered the income tax rates from 6 percent to 5.75 percent. The plan is for the income tax rate to be slashed even further, to 5.5 percent, by 2020.

Last year, a similar digital streaming tax was proposed and ultimately rejected by the state legislature, but that obviously doesn’t mean they haven’t kept trying. House Ways and Means Committee Chair Jay Powell (R) defended the state’s new tax push by saying that it isn’t new at all but rather a reframing of previously instituted taxes:

I think there’s an increasing awareness that we’re really not talking about new taxes. We’re talking about a market that has converted tangible personal property that historically has been subject to sales tax into a digital format.

As always, the government is seeking to penalize innovation by taxing it rather than celebrating it.

Sure, the state of Georgia might think its quest to raise revenue worthy since the money is supposedly going towards rural development, but the road to hell is paved with good intentions.

Each time a new tax is proposed, it is justified as going towards helping the “greater good” in one way or another. In California, the text messaging tax, which has since been abandoned due to the FCC’s influence, was supposed to go into a fund that is used to help lower-income earners pay for public utilities. In Seattle, a proposed “tax on jobs” sought to levy a tax on each worker employed by companies like Amazon. The revenue generated from this tax was supposed to go toward fighting homelessness.

Both of these taxes have respectable ends, but taxing anything that moves is not the answer to funding any project or initiative lawmakers might dream up. In Georgia, the push to tax streaming services has been justified through the promise of rural development. Legislators have already said that rural development is to be a focal point of this year’s legislative session, so it is possible that this bill might pass due to the popularity of the issue.

However, before Georgia goes approving any new taxes, legislators should take a closer look at what has happened with other tax increases with noble ends.

In 2015, Atlanta voters agreed to a tax increase of $250 million with the explicit purpose of using that money to fix outdated or broken infrastructure. Since that time, additional taxes have been levied for the same purpose, costing the taxpayers a total of $630 million. However, the government is now saying there is no money to complete the project. Even though taxpayers already paid greatly, the project is still more than 25 percent underfunded, leading many to wonder if the money was mismanaged.

No matter how admirable their many proposed projects and initiatives may be, it does not justify the imposition of new taxes. This is especially true for a state that has already proven itself incapable of managing taxpayer dollars.

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