When you argue against a VAT, Red Light Cameras, & Toll Roads…

…you are guaranteeing steep income tax increases.

So grow up.

Nothing cranks me up more than the Free Market Movement’s avoiding the necessary debate on swapping good taxes for bad. I hate taxes as much as the next guy, but until someone in the free market movement starts fighting spending and borrowing, taxes are here to stay. Not only that, but they are also guaranteed to climb.

Here is some tough medicine for the Free Marketers.

  • Every time you fight a Red Light Camera, you are keeping property taxes from going down.
  • Every time you fight a cigarette or liquor tax increase, you are keeping income taxes from going down.
  • Every time you blather on about hating toll roads, you are keeping income and gas taxes high.
  • Are you starting to get it? Now that I have your attention (and you are undoubtedly preparing to flame me in some comment), let me clarify the issue with some general, but unassailable, facts.

  • If you aren’t fighting spending, you are FOR increasing taxes.
  • At the state level, “pension guarantee clauses” and federal contract law operate to lock in promises made. Spending is going up, no matter what.
  • At the federal level, Medicare, Medicaid, the new health care bill, and Social Security will force an increase in spending, increase in debt (greater deferred spending) or the printing of money. Those are your options, and all involve steep tax increases in one form or another.
  • Consumption and sin taxes are superior to income/production taxes
  • User fees (tolls) are superior to income taxes
  • With all that in mind, why is the conservative/libertarian movement, along with the smarter people in the Republican Party, failing to make the case for tax swaps that entail the conversion from Income, Payroll, and Corporate Income tax to a consumption-based system of taxation.

    The only negative political factor that can be associated with such a policy is the impact on the poor. This is easily addressed by the creation of a yearly stipend for every US citizen. The stipend, in turn, can be used to individualize the entitlement programs that are destroying our nation’s finances.

    We could, for example, transition away from income taxes all together, while providing citizens with the means to pay for market-based health and retirement systems. This allow for the eventual devolution of Medicare and Medicaid, along with Social Security.

    Placed in this context, we should be considering gas, BTU, consumption, and sin taxes as complete replacements for Income and Social Security taxes. If we get our swap, we should even consider a VAT/National sales tax. This is good policy.

    And again, whether you are Tea Party Activist or a Free Market Think Tank employee, I have some advice for you. Sitting in a corner, with your hands over your ears, shouting, “I’m not listening to anything you say about taxes” isn’t an economic policy. It’s only a guarantee that you’ll get all those tax increases, and then some.

    We are in a position to make massive free market gains in the next few election cycles, providing we deal with fiscal reality in an intellectually honest manner. We can force the spending cuts that will yield tax cuts in the future. We can swap good taxes for bad ones. Lastly, if we do it right, we can individualize the welfare state through scholarships, stipends, and individual health and retirement accounts.

    America’s massive energy reserves, and how to get them…

    Here are the facts…

    America is sitting on 3-4.3 billion barrels of oil.

    We have massive Natural Gas Reserves as well.


    Here is how to get it out of the ground.

    1. Abolish the Income and Social Security taxes.
    2. Tax the heck out of energy.

    It’s good policy.

    Tax Cuts would have worked better

    Leaving aside the issue of utter fraud in the “Stimulus” numbers game, more and more evidence is coming in that tax cuts work better as stimulus than spending.

    Of course, that was obvious to most of us from the get go.

    Large changes in fiscal policy: taxes versus spending.

    We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

    It isn’t easy being right most of the time

    What’s wrong with the proposed Illinois Gas Tax Hike?

    It makes Illinois even less competitive in relation to its neighbors, as well as other states.

    As one of the few conservatives arguing for steep hikes in gas taxes (with corresponding LARGER cuts in Social Security tax, mind you) it is clear that the WORST place to enact gas tax hikes is at the state level.

    Frankly, if Obama REALLY wanted to do a “stimulus bill” properly, he would phase in steep gas taxes over 2 years (25 cents every 3 months until it gets to about $2.00) and use the proceeds to dole out cash to states on a per capita basis.

    He could even ameliorate the bite by getting states to reduce their gas taxes in exchange for federal revenue sharing of the increased gas taxes.

    Regardless, I must say that I feel sorry of Pat Quinn. He was left with a mess created not just by Blagojevich and the Democrats, but by 25-30 years of piggish party hacks in both parties who turned Illinois into state bankrupted by pension-seeking public patronage pigs.

    His best bet is to triangulate with smart Republicans (assuming there are some) early by hacking spending to the bone fast and early, and take credit for the better financial picture when the election rolls around.

    For an excellent primer on “Pigovian Taxes,” go here.

    Now everyone wants on board for a Gas Tax!

    Here are all my posts regarding swapping gas taxes for the worker’s portion of Social Security taxes. Once again, Extreme Wisdom is ahead of the curve.

    Holman Jenkins is one of my favorite Wall Street Journal columnists. He writes from a “libertarian” perspective that I don’t always agree with, but he cuts away at the absurd “sound bite” nature of “conventional wisdom” surrounding most issues.

    Here, he nails it regarding Detroit.

    A Car Wreck Made in Washington

    The wrong folks were in the witness chairs in last week’s congressional hearings on auto doom. A fantastic moment was Massachusetts Rep. Stephen Lynch assailing Rick Wagoner about whether GM was asking China for a bailout too. The implication seemed to be that GM can’t afford its inflated UAW pay packages because it’s squandering money to build cars in China.

    Mr. Wagoner mildly answered that GM’s China operations are profitable. They actually help to underwrite the massive losses in the U.S.

    Mr. Lynch showed no sign he was actually listening, having illustrated his disapproval of foreigners. He didn’t ask the obvious question: If GM can make cars profitably in China, why doesn’t GM import them to the U.S.?

    Why indeed? Because the UAW won’t let them, that’s why. This isn’t to forgive the management of the big 3 for incompetence. Like all toady business weenies these days, they would rather cave to Unions than to fight them. They deserve to go under based upon their cowardice alone.

    What you wouldn’t know is that the single biggest factor in preserving the UAW’s monopolistic power has not been labor law but Congress’s fuel-economy rules. These effectively have required the Big Three to lose tens of billions making small cars at a loss in UAW factories. Not only were the companies obliged to forgo profits they might have earned importing such cars, but CAFE deprived them of crucial leverage to control labor costs by threatening to move jobs to a factory in Spain or Taiwan or Poland. (Let’s face it, that’s what other successful U.S. manufacturers do.)

    All this was deliberately designed to give the UAW the means to defend uncompetitive wages in the face of a globalizing auto business. It had nothing to do with making sure Americans have high-mileage cars. Yet not a single legislator last week breathed a hint of recognition that something might be behind Detroit’s woes other than an improbable series of “stupid decisions” (as another Massachusetts congressman put it) by 18 CEOs over 30 years.

    Caving to DC and Washington WAS and IS a stupid decision. But next comes the REAL fun part. First, people are starting to realize the DC based bureaucracy is throwing everything out of whack. Next, everyone is starting to talk about a GAS TAX.

    [Obama] asked on Monday for Detroit to deliver a “plan” somehow to reconcile, at long last, the fantasy life of Washington, with nobody losing a job, with super energy-efficient cars, and yet somehow all this being done at a profit to Detroit.

    Here’s a plan, but it requires Mr. Obama to play a role too, finally relinquishing such chronic free-lunchism where autos are concerned. He should simply get rid of the CAFE rules and impose a gasoline tax to move the country to a “new energy economy,” if he really believes in panicky climate predictions and/or that “energy independence” would be a net improver of American welfare. And be prepared for Detroit to shift jobs offshore if the UAW won’t concede competitive labor agreements.

    Not acceptable? Here’s an alternative plan: Buy out the UAW with taxpayer dollars and free the Big Three to staff their factories with nonunion workers the way Toyota and Honda and BMW do. Last week’s Hill circus notwithstanding, the negotiation that really needs to take place now is between Democrats and their union allies. The Big Three executives are just in the way.

    As I said, Jenkins has a great way of cutting through the nonsense.

    To save the US car industry, hike gas back to $4.00

    I started talking about this here on Extreme Wisdom about 1-1.5 years ago. Get rid of a portion of the Social Security tax, and hike gas taxes. Now, everyone wants on board.

    Maybe If the Big Three CEOs Had Driven to Washington In Their Companies’ Cars (Greg Easterbrook, 11/25/08, ESPN: TMQ)

    So is there a grand compromise that gets rid of CAFE but preserves incentives to reduce petroleum waste? The other day on NPR, Fortune columnist Allan Sloan proposed a deceptively simple idea. Gasoline prices have fallen from $4 a gallon to nearly $2 in less than a year. Why not, he supposed, tax gasoline in such a way that it will always cost the equivalent of $4 (the amount rising in sync with inflation), and at the same time abolish CAFE standards. This is the sort of transformational insight Washington needs more of. A higher gasoline tax could be used to retire national debt or to lower Social Security taxes, which matter more to average people than income taxes. If the public knew that gasoline would always cost at least $4 per gallon, super-complicated MPG regulations would no longer be needed, because free-market forces would take care of the rest — most buyers would choose lower-horsepower higher-mileage cars of their own free will. Those who were willing to pay the piper could purchase whatever kind of vehicle they pleased. Detroit wouldn’t have to spend any time or money twisting arms in Washington, and could focus its energies on car-making rather than on regulatory lobbying.

    Sloan’s idea is fantastic! Of course, it would require a gifted politician to sell the idea to the public; as luck would have it, the most gifted natural politician since Ronald Reagan is about to unpack his bags in the White House. And didn’t Barack Obama say something about wanting change? Tax gasoline so the price is always at least $4 a gallon, then eliminate federal mileage regulations. Detroit would be more likely to recover. The Persian Gulf oil sheiks would howl. Either the national debt or Social Security taxes would decline. Federal bureaucracy would shrink. What’s not to like?