Commentary Magazine


Topic: taxes

Why Jeb Bush Is Right and Grover Norquist Is Wrong

According to an article in Politico:

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According to an article in Politico:

Jeb Bush has a tax problem.

The former Florida governor has said he could accept tax increases in a hypothetical deficit-cutting deal. Never mind that he added that would come only in exchange for major federal spending cuts, or that he repeatedly cut taxes as governor.

Tax hikes are still apostasy in Republican circles, and the stance could be a big problem for Bush if he decides to seek the party’s presidential nomination in 2016.

Bush’s views are already pitting him against one of his party’s most influential activists, Grover Norquist, the high priest of anti-tax orthodoxy who’s convinced nearly every elected Republican to sign a pledge not to raise taxes.

“Mind-boggling,” Norquist said of Bush.

Actually, it isn’t, or at least shouldn’t be.

Set aside for the moment your view of Jeb Bush and the 2016 presidential race. Let’s instead examine this broader argument with some care, beginning with putting the story in context.

As Politico points out, during a June 2012 House Budget Committee hearing, Bush was asked about a theoretical deficit plan that would actually cut $10 in spending in exchange for a dollar in tax increases. This was a question first posed to Republican presidential candidates by Byron York and Bret Baier and was rejected by all eight of them. (I criticized that response at the time.) Governor Bush’s response was different than the Republicans running for president. “If you could bring to me a majority of people to say that we’re going to have $10 of spending cuts for $1 of revenue enhancement — put me in, Coach,” he said.

Note well what Bush didn’t say. He didn’t say he believed we as a nation are under-taxed. In fact Bush, as governor of Florida, had a sterling tax-cutting record, having cut them every year he was governor (a period covering eight years and totaling nearly $20 billion). What Bush said is that if you could actually get a 10-to-one ratio in spending cuts to tax increases–that after all was the premise of the thought experiment–he’d do it. So, I would think, would any conservative interested in limiting government.

I not only understand the case for lower taxes; I support tax cuts. But it’s not an inviolate principle. The question on these things is always context. Higher taxes in exchange for what? Which taxes are we talking about? And what else might be considered in any such deal (e.g., reforming Medicare by replacing the current fee-for-services system with a premium support one)?

People I respect believe the no-new-tax pledge has done more good than harm, that without it Republicans would be far more inclined to raise taxes. That’s not an unreasonable stance. But for conservatives to say, as many now do, that there’s no scenario in which taxes could ever be raised–and to pledge to oppose a tax increase regardless of circumstances–strikes me as misguided. Nor do I believe most Republicans, if you had a long, honest conversation, would be that absolutist. The right level of taxation is a prudential, not a theological, matter; it needs to be seen in the context of other economic conditions and possible gains in other areas.

This debate highlights a danger for conservatism, which is that certain policies are elevated to dogma, to canon. It takes a reasonable starting point in a negotiation and turns it into a non-negotiable end point. Vin Weber, a principled conservative, said Bush’s answer on the tax issue “was totally right, and if we’re ever going to deal with the long-term debt question, Republicans are going to have to come to grips with that.”

This debate also exposes a mindset that views compromise per se as unprincipled, a capitulation, a sign of weakness. This is a deeply unconservative attitude and quite at odds with what James Madison and the other Federalist founders believed. The Constitution itself was the result of a whole series of difficult, reluctant, remarkable compromises. That’s why it’s so odd that those who consider themselves “constitutional conservatives” are often the ones who react most strongly against even the idea of compromise.

One other thing. If the attitude many of those on the right have toward taxes today existed in the 1970s and 1980s, Ronald Reagan would have been considered a heretic. I say that because Reagan himself signed into law what his biographer Lou Cannon called “the largest tax hike ever proposed by any governor in the history of the United States”; and as president he signed a tax increase (TEFRA) that at the time was the largest in American history. As president Reagan, in fact, raised taxes multiple times.

Now my own view is that Reagan’s record, including his record on taxes, needs to be seen in whole–and seen in whole it was outstanding. He was responsible for cutting the top rate from 70 percent to, when he left office, 28 percent, which helped catalyze our economy; and his 1986 tax reform plan was a tremendous achievement. Yet Reagan did raise taxes.

It’s true that President Reagan came to regret his 1982 tax increase. But it’s important to keep this in mind: He agreed to it, he said, assuming he’d get $3 of spending cuts for every dollar in tax increases. (He didn’t, though the reality is somewhat complicated.) If that result had in fact come to pass, would the deal have been wrong? Would today’s anti-tax advocates torch him for his apostasy? Would he be vilified as a RINO? Would he be vulnerable to a primary challenge?

It tells us something about some currents within conservatism that a governor with a sterling tax cutting record, in expressing support for a theoretical deal far more conservative than what Ronald Reagan was willing to accept, would be the object of harsh criticisms.

My guess is that this kind of approach to politics, while still embraced in some quarters, is losing influence. At least I hope so. Not because I want higher taxes, but because I don’t think conservatism is a rigid, adamantine ideology; that the quest for political purification is fraught with danger; and because conservatives shouldn’t assume that any deal that gives you less than everything is a bad deal. Conservatives shouldn’t treat a debate about tax rates as a metaphysical matter.

We all have roles to play, and governing is different than critiquing those who do. The former certainly need to be prodded now and then by activists and commentators; I do a fair amount of that myself. But activists and commentators need to understand that while we need to strive for the ideal, the ideal can’t become the standard by which we judge politicians. Nor is every issue a hill to die on. And, as the greatest American conservative of them all warned, there’s not a lot to be won, and even a lot to be lost, by going over the cliff with our flags waving.

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Marylanders to the Rest of the Country: Beware Martin O’Malley

What does Maryland Governor Martin O’Malley have in common with self-described socialist Vermont Senator Bernie Sanders? The same percentage of Maryland Democrats want them to be the next Democratic presidential nominee. That would be 3 percent. It’s just one of the many data points to come out of the latest Washington Post/University of Maryland poll to support H.L. Mencken’s contention that “Democracy is the theory that the common people know what they want and deserve to get it good and hard.”

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What does Maryland Governor Martin O’Malley have in common with self-described socialist Vermont Senator Bernie Sanders? The same percentage of Maryland Democrats want them to be the next Democratic presidential nominee. That would be 3 percent. It’s just one of the many data points to come out of the latest Washington Post/University of Maryland poll to support H.L. Mencken’s contention that “Democracy is the theory that the common people know what they want and deserve to get it good and hard.”

Although, in the interest of basic compassion, it might be unkind to claim Maryland residents–or anyone, really–deserve to get two terms of Martin O’Malley.

And, to their immense credit, Marylanders don’t want the rest of the country to bring Martin O’Malley upon themselves. The message from Marylanders to the nation at large is: Don’t let our years governed by O’Malley be in vain; let something good come out of all of this. And that something good appears to be a national future unencumbered by Martin O’Malley as the nation’s chief executive.

But there are worse numbers in the poll for O’Malley than Democratic voters’ resounding declaration that they don’t want him representing their party in the next presidential election. That at least can be spun away. After all, if Democrats are asked to pick one politician to be their next presidential nominee, it’s no surprise that so many–63 percent–chose Hillary Clinton. (Although it is somewhat humorous that “Other/no opinion” polls nearly five times as well as O’Malley. They say you can’t beat something with nothing, and O’Malley appears to be the exception that proves the rule.)

No, the most unflattering portion of the poll is probably when registered voters are asked “Do you think Martin O’Malley would make a good president, or not?” The response: 14 percent said yes; 70 percent said no. The poll contrasts that with the result when the same question was asked in October 2012. At that time, the numbers were only slightly better–22 percent said yes; 62 percent said no–but still so far underwater as to be invisible from the surface.

There are more bad numbers–really, the whole poll is just an opportunity for Marylanders to unload on their horrendous governor. As the Post reported in an accompanying story, his “job-approval rating has fallen to an eight-year low of 41 percent, with his biggest defections coming from fellow Democrats.” What happened? The Post offers some suggestions:

Although O’Malley is not on the ballot this year, his policies in Maryland — particularly a string of tax increases during his tenure — have come under heavy fire from other candidates. Months of attacks, including some from fellow Democrats, appear to have taken their toll, some analysts say.

Other observers suggest that the time O’Malley has spent crisscrossing the country, seeking to gain national exposure, has alienated some constituents in Maryland.

Plausible. But it might be worth delving a bit more into his policies. The lesson might not be one national Democrats want to learn:

His legacy will include legalization of same-sex marriage, a sweeping gun-control bill, repeal of the death penalty, several measures expanding immigrant rights and an increase in the minimum wage. He has also overseen multiple tax hikes during his tenure, including increases in personal income taxes paid by high earners, the corporate income tax, sales tax, gas tax, tobacco tax and alcohol tax.

All politics is local (though not as local as it ought to be), so I doubt it’ll worry Democrats too much. Some of this might be personal; O’Malley is, after all, deeply unlikeable. But his agenda is also very liberal in a pretty liberal state, and voters don’t seem to love the results. It’s a common feature in American politics: there’s only so much liberalism even liberals can take.

And part of that could be the impression of the stereotype come to life. Reread that list of O’Malley tax increases, and you not only understand the O’Taxey nickname but get the sense the governor is to taxes what Bubba Blue is to shrimp.

Democrats may counter all this by pointing out that O’Malley is terrible at his job, and Democrats who aren’t terrible at their jobs will not suffer the same poll numbers. That’s true. But an element of O’Malley being terrible at his job is that, when it comes to issues like taxes, he cranks his liberalism up to eleven.

The other phenomenon here is just how “Ready for Hillary” national Democrats are. They don’t want a divisive nomination fight, and they don’t want a battle over ideas, in part because they want to nominate Hillary instead of a candidate who has ideas. So they’re not much interested in even having this conversation. And you almost can’t blame them: O’Taxey, a Vermont socialist, Joe Biden–the alternatives to Hillary aren’t exactly a sparkling A-team of Democratic leaders.

And that’s what might actually concern Democratic Party leaders more than O’Malley’s unpopularity: the prospect that there is no A-team. There’s just Clinton. They may get the nominee they want, but as far as Democrats see it, that’s not because she’s their best choice as much as that she’s their only choice.

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What’s Wrong with the American Economy?

Growth in the American economy since the year 2000 has averaged 1.7 percent per annum. That’s about half of what it averaged in the Reagan, Bush I, and Clinton years. Unemployment, especially in the broader measures, remains stubbornly high five years after the recession of 2007-2009 ended. What’s going on?

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Growth in the American economy since the year 2000 has averaged 1.7 percent per annum. That’s about half of what it averaged in the Reagan, Bush I, and Clinton years. Unemployment, especially in the broader measures, remains stubbornly high five years after the recession of 2007-2009 ended. What’s going on?

According to Peter Morici, an economics professor at the University of Maryland (and the bow-tied star of TV commercials for Kyocera office equipment) the problems lie in five key areas. 1) Poorly enforced trade agreements that allow China to manipulate its currency and export more goods to the United States, costing U.S. jobs. 2) Counterproductive energy policies that reduce domestic production, and therefore jobs, and cause more oil to be imported. 3) Burdensome regulations and taxation, such as restrictive licensing requirements and the highest corporate tax in the developed world. 4) Crony capitalism that reduces competition in the private sector in exchange for political contributions. 5) Disincentives to work, such as ever-expanding entitlements.

The good news is that, unlike the economic problems faced by many countries, all of these problems are amenable to reform. The bad news is that reforming the status quo, which always has determined defenders, requires strong presidential leadership and a Congress capable of acting in the national interest, not just in its members’ interests.

Right now, of course, we have neither. Even Democrats are beginning to notice that the Obama presidency is notably lacking in leadership. And Congress is more dysfunctional than it has been in a very long time. The latter problem can be at least partially ameliorated in a month. The former will have to wait until 2017.

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Obama and Burger King Demagoguery

Who are the biggest villains in the United States today? As much as Americans may rightly fear the rise of ISIS Islamist terrorists, to listen to some commentators, the owners of the Burger King fast-food chain aren’t just the epitome of corporate greed. They’re also being depicted as 21st century Benedict Arnolds for planning to move their corporate headquarters to Canada to evade high U.S. tax bills. But instead of joining in a cost-free demagogue fest that both left and right-wingers can enjoy, rational citizens should be blaming the tax code and a president who could reform the system if he was willing to work with Republicans rather than use them as rhetorical punching bags.

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Who are the biggest villains in the United States today? As much as Americans may rightly fear the rise of ISIS Islamist terrorists, to listen to some commentators, the owners of the Burger King fast-food chain aren’t just the epitome of corporate greed. They’re also being depicted as 21st century Benedict Arnolds for planning to move their corporate headquarters to Canada to evade high U.S. tax bills. But instead of joining in a cost-free demagogue fest that both left and right-wingers can enjoy, rational citizens should be blaming the tax code and a president who could reform the system if he was willing to work with Republicans rather than use them as rhetorical punching bags.

The manner by which Burger King is heading to the great white north is called corporate inversion and is being facilitated by the fast-food franchise purchase of Tim Horton’s, the Canadian donut chain named after an otherwise obscure hockey player. Once they own Horton’s, BK can shift its corporate operations to Canada where they will pay lower taxes than they do now. This is an eminently sensible business decision, but to listen to the likes of MSNBC’s Joe Scarborough, it’s tantamount to treason; the onetime congressman says he won’t eat there any more is encouraging others to do the same. Left-wing lawmakers like Ohio Senator Sherrod Brown agrees and also supports a boycott which would aid both White Castle and Wendy’s that are currently based in his state.

President Obama isn’t calling for a boycott. Instead he issued a call for Congress to pass corporate tax reform that would eliminate the need for American companies to flee the country over their tax bill. But he also said that the need to immediately pass a bill prohibiting such corporate moves shouldn’t have to wait until a solution to the years-long standoff about taxes that helped fuel numerous confrontations between the White House and congressional Republicans is found. Which is to say, he wants companies like Burger King compelled to stay without actually offering them tax relief.

Nobody need hold a benefit for Burger King but the hypocrisy and foolishness that form the foundation for all the demagoguery being aimed at that company seems at least equal to the venality of the fast food franchise.

First, the talk about patriotism and hamburgers is pure baloney. In the global economy trying to tie down a company that does business around the world in this fashion is silly. Americans haven’t owned Burger King since 2010 when SG Capital, a Brazilian private equity firm, purchased it when its previous proprietors dumped it because of its declining value. Expecting these stockholders who purchased a flagging company in the hope of increasing its worth and not to do their part in funding America’s out-of-control government spending is absurd. Global capitalism may not appeal to our sentimentality but it is a reality, and for supposedly smart people who are otherwise happy to profit from it to bash BK in this manner is hypocrisy on an Olympic scale.

Second, the president’s umbrage should be tempered by the fact that the person enabling this transaction is none other than his good buddy Warren Buffett. In 2012, Buffett was a major asset to Obama’s reelection because the billionaire’s support for higher taxes was seen as a definitive answer to conservatives who rightly believed Obama’s budget plans were bad for the economy and economic growth. But though he claimed to be personally in favor of higher taxes for himself, apparently Buffett doesn’t think the same principle applies to companies and it is his Berkshire Hathaway firm that is financing Burger King’s purchase of Horton’s. Hopefully, his secretary, whose higher personal tax rate than her boss (a disingenuous argument if ever there was one) became a staple of Democratic campaign rhetoric, will get a cut of the profits from the deal.

But more important than either of those facets of the story is the fact that if President Obama really wanted to reform our tax code, he could have done so years ago. While joining in the gang tackle of Burger King, Obama lamented Congress’s failure to pass reforms that would have made such moves unnecessary. Yet he torpedoed every opportunity to do so by demanding that a fairer revenue code be tied to tax increases. Rather than make cuts in the entitlements and government boondoggles he wishes to preserve, Obama preferred a continued stalemate because it enabled him to blame this failure on his congressional antagonists. That’s good politics but bad economics.

Liberals have given a lot of praise to Canada in recent years because of its government health-care program, but instead of trying to work toward the creation of a medical system that is a bad fit for Americans, they should have been studying our northern neighbor’s tax codes. Rather than jumping on the bandwagon of those wanting to boycott Burger King, the president and his supporters should stop the demagoguery and begin negotiating in good faith with Republicans in order to create a tax system that doesn’t punish success or reward failure. Kicking Burger King is easy. Protecting both citizens and corporations from the greed of the government and its permanent bureaucracy is hard.

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Walmart, Wages, and the Public Good

Who knew corporations could do snark? When New York Times columnist Timothy Egan wrote a column called “Walmart, Starbucks, and the Fight Against Inequality,” claiming that Walmart’s low wages forced many of its employees onto public assistance, such as food stamps and Medicaid, David Tovar, the communications director for Walmart, treated it as a first draft and pointed out its many factual inaccuracies. He then posted it on the Walmart website. It makes for hilarious reading.

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Who knew corporations could do snark? When New York Times columnist Timothy Egan wrote a column called “Walmart, Starbucks, and the Fight Against Inequality,” claiming that Walmart’s low wages forced many of its employees onto public assistance, such as food stamps and Medicaid, David Tovar, the communications director for Walmart, treated it as a first draft and pointed out its many factual inaccuracies. He then posted it on the Walmart website. It makes for hilarious reading.

Egan’s argument is that if Walmart paid higher wages, its employees wouldn’t need public assistance. Using very dubious math and a “study” that left-leaning Politifact.com calls “mostly false,” Egan describes Walmart as a “net drain” on taxpayers. Tovar points out that Walmart is the largest taxpayer in the country.

I doubt that Timothy Egan has ever gone into a store to buy something and, on being told the price, insisted on paying more. So if Walmart can hire a satisfactory employee at a given wage, why should it insist on paying more? For one thing, it would violate its fiduciary duty to the stockholders. For another, it would have to raise the prices its hundreds of millions of customers pay.

Egan’s column, demanding that Walmart pay higher wages, is classic modern liberalism, solving the problems of the world with other people’s money, and using junk statistics to justify it.

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Conservatism Means Adjusting to Shifting Circumstances

The American Enterprise Institute’s James Pethokoukis has written a post with a provocative headline: “Have Reagan-style tax cuts lost their political power?”

The answer, he says, is yes. “It shouldn’t be surprising that the tax issue doesn’t have the old oomph that it used to with voters,” according to Pethokoukis. And he highlights these poll results:

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The American Enterprise Institute’s James Pethokoukis has written a post with a provocative headline: “Have Reagan-style tax cuts lost their political power?”

The answer, he says, is yes. “It shouldn’t be surprising that the tax issue doesn’t have the old oomph that it used to with voters,” according to Pethokoukis. And he highlights these poll results:

1. In the early 1980s, close to 70 percent of Americans thought their taxes were too high. Today, that number is 50 percent.

2. Middle-class Americans, by 53 percent to 42 percent, think they’re paying their fair share in taxes.

3. Americans rank taxes low on their list of concerns—even below climate change.

4. In the age of online tax preparation, Americans don’t think their tax returns are hard to fill out.

5. Americans think raising the minimum wage and business deregulation are better ways to boost economic growth than cutting tax rates on businesses and the wealthy.

Now, these findings don’t tell us which tax plans might be economically best for this particular moment in time. But I do think this has some bearing on a point I’ve made before and will undoubtedly make in the future: Ronald Reagan’s policies worked fabulously well in the 1980s. But the problems we face are different now than they were then. Conditions have changed, and the task for conservatives is to change–in a responsible, principled way–with them. That is in important respects what it means to be a conservative.

This point should be so obvious that it shouldn’t need to be made, except that for some on the right, to say that what Reagan did nearly 35 years ago may not be what is required today borders on heresy. For others, I suspect what is at play here are certain habits of thought. The tax issue has worked so well for so long for Republicans, they have developed well-worn mental and public policy grooves. And those are difficult to escape from.

It’s isn’t always easy, but it is necessary, to pull back from time to time to re-examine the intellectual and political landscape, to see problems in a somewhat different light, and to periodically think anew and act anew. Reagan himself did precisely that. The Reagan who ran in 1980, embracing supply-side economics, is not identical to the Reagan who ran in 1976, when he focused less on sweeping tax cuts.

Conservatives need to learn from the past but not simply try to replicate it; to understand that our principles applied to new problems will sometimes yield new solutions. To do anything else would not be conservatism but dogmatism.

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Answering the Wall Street Journal’s Kimberley Strassel

Wall Street Journal columnist Kimberley Strassel, whose work I generally like, has written a column in which she attacks a publication to which I contributed, Room to Grow. Most of her focus is on tax policy. She is a fierce critic of child tax credits, which Rob Stein, who authored the chapter on taxes, endorses.

Bloomberg’s Ramesh Ponnuru has written a response which is largely devoted to the matter of tax policy and child credits, and I commend it to you.

I thought it might be useful is to analyze two claims made by Strassel, one of which is that “The authors are clear that politics, not principle, needs to drive conservative policy.”

Really, now? Ms. Strassel need only have read the opening paragraph of the introductory essay (written by me) to refute this assertion. Here’s what it says (the italics are mine):

Policy is problem solving. It answers to principles and ideals, to a vision of the human good and the nature of society, to priorities and preferences; but at the end of the day it must also answer to real needs and concerns. And public policy today is clearly failing to address the problems that most trouble the American people.

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Wall Street Journal columnist Kimberley Strassel, whose work I generally like, has written a column in which she attacks a publication to which I contributed, Room to Grow. Most of her focus is on tax policy. She is a fierce critic of child tax credits, which Rob Stein, who authored the chapter on taxes, endorses.

Bloomberg’s Ramesh Ponnuru has written a response which is largely devoted to the matter of tax policy and child credits, and I commend it to you.

I thought it might be useful is to analyze two claims made by Strassel, one of which is that “The authors are clear that politics, not principle, needs to drive conservative policy.”

Really, now? Ms. Strassel need only have read the opening paragraph of the introductory essay (written by me) to refute this assertion. Here’s what it says (the italics are mine):

Policy is problem solving. It answers to principles and ideals, to a vision of the human good and the nature of society, to priorities and preferences; but at the end of the day it must also answer to real needs and concerns. And public policy today is clearly failing to address the problems that most trouble the American people.

If she had read only a bit further into the chapter, she would have stumbled across this:

conservatives in American politics need to understand constituents’ concerns, speak to those aspirations and worries, and help people see how applying conservative principles and deploying conservative policies could help make their lives better.

And this:

Conservatives today need to show Americans how the principles that led to successful solutions when applied to the problems of that era [the 1980s] can do the same when applied to the rather different problems of this one. The same principles applied to new problems will yield new solutions.

The point of Room to Grow–which is explicitly stated in the book–is to (a) elucidate how a conservative vision of government could speak to today’s public concerns; (b) suggest how such a vision would translate into concrete policy reforms; and (c) explain how that vision and those reforms embody the spirit of our constitutional system. That hardly amounts to arguing that principles need not drive conservative policy. In fact, it amounts to the opposite.

We of course take political realities into account, as any sane person, and certainly any true conservative, must; but that is done in order to make it more, not less, likely that a conservative governing agenda actually be translated into law.

Now let me turn to Strassel’s claim that Room to Grow’s central premise is “That conservatives need to embrace government to better endear themselves to the ‘middle class.’”

This charge, like the first one, is wildly wrong. In the book’s second chapter, by my Ethics and Public Policy Center colleague Yuval Levin, he explains with some care why the proposals in the book would result in a government that “would no doubt be much smaller, more restrained, and less expensive than the one we have today.”

Yet Levin goes further than that. He also argues that conservatives should not be satisfied with accepting less of the same: the liberal welfare state at a lower cost. A bolder and more far-reaching goal is to change the underlying structure, the basic architecture, of much of the liberal welfare state, in order to advance the conservative vision of society.

The argument over which approach to tax cuts conservatives should take–tax credits for families v. cutting taxes on capital, and which are most appropriate at any given moment–is a serious and long-standing one. Ms. Strassel, an intelligent writer, is certainly able to present her substantive case. What is somewhat surprising is that her column so clearly misrepresents the book and the views of the various authors, to ascribe to them views and motivations that are quite obviously false.

She can do better than this, and usually she does.

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Paying the Corporate Income Tax

Who actually pays the corporate income tax has long been a problem for economists. Depending on the particular competitive circumstances in an industry, the tax is paid through some combination of lower wages for workers, lower capital gains for investors, and higher prices for consumers. 

A new study from Ben Southwood of the Adam Smith Institute calculates that, on average, workers pay 57.6 percent of the corporate income tax. In other words, a tax that was instituted under President William Howard Taft in order to tax the rich, who owned almost all corporate stock in the early 20th century, now taxes mostly the average guy.

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Who actually pays the corporate income tax has long been a problem for economists. Depending on the particular competitive circumstances in an industry, the tax is paid through some combination of lower wages for workers, lower capital gains for investors, and higher prices for consumers. 

A new study from Ben Southwood of the Adam Smith Institute calculates that, on average, workers pay 57.6 percent of the corporate income tax. In other words, a tax that was instituted under President William Howard Taft in order to tax the rich, who owned almost all corporate stock in the early 20th century, now taxes mostly the average guy.

In 2013 the corporate income tax yielded $273 billion in revenue to the federal government, a little less than 10 percent of all federal revenues. Because it was never coordinated with the personal income tax that was instituted after the adoption of the 16th Amendment in 1913, it has been one of the main drivers of the ever greater complexity of the tax code as taxpayers have sought to legally avoid taxes by playing one tax off against the other.

While, heaven knows, the whole tax code needs to be junked and completely rethought, a good place to start would be by abolishing the corporate income tax.

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Obama Budget: Dems Still Status Quo Party

While Democrats have spent the last few months trying in vain to engender a public outcry about income inequality, the greatest challenge facing the country remains the same: a long-term budget and debt crisis fueled by the rising cost of entitlements that can’t be fixed with token spending cuts or higher taxes on the rich. But the 2015 budget that President Obama will propose this year will ignore it. Instead of building on the discussions that he has had with Republicans in recent years in which he has at least contemplated a form of entitlement reform, there will be no mention of indexing cost-of-living increases for Social Security recipients or any other measure intended to check the growth of expenditures by the government. Instead, the president is proposing $56 billion more in federal spending on pet projects.

This means nothing in terms of what the legislative branch will actually wind up passing—if indeed both the House and the Senate are actually able to pass a budget before the current Congress is adjourned and replaced by a new one next January—since the Republican majority in the House will not even consider the president’s proposal. What he will be giving the country is not so much an economic blueprint as a political manifesto of Democratic beliefs. As such, it is a useful guide to how Democrats will run in November’s midterm elections. Though liberals are fond of chiding the GOP for being a prisoner of the Tea Party rather than a party of ideas, the Obama budget makes it clear that the Democrats intend to face the people in the fall as a brain-dead status quo party that is addicted to taxes and spending. This may please a liberal base that is flexing its muscles after the victories of ideologues such as Elizabeth Warren and Bill de Blasio. But it’s hard to imagine how they think they can hold the Senate or avoid losing more seats in the House running to the hard left in the wake of the ObamaCare disaster that has soured the public on the big-government paradigm.

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While Democrats have spent the last few months trying in vain to engender a public outcry about income inequality, the greatest challenge facing the country remains the same: a long-term budget and debt crisis fueled by the rising cost of entitlements that can’t be fixed with token spending cuts or higher taxes on the rich. But the 2015 budget that President Obama will propose this year will ignore it. Instead of building on the discussions that he has had with Republicans in recent years in which he has at least contemplated a form of entitlement reform, there will be no mention of indexing cost-of-living increases for Social Security recipients or any other measure intended to check the growth of expenditures by the government. Instead, the president is proposing $56 billion more in federal spending on pet projects.

This means nothing in terms of what the legislative branch will actually wind up passing—if indeed both the House and the Senate are actually able to pass a budget before the current Congress is adjourned and replaced by a new one next January—since the Republican majority in the House will not even consider the president’s proposal. What he will be giving the country is not so much an economic blueprint as a political manifesto of Democratic beliefs. As such, it is a useful guide to how Democrats will run in November’s midterm elections. Though liberals are fond of chiding the GOP for being a prisoner of the Tea Party rather than a party of ideas, the Obama budget makes it clear that the Democrats intend to face the people in the fall as a brain-dead status quo party that is addicted to taxes and spending. This may please a liberal base that is flexing its muscles after the victories of ideologues such as Elizabeth Warren and Bill de Blasio. But it’s hard to imagine how they think they can hold the Senate or avoid losing more seats in the House running to the hard left in the wake of the ObamaCare disaster that has soured the public on the big-government paradigm.

While the president has charted a hard-left approach, the White House is still pretending that he is a moderate facing off against right-wing extremists. That was the spin today coming from the president’s spokesman who claimed it was the GOP’s fault that entitlement reform was absent from the budget. The administration line is that since Republicans still oppose raising taxes, Obama feels empowered to drop his willingness to confront entitlements. But this is a lame excuse that won’t be believed even by his most loyal supporters.

By proposing a budget that refuses to contemplate any fix for the crisis that threatens to ultimately bankrupt the government, the president is seeking to enable Democrats to run to the left this year by defending entitlements and accusing Republicans of planning to throw grandmothers in wheelchairs over the cliff. He seems to believe that Americans are so addicted to government benefits and so fearful of any talk of reform that Democrats can blithely ignore fiscal reality and win big.

But if this strategy sounds familiar, it should. This was the same approach Democrats tried in 2010 when they blasted the GOP as radicals who wanted to take away Social Security and Medicare from senior citizens and further impoverish the poor. Just as in that midterm vote, Democrats are ignoring the specter of ObamaCare and hewing to their belief that only wingnut Tea Partiers care about the debt. In 2010 voters showed Democrats you didn’t have to be a fringe right-winger to care about restraining the growth of government. But since worries about the impact of the president’s signature health-care legislation are, if anything, even greater in 2014 than they were then, the president’s strategy may turn out to be a colossal mistake.

The growing number of ObamaCare losers who are being hurt by the new law may well outnumber those who benefit from it. Moreover, most of the swing seats that are up for grabs this year are in states where the president’s big-government manifesto will not only fall flat but also be a handicap to Democratic candidates. The liberal base never liked the idea of cutting spending no matter what tax increases the GOP might have proposed. All they want to hear from the president is a rigorous defense of more “investment”—government lingo for spending money plucked from the wallets of taxpayers on various federal projects and Obama boondoggles—and no reform of entitlements. That’s what the president has given them. But embattled Democrats in danger of losing this November will not thank him for drawing such a stark distinction between the parties on this seminal issue. Running on the status quo is always a political loser.

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No Wonder Obama Was so Desperate to Pack the D.C. Circuit

The D.C. Circuit Court of Appeals struck down another Obama administration power grab yesterday. It ruled unanimously that the IRS did not have the statutory authority, under the so-called Horse Act of 1884 (passed 29 years before the income tax existed), to license tax preparers, require them to pay annual fees, and attend at least 15 hours of continuing education a year.

The Horse Act was passed to bring an end to a rash of fraudulent claims stemming from the Civil War, where people would claim compensation from the government for horses and other property taken or killed in the war. They would often claim that some broken-down plow horse was actually a magnificent beast worth many times more. (That’s not at all dissimilar to the rash of allegedly fraudulent claims against BP for the Gulf oil spill of 2010 that’s going on right now.) It authorized the treasury secretary to establish standards for people representing claimants before the Treasury.

In 2011, rather than asking Congress for the power to license tax preparers, the Obama administration just went ahead and took the power, using the fig leaf of the Horse Act. But tax preparers, of course, don’t represent their clients before the IRS. They simply fill out the incredibly complicated forms. The clients, not the preparers, are representing that the information on the forms is correct. That was the opinion of the IRS itself up until the Obama administration came into being. In 2009 it wrote, “Just preparing a tax return [or] furnishing information at the request of the IRS … is not practice before the IRS ….”

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The D.C. Circuit Court of Appeals struck down another Obama administration power grab yesterday. It ruled unanimously that the IRS did not have the statutory authority, under the so-called Horse Act of 1884 (passed 29 years before the income tax existed), to license tax preparers, require them to pay annual fees, and attend at least 15 hours of continuing education a year.

The Horse Act was passed to bring an end to a rash of fraudulent claims stemming from the Civil War, where people would claim compensation from the government for horses and other property taken or killed in the war. They would often claim that some broken-down plow horse was actually a magnificent beast worth many times more. (That’s not at all dissimilar to the rash of allegedly fraudulent claims against BP for the Gulf oil spill of 2010 that’s going on right now.) It authorized the treasury secretary to establish standards for people representing claimants before the Treasury.

In 2011, rather than asking Congress for the power to license tax preparers, the Obama administration just went ahead and took the power, using the fig leaf of the Horse Act. But tax preparers, of course, don’t represent their clients before the IRS. They simply fill out the incredibly complicated forms. The clients, not the preparers, are representing that the information on the forms is correct. That was the opinion of the IRS itself up until the Obama administration came into being. In 2009 it wrote, “Just preparing a tax return [or] furnishing information at the request of the IRS … is not practice before the IRS ….”

The Circuit Court ruling was unequivocal: “If we were to accept the IRS’s interpretation of Section 330 [of the United States Code, where the Horse Act is enshrined today], the IRS would be empowered for the first time to regulate hundreds of thousands of individuals in the multi-billion dollar tax-preparation industry. Yet nothing in the statute’s text or the legislative record contemplates that vast expansion of the IRS’s authority.”

Why did the Obama IRS try to get away with this? Simple: to help out the big guys at the expense of the small guys, which is to say crony capitalism. Obeying the new regulations would have been no problem for, say, H&R Block or even full-time accountants. It was aimed at forcing out of the market the mom-and-pop operations who earn a few thousand dollars each spring helping friends and neighbors to file their income-tax returns.

The giveaway here is that the deputy IRS commissioner who crafted the new rules was none other than Mark Ernst, former CEO of—wait for it!—H&R Block. H&R Block, of course, was all in favor of the new rules that would have axed a considerable portion of their competition. Giving Ernst a political appointment to deal with matters directly concerning a former employer would have been flatly illegal, so he was given a “civil service” appointment instead, as though he were nothing more than one more bureaucrat moving up the ladder. His civil service career lasted less than two years.

President Obama presents himself as the champion of the poor and downtrodden. But that’s only the poor and downtrodden who are happy to be, effectively, wards of the state. The ordinary Joe who is just trying to make his own independent living is of no concern to Obama. Indeed Obama cares far more about the big guy who can attend $30,000-a-plate dinners and expects favors in return.

Despite frequent attribution, Commodore Cornelius Vanderbilt never said it, but President Obama should: “Law? What do I care about the law? I got the power ain’t I?”

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Ideologues Shouldn’t Torpedo Budget Truce

The first reviews are in on the budget deal agreed to by Republican House Budget Committee Chair Paul Ryan and Democratic Senate Budget Committee Chair Patty Murray, and people on both the left and the right have found plenty not to like about it. This is no grand bargain or long-term settlement of the great divide over how to achieve fiscal sanity.  It neither reins in spending nor does it provide for what Ryan has always said was most needed for the government to get its fiscal house in order: fundamental entitlement reform. That’s more than enough reason for many conservatives and Tea Partiers to reject it out of hand as an inadequate compromise that merely keeps feeding the government leviathan that they rightly believe needs to be cut back rather than maintained.

But, if, like the those on the left who will vote against it because it makes some cuts and doesn’t give them their wish list items like an expansion of unemployment benefits, conservatives manage to torpedo Ryan’s efforts, they will be making a huge mistake. After a three-year standoff between the parties on the budget, it was time for a truce. The modest deal restores certainty to the economy and eliminates some of the most painful sequester cuts, including those involving defense. Though it falls far short of anything that might be called reform, it does establish a principle that is necessary to it: any discretionary spending increases are offset by mandatory spending cuts. That is a step toward fiscal sanity that should be taken.

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The first reviews are in on the budget deal agreed to by Republican House Budget Committee Chair Paul Ryan and Democratic Senate Budget Committee Chair Patty Murray, and people on both the left and the right have found plenty not to like about it. This is no grand bargain or long-term settlement of the great divide over how to achieve fiscal sanity.  It neither reins in spending nor does it provide for what Ryan has always said was most needed for the government to get its fiscal house in order: fundamental entitlement reform. That’s more than enough reason for many conservatives and Tea Partiers to reject it out of hand as an inadequate compromise that merely keeps feeding the government leviathan that they rightly believe needs to be cut back rather than maintained.

But, if, like the those on the left who will vote against it because it makes some cuts and doesn’t give them their wish list items like an expansion of unemployment benefits, conservatives manage to torpedo Ryan’s efforts, they will be making a huge mistake. After a three-year standoff between the parties on the budget, it was time for a truce. The modest deal restores certainty to the economy and eliminates some of the most painful sequester cuts, including those involving defense. Though it falls far short of anything that might be called reform, it does establish a principle that is necessary to it: any discretionary spending increases are offset by mandatory spending cuts. That is a step toward fiscal sanity that should be taken.

Those on the right who are dismayed about the abandonment of the sequester have a point. Only by insisting on mandatory and draconian across-the-board cuts have Republicans been able to make any kind of an impact on the fiscal debate. But as useful as the sequester has been, it is too imprecise an instrument to become a permanent part of the process. As our Max Boot has repeatedly pointed out, the cuts that have been imposed on defense are damaging national security and must, sooner or later, be eliminated.

Many on the right are also denouncing Ryan’s deal not just because it doesn’t give them what they want on taxes and spending but because they don’t see the need to compromise at this moment. They see President Obama’s poll numbers falling and think the time is right to push hard again for the kind of reform that is needed, not an agreement that merely kicks the can down the road. But this is the same kind of faulty thinking from groups like Heritage Action and Freedom Works that led conservatives to shut down the government as part of a vain effort to defund ObamaCare. Apparently they’ve learned nothing from that debacle.

This is exactly the wrong time for the GOP to go back to a scenario where they can be depicted as impeding efforts to keep the government working. Doing so would distract the country from the ongoing worries about the devastating impact of ObamaCare on individuals and the economy.

Tactics aside, the deal is necessary because it reflects the reality of divided government that both President Obama and the Tea Party have been butting heads over ever since the 2010 midterms. Under the current circumstances there is simply no way for either the Republicans in charge of the House of Representatives or the Democrats running the White House and the Senate to get their way. The accord reached between Ryan and Murray is simply an acknowledgement of this fact and an effort to keep the nation on an even keel until we can have another election to try and resolve this mess next November.

Avoiding compromise and setting off another cataclysmic fight over the budget or the debt ceiling (the latter is not part of this deal, leaving both parties free to set off another confrontation sometime in 2014 if they wish) satisfies the conservative impulse to draw a line in the sand over an ever-expanding government. But, as Ryan has said, Congress must deal with the world as it is rather than merely operate on the basis of how they’d like it to be. The only hope of getting closer to real entitlement reform is for the GOP to win the 2014 midterms. Some on the right are still laboring under the delusion that staging another shutdown or threatening a default is the right way to make their case to the country. But only someone utterly insensitive to the mood of the country would think that is either good politics or good public policy. If they go back to those tactics, Republicans will be forfeiting any chance of winning back the Senate in the coming year.

There’s little doubt that Republicans worried about primary challenges from the right or thinking about running for president in 2016 will be inclined to eschew any such compromise. But passing this budget will give their party a shot at winning in the midterms and take the wind out of the Democratic effort to paint them as irresponsible. Compromise is often the coward’s way out and leads to more trouble. But in this case, it is simply good sense. Though the cuts it imposes are no more than a rounding error, Republicans will do well to take what they can rather than to seek the impossible and thus render more progress less likely.

A truce is something you embrace when it will enable you to go back into the fray better prepared to prevail. Ryan is smart enough to know this, even if some of his colleagues don’t. It’s time for the GOP to keep its powder dry and come back to the table when they’ve got the votes and the seats to pass the kind of reform budget that Ryan and the rest of his party would prefer.

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Happy Birthday to the Income Tax

Income inequality has long been a bugaboo of the left. There is just something wrong, liberals think, with X earning much more than Y. They never explain why it’s wrong, of course, apparently regarding it as self-evident. What it is, actually, is a modern echo of the medieval notion of the “just price,” the idea that everything has a proper price for which it should be bought or sold and the authorities (the Church in the Middle Ages, the federal government today) should see that everything is.

In the early Clinton era, Democrats passed and the president signed a bill limiting the deductibility of executive salaries over $1 million from corporate income taxes. Naturally, they didn’t limit the deductibility of the enormous incomes of their Hollywood pals, but intellectual consistency is seldom a political virtue.

The level of inequality diminished, briefly, during the financial crisis of 2008, as stock prices crashed and dividends were cut. But it is now increasing again, as CBS news reported recently. Some economists recommend a top income tax rate of 73 percent in order to foster more equality. But this fails to take into account the ample evidence that as income-tax rates rise, so does tax avoidance.

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Income inequality has long been a bugaboo of the left. There is just something wrong, liberals think, with X earning much more than Y. They never explain why it’s wrong, of course, apparently regarding it as self-evident. What it is, actually, is a modern echo of the medieval notion of the “just price,” the idea that everything has a proper price for which it should be bought or sold and the authorities (the Church in the Middle Ages, the federal government today) should see that everything is.

In the early Clinton era, Democrats passed and the president signed a bill limiting the deductibility of executive salaries over $1 million from corporate income taxes. Naturally, they didn’t limit the deductibility of the enormous incomes of their Hollywood pals, but intellectual consistency is seldom a political virtue.

The level of inequality diminished, briefly, during the financial crisis of 2008, as stock prices crashed and dividends were cut. But it is now increasing again, as CBS news reported recently. Some economists recommend a top income tax rate of 73 percent in order to foster more equality. But this fails to take into account the ample evidence that as income-tax rates rise, so does tax avoidance.

Others argue that income inequality and growth are inextricably linked and trying to limit one will, necessarily, limit the other.

Still others argue, what income inequality? They say it is mostly a statistical illusion that results from how the “poverty rate” is determined and how income is measured. For instance, the CBO counts realized capital gains as income but not unrealized capital gains. So if two people buy houses the same year for the same price and one sells his 30 years later for a gain of $500,000, he’s in the one percent, but his neighbor who didn’t sell is not. Next year, of course, the seller will be back among the hoi polloi.

And transfer payments, such as Social Security, Medicare, and food stamps, are not counted as income by the CBO in determining the poverty rate. So an elderly couple might be considered below the poverty line, despite receiving a check for $1,700 every month from the government and having most of their medical bills picked up. The elderly couple regard the $1,700 as income (it buys stuff, after all), so why shouldn’t the CBO count it as income?

As so often, statistics are being wielded as political weapons, not as a means to understanding the human universe. And meanwhile, the real measure of prosperity—consumption—is often ignored. For instance, while “wages,” as defined by the Bureau of Labor Statistics, have been relatively flat since the 1980s, consumption by the less affluent has increased briskly. In 2001, only 19.8 percent of low-income households owned a computer. By 2009, it was 47.7 percent. In 2001 21.9 percent of these families had living space of more than six rooms (not counting bathrooms), by 2009 that had risen to 30 percent.

Meanwhile, the No. 1 tool that politicians use to play politics with income inequality, the income tax, turned 100 last Friday. How much has it been used for political purposes? As John Fund points out, in 1913, the tax code was 400 pages long. Today it is 73,954 pages long.

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Buyer’s Remorse from ObamaCare Backers?

One of the key selling points for ObamaCare was President Obama’s repeated promise that if you like your current health insurance plan, you can keep it. This posed a challenge to the president because not only was it clearly untrue, but the health-care reform law was specifically designed to prevent many people from being able to keep their insurance. The most humorous moment in the frantic effort to sell the public on ObamaCare based on false pretenses was when ABC News finally asked Obama to explain the claim:

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans,’” the president said after we asked him about this, “what I’m saying is the government is not going to make you change plans under health reform.”

Ah. The government would merely create the conditions in which people would be forced off their insurance, but there’d be no paper trail on each particular such decision that led directly back to the president, so the rest is just details. ABC News, to its credit, pointed out that the president was acknowledging that his pledge “isn’t literally true.” But now some of the president’s allies who helped elect Democrats and then sell their health-care reform, and who inexplicably believed this ridiculous claim the president was making, feel duped. They are the unions, and they are not happy, as Avik Roy explains:

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One of the key selling points for ObamaCare was President Obama’s repeated promise that if you like your current health insurance plan, you can keep it. This posed a challenge to the president because not only was it clearly untrue, but the health-care reform law was specifically designed to prevent many people from being able to keep their insurance. The most humorous moment in the frantic effort to sell the public on ObamaCare based on false pretenses was when ABC News finally asked Obama to explain the claim:

“When I say ‘If you have your plan and you like it,… or you have a doctor and you like your doctor, that you don’t have to change plans,’” the president said after we asked him about this, “what I’m saying is the government is not going to make you change plans under health reform.”

Ah. The government would merely create the conditions in which people would be forced off their insurance, but there’d be no paper trail on each particular such decision that led directly back to the president, so the rest is just details. ABC News, to its credit, pointed out that the president was acknowledging that his pledge “isn’t literally true.” But now some of the president’s allies who helped elect Democrats and then sell their health-care reform, and who inexplicably believed this ridiculous claim the president was making, feel duped. They are the unions, and they are not happy, as Avik Roy explains:

Last Thursday, representatives of three of the nation’s largest unions fired off a letter to Harry Reid and Nancy Pelosi, warning that Obamacare would “shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

The letter was penned by James P. Hoffa, general president of the International Brotherhood of Teamsters; Joseph Hansen, international president of the United Food and Commercial Workers International Union; and Donald “D.” Taylor, president of UNITE-HERE, a union representing hotel, airport, food service, gaming, and textile workers.

“When you and the President sought our support for the Affordable Care Act,” they begin, “you pledged that if we liked the health plans we have now, we could keep them. Sadly, that promise is under threat…We have been strong supporters of the notion that all Americans should have access to quality, affordable health care. We have also been strong supporters of you. In campaign after campaign we have put boots on the ground, gone door-to-door to get out the vote, run phone banks and raised money to secure this vision. Now this vision has come back to haunt us.”

The letter goes on to warn of the law’s “unintended consequences” and “perverse incentives.” It’s bad for business and for the health of so many Americans, they say. Their criticisms of the law are correct, of course. The problem with fixing the law, as we’ve already seen with the employer mandate suspension, is that the law’s manifest blunders are connected, and the worst elements of the law are also its funding mechanisms. The whole thing is a terrible piece of legislation, and even its major backers are now either finally admitting or finally realizing that the public had to be misled in order to get the bill passed.

The law remains unpopular for this reason, but it is truly amazing the lengths to which some commentators will go to explain away the public opposition to a plainly bad law sold on dishonest claims. Here’s the Economist, for example, musing about Democrats’ communication deficit:

When Republicans and Democrats use different terms for the same thing, the Republican phrase is nearly always shorter and more concrete, observes Joseph Romm, the author of “Language Intelligence”. He has a point. When arguing about abortion, Republicans favour “life” (evocative) while Democrats talk about “choice” (abstract). Republicans talk about “taxes” and “spending” while Democrats want to raise “revenue” for “investment”. George W. Bush had the “Patriot Act”, whereas Mr Obama has the “Patient Protection and Affordable Care Act”. The former is an awful law that is hard to oppose; the latter an awful mouthful that is hard to remember.

Actually, people commonly call it ObamaCare, which is easy to remember and just as easy to dislike according to the public. But of course the rest of that paragraph is risible as well. On the abortion issue, the term “choice” may be (to put it kindly) “abstract,” but surely for Democrats it’s a lot better than the “evocative” version of what they’re advocating. And the point about “taxes” and “spending” versus “revenue” and “investment” is rather obvious: one is literal, the other an attempt by the entity taking your money to avoid saying so.

And that is really what this communication issue is all about, in the end. Democrats are advocating terrible public policy on a whole host of important issues, and admitting what they are doing is a nonstarter for those who want to win reelection. Finding good names for bad ideas is a clever way to get around this, but wouldn’t it just be easier if Democrats came up with good ideas?

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New Technology Belies Tax Justification

Over the weekend, the New York Times had a fascinating piece about the quick development of driverless cars, and the implications for urban areas:

Imagine a city where you don’t drive in loops looking for a parking spot because your car drops you off and scoots off to some location to wait, sort of like taxi holding pens at airports. Or maybe it is picked up by a robotic minder and carted off with other vehicles, like a row of shopping carts… Inner-city parking lots could become parks. Traffic lights could be less common because hidden sensors in cars and streets coordinate traffic. And, yes, parking tickets could become a rarity since cars would be smart enough to know where they are not supposed to be. As scientists and car companies forge ahead — many expect self-driving cars to become commonplace in the next decade — researchers, city planners and engineers are contemplating how city spaces could change if our cars start doing the driving for us.

The new technology raises other questions, which the paper addressed in a follow-up article:

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Over the weekend, the New York Times had a fascinating piece about the quick development of driverless cars, and the implications for urban areas:

Imagine a city where you don’t drive in loops looking for a parking spot because your car drops you off and scoots off to some location to wait, sort of like taxi holding pens at airports. Or maybe it is picked up by a robotic minder and carted off with other vehicles, like a row of shopping carts… Inner-city parking lots could become parks. Traffic lights could be less common because hidden sensors in cars and streets coordinate traffic. And, yes, parking tickets could become a rarity since cars would be smart enough to know where they are not supposed to be. As scientists and car companies forge ahead — many expect self-driving cars to become commonplace in the next decade — researchers, city planners and engineers are contemplating how city spaces could change if our cars start doing the driving for us.

The new technology raises other questions, which the paper addressed in a follow-up article:

In Washington, an average of six parking tickets are issued every minute of a normal workday. That is about 5,300 tickets on each of those days. Those slips of paper have added up to $80 million in parking fines a year, according to a report by AAA Mid-Atlantic… Mr. Walker Smith said that while traditional revenue sources from tickets, towing cars and gasoline taxes could dry up, cities and states will come up with new ways to make money on vehicles.

Automation will also impact the insurance industry, technology writer Nick Bilton reports, as well as taxis and meter maids. Such costs should not be lamented: Cities and states like to maintain the fiction that they ticket for safety, not revenue, and they should have to live by that fiction. Some professions do not stand the test of time. Spare a moment for the poor typewriter factory workers; they deserve more public sympathy than the meter maids.

Already, new technologies are challenging traditional tax policy. After years of pushing higher fuel standards for environmental reasons, states now complain that they derive less revenue because cars require fewer gallons of gas. Certainly, states want revenue for roads, but it is also true that fuel efficient cars cause less wear and tear because they are lighter; fuel efficiency comes at the expense of weight and, too often, safety.

Automobiles are not the only technology whose advancement has challenged justification for tax collection. It took more than a century to get rid of the telephone excise tax whose original justification was to help fund the Spanish-American War. Pennsylvania still has an occupation tax, a legacy of the colonial period in which occupations were granted by writ and often considered property. The Internet has also challenged traditional tax collection, especially from brick-and-mortar stores.

The government may make myriad excuses for taxation, but new technologies and the evolution of society should force governments to acknowledge both the basic and the obvious: Tax is about revenue, not safety, and the government’s increasingly insatiable appetite for new and expensive programs. Putting lipstick on a pig does not make it more palatable. When governments lie about their motivation for taxation and fines, it only breeds cynicism and resentment about government, moods corrosive to both community and citizenship.

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RE: Apple Does Its Duty

I guess Senator Rand Paul reads Contentions. At least his opening statement tracks what I wrote this morning exactly.

He said, for instance, “I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.”

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I guess Senator Rand Paul reads Contentions. At least his opening statement tracks what I wrote this morning exactly.

He said, for instance, “I am offended by the spectacle of dragging in here executives from an American company that is not doing anything illegal. If anyone should be on trial here, it should be Congress.”

It seems the hearing on Apple’s tax avoidance didn’t go exactly as planned, with other Republicans chiming in on the country’s appalling tax code and Apple executives making good suggestions on how to fix it.

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The Danger and Rampant Corruption of Traffic Light Cameras

The ongoing IRS scandal has struck such a nerve with the public because it is a clear example of a prying, ever-present government abusing its revenue-raising power and succumbing to the temptation of easy corruption. There are few things more outrageous with regard to the government’s ability to fund its own corrupt practices–but the latest scandal out of Florida may be one of those cases.

Media Trackers points to this investigation by Florida’s WTSP-St. Petersburg 10 News, which notes that the Florida Department of Transportation instituted a particularly dangerous way to wring more money out of motorists, and crossed federal standards to do so. At issue are the traffic light cameras, an unsafe plague on roadways rife with corruption across the country. The cameras are installed to catch motorists violating traffic rules, but the lawbreakers are usually on the other side of the cameras. From WTSP:

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The ongoing IRS scandal has struck such a nerve with the public because it is a clear example of a prying, ever-present government abusing its revenue-raising power and succumbing to the temptation of easy corruption. There are few things more outrageous with regard to the government’s ability to fund its own corrupt practices–but the latest scandal out of Florida may be one of those cases.

Media Trackers points to this investigation by Florida’s WTSP-St. Petersburg 10 News, which notes that the Florida Department of Transportation instituted a particularly dangerous way to wring more money out of motorists, and crossed federal standards to do so. At issue are the traffic light cameras, an unsafe plague on roadways rife with corruption across the country. The cameras are installed to catch motorists violating traffic rules, but the lawbreakers are usually on the other side of the cameras. From WTSP:

The 10 News Investigators discovered the Florida Department of Transportation (FDOT) quietly changed the state’s policy on yellow intervals in 2011, reducing the minimum below federal recommendations. The rule change was followed by engineers, both from FDOT and local municipalities, collaborating to shorten the length of yellow lights at key intersections, specifically those with red light cameras (RLCs).

While yellow light times were reduced by mere fractions of a second, research indicates a half-second reduction in the interval can double the number of RLC citations — and the revenue they create. The 10 News investigation stemmed from a December discovery of a dangerously short yellow light in Hernando County. After the story aired, the county promised to re-time all of its intersections, and the 10 News Investigators promised to dig into yellow light timing all across Tampa Bay.

The practice of reducing yellow light times without notifying motorists was blamed for at least one recent traffic death near Tampa, which prompted further investigation. The danger of the traffic light cameras–even without manipulating light times–is nothing new. As the Star-Ledger reported a few months ago, a study in New Jersey found that the installation of traffic light cameras resulted in increased accidents at those intersections, including a 20-percent rise in rear-end collisions.

Aside from the life-threatening risk to motorists and passengers in those accidents, the Star-Ledger noted that according to the study the “crash severity cost,” which calculates the cost of property and vehicle damage, as well as medical care for the crash victims and the expense to the municipality of emergency response, increased by about $1.2 million. The cameras are putting lives at risk every day, so why use them? Back to WTSP:

Red light cameras generated more than $100 million in revenue last year in approximately 70 Florida communities, with 52.5 percent of the revenue going to the state. The rest is divided by cities, counties, and the camera companies. In 2013, the cameras are on pace to generate $120 million.

“Red light cameras are a for-profit business between cities and camera companies and the state,” said James Walker, executive director of the nonprofit National Motorists Association.

They are a cash cow. But a “for-profit business between cities and camera companies” that incentivizes making the roads more dangerous for citizens doesn’t sound like a particularly ethical undertaking for the government. As it turns out, “ethical” is not a word often associated with how the traffic cameras are operated. As Holman Jenkins recently explained in the Wall Street Journal, the cameras have become a sleazy new form of taxation, and “When governments are engaged in sleazy new forms of taxation, sleaze happens.”

Jenkins points out that if you’re looking for corruption, Chicago is a good place to start–and in fact the Chicago traffic light camera regime has been engulfed in a graft scandal. Jenkins noted that in Baltimore, traffic light cameras were ticketing motionless vehicles, and have come under fire in Los Angeles and New York as well. “Ticket-racketeering has been, let’s just say, a contending motivation with safety since the automobile age was born,” Jenkins writes.

Even if Florida DOT officials don’t read out-of-state newspapers, they still can’t claim they weren’t warned, as WTSP makes clear:

Numerous U.S. Dept. of Transportation (USDOT) documents provide guidance to municipalities on how to install and operate RLC intersections. But FDOT and Florida communities are by-and-large ignoring those recommendations when it comes to yellow light intervals.

USDOT/Federal Highway Administration (FHA) report said cities should not use speed limit in the yellow interval equation because it results “in more red light violations and higher crash rates.”

Traffic light cameras aren’t about safety, because they diminish the safety of motorists. They are about money. And the fact that they are rife with corruption and deceit, and increase their financial gain by scamming drivers into unnecessary risks makes them, in many cases, morally indistinguishable from outright theft.

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Apple Does Its Duty

The New York Times is in a state of the highest dudgeon this morning as it reported that, “Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.”

It made this the lead story, not the terrible tragedy in Oklahoma. It even devoted the Quote of the Day to the story, quoting a law professor, “There is a technical term economists like to use for behavior like this. Unbelievable chutzpah.”

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The New York Times is in a state of the highest dudgeon this morning as it reported that, “Even as Apple became the nation’s most profitable technology company, it avoided billions in taxes in the United States and around the world through a web of subsidiaries so complex it spanned continents and went beyond anything most experts had ever seen, Congressional investigators disclosed on Monday.”

It made this the lead story, not the terrible tragedy in Oklahoma. It even devoted the Quote of the Day to the story, quoting a law professor, “There is a technical term economists like to use for behavior like this. Unbelievable chutzpah.”

Timothy D. Cook, Apple’s chief executive, will testify today at a Senate hearing, a hearing the Times expects to be “explosive.” The whole tenor of the article is that Apple did something wrong, that it’s a “greedy corporation” that dodged paying its fair share.

But the Times admits that, “Investigators have not accused Apple of breaking any laws and the company is hardly the only American multinational to face scrutiny for using complex corporate structures and tax havens to sidestep taxes.” In other words, Apple management lived up to its fiduciary duty to its stockholders to minimize the amount of taxes it pays to various governments. Outrageous!

The problem lies not with Apple, but with out-of-date corporate tax law that needs to be overhauled from top to bottom to take into account the new integrated global economy. All Apple did was make the problem obvious. This is not unlike the situation in the late 19th century when industrial corporations of unprecedented size arose and the laws needed to govern the new situation took years to develop. Standard Oil didn’t break any laws; it showed what laws were needed.

Undoubtedly, the senators before whom Mr. Cook will testify today will be in the same state of high dudgeon as the Times, and will beat up on him pretty bad. But instead, they should thank Mr. Cook for making the Senate’s duty plain: Rewrite the corporate tax laws.

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Taxes, Immigration, and the Senate’s Identity Crisis

As Bethany has previously written, the problems with the new Internet sales tax, which passed the Senate this week, were depressingly obvious–even as the bill received Republican support. But perhaps the most unfortunate aspect of the bill is not that Republicans should have known better, but that they did know better and voted against both economic common sense and the best interests of small businesses around the country.

The legislation would have forced businesses to pay sales taxes in the home state of every online customer, thus adding a burden to doing business that large retailers could handle but their upstart competitors could not. But to listen to Republicans defending their votes in support of the measure, you could be forgiven for thinking that upholding crony capitalism was a virtue of the bill, not an unfortunate element to be downplayed. (Though it was called the Marketplace Fairness Act, Grover Norquist more accurately referred to it as the “Let People in Alabama Loot People in New York Act.”) Here, for example, is how John Thune is quoted by the New York Times:

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As Bethany has previously written, the problems with the new Internet sales tax, which passed the Senate this week, were depressingly obvious–even as the bill received Republican support. But perhaps the most unfortunate aspect of the bill is not that Republicans should have known better, but that they did know better and voted against both economic common sense and the best interests of small businesses around the country.

The legislation would have forced businesses to pay sales taxes in the home state of every online customer, thus adding a burden to doing business that large retailers could handle but their upstart competitors could not. But to listen to Republicans defending their votes in support of the measure, you could be forgiven for thinking that upholding crony capitalism was a virtue of the bill, not an unfortunate element to be downplayed. (Though it was called the Marketplace Fairness Act, Grover Norquist more accurately referred to it as the “Let People in Alabama Loot People in New York Act.”) Here, for example, is how John Thune is quoted by the New York Times:

“It’s obviously an issue that can be divisive for Republicans because a lot of the antitax groups are weighing in against it,” Senator Thune said. “But in states like mine where you’ve got a lot of smaller retailers trying to compete in smaller communities, people are going to do their business online, and that has grown dramatically over the last few years.”

Antitax groups are against it, but Thune wants to protect his favored businesses and let the government get involved in picking winners and losers. There is a bright spot, however. The Times had reported on the bill’s momentum: “Earlier test votes won as many as 75 yeses. And House action, once seemingly unthinkable, may be unstoppable.” But Speaker of the House John Boehner is signaling that reality is closer to the former than the latter, according to the LA Times:

House Speaker John A. Boehner said he probably won’t support legislation allowing states to require that larger retailers collect sales taxes on Internet purchases.

And a key House committee chairman said his panel would take a “more thoughtful” approach to the bill, which passed the Senate overwhelmingly Monday.

The comments signaled that momentum from Monday’s easy passage of the bill in the Senate won’t lead to quick House action on the controversial issue.

All to the good, but it draws attention to an interesting dynamic at play in the Congress of 2013: namely, a bit of a role reversal between the upper and lower chambers. Traditionally, because the House can pass bills on simple majority and because revenue-raising legislation originates there, the lower chamber has played an activist role to the Senate’s deliberative role. The Senate gives every state the same number of representatives, which forces regional accommodation when crafting or amending legislation. Senators also represent entire states rather than increasingly gerrymandered districts, so addressing constituent concerns in each bill is a more complicated process.

Of course the most recognizable reason for these traditional roles is the existence of the filibuster in the Senate, which doesn’t exist in the House. It can therefore be difficult to even get to a vote.

Yet for all the attention paid to the filibuster’s use by Republicans, two things remain true: the Senate has been able to pass major liberal legislation, like ObamaCare and financial regulation, and Boehner’s House has become a break on the Senate’s penchant for far-reaching legislation.

The Internet sales tax bill is an example of a bill that was passed by the Senate but faces far dimmer prospects in the House. More significant is the fact that the House’s new role has slowed down the Senate as well. From the perspective of conservatives, this is a moderating effect; to liberals, who were wondering if the Senate could possibly get any slower, it’s the opposite. But either way, the message has come through loud and clear.

To see how this plays itself out, one need look no further than the immigration reform effort. The question of whether the final immigration bill could pass the House is not just implicit; it’s invoked almost constantly by the bill’s supporters. In order to pass the House, immigration reform proponents believe (correctly) that it would almost surely need to do more than just pass the Senate. It will need broad bipartisan support that includes conservatives who are popular with the grassroots to give cover to their counterparts in the House. Additionally, the bill’s chief proponent, Marco Rubio, has been warning his fellow senators in the “gang of eight” that the bill cannot pass the House as currently constructed–a clear exhortation to take House conservative concerns about border security into consideration when amending the bill.

The reviews of this role reversal will likely be mixed, even among conservatives. There will be many on the right justifiably frustrated if the immigration reform effort stalls in the Senate because of the fear of House Republicans. But it will also be difficult to argue against the House’s instinctive distrust of crony capitalist bills like the Internet tax hike. Senate Republicans might also wonder why, especially on the issue of market distorting tax increases, they need the House to slow them down in the first place.

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How Internet Sales Tax Would Destroy Small Online Businesses

It’s said that the road to hell is paved with good intentions. Like many proposals put forth in the last several years, the Internet sales tax bill (titled the Marketplace Fairness Act) currently working its way through the Senate is loaded with good intentions based on the idea of “fairness.” In reality and practice, the bill would end up like many liberal projects: a disaster for small business owners.

Think about those who run a business out of their home, a small shop providing products to a niche market of consumers. When an order comes in, the owner is the sole point of contact: they play the role of cashier, customer service, production and shipping. Despite the truly small nature of their small businesses these individuals would be forced to hire accountants or learn, track and charge the appropriate sales tax for each state in which a customer resides. They are faced with a choice: either spend a significant portion of their profit on an accounting professional, or spend a significant amount of time managing their own finances. A potential third option, only selling products to a select number of states, would be equally destructive for niche businesses that only survive by selling nationwide. 

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It’s said that the road to hell is paved with good intentions. Like many proposals put forth in the last several years, the Internet sales tax bill (titled the Marketplace Fairness Act) currently working its way through the Senate is loaded with good intentions based on the idea of “fairness.” In reality and practice, the bill would end up like many liberal projects: a disaster for small business owners.

Think about those who run a business out of their home, a small shop providing products to a niche market of consumers. When an order comes in, the owner is the sole point of contact: they play the role of cashier, customer service, production and shipping. Despite the truly small nature of their small businesses these individuals would be forced to hire accountants or learn, track and charge the appropriate sales tax for each state in which a customer resides. They are faced with a choice: either spend a significant portion of their profit on an accounting professional, or spend a significant amount of time managing their own finances. A potential third option, only selling products to a select number of states, would be equally destructive for niche businesses that only survive by selling nationwide. 

A number of Republican senators, including Mitch McConnell and Marco Rubio, have come out against this bill and are joined by Democratic senators from no-tax states like New Hampshire, Montana and Oregon, despite President Obama’s support. Influential groups like the Heritage Foundation and its lobby arm Heritage Action for America are against the bill. Today on the Senate floor McConnell affirmed that the viewpoints on the bill aren’t falling along traditionally partisan lines while explaining his opposition:

For me, the issue boils down to that fact that the legislation we’re considering would create an enormous compliance burden for a lot of small businesses out there, making them tax collectors for thousands of far-away jurisdictions. Just as importantly, this legislation would increase the tax burden on Kentuckians. And as I’ve said before, I don’t think the people of Kentucky sent me here to help them pay higher taxes. Brick-and-mortar companies complain about the inequity that exists in current law, where their customers have to pay taxes that online shoppers do not. And I am sympathetic to that concern. But by imposing this new Internet Tax, states would suddenly be empowered to force online retailers to simultaneously comply with all the different tax codes of all the states in which their customers reside. That’s no small feat. From what I’m told, there are nearly 10,000 state, local, and municipal tax codes nationwide. And while complying with so many codes might not be a big deal for large online retailers, it’s a huge burden on the little guys. So small businesses owners are worried, and justifiably so.

While many online-only retailers do enjoy an advantage over “brick-and-mortar” stores who charge sales taxes, the cost of compliance with the tax code is far less cumbersome for stores that only need to comply with the sales tax of the locality in which they operate. If small online business owners are forced to comply with every single state, local and municipal tax code in America, they would be put at a distinct disadvantage, not on a level playing field. 

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The Right Way to Reduce Inequality

The most recent Gallup poll, which shows a majority of Americans believe that some of their neighbors have too much money and that the government should therefore confiscate and redistribute some of it, is likely to please the president, who based his reelection campaign on class resentment. Though Gallup paints this as vindication for the president on the message, it does expose the problem with how we tend to conduct the conversation of basing policy on that message. Gallup pronounces:

Inequality is and will continue to be one of the most important domestic political issues. President Barack Obama has consistently pushed for measures that he believes would provide those at the bottom end of the socioeconomic spectrum a fairer chance to succeed, and has coupled that with consistent arguments for higher taxes on those with high incomes and wealth. At this point, the American public would generally agree with Obama that wealth should ideally be more evenly distributed — and a modest majority, consisting mainly of Democrats and independents, appears to support the idea of bringing about that redistribution through heavier taxes on the rich.

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The most recent Gallup poll, which shows a majority of Americans believe that some of their neighbors have too much money and that the government should therefore confiscate and redistribute some of it, is likely to please the president, who based his reelection campaign on class resentment. Though Gallup paints this as vindication for the president on the message, it does expose the problem with how we tend to conduct the conversation of basing policy on that message. Gallup pronounces:

Inequality is and will continue to be one of the most important domestic political issues. President Barack Obama has consistently pushed for measures that he believes would provide those at the bottom end of the socioeconomic spectrum a fairer chance to succeed, and has coupled that with consistent arguments for higher taxes on those with high incomes and wealth. At this point, the American public would generally agree with Obama that wealth should ideally be more evenly distributed — and a modest majority, consisting mainly of Democrats and independents, appears to support the idea of bringing about that redistribution through heavier taxes on the rich.

There are generally two weaknesses with how liberals talk about inequality. The first is that they usually begin by assuming inequality is detrimental to society without establishing that it is. They may be right, but it would be unwise to build redistributive policies on class warfare and demonization instead of data. An exception in this regard is the Washington Post’s Brad Plumer, who wrote an interesting piece a few weeks back about new research into “trickle-down consumption.” One example, according to Plumer: “In cities like New York, the wealthiest are competing for the most valuable apartments and bidding up prices — which has broader ripple effects.” The concept is not new, but Plumer’s post adds some interesting context.

Trickle-down consumption, of course, is really a problem in unequal spending which is enabled by, but not the same thing as, unequal income. Additionally, there are advantages to having the wealthy consume instead of save: they support businesses owned by the less wealthy, which increases the income of less well-off, and when they purchase property that will often result in an increase in their taxes. The latter is a result those on the left claim to want, and it comes about through consumption and sometimes job creation (construction, etc.) instead of confiscation. Nonetheless, the discussion is worth having and Plumer’s piece brings hard data to the table instead of stories about Warren Buffett’s secretaries.

Yet it also raises the second issue with how inequality is too often discussed: how it should be rectified. Gallup demonstrates this perfectly when it only proposes one way to redistribute income: by taxing “the rich” more. But there are all sorts of ways to try and level the playing field. Gallup is noticeably vague in giving Obama credit for proposing ways to give the poor a fair shake. There’s a good reason for that.

As I noted in December, referencing an important article on taxing the rich by Joel Kotkin, Obama’s soak-the-rich approach to taxation can easily exacerbate existing inequality. Many high-earners live in cities, where there are also a large number of low-income residents. As Kotkin explains, this makes these economies heavily dependent on the consumption of the wealthy, and raising taxes on them would hit the very industries that typically offer income-class mobility to the poor.

There’s also the issue of education. Obama sought to end the D.C. Opportunity Scholarship Program, which was designed to give low-income youth stuck in D.C.’s failing schools a chance at a better education. His party remains broadly hostile to school choice, siding with public union bosses instead.

And no discussion of inequality should omit crime. The successful policing innovations in New York City have benefited low-income neighborhoods above all. Yet politicians and leftist activists are falling all over themselves to find ways to undo the incredible work of the NYPD. As Fred Siegel wrote recently in the New York Observer:

The Kimani Gray case may fade, but the intertwined issues of crime and race will remain high on the electoral agenda. If the politicians fail to thread the needle, the danger ahead is that New York could regress to a Chicago-like situation, where the well-to-do areas are reasonably well-policed while the minority areas are left to fend for themselves regarding crime. The liberal champions of equality will have once again produced greater inequality.

So by all means, let’s talk about rectifying inequality. But Gallup’s refusal to connect any issue other than taxation with inequality mirrors the left’s own, and ensures that so many worthy policy objectives remain ignored.

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