Laboratories of Democracy – Part I Americans Are Voting With Their Feet

Blue states are hemorrhaging people, jobs, taxes, seats in Congress and electoral votes.

Laboratories of Democracy – Part I

Americans Are Voting With Their Feet

By: George Noga – March 21, 2021

We have blogged often about the differences between red state and blue state America. The exodus from blue states, already a torrent, became a flood due to the pandemic. Blue-to-red migration affects our demographics, representation in Congress, tax base and electoral votes. Its effects on America truly are profound and far reaching. Our four-part series, Laboratories of Democracy, presents a comprehensive analysis.

Part I – Americans Vote With Their Feet (March 21)

Part II – Sixty Years of Liberal Governance (March 28)

Part III – My Travels in Blue State America (April 4)

Part IV – Bonfire of the Blue State Vanities (April 11)

Laboratories of democracy is deeply rooted in our federalist system wherein states enjoy enormous latitude. They even take opposite positions – such as on legalization of marijuana. If one state tries a new approach and it works, it can be emulated by others; the converse also is true. Laboratories of democracy originated with Supreme Court Justice Louis Brandeis who wrote: “A single state may serve as a laboratory and try novel social and economic experiments without risk to the rest of the country.”

Americans always have voted with their feet – fleeing high tax jurisdictions for lower cost venues. The following is from a 1755 letter published by the Boston Gazette. “The taxes in Boston continue very high. Many inhabitants are gone into the country; the (tax) burden now falls on a smaller number; the rich complain of their rates and are moving into country towns where they are greatly eased. I love my native town but my taxes are so large that I am resolved to move my family into the country.”

Will the last person leaving blue state America please shut off the lights?

High taxes remain a principal impetus behind out migration from blue states. However, this avalanche of depopulation increasingly is about other factors such as quality of life, economic opportunity, civility, culture, jobs, spending, safety, freedom, housing, right-to-work, schools, gun control, corruption, regulation, public health, cost-of-living, energy policies and, most recently, the response to the Covid pandemic.

We begin with the most recent official government data, in some cases extrapolated to the present. Sixteen states (nearly all blue) lost population since 2010. Texas gained 5 million and Florida 3+ million. California began to shrink for the first time. The 2020 census radically alters the balance of power in Congress and the Electoral College by shifting up to ten seats (and electoral votes) from blue to red, a swing of up to 20 seats (votes). The losers (80% blue) are NY (2), CA, RI, PA, WV, OH, MI, IL, MN. The gainers (80% red) are TX (3), FL (2), NC, CO, MT, AZ, OR. Also, population loss reduces federal dollars for many programs that are funded based on population.

Blue states are losing more than people, money and votes; they are hemorrhaging jobs, and tax base and leaving a trail of sinking bond ratings, economic stagnation, fiscal deficits and underfunded pensions. Disproportionately, it is the affluent who are fleeing blue states and taking their tax base with them. In the past five years NY and CA lost and TX and FL gained $50 billion in AGI (adjusted gross income). The eight states with the biggest AGI loss all are blue, while the eight largest gainers all are red. People fleeing blue states earn an average of $20,000 more per year than those arriving. Over 25% of retired blue state teachers have their pension checks sent to red states.

It isn’t just about economics; it’s about freedom and happiness. The top five states in the index of economic freedom are red (SD, ND, TN, ID, OK) while – you guessed it – the five worst states are blue (NY, CA, NJ, HI, VT). People in red states are happier; the Gini coefficient for happiness closely tracks the blue/red divide. The divergent responses of blue/red states to Covid put the blue state exodus on steroids. The ten states with the best jobs data since the pandemic are all red, the ten worst all blue.

We close with a stark comparison. New York spends $180 billion per year, or twice the budget of Florida, although FL has 10% more people. New York City alone spends as much as Florida. Just as the real minimum wage always is zero, so it is with tax rates. Sky-high tax rates generate zero tax revenue from NY taxpayers who flee to FL.

Redistribution is part of progressive DNA and they are redistributing their taxes, jobs, people and political power to red states and we don’t even have to say thank you.


Our series continues March 28th with: Sixty years of liberal governance.

The American Dream – Strangled by Government

Two worker households are a Faustian Bargain, the second income pays only for government. 

The American Dream – Strangled by Government

By: George Noga – May 31, 2020

        I graduated from high school in 1961 and went on to college. Most of my high school friends remained in Orlando, began work, married, had children and bought homes. The wives stayed home; a second income wasn’t necessary to buy a house and to raise a family. I kept in touch with many of my classmates. Following is the true story of two such people, Steve and Sandy – their real names.

       High school sweethearts, Steve and Sandy married soon after graduation. Steve started work in the paint shop of the Martin Company (today Lockheed Martin) at $2.00 per hour, soon increasing to $2.25. With a little overtime, their income was $5,000 per year. A year after their marriage, they bought a new home and were blessed with a daughter. Sandy did not work and stayed home to care for the baby.

         I visited Steve and Sandy often. They bought and furnished a median-price home, accumulating enough for a down payment and furniture in one year with both working. Once the baby was born, Sandy quit work as they could live solely on Steve’s income. Their home cost the equivalent of 2 years of Steve’s income and their monthly house payment including principal, interest, taxes and insurance (“PITI”) was under $100, or 22% of his income. Sandy never returned to work; it simply wasn’t necessary.

        Fast forward to 2020 and see how a modern day Steve and Sandy would fare. We begin with the generous assumption that a high school graduate earns $15 per hour, or $30,000 per year. The median home price in Orlando is $260,000; assuming a 10% down payment and low interest rate, the monthly PITI payment is $1,167, or $14,000 per year. The house costs 9 years of income and requires 47% of monthly income to pay PITI. Many years are needed to save for a down payment and furniture.

       What could account for such a sea change in the course of a few generations? Why did these changes happen? Why is it necessary today for a family to have two wage earners merely to live as well as their grandparents lived on one income? The answer in one word: government. The causes are many but all have a nexus to government.

     Housing costs skyrocketed due to government diktats including, zoning, growth management, building codes, greenbelts, bureaucracy, anti-leapfrogging, concurrency, infill and regulatory delay. All taxes were increased, especially the payroll tax and many new ones added. The Florida sales tax Steve and Sandy paid was 3%; today it is 7% – an increase of 133%. Steve and Sandy’s real estate tax was $100; today it would be $2,600, a 2,500% increase. Government drove up the cost of many other things such as health care, tuition and child care. The more government got involved, the more costs increased over time, less intervention meant lower prices.

       At first, as the second family wage earner entered the workforce, there was a sense of faux prosperity; they could afford an extra TV and some other accoutrements. But higher taxes and government-imposed costs devoured the second income. By the time they realized they were hoodwinked, it was too late for a volte-face. Two income families are a Faustian Bargain, the second income pays only for more government. Families doubled the number of workers but have nothing to show for it.

       A modern day Steve and Sandy can’t afford to buy a house or to start a family and they often live lives of quiet desperation. The American dream didn’t just die; it was murdered. The cause of death was strangulation by government!


Watch for our special D-Day posting on June 6th.
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Medicare For All – Lessons From Canada

Long waits for procedures are common in Canada; Montana offers same day service. 

Medicare For All – Lessons From Canada

By: George Noga – December 8, 2019 

           Regular readers know we spend our summers in Whitefish, Montana – 50 miles from Canada and only four hours from Calgary and its 1.3 million souls; altogether two million Canadians live within an easy drive. Neighboring Albertans, flush with petrodollars, descend on us every summer. They come for the world-class attractions of Whitefish and Glacier National Park. They come for cheap prices vis-a-vis Canada. They come for weddings, which cost 50% less due to Canada’s sky-high alcohol taxes. They also come for medical care to escape rationing and long wait lists at home. 
 

          I have made it a point for 15 summers to ask our northern visitors how satisfied they are with the Canada Health Act (“CHA”), the name of Canada’s national health care. Out of scores I have queried, only two said they were satisfied. The first liked the care in Canada but comes to Montana when the wait lists are too long. The second defended CHA by asserting it was good at triage, i.e. if you were mired on a long wait list and your condition deteriorated, they would move you up on the list.  
 

        There are long waits for procedures in Canada, while Montana offers same day service. Some Canadian medical refugees are so desperate they pay out-of-pocket at great sacrifice. I have heard many heart-wrenching stories about CHA and most of my Canadian interlocutors passionately forewarn me against the USA adopting Canada’s style of socialized medicine. The data should scare the bejesus out of Americans. 

 

         The median wait time between referral and treatment in Canada is over 21 weeks, 42 weeks in some provinces and a staggering 4 years in extreme cases. The wait for a CAT scan is 11 weeks and increasing; there are no waits whatsoever in Montana. An average US city has more MRI machines than all of Canada. At any given time, over 1 million Canadians (3% of the population) are in line. The long waits are not just inconvenient; they often transform potentially reversible conditions into chronic or permanent disabilities. “Free” medical care is not much good if you can’t get it.  

 

         The free medical care is anything but free. Canada’s confiscatory taxation results in high living costs; that’s why Canadians flock to Montana to load up their SUVs. The federal income tax is 29%; provincial income taxes are 15% to 20%; health care is 6% and a 13% VAT is embedded in all purchases. The grand total is 64% to 68%. Canada also is a nanny state that doesn’t want its children, err citizens, drinking and imposes alcohol taxes that make cocktails 600% more expensive than in Montana.  

 

         Americans can learn much from the disaster that is Canada’s national health care. Whenever anything is in great demand, it must be rationed via either time or cost. Since healthcare is free, it can’t be rationed via cost; that leaves time. BINGO!  
 

        How comforting it must be for Canadians to know if their medical condition goes to hell in a handbasket, they could be moved ahead of some of the other one million desperate souls waiting in line for treatment – that is instantly available in Montana.  


On December 15th, we reprise the greatest Christmas story in American history. 

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More Liberty Less Government –  mllg@mllg.us  –  www.mllg.us 

 

Hauser’s Law: Why You Can’t Soak the Rich

Taxpayers are not sheep docilely waiting to be shorn.
Hauser’s Law: Why You Can’t Soak the Rich
By: George Noga – March 3, 2019

        There are 7 reasons it is impossible to soak the rich by raising income tax rates; there is only one way it can be done – revealed herein. Full disclosure: I have firsthand knowledge of this by virtue of being a CPA tax professional and, during the 1970s and 1980s, the founder and CEO of one of the largest tax shelter firms in America.

Why You Can’t Soak the Rich With Higher Tax Rates 

1.  Hauser’s Law: Tax revenue remains constant at 18% of GDP (20% in good times, 16% in bad times) regardless if the top rate is 28% or 92%. This has been true for the 75 years since WWII. Later in this post we explain why Hauser’s Law works.

2. Elasticity of Taxable Income: ETI is a variant of Hauser’s Law and is measured by comparing tax returns before and after tax increases. For incomes above $500,000 the ETI is -1.2, which means the higher rate collected less money than before. For capital gains and dividends, the ETI shows that virtually no added tax is collected.

3. The rich are not the same people: The highest bracket taxpayers are not the same people each year. Someone who runs a family business with modest income suddenly becomes rich for one year when the business is sold. It is precisely such ordinary people (rich for one year only) who get caught in the crosshairs of high tax rates.

4. There is no way to identify the rich: Government (thankfully) has no data on wealth, only on certain types of income – which is a poor surrogate for wealth. It is impossible to soak the rich if there is no way to know who they are. Also see #3 supra.

5. Corporate taxes are not paid by owners: Businesses and corporations collect taxes but the money they pass along to government is not their money. Nearly all business taxes are passed along to consumers as higher prices – extremely regressive.

6. There aren’t enough rich: Not only are they different people from year to year, there just are too few of them to make soaking them worthwhile. The only way to raise significantly more revenue within the current tax code is to tax the middle class.

7. The income of the truly rich is not taxed as ordinary income; it is capital gains.

Why Hauser’s Law Works and ETI is Negative

        Hauser’s Law appears counterintuitive; why would government collect the same percentage of taxes when the top rate is 92% as it collects when it is 28%? The answer lies in human behavior; people are not sheep docilely waiting to be shorn. Higher rates incentivize people to go to great lengths to reduce taxes. They will work, save and invest less; barter, retire earlier; hide, defer and underreport income, convert ordinary income to capital gains and not realize capital gains without offsetting losses.

        They employ tax shelters; shift income to lower bracket family members; seek out tax-free income; change the amount, location and composition of taxable income; exploit ambiguities and loopholes; shift income to corporations; lobby aggressively for tax breaks, move from one place to another – even outside the US; move into the occult economy; employ top tax lawyers and accountants and much more – mostly legal.

How to  Soak the Rich – Using the Tax Code

       There is only one way to soak the rich and that is with lower tax rates. It works for the same reasons that Hauser’s Law works; the rich become disincentivized to take measures to reduce their tax bill. Whenever rates drop, the rich pay a much higher share of taxes than before. The 2003 Bush tax cuts resulted in the largest tax increase on the rich in American history; they paid over double what they paid when Carter was president. It works every time, but you won’t hear it from AOC and her compadres.


Our next post debunks another liberal shibboleth, the $15 minimum wage.  

Texting – Sears – Tyler – Hauser – Laffer

A 70% top income tax rate loses the government $65 billion over 10 years.
Texting – Sears – Tyler – Hauser – Laffer
By: George Noga – January 24, 2019

       This is a special mid-week posting of micro topics, many of which are timely, especially the segments about the progressive plan to raise marginal tax rates.

Micro Topics: CO2 emissions of electric vehicles often exceed those of gas vehicles, depending on the fuel used to generate the electricity and how long a charge lasts. The $7,500 tax credit is a wealth transfer from the middle class to the wealthy; nonetheless, it remains a darling of the left. . . . . . . Canada increased fines for texting while driving to $1,000 and loss of license. MLLG opposes distracted driving, but there are always unintended consequences of government actions. Where texting is illegal, drivers often relocate texting to their laps – out of sight of police but infinitely more dangerous.

Socialism & Sears: In the USSR, a man goes into a store and asks, “You don’t have any meat?” The clerk responds, “No, we don’t have any fish; it’s the store next door that doesn’t have any meat.” I have a stable of commie jokes; a favorite is where the USSR conquered the entire world but spared New Zealand just to know prices in the real world. These stories are so funny because they are true; commies had no way to know what things cost. We just learned Soviet economists (oxymoron) resorted to Sears catalogs to set prices for consumer goods – as did the Chicoms. Progressives are ignorant of the lessons of the USSR and the truth behind all the commie jokes.

John Tyler: Our national history spans but a few lifetimes and there are some amazing stories. My favorite is John Tyler (Tippecanoe and Tyler too), our 10th president (1841-45) born in 1790 during George Washington’s first term. Two of Tyler’s grandchildren are alive today.  The entirety of US history took place in the lifetimes of Tyler, his children and grandchildren, spanning 229 years and still going. Therefore, you should not be overly shocked to learn that the United States government in 2019 still is paying pensions to widows and children of Civil War veterans.

Hauser’s Law: Alexandria Ocasio-Cortez and progressive know-nothings (oxymoron) proposed a top income tax rate of 70%. They obviously know nothing about Hauser’s Law, which states that, regardless of tax rates, the individual income tax collects 18% of GDP – 20% in a strong economy, 16% in a weak one. In the 75 years since WWII, the top rate has varied from a low of 28% to a high of 92%, but the revenue it produced was constant at 18%. The Tax Foundation, when adjusting for the effects of behavioral changes, found that a 70% rate lost $65 billion in tax revenue over 10 years.

The Laffer Curve: Progressives also know nothing about the Laffer Curve. Economists know that as rates rise (starting from zero) tax revenues increase, but at a decreasing rate. Eventually a point is reached at which tax revenue is maximized. Beyond that point, tax revenues decrease at an increasing rate, i.e. the Laffer Curve. Higher marginal income tax rates actually result in less tax revenue. Economists have determined that tax revenue is maximized at a rate of 35% to 40%; once rates rise above 40%, total tax collections begin to fall and at an ever increasing rate.

The reason Hauser’s Law and the Laffer Curve work should be apparent; people (especially the wealthy) modify their behavior based on tax rates. If progressives want more tax revenue (within the existing tax code) they must do a Willy Sutton and go to where the money is, i.e. the middle class; there never are enough rich people. MLLG has written extensively about Hauser and Laffer and may soon need to devote a full posting to them amidst all the progressive jibber-jabber about hiking tax rates.


Our next post January 27 is a climate change update; don’t miss it.

Gotterdammerung for America

Recent developments have sealed America’s fate; it is only a matter of time until some event (perhaps minor) triggers a crisis – forever changing the United States.
Gotterdammerung for America
By: George Noga – February 25, 2018
      Gotterdammerung is the final opera in Richard Wagner’s Ring Cycle. It means twilight of the gods and is marked by a catastrophic and violent societal collapse. It was the final performance of the Berlin Philharmonic on April 12, 1945. It is an apt choice for the above headline because, for the first time ever, I believe America has crossed the point of no return on its way to gotterdammerung. The climax of the crisis  is years away but we have crossed the Rubicon and jacta alea est – the die is cast.
       I was not this apocalyptic when I wrote the February 11 and 18 posts. The February 11 post identified the three root causes of the fiscal crisis as health care, Social Security (pensions) and interest on the debt. Because of recent developments, these root causes plus defense now will suck up the entire federal budget (and then some) by 2020 – much earlier than I believed scant weeks ago.
       The February 18 post showed the public debt/GDP ratio surpassing 90% within 5 years. No nation has escaped from a ratio that high without societal upheaval and a lost generation. Subsequent to that post, things have gotten worse. Congress’ budget deal increased spending $150 billion/year and permanently raised the baseline for all future spending. Add another $200 billion for infrastructure plus billions more for higher interest on the debt and there are trillion dollar (and bigger) deficits forever. The US now will reach the critical 90% ratio much earlier than I believed on February 11th.
       We were lucky until recently. The 2013 budget sequester restrained spending; we are in the ninth year of an economic expansion; and interest rates have been at historic lows. These factors delayed our fiscal death march to Gomorrah. Meanwhile, the demographic time bomb keeps ticking as health care and pensions spiral out of control. Now, the sequester is busted, interest rates are exploding and a recession is due soon.
       There is no way out of this fiscal rathole. Slashing spending requires cuts of 25% and must include health care and pensions – sowing the clouds of civil unrest. Raising taxes also requires a 25% increase and kills economic growth leading to stagnation and lives of quiet desperation. Other possibilities such as runaway inflation and repudiation of the debt also would rent the country’s fabric. All possible solutions are nihilistic.
       Most politicians, however venal, are not stupid. They fully understand everything in this post. They do not attempt to halt America’s entropy because they know voters will not support drastic action unless there is an existential crisis. Speaker Ryan wanted to tackle entitlements but he would be demagogued to death merely for trying. Nothing will happen until it is far too late and then it will be only quarter-measures.
     Charles Murray, one of the titans of our time, recently said: “the American experiment in self-government is essentially over“. Hamilton said it well: “The only path to a subversion of our country is by flattering the prejudices of the people and exciting their passions, jealousies and apprehensions, to throw affairs into confusion  and bring about civil discord.” That describes America today, dithering over identity politics and playing to peoples’ fears and prejudices, while ignoring existential threats.
       With profound regret, I now must concur with Charles Murray. I fear our beloved republic of 230 years has passed the point of no return; I hope and pray I’m wrong.

Next in 3 days: Special Posting on the Parkland school shooting

Taxation in America – First Principles

As America debates tax reform, MLLG provides the appropriate perspective.
Taxation in America – First Principles
By: George Noga – June 25, 2017
      This begins our series about taxation in America; it coincides with the debate over tax reform and Trump’s tax proposals. Our tax series consists of several parts that will run during the summer; some parts will run consecutively and some intermittently. We begin by presenting ten wholly objective and nonpolitical principles.
  1. Taxes should be simple and transparent. Citizens should demand transparency and simplicity; however, it is in the interest of government to make taxes complex and opaque. A sales tax collected from consumers at the point of sale meets these criteria as people know they are paying a tax and the amount. Conversely, a VAT, embedded in the cost of products, is opaque; consumers don’t always know they are paying a tax nor the amount. Business taxes, which are passed along to consumers as higher prices, are totally opaque. Government always goes to great lengths to maximize opacity.
  2. Only living, breathing humans pay taxes. Businesses and corporations do not pay taxes; they may remit taxes, but it is not their money. The burden of all business taxes falls on owners, employees and (95% of the time) on customers as higher prices. Business taxes are a myth propagated by government to beguile voters into believing they are not paying tax. The 50% of payroll taxes “paid” by employers is really borne by the employee – not the employer – and is simply government maskirovka.
  3. Taxes should not impede growth. The goal of taxation should be to maximize economic growth. Politicians can and should debate how to carve up the pie but never should do anything to shrink the pie as this harms all Americans. Taxes on capital (such as capital gains) are harmful to economic growth and result in locked-up capital, misallocation of resources, under-investment and loss of productivity.
  4. Taxes must be stable. Once enacted, a tax regimen should be permanent and rarely amended. Politicians can’t resist using the tax code for class warfare and political fundraising. Individuals and businesses need long-term tax stability to plan their lives and investments. Uncertainty is a mortal enemy of investment and productivity.
  5. Taxes should be neutral. Taxes should impose identical burdens on all taxpayers regardless of the nature of their businesses. Under the current tax code, businesses with substantial fixed assets are taxed much differently than service businesses.
  6. Know Hauser’s Law. Tax revenue as a percentage of GDP is constant regardless of the top marginal tax rate. From 1945 to 1963 when tax rates were 90%, tax revenue was 15%-18% of GDP. In the late 1980s when the top rate was 28%, tax revenue was 18% of GDP. Tax revenues vary according to economic conditions but not tax rates. Hauser’s Law works because taxpayers modify their behavior based on tax rates.
  7. Taxation is not for corporate welfare. Simple, transparent, neutral and low corporate taxes would eliminate most of the rationale for corporate welfare. Businesses never should be rewarded for lobbying activity more than for growing their businesses.
  8. Governments should compete on taxes. Nations and states should compete on rates. People always win with competition. Competition from much lower tax rates abroad has created tax inversions. Ultimately, this will be solved by lowering US tax rates.
  9. Taxation is not for social policy. Taxes are for raising revenue in the simplest, most efficient, transparent and economic friendly manner possible; they never should be an instrument for social policy. To the extent government has legitimate social goals, they should be addressed directly and not via the tax code. The worst abuse of this principle is the death tax, which is not about revenue but about class warfare and politics.
  10. Understand the Laffer Curve. Tax revenue maxes out at 30%-35% for individuals and 20%-25% for corporations; anything higher actually produces less total revenue.
      Keep these ten principles in mind throughout our series on taxation in America and as Congress debates tax reform this summer. The closer the final outcome conforms to these principles, the better for every American.

Don’t miss our next posting on Independence Day (July 4th); it is a real keeper!

Inequality in America V – Putting it All Together

Surprising answers to questions about inequality in America

By: George Noga – May 29, 2016

   Even socialists agree inequality from newly created wealth (even massive wealth a la Gates and Jobs) is an unalloyed benefit to society because it is the best metric for how well an economy is innovating, becoming more productive and responding to the needs of all people. Inherited wealth is mostly dissipated in a few generations, heavily taxed and often used charitably. Last, if Social Security and Medicare benefits were capitalized and included in wealth measurements, inequality would plunge markedly.   At the outset of this series, I promised to explore and to answer many questions about inequality in America based on facts and logic. Following are the answers.

    It is nigh impossible to get an accurate picture of inequality of income due to deeply flawed statistics based on AGI and household income, inconsistencies between income cohorts and flawed comparisons that don’t track the same people over time. One conclusion is certain. Accurate data would show much less inequality of income. Progressives oppose disparity in pay between CEOs and workers but are okay with similar clefts for athletes and movie stars. Steve Jobs took a nearly bankrupt Apple and created $750 billion of value; he made $2 billion, or 0.27%; was he overpaid?

    Data based on spending shows sharply less inequality; the lowest income cohort spends $2 for each $1 of income. There is no inequality based on taxation (including payroll taxes) as America has one of the most progressive tax systems in the world. Nor would a $15 minimum wage reduce inequality; less than 1% earn the minimum and their average household income is $50,000. Young, poor, minorities and the unskilled are harmed by minimum wage laws. The truly poor need jobs not a higher minimum wage. Progressives claim a moral imperative to increase the minimum wage knowing aforehand it creates unemployment. Where is the morality in that?

    The chasm between reality and rhetoric is wide. All measures of inequality, Gini, Theil and MLD, are markedly worse under Clinton compared to Reagan and under Obama versus Bush 43. Inequality is fueled by progressive policies including: (1) tepid economic growth; (2) higher taxation; (3) opposition to school choice; (4) energy policies; (5) ObamaCare; (6) opposition to trade; and (7) spending, debt and deficits. It is progressive dogma that creates inequality despite its self righteous rhetoric.

    All metrics show less inequality in Europe; however, we must ask if that is a good thing or a bad thing. Many Europeans lead lives of quiet desperation with no economic mobility and a permanently moribund economy; they even refuse to reproduce or to defend themselves. Europe produces no innovations in electronics, software, drugs or even pop culture. The former USSR would have scored favorably on measures of inequality as does Botswana; where everyone is poor, there is no inequality. The Gini coefficient for happiness in America is the highest in the world; that says it all!

    There are some things we should do to reduce inequality. Foremost is to stop corporate welfare as wealth created by government is illegitimate. Too big to fail needs to be eliminated as this is but another form of government largess. Capitalism must be based on both the carrot and the stick. Most Americans understand and accept inequality created by the marketplace; their beef is with government playing favorites.

    At its beating heart, inequality is mostly an imaginary problem. The vapid dogma of progressivism is incapable of solving real problems; therefore, it creates a series of phony problems for political maskirovka. As demonstrated in this series, progressives have created the very inequality they now hypocritically rail against. In sum, inequality in America is not a serious problem except when created by government.


The next post June 5th entitled “Hurricane Warning” is particularly pithy.

Inequality in America IV – Reality versus Rhetoric

There is an abyss between what progressives say and do. They vehemently condemn inequality while advocating policies that create and exacerbate it.

By: George Noga – May 22, 2016

    There is a staccato drumbeat from progressives asserting there is a grave and metastasizing crisis of inequality in America. In this fourth part of our series, we reveal the specific policies of Obama and progressivism that result in greater inequality.

1. Tepid economic growth is the 900-pound gorilla. Under Obama, coming off a bad recession, there has never been a year with 3% growth. It is the worst economy ever under these circumstances. The lack of growth is due to Obama’s policies for taxes, regulation and health care amidst great uncertainty. A languishing economy coupled with tiny wage gains is radioactive for poor and minorities and exacerbates inequality.

2.  Black youth unemployment is over 50%. Obama refuses to consider a temporary entry level wage. Instead, he wants to increase the federal minimum wage by 40%.

3.  Higher taxes are like steroids for inequality. Obama’s tax increases on dividends, capital gains and small business constrain capital investment and are a death-knell for job creation. His refusal to lower the corporate tax rate keeps trillions locked up abroad instead of financing jobs at home. Tobacco taxes have skyrocketed, disproportionately harming the poor; one pack a day costs $1,000 a year more in taxes – more inequality.

4.  Opposition to free trade is harmful. Obama deserves credit for the TPP; however, progressives led by Clinton and Sanders are demagoguing it to death and want to kill it. The underclass benefits more than any other group from free trade. For liberals however, obeisance to labor unions trumps the welfare of the underclass.

5.  Opposition to school choice keeps poor kids in failing schools. School choice is not only the civil rights issue of our time, it is a potent economic issue. Liberals choose to pander to teachers unions while throwing poor kids under the school bus. Lack of school choice could very well be the number one contributor to increased inequality.

6. Higher prices for food and energy wreak havoc on the poor. Food prices have surged due to Obama and progressive support for ethanol subsidies. Energy takes 25% of the income of poor families but only 10% for a high income household. The average price of a kilowatt hour was up nearly 40% under Obama – until the recent drop in oil and gas prices – which occurred despite, not because of, Obama’s policies.

7.  ObamaCare is a disaster and poor Americans bear its brunt. Health care costs are rising along with taxes to fund it while access and quality of care plummets. Doctor shortages, rationing and death panels will have more impact on the poor. Meanwhile, the legions of 29ers and 49ers are growing due to perverse incentives in the ACA.

8.  Obama’s spending, debt and deficits savage savings. Poor elderly Americans have seen incredibly low interest rates damage their lives. For every $25,000 a retired couple has in savings, monetary policy under Obama costs them $100 per month.

9.  Increasing the minimum wage fuels inequality. Progressives claim a moral imperative to raise the minimum wage knowing it costs poor and minority jobs. The real minimum wage always is zero, and that is exactly what the wage will be for many.

10.  Obama has created a poverty trap. If a low-middle income family with children has a second worker enter the labor force, the effective tax rate on the extra earnings is up to 80% due to phaseout of benefits. Under Obama, the number of single earner households has increased 2.6 million and households with no earners by 5 million.

    Every one of the above factors increases inequality and every one is a creature of progressive dogma. The difference between progressives’ rhetoric and reality is indeed a bottomless abyss. Progressives created the inequality in America they now demonize.


Part V, the final post in this series, is scheduled for May 29th.

Truths About Tax Inversions

Obama’s attack on tax inversions is nothing but liberal anti-business class warfare
and demagoguery that caters to widespread ignorance and causes economic harm.
By: George Noga – April 17, 2016

     A goal of the new MLLG blog is to be more responsive to current issues; in that spirit, this post addresses corporate tax inversions (such as the Pfizer-Allergan merger stymied by the Obama justice department) with a perspective you will not encounter elsewhere. Upcoming posts will focus on the $15 minimum wage and inequality in America including a comparison with Nordic countries – Sweden and Denmark.

     A tax inversion is the relocation of a US corporation’s headquarters to a lower tax nation (usually via merger with a foreign company) so that it “inverts”, i.e. becomes a foreign corporation for US tax purposes. The benefits to the inverting company are twofold: first, tax on income earned abroad is payable at the much lower foreign rate; second, foreign profits can be returned to the US without further taxation. Following are the principal truths you should know about corporate tax inversions.

  1. Tax inversions are an imaginary enemy! Progressives can’t solve real problems facing America such as terrorism, economic growth or failed schools. Instead, they pander to their base and to low-information voters by conjuring imaginary enemies such as tax inversions, climate change, institutional racism, campus rape culture, inequality and war on women. Yes, it’s really that simple.
  2. Corporations don’t bear the tax burden. Taxes may be collected from businesses but the burden (those who ultimately pay the tax) falls on all Americans via higher prices as corporate taxes are passed on to consumers. Business taxation is misdirection intended to beguile voters into accepting higher overall taxes.
  3. Taxation intentionally is opaque. Politicians make taxation opaque so Americans are fleeced with as little push-back as possible. It’s always in taxpayers’ interest for taxes to be direct and transparent. Liberals instead disguise tax collections, always preferring borrowing or stealthy tax increases to cutting spending or raising taxes directly. That’s why they strongly prefer business taxes.
  4. Inversions can be beneficial. Following an inversion, cash can be brought back to the US without added tax and invested to create American jobs. The increased productivity from this investment helps all Americans in the long run.
  5. The rule of law has been abandoned. In its place is retroactive, capricious, ad hoc and arbitrary imposition of political power. It is precisely this imperative of political dogma over the rule of law that is responsible for the economic malaise of the past seven years, creating slow economic growth and tiny wage gains.
  6. Inversions can be ended quickly and easily. The US corporate tax rate is the highest in the world at 41% (35% federal, 6% state). Everyone agrees it should be lowered and the $2+ trillion overseas should come home. A political solution is low hanging fruit; however, President Obama sees more value politically in keeping the issue alive for continued class warfare and demagoguery.

     As long as liberals remain in control, trillions of dollars will remain offshore and working Americans will continue to suffer low growth and wage stagnation. All this damage accrues solely because Obama chooses to flog imaginary enemies for perceived political gain while failing to deal with the real problems facing America.


The next post is April 24th and begins our series: Inequality in America.