A New Member for the Bureaucrat Hall of Fame
My primary problem with bureaucrats is that they often work for agencies and departments that should not exist.
My secondary problem is that they generally get overcompensated compared to workers in the economy’s productive sector.
And my tertiary problem with government employees is that they have job protections that encourage bad behavior – everything from sloth to crime.
When selecting new members for the Bureaucrat Hall of Fame, I usually pick from that final group.
And that’s the purpose of today’s column. We have a bureaucrat from Washington, DC, who deserves to be honored.
But he’s not a federal bureaucrat. He’s a cop with the DC metropolitan police. Here are some details of his misdeeds, as reported by Amanda Michelle Gomez.
The former vice chair of D.C. Police Union, Medgar Webster Sr., was arrested on Saturday for allegedly defrauding the D.C. government by working a second job at Whole Foods Market while reporting as on duty for the Metropolitan Police Department.
…MPD paid Webster $33,845, including overtime and holiday pay, for hours he was simultaneously on the clock at Whole Foods, according to an arrest affidavit. Webster allegedly worked at two locations for the grocery chain between January 2021 and April 2022, and earned $45,946 at one of those stores along H Street Southeast. …Webster earned an hourly rate of $53.11 as an officer, which was adjusted to $79.67 for overtime work, per the affidavit.
If nothing else, I guess we can say he’s not lazy. I imagine other cops don’t bother doing any work, but they’re probably home napping instead of working a second job.
So congratulations…sort of.
But here’s the part of the story that definitely makes Mr. Webster a Hall of Famer.
He was caught double-dipping only because he got in trouble for sexual harassment at his second job.
The police spokesperson says agents discovered Webster was allegedly working a second job while on the clock at MPD during an “unrelated [Internal Affairs Division] investigation.” Webster was being investigated for engaging in an “unwanted sexual contact” with an individual at the Whole Foods.
Apparently he was trying to double-dip in more than one way.
Seems like he has something in common with Mr. Geary.
P.S. My all-time favorite example of anti-bureaucrat satire is this video, though this top-10 list from David Letterman is a close second.
P.P.S. Since we’re making fun of bureaucrats, here’s a good jab at the Post Office from Jimmy Kimmel and a clever one-liner from Craig Ferguson. And to see how government operates, we have the Fable of the Ant. But this Pearls before Swine cartoon strip is very clever. Also, here’s a new element discovered inside the bureaucracy, and a letter to the bureaucracy from someone renewing a passport.
Protecting Individual Savings from Double Taxation
While speaking last year in Hawaii on the topic of good tax policy, I explained why it is misguided to impose extra layers of tax on saving and investment.
Regarding the problem of double taxation, I’ve addressed how various features of the tax code need to be fixed.
- Get rid of the capital gains tax
- Get rid of the double tax on dividends
- Get rid of the death tax
Today, we’re going to focus on the fixing the tax treatment of household savings. And the problem that needs fixing is that the federal government taxes you when you earn money and also taxes any interest you earn if you decide to save some of your after-tax income.
As you can see from the chart, this creates a tax wedge.
And that tax wedge distorts people’s decisions and makes them more likely to choose immediate consumption rather than savings (which can be viewed as deferred consumption).
As mentioned in the video, every economic theoryrecognizes that saving and investment (again, just another way of saying deferred consumption) are critical to future growth and rising living standards. So there are good reasons to fix the tax code.
The good news is that there are two ways to fix this problem.
- Tax income only one time when it is first earned.
- Tax income only one time when it is consumed.
In practical terms, the first option treats all savings like a “Roth IRA,”, which means you pay tax the year you earn your income, but the IRS does not get another bit at the apple if you save some of your after-tax income and it earns interest or otherwise grows in value.
The second option treats all savings like a 401(k), which means you are not taxed on any income that you place in a savings vehicle, but you are taxed on any money (including any interest or other returns) that you withdraw from the account.
As shown by Adam Michel of the Heritage Foundation, both of these approaches lead to the same long-run result (and thus are superior to what happens when people save without being protected from double taxation).
The good news is that Americans can protect their savings from double taxation by using either individual retirement accounts (IRAs) or 401(k)s.
The bad news is that those “qualified accounts” are restricted. Only people who are saving for retirement can protect themselves from double taxation.
That needs to change.
Here’s what I wrote back in 2012 and I think it’s reasonably succinct and accurate.
…all saving and investment should be treated the way we currently treat individual retirement accounts. If you have a traditional IRA (or “front-ended” IRA), you get a deduction for any money you put in a retirement account, but then you pay tax on the money – including any earnings – when the money is withdrawn. If you have a Roth IRA (or “back-ended” IRA), you pay tax on your income in the year that it is earned, but if you put the money in a retirement account, there is no additional tax on withdrawals or the subsequent earnings. From an economic perspective, front-ended IRAs and back-ended IRAs generate the same result. Income that is saved and invested is treated the same as income that is immediately consumed. From a present-value perspective, front-ended IRAs and back-ended IRAs produce the same outcome. All that changes is the point at which the government imposes the single layer of tax.
The key takeaways are in the first and last sentences. All savings should be protected from double taxation, not just what you set aside for retirement. And that means government can tax you one time, either when you first earn the income or when you consume the income.
This means we need universal savings accounts, sort of like they have in Canada.
Here’s what Robert Bellafiore of the Tax Foundation wrote about the idea back in 2019.
USAs do not penalize withdrawals on account of their purpose or timing. In contrast, some types of existing savings accounts are not neutral, penalizing people who withdraw their money for anything but approved purposes at approved times. For example, withdrawals from 529 accounts can only be made without penalty if they are used to fund education.
If a parent has a 529 account for a child but must make a withdrawal to cover emergency expenses, he or she must pay income taxes on the earnings, plus a 10 percent penalty. Withdrawals from 401(k)s before the age of 59½ incur the same penalty, though there are certain exceptions. USAs’ neutrality would likely boost saving, for two reasons. First, when savings are not hit by multiple layers of taxation, savers can expect a higher return and are therefore likely to save more. Both IRAs and 401(k)s tax savings only once, and studies have estimated that roughly half of 401(k) balances, and roughly a quarter of all IRA contributions, constitute new saving—in other words, dollars that would have been spent are saved instead.
The bottom line is that we need to copy jurisdictions such as Hong Kong and Singapore that have little or no double taxation of any kind.
Especially since we now live in a world where inflation has become an issue, which acts as a hidden tax on saving and investment.
I’ll close with this chart from the OECD. It’s a few years old, so I’m sure some nations have changed their policies, but it gives one a good idea of how savings is treated around the world.
The bottom line is that it’s good to avoid Norway and the United States is unimpressive.
I’m very surprised to see that Argentina and Germany have good policy.
P.S. For some of our friends on the left, policies that protect from double taxation are akin to an entitlement.
I enjoyed this article below because it demonstrates that the Laffer Curve has been working for almost 100 years now when it is put to the test in the USA. I actually got to hear Arthur Laffer speak in person in 1981 and he told us in advance what was going to happen the 1980’s and it all came about as he said it would when Ronald Reagan’s tax cuts took place. I wish we would lower taxes now instead of looking for more revenue through raised taxes. We have to grow the economy:
What Mitt Romney Said Last Night About Tax Cuts And The Deficit Was Absolutely Right. And What Obama Said Was Absolutely Wrong.
Mitt Romney repeatedly said last night that he would not allow tax cuts to add to the deficit. He repeatedly said it because over and over again Obama blathered the liberal talking point that cutting taxes necessarily increased deficits.
Romney’s exact words: “I want to underline that — no tax cut that adds to the deficit.”
Meanwhile, Obama has promised to cut the deficit in half during his first four years – but instead gave America the highest deficits in the history of the entire human race.
I’ve written about this before. Let’s replay what has happened every single time we’ve ever cut the income tax rate.
The fact of the matter is that we can go back to Calvin Coolidge who said very nearly THE EXACT SAME THING to his treasury secretary: he too would not allow any tax cuts that added to the debt. Andrew Mellon – quite possibly the most brilliant economic mind of his day – did a great deal of research and determined what he believed was the best tax rate. And the Coolidge administration DID cut income taxes and MASSIVELY increased revenues. Coolidge and Mellon cut the income tax rate 67.12 percent (from 73 to 24 percent); and revenues not only did not go down, but they went UP by at least 42.86 percent (from $700 billion to over $1 billion).
That’s something called a documented fact. But that wasn’t all that happened: another incredible thing was that the taxes and percentage of taxes paid actually went UP for the rich. Because as they were allowed to keep more of the profits that they earned by investing in successful business, they significantly increased their investments and therefore paid more in taxes than they otherwise would have had they continued sheltering their money to protect themselves from the higher tax rates. Liberals ignore reality, but it is simply true. It is a fact. It happened.
Then FDR came along and raised the tax rates again and the opposite happened: we collected less and less revenue while the burden of taxation fell increasingly on the poor and middle class again. Which is exactly what Obama wants to do.
People don’t realize that John F. Kennedy, one of the greatest Democrat presidents, was a TAX CUTTER who believed the conservative economic philosophy that cutting tax rates would in fact increase tax revenues. He too cut taxes, and he too increased tax revenues.
So we get to Ronald Reagan, who famously cut taxes. And again, we find that Reagan cut that godawful liberal tax rate during an incredibly godawful liberal-caused economic recession, and he increased tax revenue by 20.71 percent (with revenues increasing from $956 billion to $1.154 trillion). And again, the taxes were paid primarily by the rich:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So we get to George Bush and the Bush tax cuts that liberals and in particular Obama have just demonized up one side and demagogued down the other. And I can simply quote the New York Times AT the time:
Sharp Rise in Tax Revenue to Pare U.S. Deficit By EDMUND L. ANDREWS Published: July 13, 2005
WASHINGTON, July 12 – For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.
A Jump in Corporate Payments On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.
Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.
The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.
And of course the New York Times, as reliable liberals, use the adjective whenever something good happens under conservative policies and whenever something bad happens under liberal policies: ”unexpected.” But it WASN’T ”unexpected.” It was EXACTLY what Republicans had said would happen and in fact it was exactly what HAD IN FACT HAPPENED every single time we’ve EVER cut income tax rates.
The truth is that conservative tax policy has a perfect track record: every single time it has ever been tried, we have INCREASED tax revenues while not only exploding economic activity and creating more jobs, but encouraging the wealthy to pay more in taxes as well. And liberals simply dishonestly refuse to acknowledge documented history.
Meanwhile, liberals also have a perfect record … of FAILURE. They keep raising taxes and keep not understanding why they don’t get the revenues they predicted.
The following is a section from my article, “Tax Cuts INCREASE Revenues; They Have ALWAYS Increased Revenues“, where I document every single thing I said above:
The Falsehood That Tax Cuts Increase The Deficit
Now let’s take a look at the utterly fallacious view that tax cuts in general create higher deficits.
Let’s take a trip back in time, starting with the 1920s. From Burton Folsom’s book, New Deal or Raw Deal?:
In 1921, President Harding asked the sixty-five-year-old [Andrew] Mellon to be secretary of the treasury; the national debt [resulting from WWI] had surpassed $20 billion and unemployment had reached 11.7 percent, one of the highest rates in U.S. history. Harding invited Mellon to tinker with tax rates to encourage investment without incurring more debt. Mellon studied the problem carefully; his solution was what is today called “supply side economics,” the idea of cutting taxes to stimulate investment. High income tax rates, Mellon argued, “inevitably put pressure upon the taxpayer to withdraw this capital from productive business and invest it in tax-exempt securities. . . . The result is that the sources of taxation are drying up, wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people” (page 128).
Mellon wrote, “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower taxes.” And he compared the government setting tax rates on incomes to a businessman setting prices on products: “If a price is fixed too high, sales drop off and with them profits.”
And what happened?
“As secretary of the treasury, Mellon promoted, and Harding and Coolidge backed, a plan that eventually cut taxes on large incomes from 73 to 24 percent and on smaller incomes from 4 to 1/2 of 1 percent. These tax cuts helped produce an outpouring of economic development – from air conditioning to refrigerators to zippers, Scotch tape to radios and talking movies. Investors took more risks when they were allowed to keep more of their gains. President Coolidge, during his six years in office, averaged only 3.3 percent unemployment and 1 percent inflation – the lowest misery index of any president in the twentieth century.
Furthermore, Mellon was also vindicated in his astonishing predictions that cutting taxes across the board would generate more revenue. In the early 1920s, when the highest tax rate was 73 percent, the total income tax revenue to the U.S. government was a little over $700 million. In 1928 and 1929, when the top tax rate was slashed to 25 and 24 percent, the total revenue topped the $1 billion mark. Also remarkable, as Table 3 indicates, is that the burden of paying these taxes fell increasingly upon the wealthy” (page 129-130).
Now, that is incredible upon its face, but it becomes even more incredible when contrasted with FDR’s antibusiness and confiscatory tax policies, which both dramatically shrunk in terms of actual income tax revenues (from $1.096 billion in 1929 to $527 million in 1935), and dramatically shifted the tax burden to the backs of the poor by imposing huge new excise taxes (from $540 million in 1929 to $1.364 billion in 1935). See Table 1 on page 125 of New Deal or Raw Deal for that information.
FDR both collected far less taxes from the rich, while imposing a far more onerous tax burden upon the poor.
It is simply a matter of empirical fact that tax cuts create increased revenue, and that those [Democrats] who have refused to pay attention to that fact have ended up reducing government revenues even as they increased the burdens on the poorest whom they falsely claim to help.
Let’s move on to John F. Kennedy, one of the most popular Democrat presidents ever. Few realize that he was also a supply-side tax cutter.
“It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.”
– John F. Kennedy, Nov. 20, 1962, president’s news conference
“Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”
– John F. Kennedy, Jan. 17, 1963, annual budget message to the Congress, fiscal year 1964
“In today’s economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarges the federal deficit – why reducing taxes is the best way open to us to increase revenues.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”
– John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
“Our tax system still siphons out of the private economy too large a share of personal and business purchasing power and reduces the incentive for risk, investment and effort – thereby aborting our recoveries and stifling our national growth rate.”
– John F. Kennedy, Jan. 24, 1963, message to Congress on tax reduction and reform, House Doc. 43, 88th Congress, 1st Session.
“A tax cut means higher family income and higher business profits and a balanced federal budget. Every taxpayer and his family will have more money left over after taxes for a new car, a new home, new conveniences, education and investment. Every businessman can keep a higher percentage of his profits in his cash register or put it to work expanding or improving his business, and as the national income grows, the federal government will ultimately end up with more revenues.”
– John F. Kennedy, Sept. 18, 1963, radio and television address to the nation on tax-reduction bill
Which is to say that modern Democrats are essentially calling one of their greatest presidents a liar when they demonize tax cuts as a means of increasing government revenues.
So let’s move on to Ronald Reagan. Reagan had two major tax cutting policies implemented: the Economic Recovery Tax Act (ERTA) of 1981, which was retroactive to 1981, and the Tax Reform Act of 1986.
Did Reagan’s tax cuts decrease federal revenues? Hardly:
We find that 8 of the following 10 years there was a surplus of revenue from 1980, prior to the Reagan tax cuts. And, following the Tax Reform Act of 1986, there was a MASSIVE INCREASEof revenue.
So Reagan’s tax cuts increased revenue. But who paid the increased tax revenue? The poor? Opponents of the Reagan tax cuts argued that his policy was a giveaway to the rich (ever heard that one before?) because their tax payments would fall. But that was exactly wrong. In reality:
“The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988.”
So Ronald Reagan a) collected more total revenue, b) collected more revenue from the rich, while c) reducing revenue collected by the bottom half of taxpayers, and d) generated an economic powerhouse that lasted – with only minor hiccups – for nearly three decades. Pretty good achievement considering that his predecessor was forced to describe his own economy as a “malaise,” suffering due to a “crisis of confidence.” Pretty good considering that President Jimmy Carter responded to a reporter’s question as to what he would do about the problem of inflation by answering, “It would be misleading for me to tell any of you that there is a solution to it.”
Reagan whipped inflation. Just as he whipped that malaise and that crisis of confidence.
________
The Laffer Curve, Part III: Dynamic Scoring
The Daily Hatch 