Minnesota is Misrepresenting the Effects of Higher Taxes and Minimum Wages

It is being claimed that higher taxes on high income persons and increases in the minimum wage are the key to jobs creation and a fast-growing economy.  The example of Minnesota since Democrat Gov. Dayton took over is being used to "prove" this.

Gov. Dayton certainly benefited relative to Gov. Pawlenty in that he became Gov. in the year that the recovery from the Great Recession began, however meekly. He did not create the 172,000 jobs either. But let us note that 172,000 jobs in two years is just barely a match for an anemic population growth.

The article notes that the Minnesota median income advantage relative to the national average actually fell by $2,000 from 2012-2013 to now. It was not noted that the cost of living in Minnesota relative to the national average is going up as well. The combination of a rising cost of living and a falling median income, both relative to the nation, is not good.

While the minimum wage is to go up to $9.50/hr. for large employers by 2018, it will go up to only $7.75/hr. for small employers who employ most people. There are special provisions for a 90-day training period for workers under 20 years old and for all workers under 18 with a minimum wage of $6.50/hr. There are many states with no such provisions.

Furthermore, the private sector job growth in Minnesota from Q1 of 2013 to Q1 of 2014 showed Minnesota to be dead last in the Midwest in private sector job creation. Its 0.8% increase in private sector jobs was behind the next worst state in the Midwest, Illinois at 1.2%.

Gov. Dayton is probably not claiming that he caused a relative decrease in the median income with an increase in the relative cost of living.  And now that businesses have had time to react to his higher taxes and mandated higher wage costs, he is surely not claiming credit for Minnesota being dead last in private sector jobs creation in the Midwest.

The 1920s Whose Economic Policies Obama Dislikes

In the last debate with Mitt Romney, Obama said, "When it comes to our foreign policy, you seem to want to import the foreign policies of the 1980s, just like the social policies of the 1950s and the economic policies of the 1920s."  Let us review the economic policies of the 1920s a bit.  We will learn some very important lessons.

Amity Shlaes called Obama out on this.  She notes that real GDP grew by an average of 4% a year in the 1920s.  High unemployment in 1921 at 11.7% was brought down to 2.4% in 1923 while cutting federal spending.  In time, government spending as a percentage of real GDP was cut in half.  80,000 patents a year were being issued on average in the 1920s, which was not again matched until the 1960s.  The 1920s were a decade of growth in technology and for the economy generally.

Now, Obama can not abide by cuts in federal spending.  President Harding cut tax rates as advised by Andrew Mellon, and we know that Obama greatly dislikes that idea.  The income tax marginal rate under the bloated government of Woodrow Wilson for those with an income of $100,000 or more was 60% when Harding took office in 1921.  Under Wilson, those with an income of $1 million or more had paid a marginal tax rate of 77%.  The marginal tax rate for those with income over $100,000 was lowered in 1922, 1923, 1924, and then again in 1925 under President Coolidge, with a final marginal rate of 25%, until 1929 when it was dropped to 24%.  Not only did the economy grow well as noted, but the share of income taxes paid by those with incomes of $100,000 or more steadily and rapidly increased from 1923 to the end of the decade.  The total amount of income tax paid by these higher income taxpayers increased rapidly also.  In 1920, those making over $100,000 a year paid 29.9% of all income taxes.  In 1928, they paid 61.3% of all income tax collected.

Income tax revenues from those making $10,000 or less decreased greatly and stayed much lower throughout the decade.  For those making $25,000 to $100,000, very wealthy people then, the collected tax revenues went down considerably before rising later in the decade to about the level at the start of the decade.  See Tax Rates and Tax Revenue: The Mellon Income Tax Cuts of the 1920s by Veronique de Rugy of the Cato Institute.  The fact that total income taxes decreased somewhat for several years before growing back to levels exceeding that of the start of the decade was fine because the Republican Presidents Harding and Coolidge reduced the size of the government considerably.

Arthur Laffer and other supply side economists have often said that the Mellon tax cuts resulted in both economic growth and an increase in tax revenues. Actually, with such severe tax cuts for all income tax brackets, this is not a sufficiently accurate portrayal of what happened.  However, the income tax revenue collected from those with incomes over $100,000 more than doubled!  Large tax cuts for higher earners result in large tax revenue increases because these taxpayers are much more likely to devote great effort to avoiding paying high income tax rates, including exercising their greater ability to retire early or simply to work fewer hours.  They are also more likely to invest their money in businesses when taxed at lower rates, causing the economy to grow more rapidly, which also adds more to both income tax total revenues in time, but also to other types of taxes as people generally earn and spend more.

It is an interesting fact that if high earners were taxed at lower marginal tax rates than lower earners are, total revenues collected by the government by the income tax would increase and increase specifically from the higher earners.  There is even a very good moral argument that this is the way things should be.  Government legitimately serves only to protect our equal, sovereign individual rights from those who would initiate the use of force to deprive people of their rights.  If one man earns 10 times what another man earns, does it really cost government 10 times as much to protect the rights of the bigger earner?  I do not think so.  Some legitimate costs of government overall scale with the population, some with the area of the country, and some with its GDP.  The area of the U.S. is not changing and the population is growing at a rate of only about 1% a year.  Only a fraction of the legitimate costs of government are left as proportional to the GDP.  Total government spending should increase at a rate greater than that of population growth, but less than that of the GDP.  For both moral reasons and for the purpose of maximizing tax revenues, marginal tax rates should decrease with higher income rather than increase.  Such a tax scheme would guarantee that everyone's effective and marginal tax rates could be reduced with time.

Thus we see that the current highly progressive income tax scheme serves only an ideological purpose of egalitarianism.  It makes the primary purpose of the income tax code that of punishing higher income earners, rather than maximizing the income of the government with a minimum of harm to the People.  It sacrifices economic growth.  It sacrifices maximizing income tax revenues at minimal pain.  It means that those many tax revenues that grow with the economy will increase more slowly.  But this highly irrational progressive income tax system is much beloved by Obama.  Therefore, it should be no surprise that Obama hates the tax and economic policies of the 1920s.  Rational Americans should learn from that period of history and at the least greatly reduce the progressive marginal tax rates of the present insane system.  If we had the wisdom to go further and adopt an income tax code that is regressive, we would all benefit greatly in relatively short order.

U.S. State Dept. Tells U.N. We Are Guilty of Many, Many Human Rights Violations

In an early move to placate the international community, Obama had the U.S. join the U.N. Human Rights Council.  The current member nations of this august body of human rights exemplars include:

Angola
Egypt
Nigeria
South Africa
Zambia
China
Kyrgyzstan
Pakistan
Saudi Arabia
Russian Federation
Argentina
Bolivia
Cuba

The U.S. just delivered a 29-page report to the Human Rights Council in which the State Department said that some Americans were still victims of discrimination.  In particular, blacks, Latinos, Muslims, South Asians, Native Americans, and gays are victims of high unemployment, hate crimes, poverty, poor housing, lack of access to health care, and discriminatory hiring practices.

The report welcomed "observations and recommendations that can help us on that road to a more perfect union."  The American Civil Liberties Union approved of the Obama administration's submission to the U.N. Human Rights Council, but decried the fact it did not address the issues of "inhumane prison conditions, racial disparities in death penalty cases, and abuses in the immigration system."  The director of the ACLU's human rights program said, "It is time for the U.S. to match its human rights rhetoric with concrete domestic policies and actions and create a human rights culture and infrastructure that promote American values of equality and justice for all."

OK, you have been wondering when I was finally going to step in here and punch this Progressive viewpoint in its sniveling nose.  Did you notice that human rights are always referred to by statists and not individual rights?  They ought to be the same thing, but somehow they never are.  Human rights are always take to include the obligation of some individuals to serve others, usually in some collective group.  So, to be clear and differentiate my viewpoint from the Progressive idea of human rights, I will address these issues on the basis of our individual rights.

Individuals have the right to freedom of association and they have the right to discriminate.  They are not required to choose who they associate with or how they discriminate on a rational basis.  What is more, government would hardly be the agent anyone rational would turn to for the purpose of determining who each individual shall associate with and to dictate to each individual how they should discriminate.  These issues are much too complex for government, which is incredibly simple-minded and totally lacks the knowledge of how each American individual is differentiated and what their values are.  Individuality and those differing values require individuals to discriminate among those with whom they will choose to associate.  What is more, we should have learned long ago that no good comes of individuals forfeiting their own independent judgment to government beyond those basic protections which government provides by preventing itself and individuals from initiating the use of force against one another. 

If I were to refuse to hire any black Adventist person, let us say, that is within my rights, as long as mine is a private company.  The government, on the other hand, cannot refuse to hire Adventist blacks.  Why?  First, because government must treat every individual equally before the law.  Second, government is the only agent in our society allowed to use force against individuals.  That use of force must be tightly controlled to prevent its abusive use.  One of the most important controls is that it must be applied equally to all citizens, so that the majority of citizens will be inclined to feel the need to protect those who have become the victims of government discrimination on the basis of race, religion, peaceful creed, employer or employee, income, or property.  It is government that proves to be the monolithic rights violator because it has a monopoly on the use of force in a society.  Therefore, legitimate government, as defined in our Declaration of Independence, has the sole function of protecting the equal, sovereign rights of every individual to life, liberty, and the pursuit of happiness.

That being the case, it is very irrational that this report did not bemoan the fact that the government discriminates against people who are more productive and those who earn more income.  When the ACLU calls upon the American values of equality and justice, where is their outcry against the progressive income tax code?  Or, where is the acknowledgment by the government that it has no right to discriminate against hiring white males for government positions.  Where is the acknowledgment that government cannot claim to treat Americans equally and with justice when it discriminates against firms owned by white males when it lets contracts for goods and services?  Where is there condemnation of the fact that employers are forced to keep employee income and tax records and submit reports to governments without just compensation?

While these awful infractions of unequal and unjust discrimination by the U.S. government go unmentioned, the ACLU bemoans the conditions of prisoners, who are treated better here than almost anywhere in the world.  And what are the immigration abuses they are talking about?  Apparently, our policy is only to deport people who are felons, while illegal border crossings and misdemeanors are ignored.  Where is the abuse in that?  When we provide most government services and force many private companies to provide free charity work to illegal immigrants, it is a puzzle to me that we can be said to be abusive.

It may be true that more blacks receive the death penalty, but that may be less because they are black than because of a combination of the nature of the crimes and their likely being poorer and less able to obtain the services of the better lawyers.

We shall have to wait with bated breath for the constructive comments to come from Cuba, China, the Russian Federation, Zambia, Egypt, Saudi Arabia, and Pakistan on how the U.S. might achieve an admirable human rights record.  Do you suppose any of them will do what the ACLU failed to do?  Will they point out that the primary abuses of human rights in the U.S. are due to our government's failure to govern in accordance with our own Declaration of Independence and our Constitution?  Will they point out that our progressive income tax system is a violation of every individual's equal rights to life, the pursuit of happiness, and property?  Do you suppose they will demand that the U.S. government stop its baleful discrimination against the white male minority or the employer minority?

Fein -- Redistribution blather

Bruce Fein, a constitutional lawyer, has written an interesting commentary called "Redistribution blather" for the Washington Times on 11 November 2008. He says,

Morality and economic prosperity militate in favor of turning the prevailing progressive income tax scheme on its head. They also argue against government redistributions of wealth through spending, including the $700 billion Troubled Assets Relief Act of 2008, which was championed by President Bush, Mr. McCain, and the president-elect alike. It lavishly rewards the prodigal, financially irresponsible, and politically connected at the expense of the thrifty and prudent.

He notes that barriers to voting by the masses have been reduced and the checks against majoritarian tyranny have become less effective. The progressive income tax and massive redistribution programs have allowed politicians to purchase the votes of much of the middle and lower classes. The rich retain influence by making campaign contributions and by providing advertising and think tanks. The politicians then squander many billions of dollars winning the affections and allegiance of the rich, the middle class, and the lower class. Then Fein produces a great argument on the morality of progressive taxation:

In any event, the "ability to pay" standard is morally obtuse. At present, most income is obtained through private market transactions. Income is earned by doing things other persons want done, i.e., giving them satisfaction. The willingness of a private individual to pay from his own resources is the best proxy ever invented for fixing the economic value of the thing provided. Every other standard is hopelessly subjective.

Individuals who earn high incomes through private transactions are thus the true "Good Samaritans" because they give the greatest amount of satisfaction to others. Someone who slaved 24 hours a day digging a hole to nowhere that no one wanted would be economically barren and might be whipped for refusing to do things that others wanted done. So much for Karl Marx's labor theory of value.

By any sensible moral yardstick, high-income earners should be taxed least because they generate the greatest amount of consumer satisfaction. Low-income earners should be taxed most because they create the least social good. Moreover, taxation reduces the amount of the thing taxed by raising its cost. High taxes on low-income earners would reduce their numbers by giving tax relief for earning more.

Then another juicy comment:

An individual whose diligence, industry and wisdom have earned great personal wealth by satisfying the wants of others stands on a higher moral plane than an individual whose indolence, indiscipline and criminality have plunged him into abject poverty.

For my part, I will not propose an anti-progressive income tax with say the first dollar earned at a 39.6% rate, the second dollar taxed at a 36% rate, the third dollar earned taxed at a 33% rate, etc. Well ... at least not as long as government does not insist on doling out more welfare benefits to the lower income groups. No... I am willing to go along with a system with a flat tax rate of say 10%. I understand that it is said that a flat rate of 17% would be needed, but that assumes that we will continue the many redistributionist programs we already have. So either we slash those programs and go with a 10% flat income tax rate, or we keep the redistributionist programs and adopt an anti-progressive income tax. Thems my terms!

But really, Bruce Fein is on to something here. Besides making it apparent that he has probably read Ayn Rand, he is staking out the moral position from which we will probably have to start if there is to be any hope of ending up with a flat income tax. The socialists claim we are our Brother's Keeper even when we do not know our brother and their numbers are too fantastical for any one mother to have borne them all. We need to finally apply the counterbalancing truth in order to get any justice at all. That truth is the truth I quoted Fein on above. We need to start the Anti-Progressive Tax League and parlay that into something approaching a moral income tax.