Sequester Reporting Scavenger Hunt: Official Rules

Michael Giberson

Brace yourself, sequester is coming! The news has been filled with horror stories over the pain threatened by the sequester cuts. From the mighty New York Times (“As Governors Meet, White House Outlines Drop in Aid to States“) and Wall Street Journal (“Governors Brace for Sequestration’s Hit to States“) down to a blog hosted at my local newspaper (“Sequestration will cost Texas plenty“), these stories have one thing in common: A lot of emphasis on how modest federal budget cuts will impose outlandish costs, and absolutely no mention that plausible alternatives–increasing taxes, increasing the national debt ever higher–would also impose real economic burdens.

The one alternative to the sequester that does merit brief mention, that Congress actually passes a bill that selectively cuts spending, is widely agreed to be implausible.

Now I’m sure that some reporters are out there doing their job, not just reporting the obvious fact that recipients of federal dollars would rather just keep the money flowing, but also reporting that federal spending itself comes at a cost. But such news reports are rarer than rainbow-colored unicorns these days.

I’m declaring a “Sequester Reporting Scavenger Hunt.”

Rules: If you find a news story emphasizing the pain of sequester budget cuts that also clearly indicates that alternatives such as raising taxes or increasing the national debt also cause pain, you are a winner. Post a link in the comments here to claim your prize.

If you find a news story emphasizing the pain of sequester budget cuts that also quotes someone as indicating the sequester cuts may actually be good for the economy overall, you are a double-bonus winner. Post a link in the comments here to claim your double-bonus prize.

If you have your own blog, you can also win by posting the story to your own blog with a link back to this page. I encourage you to post a comment here, too, to ensure you get your prize.

Note that the scavenger hunt is limited to news stories, not editorial or op-ed comments. Many editorialists seem to think we can squeeze federal spending back to a level not seen since about 2011 without actually forcing half the country into breadlines. Some editorialists are willing to point out that the alternatives to the sequester also will impose costs. News reporters and their editors, on the other hand, apparently can’t find that rare voice.

Prize: All winners will obtain modest improvements in their fiscal education, possibly some gratitude from other readers, and a hearty congratulations from me.

Double-bonus prize winners should list their name in their comment surrounded by extra asterisks like ***this***, or if you prefer use exclamation points like !!!this!!! You get to choose, you’ve earned it!

Ok, now get out there and find those well-done sequester news reports.

On the obligations of income-earners and property-owners to pay taxes

Michael Giberson

Perhaps you’ve seen the video of Elizabeth Warren, hoping to be elected to the U.S. Senate from Massachusetts, in which she declaims that since roads and police and fire protection are funded through taxes, people have no real claim to their income or wealth against a government that wants to take it. After all, she says, without use of the roads or protection by the policy, people couldn’t earn income or hold onto their wealth. (By the way, I’m looking forward to part two where she explains the consequences for religious freedom entailed by the fact that church-goers drive to church on tax-funded roads.)

Some people like her way of thinking (see the comments here). But obviously her presentation will grate on the nerves of folks that believe governments are instituted to secure and protect rights rather than the wellspring of those rights in the first place.

There are a number of thoughtful (and probably many more less thoughtful) criticisms of Warren’s little speech. Perhaps the best considered response I’ve seen so far comes from Will Wilkinson at The Moral Sciences Club, “Tax and Justice: It is your money.”

Pigou as public choice economist, not a Pigouvian

Lynne Kiesling

I was intrigued last week to read Bruce Yandle’s short piece in Regulation discussing Pigou and his ideas about taxation in the context of modern “Pigouvian” policy proposals. I recommend his essay highly; it communicates eloquently how Pigou’s ideas are currently being used as a justification for a variety of forms of taxation. Many of these tax proposals (bank taxes, gasoline taxes, salt taxes, sugary soda taxes) may be motivated by some political elite’s notion of what is “good for society”, but Yandle also makes clear that such proposals may instead be motivated by raising revenue.

Even more interestingly, Yandle does something that few current economists do — he reads Pigou’s original arguments. In them he finds something that I find intriguing (and although I have read large portions of Pigou’s original works, I was not aware of this):

As strange as it may seem, Pigou did not believe that government could improve human well being by fine-tuning behavior with taxes, subsidies, and regulation. His concern was grounded in what we today call Public Choice. He did not accept the notion that politicians, given constitutional constraints, would be capable of implementing an efficient and effective set of taxes and subsidies. Put simply, he did not believe the politicians could get the calculations right. Instead of making things better, the chances were just as good that things would be made worse. Instead of keeping faith with implementing a well-designed tax, the politicians’ interest would be deflected to writing loopholes for favored interest groups and finding ways to generate ever more revenue.

Yandle quotes Pigou from his seminal 1932 work The Economics of Welfare, Chapter XX, “Intervention By Public Authorities” (1932). Pigou’s discussion in this chapter is striking in how it presages modern public choice arguments, as Yandle indicates. Pigou is also making a clear argument for analyzing the performance of different institutions and what are the correct comparisons to make. Take, for example, this quote from p. 332, which immediately precedes the quote Yandle used in his essay:

[The case for government intervention] cannot become more than a prima facie one, until we have considered the qualifications, which governmental agencies may be expected to possess for intervening advantageously. It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustment that economists in their studies can imagine.

Not only is Pigou making a public choice argument in this chapter; in this quote he is also making a point that Harold Demsetz would later term the “Nirvana fallacy” in “Information and Efficiency: Another Viewpoint” (1969). In the remainder of the chapter Pigou goes on to argue that early-20th-century improvements in voting access, in bureaucratic administration, and in communications technology made government interventions more appropriate in more situations than had been the case previously, with less voter engagement and a less productive bureaucracy. To do a true Demsetz-style non-Nirvana comparison, though, Pigou would have had to compare the effects of those changes on the productivity of markets and other institutions for private ordering, relative to their effects in public administration.

Still, I find this chapter of Pigou incredibly striking. It indicates Pigou’s willingness to admit, and to analyze, the effects of institutions on economic outcomes. Here he’s essentially saying that institutions matter, a position that his colleague John Maynard Keynes did not hold. Pigou’s argument is even more striking to me in light of my recent reading of Buchanan and Wagner’s Democracy in Deficit, which I mentioned a couple of weeks ago. Pigou’s analysis of government intervention seems to me to have more in common with Buchanan and Wagner’s argument, and their criticism of Keynes’ approach as institutionally sterile.

Pigou, Buchanan and Wagner, and the Yandle essay all give some substantial food for thought as we think through the range of very interventionist policy proposals being put forward right now. I also recommend Thom Lambert’s post at Truth on the Market about the Yandle essay, which is what prompted my musings here; he goes into more detail in discussing the Pigou-Coase comparisons.

Local politician threatens to file price gouging claims against gasoline retailers opposing tax

Michael Giberson

From the Fredericksburg, VA, Free Lance-Star, “GAS-TAX PINCH OR GOUGING?“:

Spotsylvania County Supervisor Hap Connors threatened yesterday to file price-gouging complaints because of a lobbying association’s campaign that blames a Virginia Railway Express tax for increased gas prices.

The county became a member of the commuter rail service Monday and enacted a 2.1 percent tax on wholesale gasoline required for VRE membership. The tax is expected to generate more than $3 million annually.

… The Virginia Petroleum, Convenience and Grocery Association represents 650 retail members operating more than 4,500 convenience and grocery stores with gas pumps across Virginia.

Association spokesman Michael O’Connor said the group made laminated signs for Spotsylvania members that warn county residents they will pay 5 cents more a gallon because of the tax.

“Either the gasoline retailer will have to eat that 5 cents or it is going to be passed on to the consumer,” O’Connor said.

Supervisor Connors sent O’Connor an e-mail yesterday warning that he would file price-gouging complaints if O’Connor did not remove the signs.

When good deals go bad for economic development planners

Michael Giberson

State and local economic development agencies and assorted politicians like to trumpet their successes in using tax breaks and other incentives to induce companies to locate in their areas. Rarely does anyone report how these deals turn out in the months and years after that initial photo op. From BusinessWeek‘s Management IQ blog, a story on the aftermath of one deal: “Dell’s Plant Closure Raises Anger Over Incentives.”

Do government incentives aimed at luring businesses to a state or city work?

There’s already a body of evidence that they often do not. And news out of North Carolina this week shows just how quickly these headline-grabbing deals can go awry. While the business press on Dell Computers this week focused on its new smart phones and $3.9 billion bid for tech services provider Perot Systems, in North Carolina the news on Dell was all about the closure this coming January of its plant in Forsyth county. The move will put 900 people out of work. And it’s doing collateral damage to the local incentives system that offered the Texas-based computer maker $280 million in potential tax breaks and grants to locate the plant in the state four years ago.

North Carolina’s offer was eventually shown to have been much more generous than other states’.

Dell will repay much of what it’s received so far, including $15.6 million from the city of Winston-Salem and most of the $8.5 million it’s received from the state.

But the closure has become a political embarrassment for local politicians who had been urging the state to go further with incentive packages aimed at luring businesses….

So We’re Finally Done Paying for the Spanish-American War!

Lynne Kiesling

I’ve been complaining about this for so long, what will I do with myself … ? The long-reviled excise tax to pay for the Spanish-American War will finally be eliminated:

The Treasury Department, conceding that it has no right to continue collecting a 108-year-old tax on long-distance telephone calls, announced yesterday that it will drop its legal battle for the tax and instead refund about $13 billion to callers who have paid the tax in the past three years.

The 3 percent tax, enacted in 1898 to help pay for the Spanish-American War and revised in 1965, has been declared illegal by five federal courts of appeal during the past year as the result of challenges brought by companies forced to pay it.

Gee, I wonder how much taxpayer money the Treasury Department has spent in legal and court prep time for those five challenges. Any chance we can get that back? Naaah, didn’t think so.