What Marx Got Right about Redistribution – That John Stuart Mill Got Wrong by Alan Reynolds

The idea that government could redistribute income willy-nilly with impunity did not originate with Senator Bernie Sanders. On the contrary, it may have begun with two of the most famous 19th century economists, David Ricardo and John Stuart Mill. Karl Marx, on the other side, found the idea preposterous, calling it “vulgar socialism.”

Mill wrote,

The laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary about them. … It is not so with the Distribution of Wealth. That is a matter of human institution only. The things once there, mankind, individually, can do with them as they like.

Mill’s distinction between production and distribution appears to encourage the view that any sort of government intervention in distribution is utterly harmless — a free lunch. But redistribution aims to take money from people who earned it and give it to those who did not. And that, of course, has adverse effects on the incentives of those who receive the government’s benefits and on taxpayers who finance those benefits.

David Ricardo had earlier made the identical mistake. In his 1936 book The Good Society (p. 196), Walter Lippmann criticized Ricardo as being “not concerned with the increase of wealth, for wealth was increasing and the economists did not need to worry about that.”

But Ricardo saw income distribution as an interesting issue of political economy and “set out to ascertain ‘the laws which determine the division of the produce of industry among the classes who concur in its formation.’

Lippmann wisely argued that, “separating the production of wealth from the distribution of wealth” was “almost certainly an error. For the amount of wealth which is available for distribution cannot in fact be separated from the proportions in which it is distributed. … Moreover, the proportion in which wealth is distributed must have an effect on the amount produced.”

The third classical economist to address this issue was Karl Marx. There were many fatal flaws in Marxism, including the whole notion that a society is divided into two armies — workers and capitalists. Late in his career, however, Marx wrote a fascinating 1875 letter to his allies in the German Social Democratic movement criticizing a redistributionist scheme he found unworkable.

In this famous “Critique of the Gotha Program,” Marx was highly critical of “vulgar socialism” and considered the whole notion of “fair distribution” to be “obsolete verbal rubbish.” In response to the Gotha’s program claim that society’s production should be equally distributed to all, Marx asked,

To those who do not work as well? … But one man is superior to another physically or mentally and so supplies more labor in the same time, or can labor for a longer time. … This equal right is an unequal right for unequal labor… It is, therefore, a right to inequality.

Yet Marx offered a glimmer of utopian hope about the future in which things would become so abundant that distribution would no longer be a matter of concern:

In a higher phase of communist society … after the productive forces have also increased with the all-around development of the individual, and all the springs of cooperative wealth flow more abundantly — only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banner: From each according to his ability, to each according to his needs!

That was not a prescription but a warning: For the foreseeable future Marx knew nothing would work without work incentives. If income were equally distributed to “those who do not work,” why would anyone work?

Contemporary public economics — “optimal tax theory” and the newest of the “new welfare economics” — also teaches that to tax a man “according to his abilities” would give able men a very strong incentive to use their skills to hide their earnings (and therefore their abilities) from tax collectors. This predictable response to tax penalties on high earnings is confirmed by economic research on the elasticity of taxable income.

Distributing government spending “to each according to his needs” must likewise give potential recipients a strong incentive to exaggerate their needs. People who got caught doing that used to be called “welfare cheats” and considerable cheating still goes on in food stamps, Medicaid, etc. The Earned Income Tax Credit, for example, gives low-income working people an extra incentive to not report cash income from tips, casual labor or illicit activities.

In The Undercover Economist, Tim Harford rightly notes that “when economists say the economy is inefficient, they mean there’s a way to make somebody better off without harming anybody else” (called “Pareto optimality”). But argues that Nobel Laureate Kenneth Arrow figured out a way to efficiently redistribute income with “appropriate lump-sum taxes and subsidies that puts everyone on equal footing.” As Harford says, “a lump-sum tax doesn’t affect anybody’s behavior because there’s nothing you can do to avoid it.”

Unfortunately, Harford says “an example of a lump-sum redistribution would be to give eight hundred dollars to everybody whose name starts with H.” That simply shows that if the subsidies were not ridiculously random then the subsidies will affect behavior and will not be lump-sum. The government could collect a lump-sum tax of $800 from every adult and then send a lump-sum subsidy of $800 to every adult with no net effect, for example, but why do that? If the government tried to tax people on the basis of abilities or to subsidize on the basis of needs, even Marx knew that would have a terrible effect on incentives.

The whole idea was curtly dismissed by another Nobel Laureate, Joseph Stiglitz, in his 1994 book Whither Socialism? (p. 46): “The ‘old new welfare economics’ assumed that lump-sum redistributions were possible,” wrote Stiglitz; “The ‘new new welfare economics’ recognizes the limitations on the government’s information.”

The reason governments cannot simply take money from some people according to how able they are, and give it to others according to how needy they are, is because people who were aware of that plan would not be foolish enough to accurately reveal their abilities and needs.

Actual taxes and transfer payment distort behavior in ways that undermine economic progress and commonly produce results (such as trapping people in poverty) that are the opposite of their stated intent.

This post first appeared at Cato.org.

Alan ReynoldsAlan Reynolds

Alan Reynolds is one of the original supply-side economists. He is Senior Fellow at the Cato Institute and was formerly Director of Economic Research at the Hudson Institute.

Housing Finance’s Two Punch Bowls by the Federal Government Should Be Removed

As famously stated by Fed Chairman William McChesney Martin in 1955: “The Federal Reserve, after the recent increase in the discount rate, is in the position of the chaperon who has ordered the punch bowl removed just when the party was really warming up.”

As the Fed is now finding out, removing the punch bowl can be problematic if the party is already past warming up. Since it announced a ¼ point increase in the Fed funds rate on December 16, 2015, the two year and ten year Treasury notes have dropped 33 basis and 54 basis points respectively. The ten year rate is at 1.76%, near its all-time low of 1.58%. 30-year mortgage rates, which are priced off of it, have declined to 3.72%, the lowest level in 9 months and only marginally above the all-time low of 3.35% set in November 2012. Clearly the interest rate punch bowl has not been removed.

But housing finance benefits from a second punch bowl spiked by a plethora of federal housing guarantee agencies— Federal Housing Administration, Fannie Mae, Ginnie Mae, Freddie Mac, Federal Housing Finance Agency, etc. Today these agencies guarantee 85% of all primary home purchase loans. Loan leverage, as measured by the Pinto-Oliner National Mortgage Risk Index (NMRI) for agency home purchase loans, has been steadily increasing on a year-over-year basis since January 2014. Increases in first-time home buyer leverage have led the way, benefiting from the particularly liberal lending standards of the Federal Housing Administration (FHA). Seven in eight FHA loans to first-time buyers have an NMRI rating of high risk. Add in the fact that the FHA, to a great extent, neither prices nor underwrites for loan risk, making this is a punch bowl that can give quite a hangover.

The result has been a rapid increase in real (inflation adjusted) home prices, with prices up nationally about 16.5% since the home price trough in 2012. History teaches us that once the divergence hits 20% or more, the process of reverting to the mean becomes quite painful, as it is achieved through a drop in home prices. Such divergence can continue for a long time—in the recent boom it lasted 12 years and resulted in a 62% increase in real home prices. Of equal concern is that real prices since the 2012 trough have gone up even more—up 19% for entry-level homes. This makes it harder for low-income borrowers to buy without taking out a high risk loan.

It is well known why this phenomenon occurs. Liberalization of credit terms such as lower downpayments, increasing debt-to-income ratios, or declining interest rates increases demand. When undertaken in a seller’s market where supply is constrained (defined as an inventory relative to sales of six months or less), there is a tendency for this liberalization to be absorbed in price increases rather than increased access. The National Association of Realtors has reported an existing home seller’s market for 40 straight months.

The housing market, like others, is subject to the law of supply and demand. In the same 1955 speech Chairman Martin observed: “It is true that in a great emergency we have been willing to make a departure from our market structure…. The law of supply and demand is suspended temporarily, but it cannot be permanently repealed. It is always with us just as is the law of gravity.”

While this situation is bullish in the near term for continued housing price gains, in the end the taxpayer and low income buyers are the ones taking on the risk. It is time for the Fed and federal guarantee agencies to start removing the punch bowls and acknowledge that home prices are subject to the law of gravity—what goes up must come down.

EDITORS NOTE: This column originally appeared om InsideSources.com.

Have some fun at USA Spending.gov: $296 million went to Lutherans since Obama took office!

The other day I suggested that each and every one of you can be an investigative reporter, see that post by clicking here.

So here we are, a winter weekend, can’t do much outdoors, and maybe you aren’t into the Super Bowl, so how about having fun searching for how much of your hard earned tax dollars are going to charities—especially to ‘religious’ charities pretending to be doing the Lord’s work while spending your money!

USA Spending graphicI haven’t written about USA Spending.gov for awhile, so last night when a reader asked about a local Catholic Charity, I tried that government website again.  It is much improved because it now contains the sub-grants in addition to the amounts that are direct grants.  I think there was a grace period for grantees to get their information on sub-grants to USA Spending.gov, but they are there now.  (Here is a bit of information about how grantees need to be ready to provide sub-grant information.)

So back to the USA Spending.gov website I looked up the specific Catholic Charities my reader was interested in and was blown away when I saw the millions of dollars just one little local Catholic Charities was getting.

I then decided to just pick one of the nine federal refugee resettlement contractors (which have in the vicinity of 350 sub-grantees or sub-contractors), to see what the biggies were getting.  Here (below) is Lutheran Immigration and Refugee Service which resettles refugees in your towns and cities and also agitates for amnesty for illegal aliens.

LIRS is lobbying (with your money!) as we speak for 100,000 Syrians to be admitted to the U.S. before Obama leaves office.

Prepare to be shocked!  Since August 2008, this one ‘religious’ non-profit received $296 MILLION dollars from you in 143 transactions with federal agencies.(And, I will bet you LIRS is not the wealthiest!)

Click here and see for yourself!  (Sorry the screenshot isn’t very clear!)

Screenshot (22)

I urge you all to try the website.  Unfortunately for PRO-Open Borders Catholic agencies, there are too many of them and they aren’t all in one place. So try your local Catholic Diocese first.  Then think of all the other non-profits that have their hands in your wallet and see how much and from where their grants are flowing.

They will all say they help the poor with your money, but I repeat, they are also lobbying for more (poor) migrants to be admitted to the US!  Our founding fathers must be rolling in their graves to see the federal treasury used in this way.

Then you must get the information you learn out to others beyond your circle. Maybe take your facts and write a letter to the editor. Ask to write an Op-ed for your local paper. Go on talk radio. Write a blog!  Send what you learn to your elected officials and ask why on earth they are giving your money to Open Borders Leftwing organizations masquerading as religious charities.

Come to think of it, where is the ACLU on the separation of church and state?

And, while you are there, be sure to see yesterday’s post about Marco Rubio and his fan boy Grover Norquist (or is it the other way around?).

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President Obama Wants You to Pay More for Oil

Apparently oil prices are too low, so President Barack Obama thinks it’s a good idea to slap on a $10 per barrel oil tax. Politico reports:

Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion. To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.

Based on current prices, this would be a roughly 30% tax on a barrel of oil.

It’s disturbing that the president’s reaction to an industry slashing jobs and cutting investments in a tough business environment is to place a massive tax on the product they produce.

It’s also troubling to see that President Obama thinks of the tax as a quid pro quo for ending the oil export ban. (Something he opposed.)

“You’re allowed to export, but we’re also saying is that we’re going to impose a tax on a barrel of oil,”President Obama said at a press conference.

Thankfully this tax is already “dead on arrival” in Congress, said House Speaker Paul Ryan (R-Wis.).

President Obama knows this, but doesn’t care. As Politico notes, “It’s mostly an effort to jump-start a conversation.” And it falls squarely with his mission to end fossil fuel use in the United States.

“It’s really about taxing the energy they don’t like to make President Obama’s favored energy sources,” said Institute for Energy Research President Thomas Pyle.

The president acknowledged this. When questioned by reporters, President Obama said if imposed, the tax “will have further weaned our economy off dirty fuels.”

But his sweeping plan runs straight up against reality. Americans will be using oil and other fossil fuels for decades to come. Until economically viable alternatives are developed that offer the same benefits (convenience, reliability, energy density), fossil fuels will be needed to keep America’s economy moving.

There’s no question we need more revenue to fix America’s broken roads and bridges, but the oil tax covers over the real intention behind the proposal: The radical transformation of America’s energy economy.

MORE ARTICLES ON: ENERGY

EDITORS NOTE: The featured image of President Obama is by photographer: Andrew Harrer/Bloomberg.

VIDEO: Five ways the FAIRtax Curtails Tax Cheats

The FAIRtax improves upon major factors that bear upon compliance.

To understand how it does so, policy makers need to look at the several factors that bear upon compliance – both fraud and non-fraud – from the scholarly research.  The five most important of these are as follows:

  • the number of taxpayers in relation to enforcement resources;
  • the marginal tax rates;
  • transparency or the risk of detection/ability to hide defalcation;
  • the magnitude of punishment if caught; and
  • perceptions of unfairness.

Number of taxpayers in relation to enforcement resources.

The 2014 IRS Data Book gives the number of tax filers under the current system as a whopping 158.1 million.  The FAIRtax removes approximately 134 million taxpayers entirely from the tax system, reducing the number of filers by 85 percent to about 24 million.  Thus, enforcement authorities can catch cheats by monitoring far fewer taxpayers.  Because the number of collection points is so much lower under the Fair Tax, if enforcement funding is held equal then the audit rate for potential evaders increases considerably and the likelihood of apprehension is correspondingly higher.  The perception of risk as a deterrent should also increase commensurately.  In other words, the risk of detection increases and the risk-adjusted cost of evasion increases.

Marginal tax rates.

A taxpayer’s marginal tax rate is the tax rate that applies to the taxpayer’s last dollar of taxable income.  It is the marginal tax rate that affects his or her decision regarding whether to work more.  The higher the marginal tax rate, the greater disincentive to increase work or to find a higher paying job.  Likewise, a high marginal tax rate affects a taxpayer’s incentive to cheat.

Because the FAIRtax has the broadest tax base, marginal rates are the lowest they can be under any sound tax system.  With a lower marginal tax rate, cheaters profit less from cheating.  All other things being equal, the motto that “every man has his price” applies to encourage more attempted evasions as the reward from cheating increases. Lower marginal rates, if the risk and motivation are the same, imply lower evasion rates because the benefit from evasion declines while the cost of evasion remains comparable.  However, precisely because of the larger tax base and lower marginal tax rates, the benefit from lawful tax avoidance or illegal tax evasion under the FAIRtax is much less at the margin relative to either the current system or competing alternative tax systems that have higher marginal tax rates.

The graph below shows the marginal rates under the FAIRtax and the current federal tax system (income and payroll taxes) for 42 stylized married households divided into seven income categories.  The marginal tax rate for the FAIRtax is 23%.  Each additional dollar spent includes 23 cents of taxes.  Across all income categories, the marginal tax rate under the current system is higher than the FAIRtax.*

How can low income persons have high marginal rates?  For example, it is not uncommon for married couples earning $30,000 per year with two children to face high marginal tax rates.  Given the level of their federal marginal tax bracket, and their loss of the Earned Income Tax Credit from earning extra income and their exposure to marginal Social Security/Medicare taxation, their current total marginal effective tax on earning an extra dollar can be over 35 percent, and possibly over 45 percent.

To see the study on which these rates are based click here.

Transparency or the risk of detection/ability to hide cheating.

Visibility was specifically mentioned by the Government Accountability Office as affecting compliance. The transparency of the FAIRtax increases the likelihood that tax evasion is uncovered and leaves little room to hide between honesty and outright fraud (to say nothing of the well-established efficiency of current state sales tax authorities, well experienced in detecting such infractions).  When an individual claims exemption, he has to do so in a very visible way at the cash register.

Magnitude of punishment if caught.

The severity of applicable penalties is also a factor, but this would be expected to increase.  This is not to say that the FAIRtax adds to the impressive array of penalties now in the code; but rather, that it becomes quite transparent when someone is cheating as opposed to “gaming” the system.  When a retailer fails to pay over trust funds, he does so at great peril and with the knowledge that he is violating the law (i.e., committing evasion).  Few excuses apply.

Perception of unfairness.

Perception of the fairness of the tax system is increasingly regarded as an important consideration.  Studies have persuasively shown that attitudes are important determinants of compliance.  Having both a negative attitude towards the tax system and perceiving other taxpayers as dishonest significantly increases the likelihood a person will evade taxes.  Today, cheating is encouraged by the perception that one’s neighbor is not paying his or her fair share.  Under the FAIRtax, as the costs of compliance shrink and the perceived fairness of the tax system increases, some of the hostility to the tax system will decline.

Bottom Line.

State tax administrators can focus enforcement resources on far fewer taxpayers, using consistent and vastly simpler forms, with far fewer opportunities to cheat, diminished incentives to do so, and a far greater chance of getting caught if they do.


Karen Walby, Ph.D. is the Director of Research for Americans For Fair Taxation. See more here.

The Ethanol Mandate Is Literally Impossible by Alan Reynolds

In recent years, politicians set impossibly high mandates for the amounts of ethanol motorists must buy in 2022, while also setting impossibly high standards for the fuel economy of cars sold in 2025. To accomplish these conflicting goals, motorists are now given tax credits to drive heavily-subsidized electric cars, even as they will supposedly be required to buy more and more ethanol-laced fuel each year.

Why have such blatantly contradictory laws received so little criticism, if not outrage? Probably because ethanol mandates and electric car subsidies are lucrative sources of federal grants, loans, subsidies and tax credits for “alternative fuels” and electric cars. Those on the receiving end lobby hard to keep the gravy train rolling while those paying the bills lack the same motivation to become informed, or to organize and lobby.

With farmers, ethanol producers and oil companies all sharing the bounty, using subsidies and mandates to pour ever-increasing amounts of ethanol into motorists’ gas tanks has been a win-win deal for politicians and the interest groups that support them and a lose-lose deal for consumers and taxpayers.

The political advantage of advocating contradictory future mandates is that the goals usually prove ridiculous only after their promoters are out of office. This is a bipartisan affliction.

In his 2007 State of the Union Address, for example, President Bush called for mandating 35 billion gallons of biofuels by 2017, an incredible target equal to one-fourth of all gasoline consumed in the United States in 2006. Not to be outdone, “President Obama said during the presidential campaign that he favored a 60 billion gallon-a-year target.”

The Energy Independence and Security Act of 2007 (EISA) did not go quite as far as Bush or Obama, at least in the short run. It required 15 billion gallons of corn-based ethanol by 2015 (about 2 billion more than were actually sold), but 36 billion gallons of all biofuels by 2022 (which would be more than double last year’s sales). The 2007 energy law also raised corporate average fuel economy (CAFE) standards for new cars to 35 miles per gallon by 2030, which President Obama in 2012 ostensibly raised to 54.5 mpg by 2025 (a comically precise guess, since requirements are based on the size of vehicles we buy).

The 36 billion biofuel mandate for 2022 is the mandate Iowa Governor Terry Branstad (and Donald Trump) now vigorously defend against the rather gutsy opposition of Sen. Ted Cruz. But it is impossible to defend the impossible: Ethanol consumption can’t possibly double as fuel consumption falls.

From 2004 to 2013, cars and light trucks consumed 11% less fuel. The Energy Information Agency likewise predicts that fuel consumption of light vehicles will fall by another 10.1% from 2015 to 2022.  So long as ethanol is no more than 10% of a gallon (much higher than Canada or Europe), ethanol use must fall as we use less gasoline rather than rise, as the mandates require. If we ever buy many electric cars or switch from corn to cellulosic sources of ethanol, as other impossible mandates pretend, then corn-based ethanol must fall even faster.

If raising ethanol’s mandated share above 10% is any politician’s secret plan, nobody dares admit it. Most pre-2007 cars can’t handle more than 10 percent ethanol without damage, and drivers of older cars often lack the income or wealth to buy a new one. Since ethanol is a third less efficient than gasoline, adding more ethanol would also make it even more impossible for car companies to comply with Obama’s wildly-ambitious fuel economy standards (which must also reduce ethanol use, if they work).

The 2007 law also mandated an astonishing 16 billion gallons of nonexistent “cellulosic” ethanol by 2022 from corn husks or whatever. We were already supposed to be using a billion gallons of this marvelous snake oil by 2013. Despite lavish taxpayer subsidies, however, production of cellulosic biofuel was only about 7.8 million barrels a month by April, 2015 (about 94 million a year). The Environmental Protection Agency (EPA) mandate in June 10, 2015 was 230 million billion in 2016, which is more fantasy.

It doesn’t help that the Spanish firm Abenoga – which received $229 million from U.S. taxpayers to produce just 1.7 million gallons of ethanol – is trying to sell its plant in Kansas to avoid the bankruptcy fate of cellulosic producer KiOR. It also doesn’t help that a $500,000 federally-funded study paid finds biofuels made with corn residue release 7% more greenhouse gases than gasoline.

The contradictory, fantastic and often scandalous history of ethanol mandates illustrates the increasing absurdity of mandates from Congress and the EPA.

The 2007 biofuel mandate was not just bad policy. It was and remains an impossible, bizarre policy.

This post first appeared at Cato.org.

Alan ReynoldsAlan Reynolds

Alan Reynolds is one of the original supply-side economists. He is Senior Fellow at the Cato Institute and was formerly Director of Economic Research at the Hudson Institute.

Catching Up with some Common Core Profiteers: Beyond the Project Veritas Videos

The Big Government-Big Education alliance has also had positive trickle-down effects for professors, who have benefited with publishing contracts and grants for their institutions.  The Bill and Melinda Gates Foundation, the biggest funder of Common Core, continues to support universities that help in implementing their education initiatives.  Professors hopped on the Common Core gravy train at the get-go. There was the curious fact that Bill Ayers gave a keynote address at the 2009 convention of the Renaissance Group, “a national consortium of colleges, universities and professional organizations” dedicated to teaching and education.  Now if we could only learn how much Bill Ayers was paid for that keynote speech in Washington in 2009.

James O’Keefe’s undercover videos reveal what activists have been saying for years: Common Core is a set of standards written not for the benefit of students, but to enrich crony capitalists, such as mega-curriculum companies, Houghton Mifflin-Harcourt, Pearson, and National Geographic Education.

The latest, the fourth video, records former Houghton Mifflin-Harcourt executive Gilbert Garcia describing the constant “politicking” among school board members and superintendents, and former Pearson employee Kim Koerber describing how the 2013 $1.3 billion contract for supplying I-Pads to the Los Angeles school district was “written for Pearson to win.”  After an FBI investigation into bid-rigging, Pearson, in 2015, agreed to pay the district $6.4 million in a settlement.

Pearson issued a statement calling remarks in the videos “offensive,” asserting that they do not reflect the values of the company’s 40,000 employees.

But the Big Government-Big Education alliance has also had positive trickle-down effects for professors, who have benefited with publishing contracts and grants for their institutions.  The Bill and Melinda Gates Foundation, the biggest funder of Common Core, continues to support universities that help in implementing their education initiatives.  To name a few, in November, the Foundation announced a grant of $34.7 million for “transformation centers” to improve teacher preparation programs on the campuses of the University of Michigan, Texas Tech University, and the Relay Graduate School of Education, as well as at the National Center for Teacher Residencies, and the Massachusetts Department of Elementary and Secondary Education.  That same month, a grant of $1,799,710 was awarded to “support collaboration between Vanderbilt [University] and the Tennessee Department of Education in the area of education research and improvement,” and $764,553 was awarded to the University of Florida for “teacher leader fellows.”

Professors hopped on the Common Core gravy train at the get-go, as I described in 2012, in my report for Accuracy in Media, “Terrorist Professor Bill Ayers and Obama’s Federal School Curriculum.” There was the curious fact that Bill Ayers gave a keynote address at the 2009 convention of the Renaissance Group, “a national consortium of colleges, universities and professional organizations” dedicated to teaching and education.  Of course, I made no claim that Ayers wrote the standards; I just noted that he appeared at this conference in Washington with then-Secretary of Education Arne Duncan, his under secretary, and a representative from Achieve, the company that orchestrated Common Core.  Ayers’s close colleague, Stanford professor Linda Darling-Hammond, led Obama’s education transition team and oversaw one of the two national Common Core tests.

Less well-known professors, who had bristled at the imposition of “standards,” suddenly began embracing Common Core standards.  This was the case with education professor Lucy Calkins and her colleagues at Columbia Teachers College, Bill Ayers’s alma mater, long a bastion of anti-testing/anti-standards.  These professors began writing teacher guidebooks, and presenting talks and workshops.  Since co-authoring Pathways to the Common Core, Calkins continues to do work for the publisher, Heinemann, a part of Houghton Mifflin Harcourt.  Her “Units of Study” curriculum is described by the publisher as a bestseller.  She also writes performance assessments, including the Grade 1 “Units of Study” in “Opinion, Information, and Narrative Writing.”  (Yes, students in first grade are expected to write op-eds.)  In a short video, Calkins explains her teaching philosophy that involves mini-lessons and group work.

In 2012, Marc Aronson, a lecturer in communications and information at Rutgers University, was advertising himself as a “Common Core Consultant,” speaker, and author.  Today, he describes himself on his personal website as an “author, professor, speaker, editor and publisher who believes that young people, especially pre-teens and teenagers, are smart, passionate, and capable of engaging with interesting ideas in interesting ways.”

Aronson apparently believes that pre-teens and teenagers are smart enough to weed out the lies in his Common Core-compliant middle school and high school textbook, Master of Deceit: J. Edgar Hoover and America in the Age of Lies.  As I noted in my report, Aronson presents the KGB-fabricated lies about the FBI director’s homosexuality as probable.  For the benefit of 11-year-olds, he posits that photographs of Hoover with his friend Clyde Tolson “might be seen as lovers’ portraits.”  The book is filled with sexual innuendo and dwells on such irrelevant details in order to ascribe motives to Hoover for his presumably unfounded fears about the communist threat.  The accompanying discussion guide is a masterpiece of disguise: as ideological questions bearing their own answers.

It is therefore not surprising that Aronson would now write an article in the School Library Journal casting a skeptical eye on O’Keefe’s undercover videos and asking readers to “consider the source,” as the subheading to the headline, “Is Common Core Just a Scam to Sell Books?” asks.  He distances himself from the sales executives but never directly names the “source” that one should “consider.”  (Innuendo seems to be his modus operandi.) The implication is O’Keefe.  Aronson admits, “As a nonfiction fan, author, and editor, I have a stake in this.”  He denies that his stake is in the rise in nonfiction sales that have come as Common Core standards have edged out literature in favor of “informational texts.”  No, Aronson fell “in love with the standards” when he first read them, “years before they had any impact on royalty statements.”

Aronson also claims to have served recently on the New Jersey team that evaluated that state’s English Language Arts (ELA) and Math standards.  Contrary to the executives’ statements captured in the videos, his “team” carefully examined the standards “one by one, grade by grade, and listened to extensive comments from teachers, administrators, parents, professionals, and business leaders.”  He claims that he saw “commitment, not greed.”

He presents a “guiding principle” that sounds very familiar to those of us whose eyes have glazed and brains have flopped like dying fish from the Common Core sales literature: “From the first, our guiding principle was this: What will someone awarded a high school diploma be ready for? The group looked at each educational stage and benchmark to consider what students would need to know to be ready for the next step, and the next, so that after graduation they would have the skill set to begin the next phase of their lives.”

Aronson’s team included comments by Amy Rominiecki, a Certified School Library Media Specialist, on behalf of the New Jersey Association of School Librarians, in their report. (He links back to her statement when she testified in support of Common Core.)  The Bill and Melinda Gates Foundation has also funded studies for the American Library Association (the parent organization of the American Association of School Librarians) on such things as Technology Access, training, and participation in the federal E-rate program.

Aronson attributes the continuing low performance of 12th graders in math and reading to economic inequality, stating, “If more students had more resources (social, emotional, financial, cultural, and technological), more would be ready to meet the challenges and opportunities that follow after secondary education.”

Of course, this author and educational entrepreneur has only the purest motives: “the children.”  Money may be important, “yet, there is a role for standards to play.” To that end, “as educators and communities who care about our nation’s youth, it is necessary we establish a path that’s best for as many students.”

Such bromides bring big bucks in the education world.  I am reminded of words by Bill Ayers at an education conference in 2013, something about being finite creatures hurtling through infinite space.  Now if we could only learn how much Bill Ayers was paid for that keynote speech in Washington in 2009.

EDITORS NOTE: This column originally appeared on the Selous Foundation for Public Policy Research website.

Federal Budget Survey: Republicans and Democrats Agree on Changes Reducing Deficit By $52 billion

WASHINGTON, D.C. /PRNewswire-USNewswire/ — As the announcement of President Obama’s FY2017 budget draws near, a new, national survey finds majorities of Republicans and Democrats agreeing on cuts in spending and increases in revenues that would reduce the projected deficit by $52 billion. In the in-depth ‘Citizen Cabinet’ survey, respondents were presented the President’s FY 2016 budget and sources of general revenues, and then given the opportunity to propose their own federal budget. The probability-based online sample included nearly 7,000 registered voters, with subsamples for California, Florida, Maryland, New York,Ohio, Oklahoma, Texas and Virginia. The results were released today by Voice Of the People.

“Many members of Congress are quick to blame the public when they fail to make hard choices,” said Steven Kull, director of the University of Maryland’s Program for Public Consultation and the survey’s director. “However this in-depth survey shows that voters in both parties can make hard choices and that Republicans and Democrats can find common ground.”

Majorities converged on $10 billion in spending cuts including cuts to subsidies to agricultural corporations ($3 billion), the space program ($1 billion), and cuts of $1 billion each to defense intelligence, operations in Iraq andAfghanistan, military aid, the State Department, aid to countries of strategic interest, and enforcement of Federal laws. No spending areas were increased by majorities from both parties.

The biggest deficit reductions came from revenue increases totaling $41.9 billion.

  • Sixty-five percent approved of a 5 percent increase in income taxes on income over $200k including 52 percent of Republicans, 74 percent of Democrats and 64 percent of independents, yielding $34.1 billionin deficit reduction.
  • Seventy-six percent approved of taxing carried interest like ordinary income – repealing the special tax treatment that has benefited hedge fund managers – including 74 percent of Republicans, 79 percent of Democrats and 73 percent of independents. This would yield $1.8 billion.
  • Seventy-seven percent approved of requiring large financial institutions (roughly the 100 largest firms) paying a fee of seven-tenths of a percent on their uninsured debt, including 67 percent of Republicans, 86 percent of Democrats and 75 percent of independents, generating $6 billion.

Additional revenue increases totaling $28.4 billion were recommended by majorities overall, by Democrats and independents, and by half of Republicans. These included another proposal from the President’s FY 2016 budget to raise the top tax rate on capital gains and dividends from 23.8 to 28 percent (65 percent overall, 80 percent Democrats, 50 percent Republicans) yielding $22 billion in deficit reduction. Increasing the alcohol tax to 25 cents per ounce was endorsed by 56 percent (Democrats 62 percent, Republicans 50 percent), yielding$6.4 billion.

While both Democrats and Republicans in Congress are planning for increases in spending on national defense, neither Democratic nor Republican voters favored such increases. The majority overall, including Democrats and independents reduced it $38 billion while Republicans reduced it $1 billion.

The survey was conducted by the Program for Public Consultation, School of Public Policy, University of Maryland and was fielded September 17December 14, 2015.

The Citizen Cabinet panel was drawn from Nielsen-Scarborough’s probability-based national panel, which was recruited by mail and telephone using a random sample of households. Additional panelists were recruited by Communications for Research. The margin of error for the national sample was +/- 1.4 percent; for the states it ranged from +/- 4.0 percent to +/- 5.1 percent.

Unlike a standard poll, Citizen Cabinet surveys take respondents through an online process called a ‘policymaking simulation’ that gives respondents information and seeks to put them in the shoes of a policymaker. The content of the simulation was vetted for accuracy and balance by both minority and majority congressional staffers from the budget committees in the House and Senate.

In this simulation, a representative panel of 6,949 registered voters were presented the administration’s proposed 2016 discretionary budget (broken into 31 line items), and actual and proposed sources of federal general revenue and the projected deficit. They were given the opportunity to make changes to spending and revenues as they saw fit. A bubble followed them giving constant feedback about the effects of their changes on the projected budget deficit.

Changes proposed by the overall majority went much further than the areas of bipartisan convergence. The overall majority reduced the deficit by $277.6 billion, led by Democrats and even more so independents. In addition to cuts in defense spending and some small cuts in a number of other areas, majorities increased taxes by 10 percent on income over $1 million (54 percent), a tax on sugary drinks (54 percent), a financial transactions tax (55 percent), and a 5 percent increase in corporate taxes (51 percent).

The largest revenue increase came from a new tax on carbon dioxide emissions that has been developed by the Office of Management and Budget that would increase energy costs $5 a month for the average household and generate $100 billion in revenue. This plan was endorsed by 56 percent including majorities of Democrats (75 percent) and independents (52 percent), but not Republicans (36 percent).

Though they were not asked to try to address the limits of the Budget Control Act (which triggers sequestration in the event of overages), changes endorsed by the overall majority would easily eliminate the $75 billionoverage of the president’s proposed FY2016 budget, while the changes agreed on by majorities of both parties would eliminate most, but not all, of the sequester overages.

The budgets proposed by supporters of various presidential candidates revealed striking differences. The deepest deficit cuts come from supporters of Sanders ($402 billion) and Clinton ($285 billion) as their revenue increases and defense spending cuts were much greater than for supporters of Republican candidates. Among Republicans, Trump supporters made the largest deficit cut ($129 billion) as they made substantial revenue increases and significant non-defense cuts. While Cruz supporters produced a smaller deficit cut ($105 billion) their non-defense cuts were the deepest and most varied, but they were the only ones to produce a net reduction in revenues as a result of making tax cuts. Rubio supporters made the smallest deficit cut ($80 billion) as they made modest revenue increases, modest spending cuts and were the only group to not cut defense at all.

Anyone can try the survey at: http://research.cfrinc.net/vop15265pub/

The report can be found at: http://vop.org/wp-content/uploads/2016/02/Federal_Budget_Report.pdf

The questionnaire can be found at: http://vop.org/wp-content/uploads/2016/02/Federal_Budget_Quaire.pdf

Why Bernie Sanders Has to Raise Taxes on the Middle Class by Daniel Bier

Willie Sutton was one of the most infamous bank robbers in American history. Over three decades, the dashing criminal robbed a hundred banks, escaped three prisons, and made off with millions. Today, he is best known for Sutton’s Law: Asked by a reporter why he robbed banks, Sutton allegedly quipped, “Because that’s where the money is.”

Sutton’s Law explains something unusual about Bernie Sander’s tax plan: it calls for massive tax hikes across the board. Why raise taxes on the middle class? Because that’s where the money is.

The problem all politicians face is that voters love to get stuff, but they hate to pay for it. The traditional solution that center-left politicians pitch is the idea that the poor and middle class will get the benefits, and the rich will pay for it.

This is approximately how things work in the United States. The top 1 percent of taxpayers earn 19 percent of total income and pay 38 percent of federal income taxes. The bottom 50 percent earn 12 percent and pay 3 percent. This chart from the Heritage Foundation shows net taxes paid and benefits received, per person, by household income group:

But Sanders’ proposals (free college, free health care, jobs programs, more Social Security, etc.) are way too heavy for the rich alone to carry, and he knows it. To his credit, his campaign has released a plan to pay for each of these myriad handouts. Vox’s Dylan Matthews has totaled up all the tax increases Sanders has proposed so far, and the picture is simply staggering.

Every household earning below $250,000 will face a tax hike of nearly 9 percent. Past that, rates explode, up to a top rate of 77 percent on incomes over $10 million.

Paying for Free

Sanders argues that most people’s average income tax rate won’t change, but this is only true if you exclude the two major taxes meant to pay for his health care program: a 2.2 percent “premium” tax and 6.2 percent payroll tax, imposed on incomes across the board. These taxes account for majority of the new revenue Sanders is counting on.

But it gets worse: his single-payer health care plan will cost 80 percent more than he claims. Analysis by the left-leaning scholar Kenneth Thorpe (who supports single payer) concludes that Sanders’ proposal will cost $1.1 trillion more each year than he claims. The trillion dollar discrepancy results from some questionable assumptions in Sanders’ numbers. For instance:

Sanders assumes $324 billion more per year in prescription drug savings than Thorpe does. Thorpe argues that this is wildly implausible.

“In 2014 private health plans paid a TOTAL of $132 billion on prescription drugs and nationally we spent $305 billion,” he writes in an email. “With their savings drug spending nationally would be negative.”

So unless pharmaceutical companies start paying you to take their drugs, the Sanders administration will need to increase taxes even more.

Analysis by the Tax Foundation finds that his proposed tax hikes already total $13.6 trillion over the next ten years. However, “the plan would [only] end up collecting $9.8 trillion over the next decade when accounting for decreased economic output.”

And the consequences will be truly devastating. Because of the taxes on labor and capital, GDP will be reduced 9.5 percent. Six million jobs will be lost. On average, after-tax incomes will be reduced by more than 18 percent.

Incomes for the bottom 50 percent will be reduced by more than 14 percent, and incomes for the top 1 percent will be reduced nearly 25 percent. Inequality warriors might cheer, but if you want to actually raise revenue, crushing the incomes of the people who pay almost 40 percent of all taxes isn’t the way to go.

These are just the effects of the $1 trillion tax hike he has planned — and he probably needs to double that to pay for single payer. Where will he find it? He’ll go where European welfare states go.

Being Like Scandinavia

Sanders is a great admirer of Scandinavian countries, such as Denmark, Sweden, and Norway, and many of his proposals are modeled on their systems. But to pay for their generous welfare benefits, they tax, and tax, and tax.

Denmark, Norway, and Sweden all capture between 20-26 percent of GDP from income and payroll taxes. By contrast, the United States collects only 15 percent.

Scandinavia’s tax rates themselves are not that much higher than the United States’. Denmark’s top rate is 30 percent higher, Sweden’s is 18 percent higher, and Norway’s is actually 16 percent lower — and yet Norway’s income tax raises 30 percent more revenue than the United States.

The answer lies in how progressive the US tax system is, in the thresholds at which people are hit by the top tax rates. The Tax Foundation explains,

Scandinavian income taxes raise a lot of revenue because they are actually rather flat. In other words, they tax most people at these high rates, not just high-income taxpayers.

The top marginal tax rate of 60 percent in Denmark applies to all income over 1.2 times the average income in Denmark. From the American perspective, this means that all income over $60,000 (1.2 times the average income of about $50,000 in the United States) would be taxed at 60 percent. …

Compare this to the United States. The top marginal tax rate of 46.8 percent (state average and federal combined rates) kicks in at 8.5 times the average U.S. income (around $400,000). Comparatively, few taxpayers in the United States face the top marginal rate.

The reason European states can pay for giant welfare programs is not because they just tax the rich more — it’s because they also scoop up a ton of middle class income. The reason why the United States can’t right now is its long-standing political arrangement to keep taxes high on the rich so they can be low on the poor and middle.

Where the Money Is – And Isn’t

As shown by the Laffer Curve, there is a point at which increasing tax rates actually reduces tax revenue, by discouraging work, hurting the economy, and encouraging tax avoidance.

Bernie’s plan already hammers the rich: households earning over $250,000 (the top 3 percent) would face marginal rates of 62-77 percent — meaning the IRS would take two-thirds to three-quarters of each additional dollar earned. His proposed capital gains taxes are so high that they are likely well past the point of positive returns. The US corporate tax rate of 40 percent is already the highest in the world, and even Sanders hasn’t proposed increasing it.

The only way to solve his revenue problem is to raise rates on the middle and upper-middle classes, or flatten the structure to make the top rates start kicking in much lower. You can see why a “progressive” isn’t keen on making more regressive taxes part of his platform, but the money has to come from somewhere.

The bottom fifty percent don’t pay much income tax now (only $34 billion), but they also don’t earn enough to fill the gap. Making their taxes proportionate to income would only raise $107 billion, without even considering how the higher rates would reduce employment and income.

The top 5 percent are pretty well wrung dry by Sanders’ plan, and their incomes are going to be reduced by 20-25 percent anyway. It’s hard to imagine that there’s much more blood to be had from that stone.

But households between the 50th and the 95th percentile (incomes between $37,000 to $180,000 a year) earn about 54 percent of total income — a share would likely go up, given the larger income reductions expected for top earners. Currently, this group pays only 38 percent of total income taxes, and, despite the 9 percent tax hike, they’re comparatively spared by the original tax plan. Their incomes are now the lowest hanging fruit on the tax tree.

As they go to the polls this year, the middle class should remember Sutton’s Law.

Daniel Bier

Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

Tech Sector Bears Brunt of Capital Taxes, Random Regulation by Dan Gelernter

According to our president’s final State of the Union, we’ve recovered from the economic crisis and now enjoy the strongest, most durable economy in the world. Obama does acknowledge that startups and small businesses may need some help, so he wants to reignite our “sprit of innovation” — which he plans to do by putting Vice President Biden in charge of curing cancer.

But the problem facing startups is not a lack of innovation. We are being killed by the economy, which, for those of us who have to live in it, is not good at all. Young entrepreneurs may have spent last year working hard, innovating and building, only to find their companies are worth less now than when they started.

The market is adjusting downwards. Valuations are sinking. The investors I’ve spoken to feel the Fed’s free-money policy has created a dangerous over-valuation of companies and stocks and, now that the rates are coming back up, the air is being let out. 2015, they say, was a tough year because we knew this was coming. 2016 is going to be even tougher.

There is something else weighing on the minds of entrepreneurs and investors alike — regulatory uncertainty. No startup can deal with compliance by itself — not even software companies with no physical products to sell. Startups have to hire lawyers and compliance experts to help them, and this is money we’re not spending on product development or marketing or making our prices more competitive.

The way Obamacare is being implemented, for example, makes our hair white. The rules seem to change with bureaucratic whim; various parts of the law are suspended by executive order. How will we comply next year, and what will it cost? Nobody knows.

In the meantime, the Democratic candidates for President are proposing large hikes to the capital gains tax, which increases effective risk for investors and depresses valuations. Will these hikes ever take place? We don’t know, and that uncertainty carries an additional price.

We’re already seeing more investors decide to weather the storm on the sidelines, keeping an eye on their current affairs and declining to invest in companies they would have snapped up a year ago. A tech startup with a working product will find it harder to raise money today than it would have two years before with nothing but a concept. Not only are we faced with a weak market now, the trend is even more disturbing.

The problem is easier to diagnose than to repair. As an entrepreneur, I’d like to see less regulation and lower taxes. And not just lower taxes on the companies themselves, but on the people who can afford to invest in them. This may come as a surprise, but it’s the hated “one percent” that invests in startups and helps entrepreneurs’ dreams come true. When taxes cut deeper into the pockets of the wealthy, it most negatively affects us — the entrepreneurs and the people we would have hired — not the wealthy.

Regulation remains erratic, and the policies of the next administration cannot be foreseen. 2016 is going to be a hard year for the startup. Investments will continue to decline until investors see a stable market. And they’re not looking at one right now. Companies will die as a result, and not for lack of innovative ideas.

Dan Gelernter

Dan Gelernter is CEO of the technology startup Dittach.

VIDEO: Common Core $1.3 Billion Bid Rigging Scandal

You have to see what this former textbook publishing employee reveals about a major Common Core scandal involving rigged bidding for a $1.3 billion contract in this new breaking undercover video.

Click the video below to watch now.

When he reveals the details of the scandal, we ask him why it was not part of what was shown on the news. His reply? “Maybe nobody has discovered it yet.”

Well now we have. And we’re going to discover a whole lot more with your continued commitment to blowing the lid off Common Core corruption.

Make sure you watch the whole video to learn how publishing companies lie to schools in order to boost their bottom lines.

What our videos have revealed about corruption in public education is appalling, and we are just getting started.

Thanks to our generous supporters, we’ve now been able to release four videos revealing the truth about Common Core, but we need more resources to continue our momentum.

I hope after you watch and share our latest breaking video about this Common Core contract scandal, you’ll take a moment and make a tax-deductible contribution today.

EDITORS NOTE: Be one of the first to see Project Veritas’s latest video uncovering a major scandal involving the country’s largest textbook publisher and how a $1.3 billion contract was rigged in their favor. If you haven’t made a donation to this project yet, please do so today. Your commitment is vital to our continued success.

New reforms give Muslim migrants with more than one wife extra benefits

Paying for something will only encourage more of it, and there will even be conversions to Islam by people who want to take advantage of this. Britain’s Islamization is proceeding nicely, and anyone who raises a dissenting voice is ruthlessly silenced, so all is well and all manner of thing shall be well.

“Wives With Benefits: Immigrants With More Than One Spouse Win EXTRA Payments Under New Reforms,” by Simon Kent, Breitbart, January 24, 2016:

Immigrants with many wives stand to make substantial financial gains under looming changes to Britain’s welfare system.

Polygamous marriages, which form a common thread in Islam, are recognised in Britain but only if they take place in countries where they are legal. Now a House of Commons library paper, published earlier this month, has highlighted a loophole that will allow additional wives coming to the UK to claim a full single person’s allowance while the husband and his first wife still receive their respective benefits.

At present additional wives receive reduced individual income support, meaning the husband and his first wife receive up to £114.85. Subsequent spouses living under the same roof receive a reduced allowance of about £40 each.

The foreshadowed changes mean some polygamous households may receive more under universal credit than under the present benefit and tax credit system. The paper said:

“The Government decided that the universal credit rules will not recognise additional partners in polygamous relationships,” the paper states.

“This could potentially result in some polygamous households receiving more under universal credit than under the current benefit and tax credit system.

“Treating second and subsequent partners in polygamous relationships as separate claimants could in some situations mean polygamous households receive more under universal credit than they do under the current rules for means-tested benefits and tax credits.

“This is because the amounts which may be paid in respect of additional spouses are lower than those which generally apply to single claimants.”

The news comes as universal credit (UC), introduced in April 2014, is applied to more Jobcentre areas, including Kent and Leicestershire, from tomorrow. More, including Cambridge and Hull, are set to introduce it before April this year.

UC is to replace all means-tested benefits and tax credits for families of working age and is gradually being introduced to new claimant groups and areas including those in polygamous unions.

This is not the first time that Islamic marriage traditions have been highlighted in the UK.

As Breitbart London reported, last year Britain’s first female sharia law judge stated that the “government cannot ask Muslims not to have more than one wife”.

That revelation came on the back of a report by the Times newspaper which claimed that Britain is experiencing a “surge” in Sharia marriages, as young British Muslims adopt a more hardline religious stance than their parents.

According to The Times:

“As many as 100,000 couples are living in such [sharia] marriages, which are not valid under UK law, experts said. Ministers have raised fears that women can be left without the right to a fair share of assets if the relationship ends, while others are forced to return to abusive “husbands”.

A leading Islamic family lawyer warned that the increase in Sharia ceremonies among the 2.7 million-strong Muslim population in Britain was also behind a growth in ‘secret polygamy’.

“Probably a quarter of all couples I see involve polygamy issues,” Aina Khan told The Times. “There has been a huge rise in recent years because people can have a secret nikah [Islamic marriage] and no one will know about it.”

A spokesman for the Department for Work and Pensions told the Daily Express: “The previous system accommodated polygamous marriages but this Government has done away with it. Under new rules any additional partners who are unemployed have to claim benefits independently and will need to sign a claimant commitment, and look for work like anyone else. They will also not get benefits for housing costs if they are living together.”

It has been claimed that Muslim men are having up to 20 children each because of polygamy and the rise of “religiously-sanctioned gender discrimination” under Sharia Law.

Baroness Cox, a cross-bench peer, has highlighted a series of “shocking” examples of the impact of Sharia law on Muslim women in Britain as she called for them to be given greater protection.

Bigamy in the UK is a crime under Section 57 of the Offences Against the Person Act 1861 however in 2008, the Blair government gave the go-ahead for husbands with multiple wives to claim extra welfare benefits, so long as the weddings took place in countries where the arrangement is legal (as is permitted under Islamic law).

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A Postscript to Congressman Linder’s Article on the FAIR Tax by Karen Walby, Ph.D

In a recent FAIRtax Friday article by John Linder, he commented that “If we had been under the FAIRtax in 2012, 10 percent of all corporations in America would have collected 89 percent of all the taxes on goods.  These are big corporations with totally computerized ordering and sales systems. It would be difficult for them to help you cheat even if they were inclined to do so.”

I thought you would like to view the data behind that statement since it is key to appreciating how the FAIRtax will improve compliance and reduce tax evasion.

The IRS has a Corporation Statistics Program which produces estimates of the various line items on the U.S. Corporation Income Tax Return (Forms 1120 and 1120-S).  The data presented below are based on a sample of the actual returns of all active corporations for the 2012 tax year.

The IRS classifies corporation tax returns by the size of business receipts.  In the table below we have consolidated the data for both C and S corporations* that are in the Wholesale and Retail Trade industry.  Since the FAIRtax does not tax sales to businesses, it must be noted that the IRS does not report data separately for retailers and wholesalers. This is not surprising since there are many wholesalers who also sell at retail:  many building supply and hardware stores sell both to construction subcontractors as well as to “do-it-yourselfers.”  However, these data should still be representative of the percentage of retail sales done by large businesses.

The table shows the number of corporate tax returns and the business receipts (sales) for each business size category.

There are 5.2 million corporations engaging the Wholesale and Retail Trade industry with combined sales of $14.6 trillion.  Ten percent are corporations with greater than $2.5 million in annual sales.  These Top Ten percent account for sales of $12.9 trillion.  That’s 89% of total sales in the Wholesale and Retail Trade industry.  Clearly the large corporations dominate the Wholesale and Retail Trade industry.  These corporations are going to accurately report their sales and the sales taxes collected on them.

Graph
We also want to note that there was a typo in Linder’s same article.  Thanks to the reader who pointed it out.  [We do read your comments.]  The article referred to a “74,000-word code.”  That should have read “74,000-page code.”  That number includes all the IRS code, regulations, and IRS rulings.  But the typo begged the question:  Just how many words are there in the tax code?  TEN MILLION.

The Tax Foundation recently calculated the number of words in the income tax code and regulations (excluding legal rulings) to be more than 10 million.  The King James Version of the Bible has only 783,137.  And in contemporary literature, the very popular seven volume series of Harry Potter novels amounts to only 1,084,170 words.   It is no wonder that the code is incomprehensible, even to tax experts.  It takes no less than wizardry to understand it!

ABOUT KAREN WALBY, PH.D.

Karen Walby, Ph.D., is the Director of Research Americans For Fair Taxation

The Islamic State vs. the Laffer Curve by Daniel J. Mitchell

Based on my writings, some people may think I’m 100 percent against higher taxes.

But that’s not exactly true. In some cases, I like punitive taxation. Or, to be more precise, I sometimes take pleasure when punitive tax policy backfires on bad people.

Here’s an example. An interesting article in Slate, authored by Adam Chodorow of Arizona State University Law School, looks at how a terrorist group’s attempt to form a government is being stymied by an inability to collect taxes.

Revolution is easy. Governing is hard. And there are few things more difficult than taxes. Operating a country requires money, and that typically requires taxes. … 

The population in this area is estimated to be between 7 million and 8 million, about the same as the population of Washington state. While ISIS currently collects about $1 billion annually, countries of similar size collect about $16 billion, suggesting that ISIS has a long way to go if it wants to operate like a real state.

But the comparatively low levels of tax revenue are not because of a Hong Kong-type commitment to limited government.

Instead, the terror group is discovering that people don’t like giving their money to politicians and bureaucrats, even ones motivated by Islamic fundamentalism.

Taxes aren’t a great way to ingratiate oneself with the governed. … More than one government has fallen because of its tax policy. ISIS must face these challenges just as any emerging polity does… ISIS may have displayed prowess on the battlefield, but it has revealed that it is as stymied and constrained by the complexities of taxation as the rest of us. …

ISIS’s taxes appear to be … no more popular in the territory it controls than they would be here in the U.S. As the Times reported, ISIS’s taxes are now so onerous that large numbers of people, who were apparently willing to tolerate ISIS’s religious authoritarianism, are fleeing Syria and Iraq to escape them. At some point people will either rise up or leave, threatening ISIS’s internal revenue source.

So taxes are becoming so onerous that taxpayers (and taxable income) are escaping.

Hmm… excessive taxation leading to less taxable economic activity. That seems like a familiar concept — something I’ve written about one or two times. Or maybe 50 or 100 times.

Ah, yes, our old friend, the Laffer Curve!

ISIS is … constrained by a lack of administrative resources and the simple reality once sketched on the back of a cocktail napkin by the economist Arthur Laffer: that tax rates can only get so high before they actually drive down government revenues.

Given current conditions, ISIS may be near or at the limits of its ability to tax, even if it can recruit jihadi tax accountants to its cause. Thus … it’s not clear how much room the group has to grow internal revenues. More important, its efforts to do so may do more to damage its prospects than outside forces can accomplish.

This sounds like the tax equivalent of War of the Worlds, the H.G. Wells’ classic in which alien invaders wreak havoc on earth until they are felled by bacteria.

Tom Cruise was the star of a 2005 movie adaptation of this story, but I’m thinking I could rekindle my acting career and star in a movie of how the Laffer Curve thwarts ISIS!

But to have a happy ending, ISIS has to be defeated. And Professor Chodorow closes his article with a very helpful suggestion.

Rather than send in ground troops … view our tax code as a weapon of mass destruction. … We could make full use of it in the war on ISIS, perhaps by translating it into Arabic in the hopes that the group adopts it.

Sounds like the advice I once gave about threatening Assad with Obamacare.

A version of this post first appeared at Dan Mitchell’s blog International Liberty.

Daniel J. MitchellDaniel J. Mitchell

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

VIDEOS: South Carolina Tea Party Coalition Convention

Watch The United West live stream of the South Carolina TEA Party Coalition Convention:

Trump speech at SC TEA Party Coalition Convention: