The Political Economy of Taxes From
a Free Market Perspective
Gene Epstein
Economics Editor, Barron’s
Gene.epstein@gmail.c...
Romania’s Economic Freedom Index—
Fraser Institute
• 1995 2005 2011
3.81 (117) 7.08 (54) 7.18 (53)
Radical’s Credo from Google
•The difficult we can do
by this afternoon.
•The impossible will take
a little longer.
Underlying Theme-2
•Whatever government can
do for us is in direct
proportion to what
government can do to us.
Underlying Theme-1
•“Be thankful we're not
getting all the
government we're
paying for.”—Will Rogers
In the shadow of Rothbard
• The object …is not to leave the income
distribution the same as if a tax had not been
imposed....
Milton Friedman’s Law-1
• “The real cost of government
is measured by what
government spends, not by
the receipts labeled ...
Milton Friedman’s Law-2
• "Suppose government spends
$400 billion and raises $350
billion in funds labeled taxes.
Who do y...
Friedman’s teenager model of
government spending
• Contrary to the myth that government
arranges its finances by first det...
Friedman’s Starve-the-Beast Theorem
• “My view has always been: Cut
taxes on any occasion, for any
reason, and in any way ...
FR
ff
Ratio of Treasury debt held by
the public to nominal gross
domestic product
Debt-to-
GDP ratio
• United States Romania
• 1999: 38%
• 2013: 73% 2013: 38%
• 2038: 190%*
• *forecast of Congressional Bu...
Stark Reality
• "We as a society have a
fundamental choice of whether
to cut back on those programs or
to raise taxes to p...
Public Choice theory—”politics without
romance”--1
• Political actors design policy-
making institutions and
processes to ...
Public Choice theory—”politics
without romance”--2
• Ordinary citizens have little or no
rational incentive to participate...
Public Choice theory—”politics
without romance”--3
• Officials have powerful
incentives to provide voters
and interest gro...
Public Choice theory—”politics
without romance”--4
•Much political activity
consists of narrow-
interest logrolling at the...
Public Choice theory—”politics without
romance”--5
• The political dynamics of a
public policy depend on how it
distribute...
In sum…
• Taxes and spending cannot be separated.
• In order to have any hope of keeping gov’t
spending under control:
• -...
Flat Tax-1
• “Classical liberal thinkers all gravitate to the
flat, or proportionate, tax on either income or
consumption…...
Key virtue of a flat tax
Without it, benefits and costs are completely
skewed:
• “So long…as most voters know that they wi...
Flat tax is better than a value-added
tax
…due to its transparency.
In practice…
• Since its introduction in Estonia in 1994,
several countries followed suit, including
Russia (2001), Slovak...
Problems
• Flat taxes seem to work pretty well when an
economy is growing—but not so well when it is
stagnant or shrinking...
The role of public debt
• “In a sound system of public finance, the
government’s borrowing to meet the cost of
capital imp...
Except for one catch….
•The debt can be
monetized by the
central bank.
Solution to the U.S. debt problem
•“print our way out of it”
Greenspan’s acquiescence
• "I have long since acquiesced in the fact that
the gold standard does not readily
accommodate t...
Free-market response
• "When the government need not
obtain its funds from the
people, but instead can supply
the people w...
In sum…
• Taxes and spending cannot be separated.
• In order to have any hope of keeping gov’t
spending under control:
• -...
Radical Credo
•To those who tell us
radicals we have no sense
of politics, we respond:
•You have no sense of
history.
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Gene Epstein - "The political economy of taxes from a free-market perspective" (RAU, 2014.04.08)

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Centrul de Economie Politică și Afaceri Murray Rothbard din cadrul Universității Româno-Americane alături de Economistul, HotNews.ro, UniCredit Țiriac Bank, Institutul European din România, Energy Report, Asociația Studenților Economiști din România și As Invest au invitat persoanele interesate la conferința cu tema "Economia politică a taxelor din perspectiva pieței libere (The Political Economy of Taxes from a Free-Market Perspective)". Evenimentul a avut loc în data de marți, 8 aprilie 2014, începând cu orele 18.00, în Aula Universității Româno-Americane, Bd. Expoziției nr. 1B, sector 1, București.

Conferința a fost susținută de domnul Gene Epstein, profesor în economie, Economics Editor al celebrei reviste Barron’s, pentru care scrie din 1993. El are apariții frecvente în presa internațională: National Public Radio, CNBC, CNN, BBC TV și FOX. Este autorul cărții „Econospinning: How to Read Between the Lines When the Media Manipulate the Numbers”, Wiley, 2006. Gene Epstein a fost Senior Economist la New York Stock Exchange și profesor la St. John’s University și City University of New York.

La linkul de mai jos, fotografii și înregistrarea video a evenimentului.
http://olivian.ro/gene-epstein/

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Gene Epstein - "The political economy of taxes from a free-market perspective" (RAU, 2014.04.08)

  1. 1. The Political Economy of Taxes From a Free Market Perspective Gene Epstein Economics Editor, Barron’s Gene.epstein@gmail.com Romanian-American University April 8, 2014
  2. 2. Romania’s Economic Freedom Index— Fraser Institute • 1995 2005 2011 3.81 (117) 7.08 (54) 7.18 (53)
  3. 3. Radical’s Credo from Google •The difficult we can do by this afternoon. •The impossible will take a little longer.
  4. 4. Underlying Theme-2 •Whatever government can do for us is in direct proportion to what government can do to us.
  5. 5. Underlying Theme-1 •“Be thankful we're not getting all the government we're paying for.”—Will Rogers
  6. 6. In the shadow of Rothbard • The object …is not to leave the income distribution the same as if a tax had not been imposed. The object is to affect the income “distribution” and all other aspects of the economy in the same way as if the tax were really a free-market price…. No market price leaves relative income “distribution” the same as before. If the market really behaved in this way, there would be no advantage in earning money... – Murray Rothbard, Power and Market
  7. 7. Milton Friedman’s Law-1 • “The real cost of government is measured by what government spends, not by the receipts labeled taxes. The goods and services it buys are not available for other use."
  8. 8. Milton Friedman’s Law-2 • "Suppose government spends $400 billion and raises $350 billion in funds labeled taxes. Who do you suppose pays for the $50 billion difference? The tooth fairy? Hardly. You do."
  9. 9. Friedman’s teenager model of government spending • Contrary to the myth that government arranges its finances by first determining how much it needs to spend, it's basically the other way around. Just as your average teenager will spend whatever he can lay his hands on, so, too, will government. And the solution is the same: Cut the allowance.
  10. 10. Friedman’s Starve-the-Beast Theorem • “My view has always been: Cut taxes on any occasion, for any reason, and in any way that’s politically feasible.”
  11. 11. FR ff Ratio of Treasury debt held by the public to nominal gross domestic product
  12. 12. Debt-to- GDP ratio • United States Romania • 1999: 38% • 2013: 73% 2013: 38% • 2038: 190%* • *forecast of Congressional Budget Office
  13. 13. Stark Reality • "We as a society have a fundamental choice of whether to cut back on those programs or to raise taxes to pay for them. So far, we've chosen to do very little of either.“—CBO Director Douglas Elmendorf
  14. 14. Public Choice theory—”politics without romance”--1 • Political actors design policy- making institutions and processes to advance their self-interest.
  15. 15. Public Choice theory—”politics without romance”--2 • Ordinary citizens have little or no rational incentive to participate actively in political activity, or be fully informed about politics. (By contrast, they will have huge incentive to inform themselves about purchasing a car or washing machine.)
  16. 16. Public Choice theory—”politics without romance”--3 • Officials have powerful incentives to provide voters and interest groups with short- term benefits and to hide the long-term costs that must pay for those benefits.
  17. 17. Public Choice theory—”politics without romance”--4 •Much political activity consists of narrow- interest logrolling at the expense of taxpayers.
  18. 18. Public Choice theory—”politics without romance”--5 • The political dynamics of a public policy depend on how it distributes its benefits and costs among voters and groups.
  19. 19. In sum… • Taxes and spending cannot be separated. • In order to have any hope of keeping gov’t spending under control: • --the flat tax, either on consumption or income, works best; • --borrowing must be restricted to capital investment • --central bank money-printing to fund government must be curtailed.
  20. 20. Flat Tax-1 • “Classical liberal thinkers all gravitate to the flat, or proportionate, tax on either income or consumption…one that requires uniform rates for the taxable income individuals, regardless of their aggregate income in any given tax period.”-Richard Epstein, Why Progressive Institutions are Unsustainable
  21. 21. Key virtue of a flat tax Without it, benefits and costs are completely skewed: • “So long…as most voters know that they will pay no additional federal income taxes for any particular benefit program, they can vote for it with the confidence of receiving benefits without making any additional payments.”-- Richard Epstein, Why Progressive Institutions are Unsustainable
  22. 22. Flat tax is better than a value-added tax …due to its transparency.
  23. 23. In practice… • Since its introduction in Estonia in 1994, several countries followed suit, including Russia (2001), Slovakia (2004), Georgia and Romania (2005), Macedonia and Albania (2007), the Czech Republic and Bulgaria (2008), Bosnia (2009) and Hungary (2011).— ”Slovakia has abolished its flat tax rate, but other Eastern and Central European countries are likely to continue with the policy”
  24. 24. Problems • Flat taxes seem to work pretty well when an economy is growing—but not so well when it is stagnant or shrinking. Across Central and Eastern Europe, “every country is in need of more revenue because of debt and public deficits,” says Andreas Peichl, a senior research associate at the IZA think tank in Bonn, Germany. “There is a feeling that the crisis has affected poorer people more than the rich and that the rich should contribute more. But that is not easy to do if you only have one tax rate.”—”Krugmenistan vs. Estonia”-Bloomberg Businessweek
  25. 25. The role of public debt • “In a sound system of public finance, the government’s borrowing to meet the cost of capital improvements is acceptable, but borrowing to pay for short-term-consumption items is not. It is, in other words, proper to use borrowed funds to create long-term capital improvements but not to fund short-term government activity, like the payment of salaries for public employees.”—Richard Epstein, Why Progressive Institutions are Unsustainable
  26. 26. Except for one catch…. •The debt can be monetized by the central bank.
  27. 27. Solution to the U.S. debt problem •“print our way out of it”
  28. 28. Greenspan’s acquiescence • "I have long since acquiesced in the fact that the gold standard does not readily accommodate the widely accepted ...view of the appropriate functions of government," he candidly admits -- namely, the "propensity of Congress to create benefits for constituents without specifying the means by which they are to be funded.“—Alan Greenspan, The Age of Turbulence
  29. 29. Free-market response • "When the government need not obtain its funds from the people, but instead can supply the people with funds, it can no longer easily be viewed as deriving its powers and rights from the people.“-George Reisman, Capitalism
  30. 30. In sum… • Taxes and spending cannot be separated. • In order to have any hope of keeping gov’t spending under control: • --the flat tax, either on consumption or income, works best; • --borrowing must be restricted to capital investment • --central bank money-printing to fund government must be curtailed.
  31. 31. Radical Credo •To those who tell us radicals we have no sense of politics, we respond: •You have no sense of history.
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