Friday, 07 July 2017 10:32

Hendrickson's View

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Hendrickson’s View

Mark W. Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from Forbes.com and Conservative Review.com, and Visionandvalues.org, a publication of Grove City College in Grove City, Pennsylvania.

President Trump’s Schizophrenic Tax Proposals

To state a banal truism: Politics is about misdirection, give and take, and compromise. That idea should be held in thought when analyzing President Trump’s recent tax proposals.

Within the span of a few days, Trump requested both a tax hike and tax cuts. The tax hike is the proposed tariff (i.e., tax) on the importation of softwood products from Canada. The tax-cut proposal is for lower tax rates on both personal and corporate income, and a simplification of these tax codes.

This ambivalent approach to taxes — raising some while cutting others — may strike one as schizophrenic (not, I should emphasize, that the president is schizo, but that the policy proposals seem bipolar due to having opposite intents). Personally, I oppose the tax hike and favor the cuts, but in Trump’s seemingly conflicting proposals, I see political cunning and pragmatism.

Part of Trump’s political base consists of the populists and nationalists who view with suspicion, if not animosity, any business that provides Americans with the lower-priced goods that we want if that business happens to be from another country and competes with American businesses. These Americans like tariffs, even though the economic reality is that the tax is actually paid by American consumers, not by the foreign suppliers.

Conservatives and people in general who would rather keep more of their income than send it to the insatiable money pit in Washington will, of course, be favorably inclined toward Trump’s proposal for lower income taxes.

Thus, Trump’s raise-taxes-here-and-cut-taxes-there strategy contains elements appealing to a broad swath of the American electorate — a politically astute tactic. And what would be the overall net change in the tax burden on Americans? The proposed 20 percent tariff on approximately $5 billion per year of Canadian softwood imports (a tax that has some procedural hurdles to clear before it takes effect) amounts to a tax of approximately $1 billion per year on American homebuyers, many of whom are of modest incomes. (A pundit’s flamboyant headline could read, “Trump raises taxes on middle class.”) By contrast, the proposed tax cuts on personal and corporate income (which faces the larger hurdle of having to get through Congress) would reduce the taxes paid by Americans as much as $100 billion per year. Viewed that way, Trump’s proposed tax cuts are a hundred times as large as his proposed tax hikes. I can live with that tradeoff!

There are many specific aspects of Trump’s tax-cut proposal that merit comment, but I’ll single out two.

First, many residents of states with high personal income taxes will plead with their congressional representatives to preserve the deduction of their state income tax from their federal adjusted gross income. That deduction is a subsidy, a privilege. It is a stealthy transfer of wealth from taxpayers in no-tax and low-tax states to taxpayers in high-tax states. It’s time to end that unfairness. Politically, the high-tax states tend to be liberal — California, Oregon, New York, New Jersey — and they generally vote Democratic, so Trump wouldn’t alienate his political base by removing the deduction. And since those high-tax states are progressive, that is, they are politically dominated by people who believe that taxes should be higher than they are, why should they complain if Trump gives them what they want? Let them reap what they sow.

Second, I’ve just re-watched the brilliant PBS documentary “The Commanding Heights” — essentially an economic history of the 20th century — that makes it abundantly clear that major economic reform often fails when undertaken with a gradualist approach. The countries that have most successfully transitioned from stagnant statist controls to vibrant economic growth have been those that adopted the approach of “shock therapy” — that is, jump in headfirst and take the pain in one fell swoop. That is the approach that President Trump should take with the corporate income tax — just abolish it. Already, special interests are arguing about whether to preserve deductions for interest payments (a quirk in our tax code that perversely incentivizes debt) or how fast to allow depreciation. If the tax rate were zero, these contentious points would be moot and simply evaporate. The economic reality is that corporations, being fictitious persons, don’t really pay taxes; only individuals do. Even the OECD, factions of which deplore business tax competition between countries, acknowledges that the corporate tax is absolutely the worst, the most distorting and economically irrational tax out there. Trump’s proposal to greatly reduce the tax rate is an economically brilliant idea, but to temporize with such a stupid tax leaves the door open to future mischief in tweaking the code to placate special interests. Just deep-six the corporate income tax monstrosity and be done with it. Doing so would soon make the U.S. the preferred location for international business and lead to a huge explosion of jobs in our country.

Despite its imperfections, Trump’s tax-cut plan is a huge improvement over the status quo. It will be interesting to see if congressional Republicans can bury their differences and avoid letting the perfect be the enemy of the good and enact these tax cuts into law.

Mark Zuckerberg at Harvard: A Young Idealist Undercut the System That Has Blessed Him and Us

Facebook founder and multi-billionaire Mark Zuckerberg’s Commencement speech at Harvard drew lots of attention — especially his call for some sort of a federally funded guaranteed minimum income (a “universal basic income” or “UBI”) for all adult Americans. Overall, it was an above-average commencement address — warm-hearted, encouraging, humane, and filled with some endearing personal touches. The only negative was an all-too-common fuzzy, callow idealism about economic and political matters.

Zuckerberg has come to epitomize the wealthy, successful entrepreneur who seeks to atone for the “sin” of succeeding. Thus, he pandered and condescended when he declared:

“Let’s face it: There is something wrong with our system when I can leave here and make billions of dollars in 10 years, while millions of students can’t afford to pay off their loans, let alone start a business.”

Nonsense!

Leaving aside the mistaken implicit assumption that millions of students have the gumption, ability, and desire to start their own businesses, how about some love for a system that allows a man to become a billionaire in return for having provided a service that tens of millions of people have found useful? Zuckerberg, like most other billionaires, has earned his fortune, and in no way should he be apologetic about it. As for students who have incurred more debt than they should have by overpaying for college courses that didn’t pay off in the job market, well, that’s a problem both of mispriced and overabundant higher education and imprudent decisions by those who voluntarily incurred all that debt.

Zuckerberg furthermore demeaned his fellow entrepreneurs by attributing success not only to “having a good idea or working hard,” but “by being lucky, too.” True, things often work out in seemingly miraculous ways, but isn’t it interesting how the “luck” of success seems to follow those who have good ideas and work hard?

Even worse, Zuckerberg seems to misunderstand the basic American concept of “freedom.” He resorted to cheap polemics when he said:

“. . . today, we have a level of wealth inequality that hurts everyone. When you don’t have the freedom to take your idea and turn it into a historic enterprise, we all lose.”

First, “wealth inequality” doesn’t hurt anyone; poverty, not inequality, does afflict a minority, and defeating poverty remains a worthy goal for Americans. Second, Americans do have the freedom to create new businesses and seek funding from a multiplicity of sources. True, they may not be starting with the advantages of wealth and connections, but that didn’t stop Steve Jobs and Steve Wozniak from starting Apple in a garage.

What Zuckerberg wants is for everyone to be able to afford to putter around without having to worry about earning a paycheck to make ends meet. This is where Zuckerberg’s proposal for a UBI fits in. While I agree that there could be a relatively small number of individuals who might incubate successful businesses while receiving a guaranteed government allowance, I think Zuckerberg is dreaming when he implies that a large number of Americans would create successful businesses if only Uncle Sam would pay their basic living expenses.

The idea of a government-funded universal basic income has been around for a long time. Zuckerberg (whom some suspect of laying the groundwork for a run at high political office) views government giving every American adult X thousands per year as a logical next step beyond the New Deal and Great Society in the progressive tradition of paternalistic government. Indeed, one hears echoes of Bernie Sanders in Zuckerberg’s words; the former became popular by calling for free college education and health care; Zuckerberg upped the ante by advocating a free all-purpose allowance.

Interestingly, the idea of a universal basic income has long enjoyed support from some individuals at the conservative/libertarian end of the economic spectrum, such as the late Milton Friedman and the American Enterprise Institute’s Charles Murray. Those eminences advocate a guaranteed minimum income not because they believe it is morally desirable for government to redistribute wealth, but for reasons of expediency. They are like anti-drug libertarians who recommend the legalization of dangerous “recreational” drugs as the lesser of two evils. Murray, for example, despises the bloated bureaucracies that administer hundreds of ineffectual government so-called “antipoverty” programs and believes that a single government check to every American would be cheaper and less disruptive.

There isn’t space to debate that question here, but let us close by looking at the problems that might attend a guaranteed basic income.

First, while Murray calls for a UBI to replace all federal assistance programs, including Social Security and Medicare, Zuckerberg has remained silent about whether he wants to consolidate all federal assistance into one monthly check or simply add one more entitlement to those already existing. Since the present system of entitlements has put Uncle Sam $20 trillion in the hole, Zuckerberg could be proposing that our society hop on the fast train to bankruptcy.

Since Zuckerberg values equality, it is worth noting that a UBI would pay an equal amount to every American adult. On the revenue side, though, it would be wildly unequal with productive Americans footing the entire bill and unproductive Americans not paying a cent.

Politically, the UBI would be the most un-repealable entitlement ever. With only a minority of voters paying for it, the majority on the receiving end would not only never consent to relinquish the benefit, but they would be putty in the hands of every demagogic progressive politician who would assure voters that they deserve a larger monthly allowance.

Economically, a UBI would achieve the goal of the “living wage” movement. Indeed, as I’ve written elsewhere (google: Hendrickson Forbes minimum wage nonsense) the structure of wages provides essential economic information that incentivizes individuals to acquire additional skills. A UBI would allow young adults to remain in minimum wage jobs instead of moving up the economic ladder and making room for younger Americans to take low-skill jobs.

Socially, because of the split between those who would be net beneficiaries and the net losers, a UBI would be devastating. The glue that holds a society together is the social division of labor. We already have a problem of more than ten million healthy men in their prime years sponging off of parents and girlfriends, picking up some cash here and there, but essentially not working, and therefore consuming part of society’s wealth without making any contribution to the production of that wealth. A UBI would facilitate such lifestyle choices, leaving us with a society in which those who work bear the burden of those who choose not to work. If you have to ask, “What could possibly go wrong?” then you don’t know history, such as the ancient Greek mentality that only slaves work.

Spiritually, or at least psychologically for those of you uncomfortable with references to “spirit,” for grown men not to have to strive or face challenges is to leave their potential untapped, their character undeveloped, and their sense of fulfillment blighted. Two things I have observed in my lifetime: 1) human beings need to work; 2) easy lives are blunted lives.

In conclusion, I admire Mark Zuckerberg in many ways. I know he hopes to help others as he already has in some very tangible ways, but his undeveloped understanding of the beauty of a free market system has the potential to more than offset all the good he has accomplished.

Remembering Three Great Athletes (and the Way Sports Used To Be)

May was a poignant month for those of us who were avid Detroit sports fans in the late ’50s and early ’60s. Three of our heroes passed on within two weeks of each other: five-time All-NFL and Hall of Famer Yale Lary; his teammate, three-time All-NFL player Wayne Walker; and Detroit Tigers Hall-of-Famer Jim Bunning.

For those of you not familiar with their accomplishments, let me share a few with you, and weave into the narrative a few vignettes that show how different the world of professional sports was then.

Yale Lary played safety for the Lions for 11 years during the Alex Karras era when the Lions had the most dominant defense in the NFL. During his first two seasons, he played minor league baseball in the summer. Then his sports career was interrupted when he served two years as a lieutenant in the U.S. Army. During the latter part of his NFL career, when it was still common for players to hold off-season jobs in order to earn more income, he held office in the Texas state legislature. (After retiring, he went into private business instead of politics.)

On the field, Lary had 50 interceptions in his career (a figure that surely would have been higher if not for his military service) — enough to rank fifth all time at the time of his retirement. He also handled the punt and kick return duties. Younger football fans may not know that there weren’t always kicking specialists in the NFL. Lary, however, was good enough to be a punter in the NFL even today. Three times he led the NFL in punting and when he retired, his career average of 44.3 yards was second all-time. His hang time was so great that in one season the average return of his punts was a single yard. Lary played in nine Pro Bowls.

Wayne Walker led the Lions in scoring in three seasons and once was named the Lions’ defensive player of the year (no small feat when he shared the field with multiple Hall-of-Fame defenders). Walker played linebacker. So how did he lead the team in scoring? He also was the placekicker. Like Lary, Walker wore more than one hat for the Lions. Three times voted first-team All-NFL (what they call “All Pro” today), Walker’s teammates were shocked that he never was elected to the Hall of Fame.

U.S. Senator Jim Bunning, who attended Xavier University on a basketball scholarship and later became the only baseball Hall-of-Famer to serve in Congress, was a tall, slender, redheaded, right-handed pitcher. His accomplishments on the diamond were sterling: Over 100 victories and a no-hitter (one of them being one of 23 perfect games in MLB history) in each league; the American League’s starting pitcher in three All-Star games; retiring second only to the immortal Walter Johnson in career strikeouts.

Bunning was one of three starting pitchers who, in the absence of a reliable fourth starter and a decent bullpen, but with the help of sluggers Al Kaline, Rocky Colavito, and Norm Cash, kept the Tigers respectable at a time when the Yankees dominated the American League. The other two were Frank Lary (no relation to Yale Lary) and the cagey southpaw, Don Mossi.

Frank “Taters” Lary was the ace, known as “the Yankee killer,” since he was the only one to consistently tame the powerful Yankee bats of Mantle, Berra, and crew. Frank Lary was used frequently as a pinch runner. Can you imagine the Dodgers sending Clayton Kershaw out to run for somebody today? Not a chance. In the ’60s, even star players were expected to help their team any way they could; today, in the era of mega-contracts and specialization, such double-duty is inconceivable.

As for Don Mossi, I actually met him when I was a boy. My Pop knew George Kell, the Hall of Fame third-baseman who handled TV broadcasts for decades after his playing career, and George took us to the door of the Tigers’ clubhouse and went in to see who he could bring outside to greet us. The next thing I knew, there was Don Mossi, his jersey completely unbuttoned and exposing his undershirt, smoking a cigarette. How’s that for a sign of the times? Mossi was a friendly, gracious man, most famous for his unusual facial hair. I think he held the world’s record for heaviest beard. I’m sure that if he shaved at 7:00 a.m. he would have a 5 o’clock shadow by 8:00. I think he could have grown a short beard over a weekend. Amazing!

Major league sports has a great capacity to touch our lives and give us memories that last a lifetime. Yale Lary, Wayne Walker, and Jim Bunning were all in their 80s at the time of their passing last month. All three were solid citizens who led productive lives after the conclusion of their sports careers. Even though it has been decades since they starred for my hometown teams, I have vivid and happy memories of all three of them.  Thank you, gentlemen. RIP.     *

Read 162 times Last modified on Friday, 07 July 2017 10:34
Mark Hendrickson

Mark W. Hendrickson is a faculty member, economist, and contributing scholar with the Center for Vision and Values at Grove City College, Grove City, Pennsylvania. These articles are from V & V, a web site of the Center for Vision & Value, and Forbes.com.

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