Power & Market

I periodically explain that a European-sized welfare state can only be financed by huge taxes on lower-income and middle-class taxpayers.

Simply stated, there aren’t enough rich people to prop up big government. Moreover, at the risk of mixing my animal metaphors, those golden geese also have a tendency to fly away if they’re being treated like fatted calves.

I have some additional evidence to share on this issue, thanks to a new reportfrom the Tax Foundation. The research specifically looks at the tax burden on the average worker in developed nations.

The tax burden on labor is referred to as a “tax wedge,” which simply refers to the difference between an employer’s cost of an employee and the employee’s net disposable income.…The OECD calculates the tax burden by adding together the income tax payment, employee-side payroll tax payment, and employer-side payroll tax payment of a worker earning the average wage in a country. …Although payroll taxes are typically split between workers and their employers, economists generally agree that both sides of the payroll tax ultimately fall on workers.

The bad news for workers (and the good news for politicians) is that average workers in the advanced world loses more than one-third of their income to government.

In some cases, such as the unfortunate Spanish household I wrote about back in February, the government steals two-thirds of a worker’s income.

So which country is best for workers and which is worst?

Here’s a look at a map showing the tax burden for selected European nations.

Suffice to say, it’s not good to be dark red.

But that map doesn’t provide a complete answer.

To really determine the best and worst countries, the Tax Foundation made an important correction to the OECD data by including the burden of the value-added tax. Here’s why it matters.

The tax burden on labor is broader than personal income taxes and payroll taxes. In many countries individuals also pay a value-added tax (VAT) on their consumption. Because a VAT diminishes the purchasing power of individual earnings, a more complete picture of the tax burden should include the VAT. Although the United States does not have a VAT, state sales taxes also work to diminish the purchasing power of earnings. Accounting for VAT rates and bases in OECD countries increased the tax burden on labor by 5 percentage-points on average in 2018.

And with that important fix, we can confidently state that the worst country for ordinary workers is Belgium, followed by Germany, Austria, France, and Italy.

The best country, assuming we’re limiting the conversation to rich countries, is Switzerland, followed by New Zealand, South Korea, Israel, and the United States.

By the way, this report just looks at the tax burden on average workers. We would also need estimates of the tax burden on things such as investment, business, and entrepreneurship to judge the overall merit (or lack thereof) of various tax regimes.

Let’s close by looking at the nations that have moved the most in the right direction and wrong direction this century.

Congratulations to Hungary, Israel, and Sweden.

I’m not surprised to see Mexico galloping in the wrong direction, though I’m disappointed that South Korea and Iceland are also deteriorating.

P.S. The bottom line is that global evidence confirms that ordinary people will be the ones paying the tab if Crazy Bernie and AOC succeed in expanding the burden of government spending in America. Though they’re not honest enough to admit it.

Originally published at International Liberty

Over a year after reform advocates first began predicting swift legislative victory, the recreational use of cannabis remains illegal in New Jersey. When Governor Murphy and Senate President Sweeney agreed on a $42 per ounce flat tax in February, legalization supporters once again hoped for quick adoption of New Jersey Assembly Bill 4497 (“A4497”). Once again, the much-publicized March 25th vote was called off due to lack of support. Now legislators have a limited window to act before the state budget deadline on July 1st.

Hopes for reform have ebbed and flowed since Governor Murphy was elected on a platform including legalization within his first 100 days. Despite his party controlling both the Senate and Assembly, the Governor has only been able to expand the medical program since taking office. That executive action doubled medical marijuana enrollment in just six months.

While the media has spilled considerable ink analyzing the political drama, actual details of the bill itself have received considerably less attention. A4497 attempts to incorporate lessons learned from other legalization regimes in Colorado, Washington, and California. Some critics argue certain provisions in the bill are too ambitious. Others wish the bill would go even farther. These disputes will need to be resolved before the ongoing 18-month saga finally comes to a vote in Trenton.

What’s in the Bill?

A4497 generally employs a vice-regulation model common to most legalization regimes. Individuals would be permitted to lawfully possess up to one ounce of marijuana. The bill would establish a Cannabis Regulatory Commission. This powerful, five-person regulatory body would have overall authority to regulate and control the cannabis industry. Three members would be appointed by the Governor, one by the Senate President, and one by the Assembly Speaker. The commission would make bi-annual reports to the Governor and legislature.

One of the controversial elements of the bill are the much-debated expungement provisions. As currently written, nearly all cannabis-related offenses would be expunged. The only offenses not subject to expungement would involve possession of over five pounds or within close proximity to a school. Disorderly persons convictions may also be expunged. Drafters considered this provision significant because many cannabis offenses are pled down to this lesser offense. The bill would also prohibit law enforcement from using the smell of cannabis as probable cause or reasonable suspicion of a crime.

The language of the plan would allow for an “expedited” but not an automatic expungement system. A robust expungement program would be an immense logistical process and opponents suggest the legislation lacks adequate planning for its implementation. Other critics worry expungements could potentially extend to more serious offenses including weapons.

The bill proposes a Cannabis Control Commission to issue four tiers of licenses. Of no small controversy is the promotion of participation by disabled veterans, women, and minority licensees. Some supporters are insisting on stronger “social justice” provisions to require numerical set-asides for these groups. As written, the bill seems to consider participation by these groups as a non-binding goal. 15% of licenses would go to minorities, 15% to disabled-veterans, and 25% to “micro-businesses.” The bill does not include a cap on the total number of available licenses. “Impact Zones” are defined based on crime, poverty, and cannabis arrests and receive preferential access to licenses.

Four tiers of licenses cover every step of cannabis production including growers, processors, wholesalers, and retail establishments. Licensees will be required to pass a mandatory background check and obtain a Labor Peace Agreement from the union in order to operate. As a practical matter, this will likely result in a requirement to exclusively hire union employees.

Over 60 New Jersey municipalities have already passed ordinances prohibiting cannabis sales within their city limits. These municipalities would need to take further action within 180 days of legalization. Beyond this 180-day window local governments cannot prohibit retail establishments within a five year opt-out period.

Also noteworthy in the bill is the proposal of Cannabis Consumption Areas. These may be authorized by local governments and would attach only to Class 4 licenses (retail establishments). Cannabis Consumption Areas could be indoor or outdoor, but the consumed cannabis must be purchased on the premises. Beyond these areas public use would be prohibited, although delivery would be allowed. The bill is silent on dram shop liability.

The bill attempts to limit most employment discrimination based on cannabis use, including hiring and firing. In particular, employers would not be allowed to consider previous cannabis arrests. However, the bill would still allow employers to consider cannabis use if deemed reasonably related to the requirements of the job. Nothing in the bill would require an employer to amend their drug free workplace programs. The bill would also prohibit discrimination in the issuance or denial of mortgages arising from cannabis use. Cannabis-use could not be the sole basis for child custody decisions, although it could still be considered among other relevant factors.

The bill includes provisions regarding labeling, packaging, and advertising. Labels would need to include warnings, as well as information about THC levels, weight, serving size, growth method including pesticide information, and strain.

Finally, A4497 contains a safe harbor provision designed to comply with federal laws and the Supremacy Clause. The bill explicitly states it does not compel violation of any federal laws.

Where Does the Bill Go from Here?

“Marijuana prohibition has failed,” said Sen. Nicholas Scutari, one of the chief architects of the bill. “It is time to end the detrimental effect these archaic drug laws are having on our residents and make adult use marijuana legal.”

There is no proposed date for a vote, but supporters are hoping to bring it to the floor before the end of May. New Jersey currently spends about $127 million a year enforcing marijuana possession. Reform advocates often point to an ACLU study which indicates minorities are roughly three times more likely to be arrested for marijuana offenses in New Jersey.

Legal cannabis is expected to become a billion-dollar industry in the Garden State.

Reprinted from Liberty2.0.

Mark Thornton joined our friend John O'Donnell at Power Trading Radio where they discussed 12 principles of Austrian economics, and how they compare to other schools of thought. Topics include trade, entrepreneurship, and prices.

 

[Editors note: After this article was written, Theresa May officially announced she is leaving the position of Prime Minister on June 7th.]

Brexit has been a long, drawn-out saga. But finally, Theresa May’s indecision appears to be coming to an end. She has finally been cornered in a tragic opera with more twists and turns than Wagner’s Ring Cycle. May’s Götterdämmerung is reaching its conclusion. Brünnhilde is riding Grane, her trusty steed, into immolation on the funeral pyre of her heavily-amended withdrawal agreement. 

Mrs May’s initial error was to seek consensus between Remainers and Brexiteers. In the words of one of her sacked advisers, Nick Timothy, she viewed Brexit as a damage-limitation exercise. Her mission statement evolved from her Lancaster House speech, when she declared she would deliver Brexit in terms which were clear, complying with the referendum and applauded by ardent Brexiteers. It became a fatally flawed compromise, which has failed to be ratified by MPs on three occasions so far, and a proposed fourth in the next week or so is likely to suffer the same fate. 

Her problems started in earnest when she over-ruled her first Brexit secretary, David Davis. Unknown to her Brexit ministers, with her own civil service advisors she began negotiating behind her Brexit secretary’s back. Davis was informed of May’s Chequers proposal only a few days before that fateful Checkers meeting, following which Davis and Boris Johnson (Foreign Secretary) resigned from the Cabinet, while five other ministers and Parliamentary Private Secretaries also resigned.

If ever there was evidence that in politics you should keep your enemies close and your friends closer still, this was it. It has allowed those that have resigned to expose May’s duplicity to their fellow MPs and to organise the opposition to May’s Chequers proposal and the subsequent Withdrawal Agreement she cooked up with the EU.

Mrs May was always a Remainer, and her presence as Prime Minister has encouraged leading Europhiles to overturn the Brexit referendum. That is why she sees it as a damage limitation exercise: produce something that can be said to be Brexit, but still leaves the UK tied to Brussels. It is Hotel California, with Britain only leaving if both sides agree to it, or alternatively, Northern Ireland remains in the EU’s customs union. That cannot happen, not least because the DUP would end its vital support for May’s minority government.

Putting the Northern Ireland issue to one side, in order to get the agreement of the other EU nations for a full and final exit, the UK relies on “The duty of good faith which prohibits the deliberate exploitation of the implementation period to damage British interests” (Barclay’s emphasis). This was written in a letter by Steve Barclay, the current Brexit Secretary, to John Redwood, a senior Conservative backbench MP, in response to his concerns over the Withdrawal Agreement. 

Good faith in politics? Barclay must be joking. Spain has a political interest in securing Gibraltar: won’t a future Spanish politician not be tempted to only agree to opening the door to Hotel California if Gibraltar is signed over? French fisherman enjoy free access to British fishing grounds. What French politician has the resolve to stand up to striking fisherman on a good-faith commitment? We haven’t seen one yet.

In short, May’s attempt to limit Brexit damage is a stitch-up, pleasing neither side of the House.

Labour’s Role in All This

In desperation, Mrs May has turned to Jeremy Corbyn’s Labour Party to gain sufficient support to push her Withdrawal Agreement through the House against the wishes of her own MPs. Corbyn is a Marxist, as is his Shadow Chancellor, John McDonnell. Both of them have promoted far-left activists, who now have a high degree of control over both party policy and the selection of Labour MPs, meaning that moderates are being side-lined and expunged. 

This creates Labour’s own crisis, with Marxist activists alienating moderate Labour voters in the constituencies. Furthermore, the Parliamentary Labour Party has its own split between Remainers and Brexiteers. The whole Brexit issue is a hot potato with which the Labour leadership would rather not be involved. It was with this in mind the Labour leadership held talks with Mrs May’s government, at her invitation, to try to find common ground.

Labours tactics were simple, only an increasingly desperate Prime Minister seemed unable to see them. Labour took and kept the moral high ground, appearing reasonable by accepting the invitation to talks. They ensured they would go nowhere (not difficult, given Mrs May’s stubbornness), then withdraw blaming her for the breakdown. Their hope is to force a general election following a No Confidence Motion only after Brexit has been resolved, capitalising on Mrs May’s disastrous handling of the Brexit issue. And if Mrs May brings her proposed withdrawal agreement to the House for a fourth time, they almost certainly won’t support it, again blaming Mrs May for her “failure to listen”.

The Labour leadership will be observing with interest the battle to succeed her, and it will be clear to them that either No Deal or a compromise in that direction will be the result. This is unlikely to worry them on two counts. Firstly, Labour will not want to alienate voters in their northern constituencies any further by compromising on Mrs May’s deal or anything close to it. And secondly, the leadership, being committed Marxists, will probably take the view that a “right-wing” Prime Minister will improve their own prospects in a general election.

It all points to a continuing strategy of not supporting Mrs May, avoiding any deal with the Conservatives, and hoping the Conservatives will elect a leader that will destroy the Conservatives’ electoral prospects.

Mrs May’s Likely Replacement

At the time of writing, it appears that Mrs May will fail disastrously if she puts her amended withdrawal agreement to a Commons vote for a fourth time. She has tried to appeal to the Remainers with a fourth vote by offering a possible second referendum if MPs back her bill. She has now broken every red line she previously set out. She may not even get the chance for it to be voted.

In the coming days, her position will surely become untenable, though we have all said that before. But this time, she will have exhausted every possibility and have nowhere else to go. And if the Conservative vote collapses in today’s European elections, the fence-sitters in Parliament will be galvanised into getting rid of her.

In the last few days, leadership contenders have been lining up their bids for the premiership. Those jostling for position are talking of everything but Brexit. The Remainers, such as Philip Hammond (the Chancellor) do not appear to be in the race and have become so unpopular outside Parliament that they wouldn’t get a mandate from the constituencies anyway. The next leader is very likely to be a staunch Brexiteer.

It would bore an international audience to list and analyse the runners, other than to concentrate on the clear favourite, Boris Johnson, who currently shows as 7/4-on. His nearest rival, Dominic Raab is 9/2-against. The news on Boris is for him both good and tricky. The good is that he is clearly the favourite with the constituency members, and if he can be one of the two names put forward, he should be home and dry. The tricky bit is Remainer MPs and fence-sitters in the parliamentary party, who claim to be one-nation Tories, would rather not support Boris.

He is regarded as right-wing, when in fact he favours freer markets, less regulation, and free trade. He is a classic Tory. It is the party’s middle ground that has become socialistic. In an op-ed in the Daily Telegraph he wrote the following:

“What we cannot now know – as the great French economist Bastiat observed in the 19th century – is the unseen opportunity cost of the way the UK economic structure has evolved to fit the EU over the last four and a half decades, and the productive ways in which it might now evolve.”

The reference to Frédéric Bastiat is important. He is referring to Bastiat’s parable of the broken window, which points out that the state’s intervention (the boy who broke the window) denies the more productive use of the baker’s money to his desired ends. The fact that Johnson knows the parable and understands the message is good evidence of his libertarian credentials.

That being the case, it is the socialistic element of the Conservative parliamentary party, masquerading as one-nation Tories, that he has to overcome. Reportedly, he has been having one-to-one meetings with his fellow MPs to do just that. Sometime ago, there was a well-founded belief that if Johnson became leader of the Conservative Party at least five MPs would resign the whip. Since then, Change UK, a dustbin of disillusioned Remainers has been formed with eleven MPs, three of which were Conservatives. It has been a complete failure and a sharp lesson to other would-be jumpers, so there are likely to be no more defections on a Johnson leadership. 

Johnson has also been taking the advice of Lynton Crosby, probably the most successful political strategist today. It was Crosby who advised Scott Morrison in last weekend’s Australian election, when the expected Labour opposition victory was successfully overturned. He also advised Johnson in his successful elections as Mayor of London in 2008 and 2012. 

This is interesting, because Johnson appears to be working to a carefully constructed plan. He avoids press comment over Brexit and writes about anything else in his Monday column at the Daily Telegraph. His contributions in Parliament have been brief, the few on Brexit generally confined to democracy rather than trade. He has positioned himself to rescue the party from electoral destruction if called upon, rather than appear to be an overtly ambitious politician, unlike all the other contenders. It is quite Churchillian, in the sense there is a parallel with Churchill’s election by his peers to lead the nation in its darkest hour. He even wrote about it in a recent bestseller, The Churchill Factor1,and understands intimately what it took for Churchill to gain the support of the House.

It is therefore hardly surprising Johnson is the favourite to succeed Mrs May. His appreciation of free markets means he is not frightened by trading with the EU on WTO terms. Furthermore, President Trump admires him, and would be likely to fast-track a US trade deal with the UK. However, Johnson is likely to pursue a deal on radically different terms on a take-it-or-leave-it basis with no further extensions to Exit Day.

As soon as the 31 October deadline has passed, Remainers will no longer have a cause. They have yet to appreciate the fact, and they may vote for him in the hope that after restoring the party’s fortunes, they can get rid of him and mend relations with the EU. But the Brexit debate would effectively end after Exit Day and its divisiveness with it. Farage’s Brexit party will wither on the vine, its purpose of restoring democratic accountability to Parliament and delivering Brexit being restored.

Johnson would then have the task of rebuilding the party for the next general election, set for 5 May 2022. 

In the coming days, having seen Mrs May’s last roll of the dice, all these factors will be uppermost in the minds of both backbenchers and of government ministers in their private capacity. If there is one thing that is certain, the Conservative Party is a survivor. If Boris Johnson is the best option, MPs will swallow their prejudices and elect him.

Excerpted from Brexit – Theresa May’s Final Act

• 1.
  Published by Hodder, 2015.