Liberal myths: News: The Independent Institute
When Joe Biden claimed that his ?? Building a Better Program Costs No Dollars, ?? the Washington post gave him Two Pinocchios. Yet if you get your news from New York Times ?? editorial page or CNN or MSNBC, you might be inclined to agree with Biden.
In fact, a definition of a liberal is someone who sees the benefits in every progressive program, but ignores the cost of each one.
The following is a brief summary of some of the worst examples of this blindness.
Myth # 1: Adopting a European welfare state costs nothing.
One of the first things students learn at Econ 101 is that there is no free lunch. The classic example is that of guns and butter. To have more of one, one must have less of the other. The same principle applies to the social safety net.
More preschool services mean that the country must have less of everything that is not preschool. More home care means less of anything other than home care. More free university means less of everything that is not the university.
Matt Yglesias puts it this way:
“On a trip to Copenhagen a few years ago with progressive journalists, we were all constantly annoyed by the insanely high prices of everything from a cab ride to a bottle of Coke Lite to a really bad pad. Thai … Danes consume less consumer goods than Americans (they have smaller homes with less furniture, poorer appliances, and fewer cheaper cars) and in return they get all that Nordic goodness. “
Taxing Elon Musk’s unrealized capital gains may provide income for the government, but it does not solve the macroeconomic problem for society as a whole. In order to have more preschool, you have to move labor and capital out of areas where things that are not preschool are currently being made. Ditto for all other safety net services.
As Yglesias points out, the easiest way to do this (without unwanted inflation) is to apply broad-based taxes on wages and consumption. And that’s what European countries are doing.
Swedish workers, for example, pay a payroll tax of 31.4% on their wages and a sales tax / VAT of 19.8% on the items they buy. And that’s before they start paying income taxes.
The OECD reports that in Germany the typical worker pays 49 per cent of his labor compensation in income and payroll taxes (including the employer’s contribution); in France, the proportion is 47%. In the United States, it is only 30 percent.
Myth # 2: Stopping global warming costs nothing.
It may not be necessary to do anything about climate change, other than staying on autopilot. The latest data suggests that global carbon emissions have been stable over the past decade.
And our country is doing more than its share. Over the past 20 years, the United States has reduced its carbon emissions more than any other country in history. Since 2005, we have reduced our carbon emissions by an incredible 22%.
But if more needs to be done, including eliminating fossil fuels altogether, does anyone in their right mind think it won’t cost a thing? Apparently the White House wants you to believe it.
On the one hand, President Biden has revoked the Keystone XL pipeline licenses and is also considering shutting down another pipeline. The administration has also suspended new leases to drill on federal lands, including the Arctic National Wildlife Refuge, which is home to approximately 4.3 billion and 11.8 billion barrels of recoverable oil.
Then, when the price of gasoline started to rise, the president started asking OPEC to produce more oil. Apparently the president doesn’t want you to know that there is a link between a war on carbon and the price of gasoline at the pump.
New York Times Writer Paul Krugman also wants you to believe that there is no cost to tackling climate change. But although Krugman presents himself as an economist, his views are out of step with mainstream thought. Most economists believe not only that there is a cost to reducing carbon production, but also that the most effective way to achieve the goal is to impose a carbon tax.
One estimate is that optimal climate change policy would require a carbon tax that translates into a tax of around 70 cents per gallon of gasoline.
Less oil, less natural gas, and less coal mean that the cost of anything that requires energy will go up. This means that it will become more expensive to drive your car, heat your house in the winter, and cool it in the summer. Almost anything you buy will become more expensive.
Sound policy making requires us to weigh the costs and benefits of any change. But that’s impossible if you don’t recognize that there are costs in the first place.
Myth # 3: Corporate taxes don’t cost anything.
It’s an old bromide, but it bears repeating: companies don’t pay taxes; people do. While all economists agree with this observation, there is great uncertainty as to which people. The main candidates are: consumers, workers and shareholders.
The Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimates that 20 percent of corporate income tax is paid by labor. The Congressional Budget Office (CBO) puts the worker’s burden at 25 percent. Other studies estimate that number could reach 70 percent.
The most sophisticated international capital flow model ever developed was developed by Boston University economist Laurence Kotlikoff and his colleagues. Using this model, economists find that corporate taxes are paid entirely by labor.
Voters cannot make rational decisions if they are constantly being lied to. They need to know the costs as well as the benefits of policy changes before they are asked to approve them.