Economics

The USA still has the world’s worst corporate tax rate

I published a blog post at FreedomWorks on international corporate tax rates — and how far we’ve fallen behind everyone else.

The Tax Foundation has recently published a report that analyzes the tax policy of the thirty-four Organisation for Economic Development (OECD) member countries, which are more or less all of the advanced economies in the world. The results are jarring. The United States ranks 32 out of 34 in terms of the competitiveness of our taxation – only Portugal and the Socialist-led France rank lower than we do. The main factor in in this embarrassment is our bush league corporate tax rate. The Tax Foundation makes it clear: “The United States provides a good example of an uncompetitive tax code… The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world and that it is one of the six remaining countries in the OECD with a worldwide system of taxation.”

While the rest of the world has been reforming its tax codes, the United States has been left in the dust. The last major change in the US occurred in 1986, and since then, OECD average corporate tax rate has practically been cut in half. Corporations are leaving our shores, as Logan Albright pointed out, and our uncompetitive policies makes investment a bad idea in the first place.

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No panaceas: Libertarian challenges to open borders

Traditionally, libertarianism has welcomed a plurality of views on the immigration question. While nearly all free market proponents agree that current government policies restricting freedom of movement around the world are riddled with problems, we lack a consensus on what exactly these problems are and what should be done to solve them. However, it seems that a growing segment of (mostly young) libertarians are becoming more vocal in their view that unequivocal support for open borders should be *the* libertarian position on immigration. These libertarians tend to emphasize the moral case for open borders, though folks like Bryan Caplan have done a good job of presenting the economic benefits as well.

Unfortunately, advocates of open borders almost always fail to acknowledge important and fundamental tradeoffs when it comes to immigration. As Gene Callahan has written recently, it is strange that libertarian economists, who are usually eager to point out that there’s no such thing as a free lunch, “treat immigration as if it were immune to this principle, and argue as if unlimited immigration is simply an unalloyed bundle of benefits with no associated costs.” Advocates of open borders should recognize that not all opposing arguments are veiled conservative prejudices rooted in xenophobic hysteria and that there are practical downsides worthy of consideration. Here, I will discuss some of these legitimate challenges to open immigration. But first, a few disclaimers on what I will not be arguing.

I will not be arguing that the potential costs of open borders necessarily outweigh the potential benefits. I suspect there isn’t enough evidence to make a compelling case either way and I’m certainly not informed enough to adopt a strong position on the subject. Ultimately, I think that some level of immigration fosters innovation and the exchange of ideas and I have no doubts that the majority of immigrants are hard-working, honorable people who just want the opportunity to create a better life for their families. Nor will I be arguing that the practical challenges of open borders should necessarily drown out the moral arguments, which I generally find compelling. In fact, my path to becoming a libertarian began when I was exposed to the corrupt and unfeeling actions of several bureaucrats towards Haitian immigrants in a congressional office where I interned during high school.

However, I am very skeptical of what appears to me to be an emerging tendency to institute a libertarian litmus test around open borders and a reluctance to engage in a conversation about the many tradeoffs of such a policy stance. I would like to push back against the tendency of open borders advocates to frame the conversation as if immigration is a zero sum game. A writer at SpawkTalk has criticized Bryan Caplan for such framing:

He [Caplan] analyzes whether immigrants on the whole depress native wages, or whether immigrants as a whole use a lot of welfare, etc. It seems to not occur to him that there may be a good case for restricting immigration even if immigrants as a whole do no net harm. After all, some subset of immigrants might do harm in these various areas even if immigrants on the whole do not. And so it would make sense to ban this subset of immigrants from immigrating to your country. Just about no one actually advocated banning all immigration. And yet this is the position that Caplan’s analysis directly argues against. In so doing it fails to address the vast majority of proposals for immigration restriction actually in existence.

It’s especially worth lingering on the point that virtually no one is calling for a ban on immigration across the board. In fact, there is probably no other policy position more implicitly excluded from mainstream debate than immigration restriction. Nearly everyone is against it, from Brookings to Karl Rove to the ideological left to libertarians — and most have self-interested reasons for doing so; the business right wants cheap wages, the left wants more voters, and so on. Advocating for open borders isn’t as radical of a position as many libertarians make it out to be.

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Sometimes smaller is worse

While I am a huge fan of decentralization, it is important to be cognizant of the potential negative effects.  Proponents of decentralization argue that local governments are more responsive to the needs of people.  However, local governments can be dominated by local special interests, restricting the overall level of freedom.

This tension was apparent during the drive to Burning Man.  Many towns would pull over cars, ticketing them for any perceived traffic violation.  This would have no negative effect on the elected officials as out of towners don’t vote.  A more insidious example is Ferguson and the broader St. Louis area.  They weren’t ticketing one time passers through, but oppressing an entire population, keeping them impoverished.

Zoning restrictions are another example.  Japan decides zoning policy on a national level, and as such, Tokyo has cheaper housing prices than San Francisco.  This is because the property owners in Tokyo are unable to effectively lobby the national government, while San Francisco property owners are much closer to the relevant decision making body.

This point can be brought back the the 16th, 17th, and 18th centuries and the building of the nation state.  One of the primary advantages of the modern nation state was its ability to crush local monopolies.  Rivers which previously had tolls every mile for a different fiefdom would be traveled at much lower cost.  By crushing the local monopolies the modern nation state created a free trade zone within its borders.  This allowed Britain to experience the industrial revolution, overtaking the rest of Europe, despite having higher tariffs than France.

The question advocates of political decentralization must ask is, under what circumstances will the benefits of local governments outweigh their costs? Moving cities is already much cheaper now than previously, increasing the elasticity of demand for local governments.  Trade, rather than plunder, is also a far greater part of wealth today.  Another option is a shareholder state, one where the incentives of the population are more closely aligned with the ruling class than most forms of government.

Introduction to proprietary cities

The Freeman was kind enough to publish a short introduction to the intellectual history of proprietary cities, by yours truly. Here’s an excerpt.

There has been a lot of discussion about what Tyler Cowen calls shareholder states. A shareholder state is a territorial governance structure where the decision-makers have a monetary incentive for performance: Decision-makers would be rewarded for decisions leading to long-term growth. This system contrasts with democracy, where decision-makers rarely think past the next election cycle.

But the discussion has been missing an understanding of the intellectual history of proprietary communities, the “purest” type of shareholder state. A proprietary community is a territorial governance structure under a single owner. This structure more closely approximates private property, giving it an advantage over other governance structures. In a proprietary community, there is a single decision-maker with an interest in property values, which are highly correlated with economic development.

Review of Rationalism in Politics by Michael Oakeshott

This summer I read what is now one of my favorite books, Rationalism in Politics, by Michael Oakeshott.  One of the premier conservative thinkers of the 20th century, his work is criminally underrated.

Rationalism in Politics is a collection of essays.  The best are in the beginning.  He makes arguments similar to Hayek in Law Legislation and Liberty: Rules and Order, attacking rationalism, the belief in the use of reason to re-organize society.  Instead, we should be aware of the limits of our knowledge, and not be too presumptuous in our ability to use reason to re-shape society.

Perhaps the best analogy to understand Oakeshott’s thought is to compare it to the Austrian idea of the market process.  Austrians dislike the economic focus on equilibrium, instead arguing that the market is a process by which knowledge is learned and society is organized.  Oakeshott makes similar points with regards to politics.  Rather than decry the messy reality, he embraces it.  People acting on imperfect and wrong information is inevitable in the political process.  It is only through such interactions does politics come to resemble the order that it does.

I highly recommend Rationalism in Politics to anyone interested in politics or economics.

An economist considers Burning Man

I spent last week at Burning Man. It was one of the best experiences of my life. However, as much ink has been spilled on the experience of Burning Man, I will direct my attention to where I have a comparative advantage, understanding the social organization of Burning Man.

Burning Man is a city which exists for a week. In 2014 the city had 70,000 inhabitants. Creating a social order of 70,000 people is hard enough. However, what makes Burning Man so interesting is that they not only create a city, but they also operate under social norms that are alien to the outside world.

The two most important norms are that of a gifting economy and removing all trash. Monetary transactions are unacceptable. All matter brought into Burning Man must be brought out. The difficulty in enforcing both norms is that Burning Man is big enough to be anonymous. If I wanted to dump my trash during the night I might be yelled at, but it is easy enough to disappear into the dark with no further social repercussions.

Economists have long distinguished between familiar and anonymous social interactions.  The rules we use when interacting with family and friends are different from the rules we use when interacting with strangers.  This is because social pressure is sufficient to ensure cooperation among individuals who have long term repeated interaction. However, one shot interaction with strangers requires different rules to ensure cooperation. These rules range from reputation used by Ebay and Uber to formal contracts used in the business world.

What make Burning Man so impressive is that they have been able to sustain rules that primarily exist in small groups in a city of 70,000 people. Burning Man proves social pressure is scalable far beyond what is normally assumed. Further, such social pressure works even though each year 40% of Burners are new residents. These new residents, by and large, successfully are integrated into the wider social order.

This is where the tension between new and old Burners come in. For almost every event, there are people who complain that it has changed for the worse as time progressed. The new attendees don’t understand the culture, and have morphed the event into something unrecognizable. The dynamic exists in Burning Man too, probably to a greater extent than other events. However, while I tired of hearing people complain about the good old days, it is clear that such conversation fulfills an important social function. It pressures new attendees, such as myself, to learn and conform to the norms that have made Burning Man what it is.

(Image credit Neil Girling)