Free markets and low taxes work


Dallas, Roger Helmer MEP with governor and Presidential candidate Rick Perry (2)

Meeting with Texas Governor Rick Perry in Dallas

While in Dallas last week at the ALEC Conference, I had the pleasure and privilege of meeting Texas Governor and 2012 Presidential candidate Rick Perry.  I Tweeted the photograph, only to be greeted by a barrage of complaints about the Governor’s traditional views on social issues.  I personally have no problems with Governor Perry’s position on social issues (some but not all of which I share).  But I am much more interested in his attitude to economic policy — his commitment to low taxes and free markets — which is having dramatic and positive effects on the economy of his State and on the prosperity of his voters.

This was perhaps best illustrated at a presentation given at a plenary lunch event (ALEC has close to 2000 members, so such lunches are substantial events) by the Chief Economist of The Heritage Foundation, Stephen Moore.  A former member of the Wall Street Journal editorial board, he is a man who knows whereof he speaks. His speech is just half an hour long, and if you’re interested in classical liberal economics, it’s a half an hour well spent.

One of the great features of the American system (and of great interest to ALEC) is that the federal structure allows for wide policy variations between states, which in turn offers opportunities to test alternative approaches side-by-side.  This contrasts with the centralised, Napoleonic approach in Brussels, where the énarques and the technocrats use their superior intellects to come up with idealistic solutions, which can then be applied wholesale to the EU member-states, offering little opportunity for pragmatic comparisons.

Of course sometimes the Napoleonic approach starts to crack at the edges, and reality shows through.  They didn’t manage to get all EU states into the reckless €uro experiment, and it’s noteworthy that European states outside the EU (Switzerland, Norway) seem to do better in terms of GDP and employment than EU states, while non-€uro EU states do better than the €urozone (and Southern Europe goes into melt-down).  But I digress.

Moore pointed out that two recent Presidents, Reagan and Obama, each assumed office during a very serious economic crisis.  Reagan approached his problems with lower taxes, lower government spending and a deregulation drive.  He took the rocks off the lawn, and allowed the grass to grow.  Obama, on the other hand, piled on more rocks.  Higher taxes.  A series of economic interventions.  Socialised medicine.  Moore contrasted the five-year post-crisis growth rates under the two scenarios, and concluded that the USA today would be $2 trillion (two million million) better off in GDP terms under the Reagan policy prescription.

You can argue that other factors may have affected events nearly thirty years apart.  But Moore made a similar case based on the contemporaneous performance of “Growth States versus Declining States”.  Texas has enjoyed three times the job growth of California, while Florida has five times the job growth of New York.  Texas and Florida have zero state income tax.  California and New York have 13%.  Unlucky for some.

There is a great migration of jobs, people and investment from high-tax states to low-tax states — or, in broad terms, from the North East to the South.

I can see the Brussels Bureaucrats throwing up their hands in horror.  “Unfair tax competition!” they would cry.  They would argue for tax harmonisation to prevent such migration.  But my view is that tax competition is always and everywhere an excellent thing, and that tax harmonisation is a cartel by governments, operated against the interests of citizens.

One of the greatest problems in the presentation of economic and fiscal policy today is to make the case for lower taxes, especially lower taxes on the wealthy.  It’s so easy for Labour (in the UK) to talk about “hand-outs for the rich” (as though confiscating a bit less amounts to a “hand-out”).  So I was particularly struck by Stephen Moore’s graph plotting the maximum US income tax rate over time against the share of tax revenue paid by the wealthy.  The result is stunningly counter-intuitive.  As top tax rates go down, so the share of tax paid by the wealthy goes up,dramatically and decisively.  Punitive taxes on wealth may hurt the rich, but they also punish the poor.  They cost jobs and growth.

Towards the end of his presentation, Moore came up with a killer quote.  “In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now”.  Well you’d expect that from a right-wing, Chicago School political ideologue, wouldn’t you?  Except that this wasn’t a right-wing ideologue.  This was Democrat president John Fitzgerald Kennedy , speaking at the Economic Club of New York on December 14th 1962 That’s it.  A Democrat.  But at least a Democrat who understood something about economics and taxation.

Moore finished his speech with a rhetorical flourish that went down a storm in Dallas.  “Our challenge is, not to make America look like New York, but to make America look like Texas!”.


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31 Responses to Free markets and low taxes work

  1. Brin jenkins says:

    Get up and go, can only work when it’s worth while. Taxation killed off development of most of our inventions, industries were so taxed that re-equipping workshops never happened. Worn out machine machine tools were just pushed back into service, whilst any capital/profits from BSA industries were invested in diamonds around the neck of Lady Docker. It gave the competition a head start and now our industries are wrecked.

    We have an uphill struggle to rebuild both our education and work ethic.

    Can we make it happen again?

  2. Ex-expat Colin says:

    Washington Post links Ebola to Climate Change.(WUWT)

    Knock that place out as well!

    Oregon was my favourite..10yrs of business, no problem. Received too many bottles of Yukon Jack…oh dear!

  3. David says:

    I do like your articles Roger, and the Texans way too.

  4. David says:

    Incentive does not show up in Government minds, if it moves, does well, makes a good profit, grab it, hit it with a tax or increase the %. I saw the piece on the advice about diesel particles, and a proposed increase in the duty, they have it wrong again, reduce tax on petrol and that will guide folks away from the big dreaded D. Funny 10 years ago it was “good for us”

    • Flyinthesky says:

      David, It isn’t a question of what’s good or bad, it’s a question of maintaining or indeed increasing revenues. I remember years ago when the government encouraged us all to go diesel, when it dawned on them, with higher mpg, that the diesel conversion was costing them revenue they increased the tax on it. Any advantage “we” gained was taxed away.
      It’s the same with proposed legislation, it has little to do with public health, it is an opportunuty to increase revenue.
      Anyone who is of the opinion that the government is being mindful of the publics’ wellbeing is seriously dillusional.
      A simmilar analogy could be construced from the statin situation, touched on by the last thread. The government has been convinced by vested interest that statinising a greater percentage of the population will lead to an overall reduction in their percieved liability. It “isn’t” concern for the wellbeing of the nation, it’s an inferred reduction, false, of the overall liability. I know that Roger has reported no discernable effect from taking them but thousands have, some of them dire and indeed life threatening.
      If they can scare the populace witless about diesel particulate inhalation and ingestion it justifies them monetising it. It isn’t altruism it’s opportunism.

    • Ex-expat Colin says:

      I think its a simple case of paying a massive debt off…so the taxes will go on and on and on. Thanks to new (old) Labour again. QE adds to our grand childrens bill and that angers me. The innocents again.

      Add in the benefit and NHS state and the money simply gushes out. Play game for ministers.

      Add in the immigration of anybody we don’t need and anybody that wants to seek asylum. in Uk – a very soft/dumb touch. More to to do with legal assistance than anything to do with morals and truth. Its the money.

      Add in the expense of Scotland attempting to split UK. If any Scots want to leave UK…then go out there. Try it…most of you won’t though. Just moan at home.

      Add in damned stupid attacks on the Middle East that is always impossible to contain. Blair again.You won’t fix Islam or the tribes therein..they do that whether you like it or not.

      Add in the struggle to overturn Russia….little chance. Battle in winter with NATO?

      Add in the complete lunacy of a minor gas impacting severely on this planet. No adequate evidence is available other than simple observation/late instrumentation. Money going to VI’s who are part of Govenment(s).

      The Westminter/EU/US bunch simply get richer for no achievement at all.

      UKIP…you have a hell of a job to turn this stuff around. Best of luck though.

  5. barrymx5 says:

    Whilst a huge Government machine exists, it has to be paid for in taxation. Naturally Lower taxation means reducing the public sector. The sooner the better. UKIP should start by scrapping VAT. A bureaucratic nonsense introduced in the 50s by the French.

    • Roger Helmer MEP says:

      But of course we’re not allowed to scrap VAT until we leave the EU……

    • catalanbrian says:

      And replacing VAT with what? It seems that your objection to this tax, a much more efficient tax than a sales tax or purchase tax, is that it was originally introduced by the French. That, I am afraid, is not a good reason for scrapping it.

      • Brin jenkins says:

        Perhaps the best reason for dropping this tax is in reducing our taxation, and the dependency of relying on Government for non productive employment by so many.

        Taxation needs to be much smaller, and Government needs to be a much smaller employer.

        If we don’t make it, perhaps we don’t need it?

      • David says:

        Why scrap it then look for a replacement?

        Remove it and reduce the amount they have to spend, squander/waste/give away against the peoples wishes. If a chancellor reduces a tax in his budget, and its applauded, yet he increases some other tax to replace it, what a useless way to do things.

      • ian wragg says:

        VAT is one of the most complex taxes created which is paid and repaid times many on a service or widget created from scratch. A simple sales tax would suffice but of course simplicity is not in the political dictionary.
        Only the EU has this silly method of taxation.

      • catalanbrian says:

        VAT is certainly not a complex tax and it is not “paid and repaid times many” as you state. As a plus point it is less easy to avoid than a sales tax and it is no more complex to collect than a sales tax, although the costs of collection do probably fall more heavily on industry and commerce than those of a sales tax. You are wrong about it being used as part of the tax mix only in the EU. In addition to the EU, VAT is applied to goods and services in nearly 80 other countries including, for example, Norway, Switzerland, Australia, New Zealand and Canada which means that VAT is used in more than 50% of the countries in the world..

      • Brin jenkins says:

        Brian you support every lefty idea and device going, Joseph Stalin stated, “Socialism is no problem, it leads to Communism”.

        Have you ever read and understood the manifesto?

        Do you look forward to this New World Order?

        Just what do you believe, in we deserve to know?

      • catalanbrian says:

        What is “lefty” about considering VAT to be a pretty sensible tax?

      • Roger Helmer MEP says:

        How on earth can VAT, which requires a vast amount of record-keeping and reporting at every stage of the supply chain, be “more efficient” that a sales tax, which is only collected at the point of sale?

      • catalanbrian says:

        Efficient in minimising avoidance

      • Brin jenkins says:

        Avoiding or evading taxation?
        Surely we are entitled to only pay the minimum of tax as our right?

  6. Brin jenkins says:

    Please answer my question, its a reasonable enough request.

    • catalanbrian says:

      Your various questions are off thread and irrelevant. Furthermore I have no intention of wasting mine and everybody’s time in bothering to answer.

      • Brin jenkins says:

        Lefties never answer questions, it ties them down in truth. Just continue wasting time as you usually do.

      • catalanbrian says:

        Sadly it is impossible to debate anything with you Brin as you inevitably raise irrelevant matters or resort to abuse, probably because you have nothing to add to the weight of any argument

      • Brin jenkins says:

        Not so.
        This is a political matter, on a UKIP political site, most folk declare their affiliations even when they are not ukippers.

      • catalanbrian says:

        This is Mr Helmer’s blog, not a UKIP political site. In any event you have already decided that I am a “leftie” so I think that we can just leave it at that

  7. David says:

    catalanbrian, ” not paid & repaid many times”
    VAT is applied everytime an item is sold from one to another up the food/manufacturing trade, every time goods and services are exchanged, so it is charged many times till it reaches the end user.

    • catalanbrian says:

      It is not “paid and repaid many times”. At each exchange VAT relating to the value added at that stage of the process is paid. In effect this amounts to a netting off of tax already paid and the amount of tax due on the new increased value/price.

      • Brin jenkins says:

        That is highly complicated and far from efficient adding greatly to the costs of the retailer and manufacturer. Less tax, and less Government expenditure is called for rather than more. When VAT was first introduced every retail business needed to scrap the old tills and buy new ones that tracked the vat. Armies of new Customs and Excise men were recruited to enforce the regime.

        Might this have been a contributor to the almost completed decline of our manufacturing base?

      • catalanbrian says:

        VAT in China does not seem to have contributed to any decline in their manufacturing base!

      • Brin jenkins says:

        China is nice well organised Communist society. The rise of the Chinese economy is another matter altogether, and without President Nixon collaborating it would never have happened.

        Any Internationalist will see this as a step forward.

    • Ex-expat Colin says:

      It is indeed charged at each stage of process requiring external input and output. It is then managed for HMRC and paid to them where a VAT number exists. Its a Franco/German system that replaced Sales/Purchase tax. The latest Franco/German tax grab of course is the EU.

      Its a design that commonly admits failure by the governments. They need money and paint up a guilt picture of the morals relating to a contribution for all sorts of things. Ultimately it remains to cover vast debt due to gross negligence as recently seen. The game of flip flop of VAT rates persists….heading upwards.

      VAT impacts on the poor substantially e.g VAT on energy. The VAT on food in Europe is beyond me and is rather criminal I think.

      VAT is a double tax because a consumer pays it from income taxed already and taxes the part of income that was below a tax allowance. The wealthy can handle that.

      But of course we are all in it together…are we not? Our children and grandchildren are seriously going to be in it…thats for sure.

  8. barrymx5 says:

    Thank you all for commenting on my proposal to scrap VAT. The complexity for everyone in business and the army of bureaucrats required are reasons enough to scrap it. I am glad Roger is sympathetic because my Branch may be submitting it as a Resolution at the AGM next month!

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