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Chris Edwards

Chris Edwards

Editor of http://DownsizingGovernment.org (@DownsizeTheFeds) at the Cato Institute.

Articles by Chris Edwards

How to Improve Thanksgiving Air Travel

16 days ago

Millions of Americans will deal with the hassles of air travel this week as they join their families for Thanksgiving. Airports are crowded, flights get delayed, and travelers get stuck in long security lines. Things may get worse as aviation demand rises and puts even more strain on the system. The chart below shows total annual U.S. airline passengers on scheduled flights.
In most industries, businesses respond to rising demand by investing in new capacity. But in aviation, major parts of the industry—security screening, airports, and air traffic control—are run by the government, an institution not known for investing efficiently. The solution is to privatize all these aviation infrastructure activities, which is the successful approach taken by Canada and numerous European countries.

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HUBZones: Republican Central Planning

21 days ago

One of the more ill-advised federal activities is trying to micromanage local economies with tax and spending programs. Democrats tend to favor subsidies on things such as public housing and community development, while Republicans often support both spending programs and narrow tax breaks.
The Republican Opportunity Zone program enacted in 2017 used capital gains tax rules to expand federal control over local economies. The program divided the nation between winner and loser investment zones, as I discuss here.
Another GOP micromanagement scheme is HUBZones, which are the subject of a new Washington Post investigation. Businesses in these zones receive preferences in federal procurement. Reporter John Harden notes, “The HUBZone program was the brainchild of now-retired senator Kit Bond

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Deval Patrick: Tax and Spending Record as Governor

26 days ago

Deval Patrick announced that he is entering the 2020 race for the White House. Patrick was a Democratic governor of Massachusetts from 2007 to 2015.
Cato scores the nation’s governors every two years on their fiscal policy records, assigning grades of “A” to “F” from a limited-government perspective. We assigned Patrick an “F” in 2014, a “B“ in 2012, and a “D” in 2010. The grades cover tax and spending policies only, not other economic policies.
Here’s what we concluded on the 2014 report:
Governor Patrick’s low score results mainly from his record of proposed and enacted tax increases. In 2012 he proposed higher taxes on cigarettes and corporations. In 2013 he signed into law increases in sales taxes, cigarette taxes, and gas taxes. The cigarette tax was increased by $1 per pack. The same

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Rich Earn Wealth Slashing Prices for Poor

27 days ago

The Albrecht family of Germany is one of the richest in the world. They earned their wealth from innovations in price-slashing for European grocery shoppers. Their Aldi grocery chain is now spreading across the United States and bringing savings to millions of lower- and middle-income families. I profiled Aldi in this recent post.Rather than bashing the rich, Bernie Sanders, Elizabeth Warren, and other liberals should be praising wealthy entrepreneurs and corporations, such as Aldi, that are reducing poverty through aggressive market competition. Aldi was the subject of a fascinating profile in the UK Guardian. Snobby British observers did not think Aldi would succeed because they assumed consumers didn’t mind high prices. Aldi proved them wrong. UK grocery chains were used to fat profits.

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Wealth Tax Revenues

November 11, 2019

Presidential candidates Bernie Sanders and Elizabeth Warren have each proposed an annual wealth tax on the richest Americans. There are so many flaws with such a tax that it probably would not pass Congress. If it did pass, it would likely be repealed soon after as the damage became obvious even to the politicians.
The number of European countries with annual wealth taxes has fallen from 12 in 1990 to just 3 today. The Europeans found that wealth taxes induced avoidance, evasion, and capital flight, as I discuss here. The taxes were also full of exemptions and raised relatively little revenue.
Let’s look at that last issue. Warren and her advisors claim that her wealth tax with rates of 2 and 3 percent would raise 1 percent of GDP in revenues a year, or $2.75 trillion over 10 years. She

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Streetcar Named Quagmire

November 7, 2019

In a recent study, I explored how federal subsidies induce state and local governments to spend on wasteful projects. Case in point: a new “streetcar named quagmire” in St. Louis.
Joe Barrett of the Wall Street Journal reports:
St. Louis business leaders looking to boost tourism and development spent years bringing the Loop Trolley to fruition, a $52 million streetcar project that runs for 2.2 miles between a historic park and an entertainment-and-business district on the edge of the city.
But it has been a bumpy ride, and now it may have reached a dead end.
The trolley, after just a year of offering limited service, is out of money. The nonprofit that operates the trolley is seeking $700,000 in local funds to continue, or else the service is set to close this month.
… The U.S.

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New Study on Wealth Inequality

November 5, 2019

A growing number of political leaders consider wealth inequality to be a major economic and social problem. They complain that wealth is being shifted to the top at everyone else’s expense.
Is wealth inequality the crisis that some people believe it is?
A new Cato study examines six aspects of wealth inequality and discusses the evidence for the various claims being made. Here are some findings:
Wealth inequality has risen in recent years but by less than is often suggested. Faulty data from economists Piketty, Saez, and Zucman are behind many exaggerated inequality claims. Furthermore, wealth estimates overstate inequality because they do not include the effects of social programs.
Wealth inequality tells us nothing about poverty or prosperity. Inequality may reflect innovation in a

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Government Assets Fall Apart

November 4, 2019

A recent New York Times article described the wretched management of New York City’s public housing. The main problem highlighted is a common one in government ownership: bureaucracies do not maintain their assets.
Governments build shiny new highways, rail systems, schools, parks, sidewalks, and other infrastructure, and then let the assets rapidly deteriorate. Politicians like to brag about the new projects they are spending money on, but they pay little attention to old facilities that are falling apart, except when the media shines a spotlight.
The federal government provides $7 billion in annual funding to public housing agencies. Such aid induces irresponsible local management. It should be zeroed out and states encouraged to privatize their public housing stock. See these studies on

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U.S. Poverty Has Plunged

November 4, 2019

The government says that America’s poverty rate is 11.8 percent. It also says that the poverty rate has hovered around 11 to 15 percent since 1970 suggesting little or no progress against poverty in decades.
But the Census Bureau’s official poverty rate is biased upwards and kind of meaningless. In terms of material well-being, families near the bottom are much better off today than in past decades because of general economic growth and larger government hand-outs.
In a Cato study, John Early recalculated the U.S. poverty rate using more complete data and found that it fell from 19.5 percent in 1963 to just 2.2 percent in 2017. (The study’s charts are updated here.) Early is a former Assistant Commissioner of the Bureau of Labor Statistics.
Bruce Meyer and James Sullivan perform a similar

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More Opportunity Zone Cronyism

October 28, 2019

The New York Times published an investigation over the weekend entitled “Symbol of ’80s Greed Stands to Profit From Trump Tax Break for Poor Areas.” The break is the capital gains tax cut for investing in Opportunity Zones, which was enacted in the 2017 Tax Cuts and Jobs Act. The liberal Times likely relished tying Trump’s policies to Michael Milken. But O Zones represent poor policy from a libertarian perspective as well. The 8,700 zones divide the nation between winner and loser communities. They replace equal justice under the law with differential treatment based on political pull. The main winners are likely landowners within the zones, not poor households.Republicans are often their own worst enemies. They say they favor a flatter, simpler tax code, but then they add loopholes such

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Government Expansion Increases Wealth Inequality

October 21, 2019

Federal and state governments run many social programs that support lower and middle-income households. One cost of such programs is that they undermine the incentives and the means for households to accumulate savings. Effectively, they displace, or “crowd out,” private wealth-building, particularly for non-wealthy households.
As government programs for retirement, healthcare, and other needs have expanded, more private wealth has likely been displaced, and wealth inequality has grown. Leftists decry wealth inequality, but their efforts to expand government likely increases it. Larry Summers made this point at the Peterson Institute last week notes Ryan Bourne. Summers was likely influenced by Martin Feldstein’s pioneering studies that found Social Security substantially displaces private

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Costs of Higher Spending Would Fall on Middle Class

October 18, 2019

A Wall Street Journal editorial was right to zero in on Elizabeth’s Warren’s “determined refusal to say if her plans would require taxes to increase on the middle class.” In the Democratic presidential debate the other night, the senator repeatedly ducked concerns that the costs of her huge spending plans would land on more than just the wealthy.
They surely would. The larger welfare states of Europe and some other high-income economies are not fueled by higher income taxes than ours, but by higher taxes on consumption and worker wages.
There are 36 high-income countries in the OECD. Thirty of them have higher overall taxes than we do as a percent of GDP. How do those higher-tax countries raise revenues? The chart below shows that they raise about the same amount as us in income taxes, but

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Welfare State Causes Wealth Inequality—Euro Experience

October 18, 2019

Democrats running for president are condemning wealth inequality while calling for an increase in social spending. But expanding social spending would magnify wealth inequality, not reduce it, because it would displace private wealth accumulation by lower- and middle-income households.
Evidence comes from a study by Pirmin Fessler and Martin Schurz for the European Central Bank. The authors explore the relationship between government social spending and wealth distribution in 13 European countries using a survey database of 62,000 households. The database contains household balance sheet information.
Regression analyses by the authors confirm that “the degree of welfare state spending across countries is negatively correlated with household net wealth. These findings suggest that social

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Causes of Wealth Inequality

October 17, 2019

Elizabeth Warren and Bernie Sanders continue to blast wealth inequality. But the twin leftists seem oblivious that wealth inequality may reflect starkly differing causes, as I discuss in a new Fox Business op-ed.
The Warren-Sanders broad-brush denunciations are useless as a guide to policy because high wealth inequality may reflect either the growth benefits of capitalism or the negative effects of cronyism and crowding out.
Capitalism here means economic freedom, entrepreneurship, and innovation. Cronyism means corruption and narrow benefits to particular groups. Crowding out means the displacement of private savings by the welfare state.
These causes of wealth inequality are loosely evident in cross-country comparisons. Countries such as Denmark, Sweden, and the United States have high

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Aldi’s Owners Gained Riches by Cutting Prices

October 16, 2019

Elizabeth Warren and Bernie Sanders continued to bash wealth in the Democratic presidential debate Tuesday night. They view wealth as a zero-sum—that people at the top essentially stole their fortunes from the rest of us. Sanders said, “And we cannot afford a billionaire class, whose greed and corruption has been at war with the working families of this country for 45 years.”
The truth is that many of the richest people in market economies generated their fortunes by raising living standards for working families. Entrepreneurs have continuously slashed prices and improved product quality to the particular benefit of folks at the bottom.
I visited a new Aldi grocery store near me in Virginia last night. What a no-nonsense operation! The store was packed with customers. The secret is “no

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Higher Incomes, Higher Tax Rates

October 11, 2019

An article in the New York Times the other day was titled “The Rich Really Do Pay Lower Taxes Than You,” and one in Bloomberg was subtitled “The Wealthiest 400 Americans Have the Lowest Rates.”
It is not true.
Both articles were prompted by the release of figures from economists Emmanuel Saez and Gabriel Zucman, which in turn builds on work with their colleague Thomas Piketty. Despite garnering vast media coverage for their estimates of income, wealth, and tax distributions, this trio of economists (“PSZ”) have become known for publishing dubious data.
In a 2018 report, economist James K. Galbraith found that data on the trio’s “world inequality database” is “sparse, inconsistent, and unreliable” and “not very consistent with other reputable sources.” Furthermore, the data is based on

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Higher Incomes, Higher Tax Rates

October 11, 2019

An article in the New York Times the other day was titled “The Rich Really Do Pay Lower Taxes Than You,” and one in Bloomberg was subtitled “The Wealthiest 400 Americans Have the Lowest Rates.”
It is not true.
Both articles were prompted by the release of figures from economists Emmanuel Saez and Gabriel Zucman, which in turn builds on work with their colleague Thomas Piketty. Despite garnering vast media coverage for their estimates of income, wealth, and tax distributions, this trio of economists (“PSZ”) have become known for publishing dubious data.
In a 2018 report, economist James K. Galbraith found that data on the trio’s “world inequality database” is “sparse, inconsistent, and unreliable” and “not very consistent with other reputable sources.” Furthermore, the data is based on

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Soak-the-Rich Taxes Would Morph into Middle-Class Flood

October 8, 2019

In the New York Times, David Leonhardt cheerleads for a new plan by left-wing economists Emmanuel Saez and Gabriel Zucman to raise taxes on the rich by $750 billion a year. Leonhardt, Saez, and Zucman want to spend on a range of new government programs, such as pre-K education.
Liberals dream of a larger welfare state like they have in some other high-income countries. But if the United States goes down that road, the new spending probably wouldn’t be funded by taxes on the rich but by taxes on the middle class. We know that by looking at experiences abroad.
For its 36 member countries, the OECD publishes data on federal-state-local tax revenues as percent of gross domestic product (GDP). OECD average tax revenues are higher than tax revenues in the United States. Where do other countries

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Soak-the-Rich Taxes Would Morph into Middle-Class Flood

October 8, 2019

In the New York Times, David Leonhardt cheerleads for a new plan by left-wing economists Emmanuel Saez and Gabriel Zucman to raise taxes on the rich by $750 billion a year. Leonhardt, Saez, and Zucman want to spend on a range of new government programs, such as pre-K education.
Liberals dream of a larger welfare state like they have in some other high-income countries. But if the United States goes down that road, the new spending probably wouldn’t be funded by taxes on the rich but by taxes on the middle class. We know that by looking at experiences abroad.
For its 36 member countries, the OECD publishes data on federal-state-local tax revenues as percent of gross domestic product (GDP). OECD average tax revenues are higher than tax revenues in the United States. Where do other countries

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Virginia Is for Corruption

October 3, 2019

A recent corruption story in rural Virginia is rather stunning. The state is usually thought to have relatively clean government, but a Washington Post investigation by Antonio Olivo reveals something far different. The story—excerpted below—describes a wide-ranging scandal surrounding the Economic Development Authority (EDA) of Warren County, VA.Local governments across the nation have EDAs, a key purpose of which is to hand out subsidies to favored businesses. EDAs are structured as quasi-independent from city and county governments to reduce transparency, and so they are ideal platforms for cronyism or corruption.In a broad sense, subsidizing specific businesses is corruption in itself, even when local politicians and bureaucrats don’t line their own pockets. But they often do. This

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The Bernie Sanders Wealth Tax

September 24, 2019

Presidential candidate Bernie Sanders has proposed an annual wealth tax on families with net wealth above $32 million. The tax is even more aggressive than the one proposed by Elizabeth Warren.
As I discuss here, the number of European countries with Sanders- or Warren-style wealth taxes has fallen from 12 in 1990 to just 3 today, and those 3 countries have cut their rates in recent years. The Europeans found that wealth taxes induced widespread avoidance, evasion, and capital flight. They raised little revenue and became riddled with exemptions.
The economists helping Sanders and Warren design their plans are doing the candidates a disservice by feeding them fairy tales about government revenues. Sanders claims his tax would raise $4.35 trillion over 10 years (about $435 billion a year),

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Capital Gains Taxes: Already Too High

September 18, 2019

Democrats are proposing to raise capital gains taxes. Ranking member on the Senate Finance Committee, Ron Wyden, wants to tax capital gains on an annual basis, not the current realization basis. He also wants to hike the top capital gains tax rate for high earners to match the top rate on ordinary income. CNBC reports “Almost every major Democratic presidential candidate supports taxing capital gains as ordinary income . . .Sen. Elizabeth Warren on Thursday outlined an even more aggressive planthat would impose a new 14.8 percent tax on investment income to help finance Social Security.”
These are radical and misguided ideas. This 2012 study discusses why capital gains taxes should be low or even zero. The study found that the United States already has high tax rates compared to other

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Presidential Spending Update

September 17, 2019

Federal spending is rising and the government’s debt is growing by a trillion dollars a year. President Trump came into office promising spending cuts and debt reduction, but he has delivered the opposite so far.
How fast has Trump raised spending compared to past presidents? Spending for Trump’s third year (fiscal 2020) was roughly set in the August budget deal with Congress, so we can look at the president’s spending over his first three years.
Presidents share budget power with Congress. They can either sign or veto spending bills, which gives them a lot of leverage. Presidents can dig in their heels against congressional profligacy, or they can go with the flow and let political pressures push spending ever higher.
The following charts show annual average real (inflation-adjusted)

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Minding Money by Migrating

September 13, 2019

Americans are moving from higher-tax states to lower-tax states. Of the 25 highest-tax states, 24 had net out-migration in 2016. Of the 25 lowest-tax states, 17 had net in-migration, as I discuss in this study
State-local taxes are 14.7 percent of personal income in the largest outflow state, New York, but they are just 7.5 percent in the largest inflow state, Florida. Florida’s government costs half as much as New York’s and the services are probably just as good. Florida is warm and sunny, so why not move?
Bloomberg reported yesterday:
Billionaire Carl Icahn is planning to move his home and business to Florida to avoid New York’s higher taxes. … The move is scheduled for March 31 and employees who don’t do so won’t have a job.
… Hedge fund billionaires have relocated to Florida for tax

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Federal Spending Tops $5 Trillion

September 12, 2019

The Congressional Budget Office and the Office of Management and Budget both project that federal government spending will be about $4.6 trillion in fiscal year 2020.
In fact, federal spending in 2020 will be about $5.2 trillion. Reporters and budget wonks (including me) nearly always use the lower CBO and OMB numbers when discussing total federal spending, but they are the wrong numbers.
The $4.6 trillion figure is “net” outlays, but actual total spending is “gross” outlays at $5.2 trillion. The difference is “offsetting collections” and “offsetting receipts.” These revenues to the government are netted against spending at either the program level, agency level, or government-wide level. Some examples are Medicare premiums, national park fees, and royalties earned on mineral deposits.

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New York Times on Opportunity Zones

September 3, 2019

The Tax Cuts and Jobs Act of 2017 included capital gains tax cuts on investments in chosen areas called “opportunity zones.” There are about 8,700 O Zones across the country, which were selected by state governors based on rules in the federal statute.
O Zones are a bad idea and should be repealed. They actively divide the nation between winner and loser communities. They replace equal justice under law with differential treatment based on political pull. The main winners likely are landowners within the zones, not poor households.
Business investment and low capital gains taxes are good things. But tax policy should aim to create equal treatment for investments across the economy to maximize growth and fairness while minimizing corruption.
If cities want to subsidize investment in

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Tax-Hike Decade Looms

August 7, 2019

The Democratic presidential contest is revving up the tax policy debate. The candidates are calling for higher taxes on corporations, capital gains, wealth, and much else. In the second round of debates, New York Mayor Bill de Blasio said he wants to “tax the hell out of the wealthy,” and that is a common sentiment in his party these days.
The tax issue had faded after Republicans passed their Tax Cuts and Jobs Act in 2017. Most people did not notice they received a tax cut, and Republicans have been lousy salespersons for their reform.
Going forward, taxes will reclaim center stage, but rather than tax cuts, there could be endless battles over tax hikes. Today’s surfeit of soak-the-rich ideas from Democrats may be just a prelude to major thrusts at hiking middle-class taxes down the

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Private Pay Growth Tops Federal in 2018

August 2, 2019

The Bureau of Economic Analysis has released data on worker pay for calendar 2018. The data show that compensation for U.S. private-sector workers grew faster than for federal civilian government workers last year.
Average wages for private workers increased 3.2 percent in 2018, outpacing the increase for federal workers of 2.7 percent. Total compensation (wages plus benefits) for private workers increased 3.2 percent in 2018, topping the increase for federal workers of 2.9 percent
That is good news for private-sector workers, but their pay still falls far short of pay for federal workers, on average. Federal workers had average wages of $94,463 in 2018, or 49 percent more than the private average of $63,306. Federal workers had average total compensation of $135,971 in 2018, or 80

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Baltimore: Is it Taxes?

August 2, 2019

Baltimore is in the news for its poor economic situation and lack of opportunity for many of its residents. The problem may be that taxes are too high.
The District of Columbia government produces an annual study comparing state-local taxes on hypothetical households at five income levels in the largest city of each state plus D.C. The study includes state and local sales, property, individual income, and automobile taxes. The chart below shows annual taxes paid by Baltimore households compared to the average of the 51 cities in the study.
At every income level except the lowest one, Baltimore’s taxes are at least 46 percent higher than the average of the 51 cities. Indeed, Baltimore has the 3rd highest taxes of the 51 cities at every income level except the lowest one. Income taxes

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Bipartisan Budget Buster

July 23, 2019

Congressional leaders and President Trump have agreed to another budget-busting spending deal. This one is a two-year plan that raises discretionary spending by $320 billion, but will ultimately cost $1.7 trillion over the next decade, notes the Committee for a Responsible Federal Budget. The deal will push up government debt and move us closer to a broad-based economic crisis, which international experience shows is often triggered by excessive borrowing.
Federal budgeting has descended from irresponsible to reckless. This year, the government will raise $3.5 trillion, borrow $1 trillion, and spend $4.5 trillion, which is like an individual earning $35,000, putting $10,000 on his credit card, and spending $45,000. It might work for a few years, but eventually the borrower hits a

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