First Thought on Kentucky Tax Reform

This is only my very first thought on tax reform. Yes, let’s broaden the base. Yes, taxes on consumption are superior to taxes on productive activity. However, if you’re trying to make a point about who should and should not be taxed relatively more or less, this is not putting your best foot forward:

… someone earning $8 million a year — such as John Calipari, the head coach of the University of Kentucky men’s basketball team — would receive a tax cut of close to $80,000 a year …

As a practical matter, it’s not a good idea to argue that the most popular person in Kentucky shouldn’t get a big tax cut.

Kentucky Teachers Have Had Enough

There’s a banner that pops up occasionally around the Kentucky Capitol that seems to work for virtually every protest. It says, “WE’VE HAD ENOUGH” in all caps. It’s really kinda brilliant. It works for virtually any protest. If I had a sign-making business in Frankfort, I’d make sure to have a couple “WE’VE HAD ENOUGH” banners ready for any given protest group. Why yes, we do have various sizes and colors. Step into our showroom. What group did you say you’re with?

It’s worth taking stock of precisely what Kentucky teachers (at least the ones protesting in Frankfort today) have struggled to endure.

They’ve had enough of presiding over an education system that consistently ranks near the bottom for academic achievement while receiving pay that’s the 7th highest for teachers in America (when adjusted for cost of living). That’s well above the median household income for the commonwealth.

They’ve had enough of lawmakers and a governor insisting that the best time to reform pensions was twenty years ago and the second best time is now.

They’ve had enough of being told by financial economists that the pension promises of the past are putting a rather large hole in the Kentucky ship of state that won’t be alleviated for decades even with a substantial reform.

They’ve had enough of any efforts to give low-income parents in Kentucky any choice among schools.

They’ve had enough of the growing realization that there’s not much moral or constitutional justification for compelling their fellow teachers to support a union, and that the practice may come to an end this year.

In short, I suspect the protesters have had enough of the complaints from people who just don’t want what they’re selling. Lawmakers, parents, taxpayers, and even presumably many of their own colleagues, I believe, have had enough.

A Challenge to Virginia’s Very Bad Happy Hour Regulations

I lived in Northern Virginia for pert near ten years. Shortly after moving there, I learned from Scott Bullock at the Institute for Justice that Virginia had a particularly bad set of rules governing alcohol.

Every bar owner, for example, is required to pay the full list retail price for booze. No case discounts. No promotional benefits for buying this versus that. Oh, and all of that alcohol has to be purchased at the same state-owned stores where the rest of us get our booze.

But it didn’t stop there. Bar owners also are prohibited from alerting potential customers to information about drink specials. That is, bars aren’t allowed to tell passersby about the actual benefits of their own happy hours.

Austin Bragg and I produced a short video detailing this issue in 2009.

Now, thank goodness, the Pacific Legal Foundation and Chef Geoff are challenging these rules. The restrictions are obviously unconstitutional, but commercial speech just hasn’t received the protection it deserves.

The Virginia rules strictly circumscribe the acceptable terminology for advertising happy hours. The firm’s case notes say, “While the state allows happy hour specials, it bans advertising happy hour prices, as well as the use of any terms other than ‘happy hour’ or ‘drink specials.’ Also, while restaurants may offer half-priced drinks, it’s illegal to call these specials ‘two-for-one.'”

This is an overdue and welcome challenge.

Trade War Intensifies

In my humble opinion, this is the winning argument for free trade. Imports are, as often as not, inputs into other manufacturing. These intermediate goods, if you care about employment in domestic industries that need these products, should be sourced as competitively as possible. Enterprising reporters should note which local businesses make extensive use of these inputs and find out what they think.

The tariffs that POTUS wants to impose on steel and aluminum will make products made by Americans that make extensive use of steel and aluminum more expensive.

Public Pensions: Risk Finds A Way

What’s missing from almost all discussions about pension reform is the idea that every time the market goes down, taxpayers are on the hook. Unfortunately, given the current structure of state pensions, that outcome is unavoidable and likely to be repeated.

The case for keeping public pensions in their current form hinges on, among other things, the idea that a portfolio weighted heavily in stocks provides something of a “free lunch” to taxpayers and it makes some sense. Taxpayers pay a relatively small amount into pension funds for each government worker, the market will very likely go up over that worker’s career, and taxpayers don’t have to pay the difference between their contribution and the benefits paid to the worker.

But there ain’t no such thing as a free lunch.

What has happened in Kentucky and other states is this: Lawmakers watched as markets boomed in the 1990s and chose to pare back contributions in order to fund more immediate spending desires. Lawmakers also found small ways to boost benefits for public workers because, after all, look at all the money in that fund! When markets tanked, as they inevitably sometimes do, taxpayers suddenly found themselves in the position of responsibility for the gap. The money that should have gone to maintain pension funding levels had already been spent elsewhere.

This kind of grasshopper thinking might not be much of a problem if that retirement plan were owned and funded by the same single individual. If you choose not to contribute to your own retirement fund, that’s your choice and I wish you the best of luck. No one else should be on the hook for your shortsightedness. But that’s very different from how public pensions operate. In short, the pensioners must be paid as a matter of contractual obligation.

Commentators and would-be reformers are almost entirely focused on getting that funding back to the exclusion of changing the system. The problem is that this time, decades later, the costs can be absorbed by precisely two groups: taxpayers and pensioners.

The Wall Street Journal notes that public pensions are still heavily weighted in stocks, and at least one of the biggest funds in Kentucky is more heavily into stocks than most pension funds.

The $19.9 billion Teachers’ Retirement System of Kentucky now has 62% of its assets in equities, close to the 64% it had in 2007. It sold $303 million in stocks Jan. 19-20 to rebalance its portfolio following gains. From Feb. 6-8, as U.S. markets plunged, the fund bought another $103.5 million of stocks.

“We are definitely a long-term investor and look to volatility as an investing opportunity,” said Beau Barnes, the system’s deputy executive secretary and general counsel.

Lawmakers are giving precious little attention to the idea that getting taxpayers out of the public employee retirement business should be the overriding goal.

A Gift for the Man Who Has Everything

Suggested Christmas gifts for the man who has everything?

Your suggestion should meet the following criteria …

1. He’ll own no more stuff after you give him the gift.
2. His life will be better.

I’ll start with a few:

Re-season all of his cast iron cookware.
Have all of his knives professionally sharpened.
Take him on a depraved weekend bender.
Replace expired items in his bug-out bag.
Watch his kid(s) for a day/night/weekend/week/month/childhood.

Your suggestions?

Update: My friend Sharon sends along a few others …

Change oil in his car?
Invite priest to make weekly visits toward saving his soul?
Install new batteries in his smoke detectors (toward saving his body)?
Visit his family in his place (toward saving his sanity)?
Tickets to Stones concert (reminding him that he, too, will get old and wrinkly and that he can’t always get what he wants, but sometimes he just might get what he needs).

Kinsley on Citizens United

This is a well-considered analogy from Michael Kinsley, one I wish more people would consider when they cry foul when (some) corporations decide to spend money advancing their preferred ideas or candidates:

The analogy I like (as did the Supreme Court in its ruling) is to a newspaper. Suppose Citizens United were reversed and President Trump decided one day that he was sick of The New York Times. So he proposes a law setting a ceiling on the amount any individual or organization can spend putting out a newspaper. Constitutional? I hope not. But it’s hard to see the difference in principle between this and a law limiting the amount a corporation or union may spend promoting a political candidate.

I recently chatted with Kentucky Congressman John Yarmuth about his proposal to remove First Amendment protections for many public discussions of federal candidates. He wasn’t particularly convincing in presenting an argument on behalf of an amendment that would strip away the constitutional protections for media outlets to discuss candidates openly while simultaneously asking that I trust Congress to delicately reanimate the corpse of the McCain-Feingold campaign finance rules prohibiting corporations (but not Trusted Media Outlets) from having their say. I have a hard time thinking that Congress, given the opportunity, would craft a proper balance between the interests of Democratic Government and the rights of individuals to band together and say whatever they think needs to be heard.

Listen here: