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Vol. 28 / No. 1 / Spring 2018 IndependentNEWSLETTER OF THE INDEPENDENT INSTITUTE Assessing Tax Reform By William F. Shughart II IN THIS ISSUE Last year’s federal tax overhaul gives a valuable boost to the American economic engine and 1 Assessing Tax Reform the hard-working people who drive it. For years, U.S. businesses were burdened by 2 President’s Letter tax rates that were both too high—39 percent, combined state and federal—and totally out of 3 New Book: step with our global competitors, who enjoy a Eleven Presidents top average rate of 22.5 percent, down from a high of 30 percent in 2003. The Tax Cuts and Jobs Act of 2017 removes that huge disadvantage. 4 Independent Institute Its reduction of corporate income tax rates to 21 percent (a single rate!) in the News serves to lower what economists call the “user cost of capital” and thereby encourages new private investment in job growth. Some of the spending on business equipment and expansion will use funds that U.S. and non- 5 Symposium on U.S. corporations would have invested abroad. Immigration The corporate tax cut and other provisions of the new law credibly raise the long-run level of annual GDP growth by 3 percent, according 6 Economic Freedom to a group of economists that includes Robert Barro, Michael Boskin, in North America Glenn Hubbard, George Shultz, and John Taylor, in an open letter published last November in the Wall Street Journal. Higher GDP growth 7 K-12 Students Thrive translates into higher real wages—that is, what people’s money wages with Education actually buy, adjusted for inflation. Savings Accounts Cuts in individual tax rates will ease taxpayers’ financial burdens. Although the cuts are smaller than corporate taxes in percentage terms, 8 Sponsor Spotlight: they are more helpful for the middle class than most people realize. Terry Gannon One reason for the misunderstanding is that analysts often measure tax cuts as percentages of after-tax incomes. However, it’s more illuminating to evaluate the cuts as percentages of income taxes that would have been owed under the old tax code. Using this approach, National Review reports that “households earning between $50,000 and $75,000 would get a 24 percent cut in 2019, while those over $1 million would get just a 6 percent cut.” While the Tax Cuts and Jobs Act is a big improvement over the status quo, much work still must be done if we are to enact a better (less plunderous and simpler) tax code that promotes real prosperity and efficiency. Here are a few reasons why I see the tax reform as unfinished business. Simplification. The 2017 tax law preserved seven individual income tax brackets. It also kept various exemptions and deductions that distort taxpayers’ decision making. The trick going forward will (continued on page 7) William F. Shughart II is Research Director and Senior Fellow at the The Power of Independent Thinking Independent Institute and the J. Fish Smith Professor of Public Choice INDEPENDENT.ORG at Utah State University. 2 INDEPENDENT PRESIDENT’S LETTER Spreading the Message of Liberty upward mobility, and a future • Independent’s Center on En- of liberty and opportunity for trepreneurial Innovation draws all—especially the poor. on our roots in Silicon Valley This year we are redoubling to explain how trends such as our efforts to bring that message the sharing economy and other to young people, making the case advancements can be harnessed for turning away from expensive to promote economic opportu- and harmful government ap- nities for those most in need. proaches to social ills and instead Our new initiative, Innovating embracing voluntary, entrepre- for People, Prosperity, and neurial solutions: Liberty, shares inspiring ex- DAVID J. THEROUX • We are planning a sequel to amples of how technology and Founder and President our popular video series, Love entrepreneurship are solving Gov: From First Date to important problems, in areas 767 million people worldwide Mandate, which uses satirical ranging from mobile apps for live on less than $1.90 per day. humor to engage younger education and healthcare, to Although this is less than half as audiences on the issues of housing and water quality. many people as in 1990, still far healthcare, education, jobs, We invite you to join with too many lives are crushed by housing, and privacy. As of this disease, ignorance, and destitution. writing, Love Gov has received “The Independent For years, most nonprofit well over 7.4 million com- Institute is our beacon groups and government agencies bined YouTube views (97.4% for the future of liberty!” have proposed to “solve” global from Millennials) plus 10 film —George Gilder, bestselling poverty with government-to-gov- awards and 18 laurels. author, Wealth and Poverty ernment aid or unsustainable • Last year we hosted New us to advance these and other handouts—stop-gap measures Bridges events in Dallas and market-based alternatives to that have done little to promote San Francisco, which united government folly—and to build long-lasting progress. over 200 people with a shared a better future—by becoming an In contrast, we believe that vision of individuals working to- Independent Member. With your an “opportunity society,” based gether to solve local and national tax-deductible membership, you on free markets and property problems. We also hosted the can receive a FREE copy of Pope rights, is the world’s best cure first meeting of Independent Francis and the Caring Society, for poverty, because it encourages Communities of Impact— plus other benefits (please see and enables technological inno- people eager to solve problems envelope). vation, market entrepreneurship, in their own cities. More events We look forward to working are in the works. with you to advance all that only a free society can provide! EXECUTIVE STAFF David J. Th eroux Founder, President, and Chief Executive O cer Ivan Eland Mary L. G. Th eroux Senior Fellow Senior Vice President John C. Goodman Sally S. Harris Martin Buerger Senior Fellow President, Saint James Place, Inc. Herman Belz Vice President and Stephen P. Halbrook Philip Hudner, Esq. Professor of History, Chief Financial O cer Senior Fellow Retired Lawyer University of Maryland William F. Shughart II Robert Higgs Gary G. Schlarbaum, Thomas Bethell Research Director and Senior Fellow Senior Fellow Author, The Noblest Triumph: Property Ph.D., CFA and Prosperity Through the Ages Roy M. Carlisle Lawrence J. McQuillan Managing Director, Acquisitions Director Senior Fellow Palliser Bay Investment Management Thomas Borcherding Professor of Economics, Jason Monaghan Susan Solinsky Claremont Graduate School Publications Director Robert H. Nelson Co-Founder, Vital Score Senior Fellow Boudewijn Bouckaert Carl P. Close Benjamin Powell W. Dieter Tede Professor of Law, Research Fellow, Senior Editor Senior Fellow Former President, Hopper Creek Winery University of Ghent, Belgium Paul J. Theroux Randy T Simmons David J. Teece, Ph.D. Allan C. Carlson Technology Director Senior Fellow Chairman and CEO, President Emeritus, Howard Center for Berkeley Research Group, LLC Stephanie N. Watson Alexander Tabarrok Family, Religion, and Society Development Director Senior Fellow David J. Theroux Robert D. Cooter Rebeca Zuñiga Founder and President, Herman F. Selvin Professor of Law, Alvaro Vargas Llosa The Independent Institute University of California, Berkeley Digital Communications Director Senior Fellow Alisha Luther Mary L. G. Theroux Robert W. Crandall Richard K. Vedder Former Chairman, Garvey International Senior Fellow, Brookings Institution Director of Administration Senior Fellow Robert M. Whaples Richard A. Epstein Managing Editor and Co-Editor, BOARD OF ADVISORS New York University The Independent Review BOARD OF DIRECTORS A. Ernest Fitzgerald Christopher J. Coyne Author, The High Priests of Waste Co-Editor, The Independent Review Leszak Balcerowicz Gilbert I. Collins Professor of Economics, George Gilder Michael C. Munger Private Equity Manager Warsaw School of Economics Senior Fellow, Discovery Institute Co-Editor, The Independent Review John Hagel III, J.D. Jonathan J. Bean Nathan Glazer Bruce L. Benson Co-Chairman, Center for the Edge, Professor of History, Professor of Education and Sociology, Senior Fellow Deloitte & Touche USA LLC Southern Illinois University Harvard University Newsletter of the Independent Institute 3 NEW BOOK Eleven Presidents Reveals the Hidden Scorecard for Limited Government U.S. presidents often claim to federal spending oppose big government, yet more than any few have succeeded in cutting president since its size and impact, especially Truman, shrank over the past 100 years. Most the federal work- of the government’s Chief force by 350,000, Executives—even self-de- lowered trade barriers, scrapped Depression-era scribed advocates of small banking restrictions, and ended unfunded federal government—have presided mandates on the states. over periods of growing federal spending, debt • Clinton ordered the U.S. military to intervene accumulation, and government bureaucracy. in many overseas conflicts, but he managed to Too often, however, the public has failed to notice avoid embroiling troops in a large-scale ground the yawning gulf between rhetoric and reality. Too often, war. The same cannot be said of George W. Bush, it has bought into stereotypes about party affiliation who landed the military in two costly long-lasting and failed to scrutinize the presidents’ actual records. quagmires. He also signed Medicare Part D, at the The breadth and depth of the disappointments time the largest expansion of federal entitlements and broken promises—as well as some underap- since 1965. preciated successes—are revealed by Independent Eland reserves his highest praise for two unsung Institute Senior Fellow Ivan Eland in his latest heroes of limited government: Warren Harding and book, Eleven Presidents: Promises vs. Results in Calvin Coolidge. Pundits have focused on the Teapot Achieving Limited Government. Dome scandal and Silent Cal’s quiet personality, but Eland doesn’t hold back as he scrutinizes the America’s Founders would have lauded their limit- record of eleven American presidents since the end ed-government policies.