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The Lighthouse®

The Lighthouse® is the weekly email newsletter of the Independent Institute.
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Volume 20, Issue 2: January 9, 2018

  1. Restricting Trade Comes at American Expense
  2. Taxoholic Personality Disorder
  3. Gas Tax Rationale Running on Empty
  4. Iran Rising?
  5. Independent Updates

1) Restricting Trade Comes at American Expense

President Donald Trump has called for playing hardball to renegotiate America’s trade deals, such as the North American Free Trade Agreement. One tactic: threatening to impose heavy taxes on automobile manufacturers who sell cars in the U.S. made in new factories in Mexico. Trump’s hostility to free trade is well known; less documented are his specific misunderstandings of details regarding free trade and economic growth, as Independent Institute Research Fellow Gary M. Galles shows in a recent op-ed at Forbes.

For one thing, the president overlooks the significance of Mexico’s trading partnerships around the world. “Thanks to its free-trade agreements, Mexico has tariff-free access to countries that account for 60 percent of world GDP, an advantage which dwarfs Mexico’s estimated $600 to $700 per-car labor cost savings over American production,” Galles writes. Free trade, not cheap labor, is the key pillar of success for Mexican exporters.

It’s an important story worth telling, but it’s not completely new. Mexican automakers enjoy greater access to Europe’s market than does Detroit due to tariffs that France and Germany enacted in response to U.S. policies first imposed in the 1960s! If Trump wishes to enact a pro-growth economic agenda, he should discard old-time protectionism. “Freer trade, not threats to punish those who don’t do what Trump wants, will be a far more effective way to advance Americans’ interests,” Galles concludes.

Mexican Automakers Boom Because of Free Trade with the World, by Gary M. Galles (Forbes, 12/8/17)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell


2) Taxoholic Personality Disorder

The new federal tax law is certain to generate much discussion for years to come. Among other provisions, it reduces the state and local tax (SALT) deductions that taxpayers can claim to $10,000, not particularly high for many parts of California and New York. Fortunately, for many this won’t present a problem since it will make more sense to take the high standard deduction than to itemize. As for those stuck facing a higher tax liability, however, at least there is the long-term hope that the SALT deduction cap will spur the lowering of state income taxes and property taxes. State lawmakers may have other ideas, however.

In fact, some lawmakers are already proposing workarounds, as Independent Institute Policy Fellow K. Lloyd Billingsley explains at MyGovCost News & Blog. “State Senate boss Kevin de Leon has responded with the Protect California Taxpayers Act, which will allow Californians to pay their state income taxes as though they were a charitable donation, and therefore fully deductible,” writes Billingsley. Its passage may be a Faustian bargain, locking in high state and local taxes for the long haul.

Why think about cutting taxes when that would require spending cuts? Such thoughts are the rationalizations of the tax and spender. “This affliction is known as taxoholism,” Billingsley continues, “the mindset that high taxes are always a good thing and which automatically resists tax reductions of any kind at any level.” Tax-and-spending politicians such as Kevin de Leon and California Gov. Jerry Brown “should understand that taxoholics represent the government, not the people,” Billingsley concludes.

Taxoholism, by K. Lloyd Billingsley (MyGovCost News & Blog, 1/5/18)

Love Gov: From First Date to Mandate


3) Gas Tax Rationale Running on Empty

If you want to make money off gasoline in California, don’t start a gas station—collect the gas tax instead. Since Nov. 1, when state gas taxes went up 12 cents per gallon, the tax man (who works for both Sacramento and the feds) has collected approximately 30 cents for every penny of gross profit earned at the gas pump. In July of 2019, Californians are slated to start paying state and federal gas taxes totaling 65.7 cents per gallon, according to Independent Institute Senior Fellow William F. Shughart II.

The tax revenues are supposed to be user fees, but that’s increasingly a misnomer: Electric vehicles use the roads but don’t pay gas taxes. Moreover, the fund set up to collect the revenues is supposed to pay for highway maintenance, but it has often been raided for non-transportation purposes. Californians should be up in arms, which is why in June 2018 voters will face a ballot measure that would prohibit lawmakers from using such bait-and-switch tactics.

As Shughart and co-author Kristian Fors write in the Orange County Register, “Although truthfulness is not something we expect of politicians, Sacramento ought to admit that the recent state gas-tax increase is just a convenient and nontransparent way of raising more revenue to feed a chronic overspending habit.”

Paying More at the Pump Will Not Fix California’s Roads if Politicians Keep Raiding the Gas-Tax Fund, by William F. Shughart II and Kristian Fors (Orange County Register, 1/3/18)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II


4) Iran Rising?

Iran’s protest movement has a new twist: President Hassan Rouhani has just given moral support to the young demonstrators. Whether or not he will actively try to resolve their economic and political complaints, his statement is a bold move, given that it risks upsetting the nation’s Islamic leadership. As for the protestors, their complaints have been long in the making, according to Independent Institute Research Fellow Randall Holcombe, who spoke with many Iranian students at the public-choice summer conferences he taught in the Republic of Georgia from 2011 to 2016.

“The Iranians I talked with did not like the oppressive social policies in Iran, nor the heavy hand the Iranian government was playing in the economy,” Holcombe writes in The Beacon. Those students, he adds, generally favored incremental change because they feared rapid change would be met with harsh crackdowns and a loss of freedom.

“Now, they are rising up again,” he continues, “and the silent undercurrent of dissatisfaction has the potential to erupt and create major change.” Whether or not the dissent succeeds in fostering more liberty or will be quashed as it was in 2009, Iran will continue to be a hotspot to watch in 2018.

Iranian Unrest, by Randall Holcombe (The Beacon, 1/3/18)


5) Independent Updates

The Beacon: New Blog Posts

MyGovCost: New Blog Posts


  • Catalyst
  • Beyond Homeless