Today, the Editorial Board of The Wall Street Journal amplifies the research of Hoover scholars Benjamin Jaros and Joshua Rauh on California’s Proposition 40 wealth tax; John Cochrane lays out foundational principles for designing and evaluating tax systems; and Niall Ferguson recalls the horrors of the Western Front in WWI, as well as how that conflict inspired Herbert Hoover to found the Hoover Institution to study war, revolution, and peace.
Economic Policy
“The history of wealth taxes is that they raise much less revenue than hoped as targeted taxpayers find ways to avoid them,” argues the Editorial Board of The Wall Street Journal. “That looks to be the case with California’s wealth tax ballot measure (Proposition 40), which a new paper by the Hoover Institution’s Joshua Rauh and Benjamin Jaros estimates will result in a net revenue loss of $38.9 billion.” The editorial, framed around research from these Hoover scholars, goes on to note that hundreds of billions of dollars in capital have already been removed from the Golden State by billionaires seeking to avoid the wealth tax. As these former residents will both (likely) avoid the wealth tax and no longer pay ordinary state income taxes, Rauh and Jaros find that the passage of Prop 40 could lead to “a revenue loss of $38.9 billion to the state.” Read more here. [Subscription required.]
Freedom Frequency
In this essay for Freedom Frequency, Senior Fellow John Cochrane argues that reforming the nation’s fiscal mess means first paying attention to incentives. Few policymakers think about the tax system as a whole, Cochrane writes. Instead, they tend to focus on who gains and who loses under given proposals. So, the economist asks: How do we raise the most revenue with the least economic damage? In Cochrane’s view, the US tax code fails to recognize that when you lower the marginal rate and broaden the base, tax revenue increases. The tax code overflows with complex deductions and special deals, and thus wealth management is organized around tax avoidance. Meanwhile, people believe the wealthy get unfair breaks. Cochrane writes that efforts to merely reform the income tax collide with the constituencies fighting to keep their advantages. His answer is to end the income tax, establish a consumption tax—one rate for everything, and everyone—and scrap all other taxes, to achieve a simple, fair system. Read more here.
Revitalizing History
In this new short Reflections video, Senior Fellow Niall Ferguson examines the devastating human toll of World War I through the Hoover Institution Library & Archives’ extensive collection of photographs and historical records. Ferguson recounts the horrors of trench warfare on the Western Front, in particular the staggering casualties of the Battle of the Somme, and the experiences of his own grandfather, who survived a German gas attack. Recalling Wilfred Owen’s phrase “the pity of war,” which inspired the title of Ferguson’s 1998 book on World War I, Ferguson reflects on the conflict’s human legacy. He also traces the Hoover Institution’s origins to Herbert Hoover’s wartime relief efforts and his determination to preserve the historical record of war, revolution, and peace for future generations. Watch or listen here.
Confronting and Competing with China
In a new episode of China Considered, Senior Fellow Elizabeth Economy speaks with Bonnie Glaser, managing director of the Indo-Pacific Program at the German Marshall Fund of the United States, to assess why tension in the Taiwan Strait is markedly higher than it was a decade ago. Glaser lays out Xi Jinping’s strategy for making progress toward unification without firing a shot—military pressure, psychological warfare, efforts to divide Taiwan politically, and legal and diplomatic moves that erode its sovereignty—and explains why sweeping purges of the PLA and the steep costs of an invasion weigh against the use of force. The two discuss how the Chinese public views a war over Taiwan, the progress and gaps in Taiwan’s defense reforms and civilian resilience, and why Beijing’s interest in semiconductor chip foundry TSMC is not what drives its decisions. Glaser also reflects on why her research has drawn fire from both sides of the Strait, then assesses the second Trump administration’s approach to Taiwan and US allies and what depleted US munitions stockpiles mean for deterrence. Watch or listen here.
California Politics & Policy
President Trump’s name and notoriety loom large over the closing ballot arguments for California’s upcoming election, writes Distinguished Policy Fellow Bill Whalen for California on Your Mind. Whalen points out that Trump is repeatedly invoked in campaign pitches for multiple ballot propositions and, of course, in the race for governor. He also says that whatever connection might be made between diminished federal support and higher costs for health care and other necessities, one of California’s current ballot measures—Proposition 3—derives from a fiscal issue that long predates the current president. Prop. 3 would extend—permanently—an originally “temporary” tax increase that dates back more than a decade. In the years since, California’s population grew only modestly while the state’s budget ballooned almost 150 percent. Whalen concludes that, regardless of how they feel about national politics, astute voters in California may begin to consider whether the state’s rosy financial expectations accurately reflect reality. Read more here.
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