Today, the Hoover Institution presents a research-backed guide to California’s Proposition 40 Billionaire Tax Act; Ziyi “Emily” Wang warns that the Trump administration’s “transactional” approach to diplomacy carries real risks for long-term American interests; and William Damon explores how the civic virtues and habits of Benjamin Franklin offer a fine example to young Americans today.
California Decides
The first installment of Hoover’s Proposition Lab breaks down the key facts, questions, and trade-offs up for consideration by California voters this November. If approved, Proposition 40 would impose a one-time tax of 5 percent on the total net worth of any California resident worth $1 billion or more. The central question of this measure, per this overview, is not whether billionaires can afford it; it is whether the state comes out ahead. In the best case, ignoring every offsetting loss, the tax collects about $40 billion over five years, not the $100 billion the campaign advertises, according to research from the Hoover Institution. While proponents claim the tax is needed to backfill reduced federal funding for California’s Medi-Cal program, this analysis notes that nearly one-third of the taxable wealth has already left the state before this tax can take effect. An open question for Californians to consider is, if revenue falls as short as estimates suggests, what fills the Medi-Cal gap when the fund created by this tax runs dry? Read more here.
History and Diplomacy
“By NATO’s own rhetoric,” writes Research Fellow Ziyi “Emily” Wang for Engelsberg Ideas, “instead of commitments and principles, the international order now appears to rest on explicit demands for a quid pro quo.” But “history warns that such transactional diplomacy, while alluring, can also be a trap for those who pursue it,” Wang argues. At the recent Ankara summit, she says, “NATO member countries fought an uphill battle to convince the US president – who attributed his attendance solely to his personal rapport with the Turkish president – that defending Europe was still a lucrative bargain.” While this approach seems to have worked, Wang cautions that the summit “may lead to several unintended consequences for the United States,” including Europe directing more of its defense spending toward building up its own defense-industrial base rather than relying on US manufacturers and capabilities. “The enduring lesson of history warns that when short-term, calculated interests replace shared values in a world order,” she concludes, “Faustian pacts may buy brief respites and delay doomsday – but its arrival will only be more incalculable and ruinous.” Read more here.
Freedom Frequency
Benjamin Franklin was a genius of the sort recognized and honored by Americans all throughout history, writes William Damon for the Founders & Fellows series. As the influential psychologist explains, Franklin brought insight, innovation, and wit to everything from letters to diplomacy to scientific discovery. Among other inspirations, the onetime runaway apprentice founded a weekly friendship club aimed at the “mutual improvement” of the ambitious young Philadelphians who would lead the future United States. This experiment in networking became the model for numerous voluntary associations over the years, Damon notes, and Franklin’s social skills were later used to great effect in diplomacy. Franklin’s defense of civic virtues remains a compass for young Americans, says Damon, whose own work focuses on the realization of purpose in life. Read more here.
No one ever casts the deciding vote for a financial crisis, argues Senior Fellow Ross Levine at Freedom Frequency. Rather, he says, a crisis is often just the sum of numerous reasonable-sounding decisions. When explicit or implicit government backstops induce excessive risk-taking, the nation ends up with a riskier financial system and a slower-growing economy—a bad, bad deal, according to the economist. Levine writes that there are only two brakes on excessive risk-taking: private market discipline and public oversight, and the United States is weakening both. The next crisis will not be fueled by the bailout that happens, but rather by the bailout people expect—and a printed disclaimer can’t undo a track record of rescues, Levine argues. For every financial policy, existing or proposed, Levine suggests a threshold question: Does it increase or decrease the incentive of the people inside financial institutions to take excessive risk? Read more here.
Innovation, Regulation, and Congress
On August 13, Chairman David Schweikert of the US Congress Joint Economic Committee hosted a roundtable at Hoover on “Lowering Barriers to Innovate: Regulatory Sandboxes and the Federal Government’s Role.” The convening brought together venture capitalists, healthcare policy experts, and Hoover fellows to discuss how Congress can develop new ways to allow inventors, startups, and established firms to test new products and processes without getting buried in red tape. Joining the discussion were Hoover fellows Patrick A. McLaughlin, who specializes in evaluating the cost to economic growth posed by regulatory burden across all levels of government, and Allison Okamura, who develops human centered robots capable of completing dexterous, delicate tasks. Read more here.
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