A couple weeks ago at Larison’s, commenter Heptaster wrote “The world would be better off without German unification. Better yet, Germany ought to have been the nation that was broken up in the 1990s. The Germany of many small principalities, after all, contributed something of genuine value to human culture”. Not something you’ll hear a lot of people say, but it actually makes sense to me. A couple days ago I was looking up Paul Berman, and went from there to the Anti-Germans article (I always laugh at the idea of country X having a political movement movement explicitly calling itself anti-X). I disagree with lots of their positions, but their opposition to German unification puts us in unusual agreement. East Germany seems poorly integrated (on the plus side, will probably serve as a lesson to South Korea), and unified Germany is a driving force (along with France) behind the damnable European Union. Germany managed a customs union without political unity (which Goethe preferred), and while we think unified Germany natural today Stirner found the idea ridiculous as a union of beehives. Counterfactual history is hard, especially about the past, but it seems that if Germany had never unified the 20th century would have avoided a lot of trouble (not that I’m blaming them for WW1, I just think it wouldn’t have amounted to much without unification). In Italy there is more public sentiment of regret over Garibaldi “dividing Africa”, German’s don’t have the gumption nowadays to push for secession rather than muddling through with unity.
April 27, 2011
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April 28, 2011 at 6:52 am
The problem with discussions of unity and independence is that it tends to create “all or nothing” intellectually extreme positions regarding sovereignty in the imagination, and that leads one to overlook the various possible permutations of federal arrangements.
The better question would be the determination of the most beneficial grouping of peoples and allocation of the sovereign powers and functions between entities having exclusive jurisdiction over those people.
The same analysis applies to monetary unions in the form of “Optimal Currency Areas”. What we should seek are external “Optimal National Areas” combined with internal “Optimal Sovereignty Allocations”.
April 28, 2011 at 2:30 pm
What is the optimal size of a political unity ?
That is a very valid question indeed. I am a german myself and have some sympathy for secession. I think the german unity in the 18xx was necessary at the time because France was a very strongly centralized state with strong aspirations. Also the 30-years war showed the dangers of mini-nations with large neighbours.
These arguments for larger states have still some validity but on the whole I think that smaller nations are better for personal liberty and freedom.
I think the EU is a very bad move. That germany drives this process is part of a major post-war neurosis and is also enforced by its friends and allies.
What would happen if germany would leave the EU ? You would see the revitalization of the WWII coalition in a very short time
April 28, 2011 at 6:24 pm
“What would happen if germany would leave the EU ? You would see the revitalization of the WWII coalition in a very short time”
The Rome-Berlin-Tokyo Axis?
April 28, 2011 at 9:18 pm
You sound a lot like Hopefully Anonymous. Glad to have you commenting.
I don’t know what you mean by “optimal national area” as opposed to “national sovereignty area”, but my implicit optimum is the city-state. It seems like the most natural political unit (indeed the word “polis” meant city in Greek). I think states got bigger for military reasons (as discussed by Azar Gat), but don’t think larger states are much better for the inhabitants. Today war is less profitable and nationalism less of a motivating force, so I can see a return to city states. Small states in Europe like Luxembourg, Belgium, Monaco etc seem to do pretty good these days.
April 28, 2011 at 11:17 pm
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You sound a lot like Hopefully Anonymous.
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No, I am not this guy. Great minds think alike ;)
April 29, 2011 at 2:08 am
Sorry, I was referring to Handle. I would be surprised if H.A was German.
April 30, 2011 at 1:46 pm
While my pseudonym indeed begins with “H.A.” I have no relation to Hopefully Anonymous.
I tried thinking of a succinct way of explaining the idea, but I’m afraid it will take some length of words, so for now I’ll just give a brief example.
Where I live there are multiple independent, governmental entities with overlapping, though not at all coterminous territorial jurisdiction over different functions and with different scope of authority and mechanisms of financing – mostly well-tailored to their specific circumstances.
There’s a water district, a school district, fire, municipal, county, state, and federal law enforcement and courts, etc… They all have some measure of real authority over me with a hierarchy to resolve supremacy in disputes.
I don’t conceive of any of these entities as either having or not having sovereignty over me in absolute terms. Instead, I think of all these authorities put together as “sovereignty” over me, which is distributed and allocated among various entities.
You could call it “Multi-Federalism” or something like that, though the appeal to the concept of “subsidiarity” is largely lip service – it’s mostly a matter oh Historical accident, coincidence, inertia, and convenience, but hey, it works ok, more or less.
There is a whole multidimensional space of possibilities of ways to allocate these functions and authorities, and the question is what arrangement is “best” or “optimal” (depending on your metric). I call this “Optimal Sovereignty Allocation”.
There are certain special sovereign power and authorities that tends to bind the population within a territory together as a cohesive society and as against (or at least exclusive of) the rest of the world – it’s a matter of “Social Capital”. Sometimes that sense of cohesion is easier to cultivate and more natural / spontaneous than otherwise given the attitudes and other characteristics of the people within the area. Sometimes that’s a “city”, sometimes only a neighborhood, and sometimes it can span a continent.
Just like with currency, you get economies of scale by being larger (for mutual defense, for example), but it’s also possible to become too large if the people and regions (or their economies) are too disparate. This would be an “Optimal National Area”
I should also emphasize that these “solutions” should be robust (i.e. not unstable) but also flexible and able to change with time and adapt on occasion to changed circumstances as the optimums adjust.
But this is getting long, which is what I sought to avoid, so I’ll leave it at that.
May 1, 2011 at 1:42 pm
So, basically Handle is suggesting an ecology of principalities rather than a monolithic, top-down system of authority.
Am I reading you correctly, H?
April 28, 2011 at 11:19 pm
@icr :
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The Rome-Berlin-Tokyo Axis?
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No, I thought about the other side.
April 29, 2011 at 3:16 pm
An odd comment considering the post he was supposedly responding to, on the German reluctance to get involved in the Libyan war.
The Germany of many small principalities, after all, contributed something of genuine value to human culture.
So did the Britain of the Empire. Is there a point there?
April 29, 2011 at 3:26 pm
Germany ought to have been the nation that was broken up in the 1990s.
He means instead of Yugoslavia. But Yugoslavia was not “broken up”. It was an artificial multi-ethnic and multi-religous state which was held together by force. When the force ended so did the artificial state, which promptly disintegrated into its constituent parts.
May 2, 2011 at 4:54 pm
The nineteenth and twentieth centuries were ages of consolidation and empire. Britain added greatly to its empire, making up for the loss of the United States with the acquisition of India and several African colonies; Russia extended its lands to the Pacific; France colonized Algeria, Mauretania, and other parts of Africa. Germany and Italy first became unified countries where there had only been collections of small principalities or city-states, then joined the French and British in attempting to colonize Africa, with Germany claiming Tanganyika and South-west Africa, Italy trying to take Libya and Abyssinia. Portugal and Holland, too, had empires; probably the only European power to lose most of its empire in the nineteenth century was Spain. Even the United States added to its continental territories, subduing hostile native tribes much as the Russians did, and gained overseas possessions in the Philippines and Puerto Rico.
In the post-WWII era, we have seen these empires largely disintegrate. Britain’s and France’s were the first to go, Holland lost its East Indies, and Portugal’s went at last with the loss of Mozambique and Angola.
The devolution of European nation-states is a logical continuance of this pattern. Sweden of course laid down the white man’s burden as early as 1905 by spinning of Norway, but the fragmentation of the former USSR started it in earnest. Yugoslavia is simply a repetition of the Soviet break-up on a smaller scale. The British empire, which began with the English establishing dominance of its Celtic neighbors, is in its last gasps with the devolution of Scotland and Wales. Belgium, an artificial country to start with, will probably end in partition between Flemings and Walloons. Spain has strong regional separatist movements among the Basques and Catalonians.
Given this, can it be long before Germany and Italy start to exhibit similar tendencies? The north and south of Italy have never got along well, and the rich, industrialized north has its Lega Nord, which would like to be shot of the poor, crime-ridden mezzogiorno. The German states have their political differences as well; not only may the rich west tire of subsidizing the poor east, but there has always been a division between the Protestant north and the Catholic south.
Is a German break-up possible? We might well ask if the U.S., probably never so politically divided in the past century as it is now, might also see stirrings of regional separatism, especially if its economy continues to suffer and the dollar loses its position as the world’s reserve currency. What happens when California goes broke, for example? Will the conservative south and intermountain west cheerfully consent to be taxed to bail it out? It may seen far-fetched to suggest a fragmentation of the U.S., but we have seen the break-up of that other great land empire of the nineteenth century, Russia, within the past 20 years, when its system of government became economically unsustainable.
May 2, 2011 at 9:07 pm
I didn’t think the south/west were net tax payers.
May 3, 2011 at 11:23 am
Whether states in the conservative south and intermouuntain west are now net Federal taxpayers is irrelevant to the question of whether they will cheerfully consent to bail out a bankrupt California. Any such bailout would necessarily change the present burden of taxation on them, and that will be bound to arouse complaint.
Moreover, what makes these states, at present, net beneficiaries of Federal revenue sharing? Largely it is Federally-supported programs that the states’ own taxpayers would decline to support if it were left up to them. These states are net beneficiaries of Federal revenues mostly because they have relatively few taxpayers. Those taxpayers will be even less willing to pay to subsidize California when it goes bankrupt than they now are to pay to support their own states’ welfare beneficiaries.
May 5, 2011 at 7:57 pm
What matters is whether the net-tax-paying states will tolerate it.
May 6, 2011 at 10:51 am
There are a lot of congressional votes (disproportionately so in the Senate) and a lot of electoral votes in the south and intermountain west. The decision on whether to bail out California will depend on their votes as much as on those of other states.
Total federal taxes paid by the residents of a state vis-a-vis federal subsidies received by that state will have less to do with how its Congressional delegation votes or who carries it in a presidential election than does the prevailing political sentiment there. The south and west tend to elect economic and social conservatives, even though they are net beneficiaries of Federal spending. I do not see how you deduce the political sentiments of a state from whether it is a net taxpayer or net beneficiary. There appears to be no obvious correlation.
Also, does the calculation of net tax-paying status take into account the benefits that states indirectly receive by virtue of the deductibility of state income taxes from Federally taxable corporate and personal income? If, as currently fashionable left-wing reasoning implies, any deduction or tax credit amounts to a “tax expenditure,” surely states with income taxes must rank as beneficiaries of such an expenditure. Thus, for example, New York, which has a high state income tax, supplemented by a city income tax in New York City, benefits by this tax expenditure in a way that Florida, Tennessee, or Texas, which have no income taxes, do not.
Taking the deduction for state income taxes into account as a Federal tax expenditure must surely alter the determination of which states are net Federal taxpayers.
May 7, 2011 at 8:37 am
A further tax subsidy that states receive from the Federal government is the tax-free status of their municipal bonds. Because the interest on municipal bonds is not subject to Federal income tax, the issuing municipalities are able to borrow at lower rates than they could if the interest were taxable. The subsidy they receive is the difference between the rate of interest they pay, and the rate of interest paid by comparably rated borrowers whose securities are not tax-free.
Do you know if the Federal tax subsidy received by states on their municipal bonds is taken into account when determining which states are net Federal taxpayers? Like the deductibility of state income taxes from Federally taxable income, it represents serious money, and could well alter the determination..
May 8, 2011 at 6:33 pm
The net-tax paying states will be the ones bailing out California. Their role is similar to Germany in the E.U. If they insist on bailing out California, it will be bailed out.
I’m sure ALL tax deductions are taken into account when determining which states are net tax payers. A tax deduction means you pay less taxes, and that will be reflected in the flow of revenue. We don’t need to calculate what people OUGHT to pay under some theoretically simpler tax regime in which such deductions didn’t exist, we just look at how much they are sending to the feds and how much the feds send to them.
May 8, 2011 at 10:47 pm
It is not the net taxpaying states – whichever they in fact may be – that will decide whether or not to bail out California. It will be the votes of Congressmen and Senators, and that will follow party lines. Conservatives will vote against it, regardless of the net tax paying or recipient status of their states. Liberals will mostly vote for it, since they never believe imprudence should bear adverse consequences.
The deduction of state income tax payments from Federal taxes is only one half of the transaction. The question is not about taxes paid but about benefits received. The amount deducted from Federal taxes due by a state’s taxpayers for taxes paid the state needs to be counted as a Federal subsidy to the state. My question is whether it is – I rather doubt so. States which have income taxes have strenuously objected to proposals that would eliminate their deductibility from Federal taxes paid by their residents. They are fully aware of the benefit of this tax subsidy.
May 9, 2011 at 11:53 pm
Arguably, the only conservative in the House is Ron Paul. Reasoning from conservatism to predict the actions of Congress is a fool’s game.
I don’t think you’re stupid, but I don’t understand what you don’t understand about net tax paying status. It’s not complicated. Add up all the checks going from the states to the feds. Subtract all the checks going from the feds to the states. Any deduction will either mean less of the former or more of the latter. I’m not in favor of the deductions either but you are wasting your breath.
May 10, 2011 at 12:12 pm
I understand perfectly well the calculation you are proposing for net taxpaying status. What I am saying is that it is wrong if it does not include as a federal subsidy to the states, not only what is directly paid to them by the feds, but what they indirectly benefit by in the way of tax subsidies such as the deductibility of state taxes from federally taxable income, and the tax exemption on muni bond interest.
Let’s say, for example, that muni bonds pay a 3% coupon at current market rates. Because that is non-taxable, its effective yield to a top-bracket federal taxpayer is equal to approximately 4.172%. Thus, the state benefits from the tax exemption by 117.2 basis points, which is not an inconsiderable sum when applied to the indebtedness of a state the size of New York. Failing to take that subsidy into account simply because it is indirect, rather than being a direct payment like a block grant, skews the calculation of which states are net federal tax payers.
A similar reasoning applies to the deductibility of state income taxes. If, for example, one is a Florida resident, 100% of one’s income is taxable by the federal government. If, on the other hand, he lives in my state, he’ll pay a state income tax of up to 8%.
Supposing we have a taxpayer with an AGI of $200,000 after all deductions other than state income tax. In Florida, he’d pay Federal income tax in the 33% bracket, which applies to all of his income above $174,400 in 2011. In my state, this taxpayer would owe $14,797 in state income taxes. That would reduce his taxable income to $185,203. That reduction amounts to $4,883 in lost revenue to the IRS. The only proper way to view this is as a subsidy from the federal to the state government.
These are simple exercises in double-entry bookkeeping. Any debit to one account must be offset by a credit to another.
May 10, 2011 at 11:54 pm
Muni bonds can be bought by people outside of a state, so you’re right that could complicate things, I haven’t given it much thought. But your point about the state income tax deduction is ALREADY ACCOUNED FOR, it doesn’t work any differently from any other deduction and your examples are a waste of time. I am getting quite frustrated. Why do you hold it apart from other deductions?
May 11, 2011 at 1:10 pm
Deductions are not created just to benefit the taxpayer who receives them. They are uses of the tax code to manipulate taxpayer behavior in such a way that some interest other than the taxpayer’s is served. If, for example, state income taxes were not deductible from Federally taxable income, it would increase pressure on states to lower their taxes. The rate of taxpayer flight from high-tax states to low- or no-tax states (which is already well underway in the case of California) would increase significantly.
You are not accounting for the benefit received by the interests served by these tax deductions, credits, and exemptions in calculating the net tax-paying or non tax-paying status of a state.
To return to the muni bond example – the purpose of the tax exemption on muni bond interest is, of course, not to deliver tax-free income to high-bracket taxpayers, but to help states and other subordinate units of government borrow money at lower than market rates of interest. A tax-free bond’s interest rate is effectively discounted from the rate that would be paid on a taxable bond of comparable credit rating and term, by the applicable top marginal Federal tax percentage.
You have, perhaps, read of a new type of municipal obligation called Buy America Bonds. A Buy America Bond, unlike a conventional tax-free bond, pays taxable interest. The rate is, thus, higher than what would be paid on a conventional tax-free municipal bond. However, the Federal government pays 35% of the interest, and the state pays the other 65%.
Under your calculation, the amount of money the Federal government pays in interest on a state’s Buy America Bonds is counted in determining that state’s net tax-paying status, since it is a direct Federal subsidy. However, your calculation does not count the indirect subsidy a state receives by issuing conventional tax-free muni bonds at an interest rate discounted from market rates paid on comparable taxable obligations – even though the state benefits just as much by that tax subsidy. It is not “ALREADY ACCOUNTED FOR.”
It matters not whether the holders of the bonds live in or outside the state that issued them – the benefit received by the issuing state, in either case, comes at the expense of the United States Treasury.
Just now I am looking at line 8b of my Form 1040 for 2010, and find that I reported (but paid no tax on) $101,259 in tax-exempt interest. As a top-bracket taxpayer, In order for me to have netted a comparable amount, I’d have had to get $155,783 in taxable interest from some vehicle like Buy America Bonds. There is a difference here of $54,524, and to the benefit of whom or what? The only conceivable beneficiaries are the states or municipalities that issued my bonds.
I am not a particularly big bond investor. I’d hazard a guess that in these United States there are probably several million taxpayers who receive equal or greater amounts of tax-free income, all of which comes from entities indirectly subsidized by the Federal government. Not to consider that kind of money a subsidy, when determining the difference between Federal subsidies received by a state, and Federal taxes paid by its residents, is a serious error.