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The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The Heritage Foundation, respectively. |
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The Market Center Blog |
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Observations and insights on the global fight |
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CF&P's Market Center Blog Archives |
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Tuesday, November 30, 2004 ~ 8:56 p.m., Dan Mitchell Wrote: A federal government agency set up to crack down on money laundering and terrorist financing is of little use to law enforcement agencies... Canada is a haven for money
launderers and there are more active terrorist groups operating in the country than anywhere else in the world, a securities industry conference was told this year. The federal government estimates $17-billion
worth of criminal proceeds are laundered through Canada every year. ...Peter Lamey, a Fintrac spokesman, said the agency believes it is effective but welcomes the recommendations in the report. "We receive
millions of transaction [reports] and how we use that information, and how we share that information, is subject to a balance that is struck by the law."
Tuesday, November 30, 2004 ~ 9:15 a.m., Dan Mitchell Wrote: Business leaders say Switzerland must react rapidly to the growing phenomenon of cross-border "tax competition" or risk being left behind.
...Co-author Pascal Gentinetta said the study showed that international taxation - particularly corporate taxes - had become an "extremely
dynamic, fast-changing field" and that Switzerland could no longer afford to simply defend existing advantages. ..."As a result, the
comparative advantages that Switzerland has traditionally enjoyed are tending to diminish, particularly compared with the dynamic eastern European countries, not to mention Austria and Ireland. ...The study,
"Competition and Dynamism in Tax Policy - an international comparison of major reforms and their lessons for Switzerland", provides a systematic overview of significant trends and reform
programmes in the field of international taxation. ...The study says government spending has increased more rapidly than in any other OECD country, and no effort must be spared to reduce this as a
percentage of gross domestic product. ...The report concludes that Switzerland's "lead" in the area of company taxes has shrunk in recent
years. Tax rates send a "clear signal" to investors, so Switzerland should act to cut these taxes further.
Tuesday, November 30, 2004 ~ 8:56 a.m., Andrew Quinlan Wrote: Our low and simple taxes and our free port have made us the envy of the world. Visitors are amazed and envious of our energy and
entrepreneurship that results from that. With one budget, however, all that could change. There is an increasing trend towards "normalizing"
Hong Kong, making it more like other places. If Singapore has a VAT, why don't we? If the U.S. has a capital gains tax, why don't we? If Sweden has a green tax, why don't we? It does sound a bit like what my
mother used to say when I was a child and wanted to follow my friends into some stupidity -- "If everyone else jumped off the Tsing Ma Bridge,
would you jump off too?" ...Hong Kong has been able to meet challenges, and then some, especially because it is a low-tax place. With no natural resources beyond a hole in the water (a deep port), no
industrial hinterland for decades, and a bare bones social welfare system, the city nonetheless became the largest per capital generator of
wealth in Asia, far outstripping our South East Asian rivals. The reason was simple, the people of Hong Kong worked hard, and they did so also
for another simple reason, they were allowed to keep what they earned. The taxman did not watch their every move, record every transaction, and regulate every contract and relationship. Hong Kong's greatest
generation worked for goals that were untainted by the fear that what they worked for would be taken away. ...This seems strange from a government that pays for civil servants to send their children to study
abroad and take luxury cruises on retirement. If we give away free and discounted land for residential developments under the guise of spurring
technology development, setting up in Hong Kong, then the government will have to make it up by adding a tax to everything bought by you. Simplicity, long a hallmark of Hong Kong's taxation, will become a thing
of the past. The proposed GST will, according to revelations last week by Mr. Tang, include concessions for some taxpayers, rebates for tourists, and allowances for a variety of items. The resulting web of tax
credits, subsidies, exemptions and special cases will increase the administrative burden on tourists, business owners, and the average taxpayer immensely.
Tuesday, November 30, 2004 ~ 8:30 a.m., Dan Mitchell Wrote: Following hints last week from Italy's Prime Minister Silvio Berlusconi that he would resign unless taxes were cut, his governmental allies have
finally agreed to measures which will reduce taxes by around EUR6.5 billion next year. Under the planned tax package, Italy's five tier personal income tax system will be reduced to four brackets at 23%,
33%, 39% and 43%, meaning an effective 2% cut in the top rate of tax, which will kick in on incomes above EUR100,000 per year. While the EUR6 billion cut in income taxes and EUR500 million for corporations represents only 0.5% of Italy's GDP -- hardly a seismic shift
in fiscal policy -- it is a stunning shift in that nation's political winds. Such a reversal would not have been possible had Mr. Berlusconi not
been willing to expend political capital. In winning his re-election earlier this month, U.S. President George W. Bush proved that voters will
reward a politician who presents a bold agenda and the resolve to follow through. Mr. Berlusconi needed this victory to boost his chances of winning again in 2006. Italians have borne too heavy a tax burden for
too long and would no doubt have had little patience with a politician who reneged on promises to ease their load. ...The prime minister should
now push for larger cuts in 2006. His original plan to cut income taxes by EUR9 billion in 2006 is the next logical step and would stand a better chance at stimulating the growth he seeks. That would be true
particularly if the cuts are designed to lower the burdens on production and investment and free up entrepreneurs. ...More importantly, the cuts
were offset partly by spending reductions -- particularly in Italy's notoriously bloated public employment rolls. Mr. Berlusconi pledged to
cut 75,000 jobs through attrition over the next two years, hiring just one worker for every five who retire. Call us crazy, but if one person can do
the work that five now perform, the government might be able to do without even more of its 4.5 million civil servants.
Tuesday, November 30, 2004 ~ 7:43 a.m., Dan Mitchell Wrote: Last week, Utah federal Judge Paul G. Cassell handed a 22-year sentence to a man who beat an elderly woman to death with a log. A few
hours later, Judge Cassell sentenced a 25-year-old first-time drug offender to 55 years. If you think Judge Cassell liked sentencing a small-change drug dealer to more time than a violent killer, guess again.
The judge had no choice. Federal law demanded the sentence, despite Judge Cassell's pointed questioning if there was a "rational basis" for
sentencing Weldon H. Angelos, the father of two young children, to more time than he could sentence a hijacker, murder or rapist. ...Judge Cassell
was right to impose the draconian sentence. If he ignored federal law, he would place himself above it. Instead, Judge Cassell sentenced Angelos
as the law directed, even as he righteously hectored Congress to rewrite federal drug laws so first-time offenders don't serve more time than dangerous career criminals. The judge also urged Angelos' attorney,
Jerome H. Mooney, to appeal the sentence and, if appeals fail, seek a presidential commutation.
Monday, November 29, 2004 ~ 11:00 a.m., Dan Mitchell Wrote: Liberals see themselves as self appointed Robin Hoods, but they are seen by red-county Americans as taking from the productive and giving to the
indolent. They look down on average Americans as misguided and too dumb to know what is good for them and their families. Since such people are unlikely to make the right decisions, a wise government must
do it for them. And of course the bigger the government, the better. An equally serious friend on the other side of the political spectrum says the
acrimony of the past four years may have been intensified by social issues, but it is the economic issues that are determining the outcome of
elections. He believes the liberal left may actually be winning on the social issues--that gay rights and stem-cell research, for example, are
trending in their direction--but that liberals have suffered a wholesale rout on their economic beliefs. They were wrong about communism (it
was an economic failure), wrong about socialism (it didn't work either), wrong about the welfare state, wrong about high taxes and government regulation of economic matters.
Monday, November 29, 2004 ~ 10:35 a.m., Dan Mitchell Wrote: Democrats discovered a provision that would have given Members of Congress access to individual tax returns. The intention was apparently
to let Congress inspect IRS performance, but the language was so sloppy that it would have allowed the intrusion into taxpayer privacy. Republicans tried to remove the language by voice vote with few
Members in attendance last week, but Democrats unsurprisingly demanded a recorded vote to extend the GOP's political embarrassment. This is what happens when no one but a few staffers really knows what
is in a bill that is 3,646 pages and more than a foot high. We remember, circa 1994, when Republicans denounced Democrats for not reading the
bills that they passed. Now the GOP is guilty of the same practice, which is a recipe for all sorts of secret pork and mayhem getting into law. ...Democrats have also learned to skewer Republicans for their
individual "earmarks," which by one account total 18,000 this year and add up to $22 billion. These pork-barrel classics -- e.g., $1 million for a
"Wild American Shrimp Initiative" -- obscure the larger truth that this year's spending bill is actually the first in years to show some restraint.
Domestic non-defense discretionary spending will rise by less than 2% in Fiscal Year 2005. But what many voters will remember instead is that Republican incumbents are as spendthrift as Democratic incumbents.
...With control of the House, Senate and White House, Republicans are now going to be held accountable for Congress's decisions. If they talk
like conservatives but spend like Democrats, voters may decide to elect the real thing.
Monday, November 29, 2004 ~ 9:15 a.m., Andrew Quinlan Wrote: Years ago, when friends or relatives would visit and marvel at our clean, state-of-the-art subway system, I'd quip, "Enjoy it; you paid for it."
Federal taxpayers were responsible for more than two-thirds, $6.4 billion, of the $9.4 billion cost of building Metro. ...Users pay only about
half of the annual cost of running Metro, much less the billions to build it. Without making a profit, Metro is hardly in a position to fix its
crumbling infrastructure or expand its failing operation. In fact, since every customer represents a loss in revenue, it fears what most businesses desire: more customers. ...In the private sector - which,
incidentally, has made America the world's biggest economic power - profits are the bottom line, creating a system where products and services are produced and sold by enterprises that survive or die on
profit, and thus a system whereby costs are contained and customers satisfied by that wonderful, almost magical force, known as self-interest.
...If there were a profit motive alive at Metro, it would not have taken four years to investigate its parking employees' million-dollars-per-year
thieving habits. A profit motive would cause managers to suggest selling customers food - at a profit - rather than arresting them for eating. It
would suggest they fire station managers who threatened customers. An enterprise that was making a profit would see an advantage in keeping equipment working and saving capital to make expansion possible.
Monday, November 29, 2004 ~ 8:50 a.m., Dan Mitchell Wrote: ...the authors properly distinguish between $33 of costs incurred by each smoker, which can be averted by not smoking, and around $7 of costs
imposed by smokers on others, which economists call "externalities." This distinction is crucial: With respect to the $33 component, decisions
about smoking are voluntary, private matters. We do not need government making those decisions for us. Externalized costs are different. Consider secondhand smoke. Some nonsmokers have illnesses
- like asthma or bronchitis - that are exacerbated by secondhand smoke. Still, those nonsmokers have an obvious remedy: Do not hang around places where smokers light up. On private property, the owner should
determine whether to admit smokers, nonsmokers, neither or both. Persons who object may go elsewhere. ...The same is true for Mr. Sloan's
other "social" costs, totaling $1.44 per pack. Basically, smokers can impose social costs upon nonsmokers because the government has decided, first, to insure the health costs of low-income and elderly
persons and, second, to fund the insurance in a manner that does not distinguish between high-risk smokers and lower-risk nonsmokers. If insurance premiums fully reflected the health risk implicit in each
policyholder's smoking habits, there would be no costs transferred from smokers as a group to nonsmokers as a group. ...It may sound ghoulish, but premature deaths from smoking can generate long-term external
benefits of lower retirement and nursing home costs. Those benefits (less any payroll taxes otherwise paid by deceased or disabled smokers) are
an offset to near-term medical outlays. "If anything," concludes Mr. Sloan, "Medicare should compensate smokers and tobacco companies, not the reverse."
Sunday, November 28, 2004 ~ 12:36 p.m., Dan Mitchell Wrote: It was a desire to play a part in the American election -- and thus world events -- that led editors from G2, the daily features section of London's
left-leaning Guardian newspaper, to mount an actual bid to influence the results. Dreamed up in a London pub, the prank was the work of people who claim that a Bushless world would be a better world. Rather than
launching their views into the ether and praying, the editors invited readers to send handwritten pro-Kerry pleas to 14,000 residents registered as independents in a single county in one swing state: Clark
County, Ohio. Reminding letter-writers that the United States' own Declaration of Independence speaks of paying "a decent respect to the
opinions of mankind," the stunt mixed tongue-in-cheek trouble-making with save-the-world sanctimoniousness. Thousands apparently followed though, though the jape appears to have backfired spectacularly: In
2000, Democratic hopeful Al Gore won Clark Country by 324 votes; this year, Bush won by more than 1,500 votes -- and outraged Americans deluged the newspaper with e-mails telling the Old World letter-writers
to please be so kind as to mind their own borders.
Sunday, November 28, 2004 ~ 12:00 p.m., Dan Mitchell Wrote: One study of 1,000 professors finds that Democrats outnumber Republicans at least seven to one in the humanities and social sciences.
That imbalance, more than double what it was three decades ago, is intensifying because younger professors are more uniformly liberal than the older cohort that is retiring. ...The nonpartisan Center for
Responsive Politics reports that in 2004, of the top five institutions in terms of employee per capita contributions to presidential candidates,
the ...top two were the University of California system and Harvard, both of which gave about 19 times more money to John Kerry than to George W. Bush. ...A filtering process, from graduate school admissions
through tenure decisions, tends to exclude conservatives from what Mark Bauerlein calls academia's "sheltered habitat." ...Academics such
as the next secretary of state still decorate Washington, but academia is less listened to than it was. It has marginalized itself, partly by political
shrillness and silliness that have something to do with the parochialism produced by what George Orwell called "smelly little orthodoxies."
Many campuses are intellectual versions of one-party nations -- except such nations usually have the merit, such as it is, of candor about their ideological monopolies. In contrast, American campuses have more
insistently proclaimed their commitment to diversity as they have become more intellectually monochrome.
Sunday, November 28, 2004 ~ 11:54 a.m., Dan Mitchell Wrote: Australia has one of the highest incidences of bracket creep and 'fiscal stealth' among member nations of the OECD, a University of Melbourne
economics professor has concluded. Presenting the results of his findings at the recent World Taxpayers and Taxpayers Australia Conference, Professor Neville Norman explained that taxpayers mistakenly believe
that they are victims of bracket creep only when pay rises push them into higher tax brackets, when in reality they are being adversely affected by
the process of fiscal stealth much more frequently. ...Endorsing the findings of Norman's report, Peter McDonald, National Director of Taxpayers Australia, commented that: "The elimination of the damaging
effects of 'creep' are long overdue and the Government has a responsibility to be honest and truthful with taxpayers. Raising taxes through deceptive means does not fit that responsibility." McDonald is
calling on the government to reduce the top rate of personal income tax to 30% in line with corporate tax, thereby encouraging taxpayers to
work longer, and making the tax system simpler and fairer. "By giving taxpayers a greater incentive to earn and retain more of what they earn
the anticipated problems of an ageing population will be eliminated," he noted.
Sunday, November 28, 2004 ~ 9:39 a.m., Andrew Quinlan Wrote: In an interview with the Irish Independent earlier this week, Ireland's new Minister for Enterprise, Trade and Employment, Mícheál Martin
suggested that a reduction in the Republic's 12.5% corporate tax could not be ruled out in the next few years if the jurisdiction shows any sign
of a decline in competitiveness. "This would not be an immediate issue, although we cannot rule it out in the future," he observed, adding that:
"Our competitors are the developed economies and we can't lose focus on that."
Sunday, November 28, 2004 ~ 9:14 a.m., Dan Mitchell Wrote: Financial Secretary Henry Tang talked up the virtues of a sales tax he's intent on inflicting on the city. He told a Chamber of Commerce crowd
that he believes the 5% surcharge on goods and services will raise between 25 and 30 billion HK dollars ($3.20 billion-$3.85 billion), helping shore up finances. Broadening the tax base, another of Mr.
Tang's stated intentions, is a worthy goal. As he said, only "about 300,000 salary earners shoulder 85% of the burden" of income taxes in
a city of 6.8 million. But it is clear that Mr. Tang intends the sales tax to be a tax hike. When asked whether he planned to lower any taxes, he
protested he might try to find ways to "compensate" the lower- and middle-classes, but was non-committal. "Some of you here would
certainly like me to promise to lower profits tax, abolish estate duty and reduce the duty on wine. I am afraid I will have to disappoint you, at least for today," he said. |
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Saturday, November 27, 2004 ~ 1:12 p.m., Dan Mitchell Wrote: U.N. secretary general Kofi Annan should either resign, if he is honorable, or be removed, if he is not. The mild-mannered Annan may not himself be corrupt. But he has
presided over no less than the largest corruption scandal in the history of the world, Oil for Food. Never has the U.N. been more disrespectable or useless. Moreover, Annan's response to the scandal has been
inadequate to the point of disgrace. That he still holds his post is testament to the culture of impunity that pervades the organization. ... He lacks the drive, and the desire, to tame the beast he inherited.
Annan is a man willingly in thrall to his employer's unaccountable and inefficient bureaucracy, and a servant of its patronage machine. To this end - protecting the U.N.'s comfortable status quo and keeping the
gravy train rolling along - he has hindered efforts to uncover the massive scale of the Oil for Food fraud, a fraud involving his own staff.
Saturday, November 27, 2004 ~ 12:36 p.m., Andrew Quinlan Wrote: Debt means nothing unless you compare it to your income or wealth. How does our national debt today compare to our national income? It is
lower than it was a decade ago, during the Clinton administration, when liberals did not seem nearly as panicked as they seem today. As a percentage of the national income, the national debt today is less than
half of what it was in 1950 and about where it was in 1940 -- back in those "earlier and simpler times." If someone were to produce a political
dictionary, "crisis" would be defined as a desire to pass a law and "national debt" would be defined as a desire to raise taxes. And the two
in combination would mean a desire to discredit the existing administration. ...tax revenues can rise, fall, or stay the same when tax rates are cut. Everything depends on what happens to income. Tax
revenues rose after the Kennedy tax cuts of the 1960s and the Reagan tax cuts of the 1980s because incomes rose. Incomes are likewise rising during the Bush administration today.
Saturday, November 27, 2004 ~ 10:50 a.m., Dan Mitchell Wrote: If an argument could be made that ID cards would be a valuable aid against terrorism, fine. But they're not. An ID card system, to cite but
one case, didn't prevent the Madrid massacre. So Mr. Blunkett touts other benefits, like reducing benefit fraud. But at a projected cost of £3.1
($5.8) billion, that'll have to be a lot of fraud. The government's real response to civil libertarians is: "If you've got nothing to hide, why
oppose?" That's not the point. A state exists for the people and is accountable to the people. Not vice-versa. At least not in free and democratic countries. Britain is, or was, freer than its Continental
neighbors precisely because the government wasn't as intrusive in peoples' lives.
Saturday, November 27, 2004 ~ 9:55 a.m., Dan Mitchell Wrote: Economics Ministers on Thursday (25 November) launched a new bid to cut EU red tape in a drive to make the regulatory environment in
Europe easier for business. Meeting in Brussels for a competitiveness council, ministers agreed to simplify existing regulations in several areas,
including environment, statistics, internal market, corporate law, social policy and health. They also agreed to scrap about 100 draft laws in the
pipeline and subject any new proposals to a "rigorous impact assessment". ...Commission President José Manuel Durao Barroso has put the EU's so-called Lisbon agenda - its goal of becoming the most
competitive economy in the World by 2010 - at the top of his priority list.
Saturday, November 27, 2004 ~ 9:00 a.m., Dan Mitchell Wrote: A regulator can commit an error by permitting something bad to happen (approving a harmful product), or by preventing something good from
becoming available (not approving a beneficial product). Both outcomes are bad for the public, but the consequences for the regulator are very
different. The first kind of error is highly visible, causing the regulators to be attacked by the media and patient groups, and to be investigated
by Congress. But the second kind of error -- keeping a potentially important product out of consumers' hands -- is usually a non-event, eliciting little attention, let alone outrage. Former FDA Commissioner
Alexander Schmidt aptly summarized the regulator's conundrum: "In all our FDA history, we are unable to find a single instance where a Congressional committee investigated the failure of FDA to approve a
new drug. But the times when hearings have been held to criticize our approval of a new drug have been so frequent that we have not been
able to count them. The message to FDA staff could not be clearer." ...If we are to balance drug safety, innovation in R&D, and the availability
and price of new medicines, we must find a way to make regulators accountable for costly errors of all kinds. One way would be to create a vigorous, independent agency ombudsman that could compel regulators
to act in the public interest. The office would have to possess the following attributes: (1) independence from the agency and the FDA commissioner; (2) access to independent expertise in relevant disciplines,
including medicine, pharmacology, science, regulation, and law; and (3) the power to levy sanctions against FDA employees found to be responsible, individually or collectively, for flawed decisions or policies
that constitute severe, avoidable errors. Americans are, literally, dying for regulatory reform. It's past time they got it.
Friday, November 26, 2004 ~ 11:57 a.m., Dan Mitchell Wrote: While the appropriations bills are not perfect, they honor the goals President Bush set last February: overall discretionary spending in
Fiscal 2005 will rise only 4%, the same as the average increase in American family income. The budget also provides substantial increases in funding for essential defense and homeland security needs. Just as the
president proposed, discretionary spending for non-security programs will rise only about 1%, which is half the rate of inflation and the lowest
rate of growth since the Republicans first took control of Congress in the mid-1990s. This is the fourth consecutive year that growth in such
spending has declined, down from 15% growth in the last budget year of the previous Administration.
Friday, November 26, 2004 ~ 11:14 a.m., Andrew Quinlan Wrote: The UK government has assured the British Virgin Islands that it is taking all steps necessary to mitigate the effects of the European Savings
Tax Directive on the jurisdiction's economy, according to Caribbean Net News. In a letter to Chief Minister Dr Orlando Smith, the UK's Paymaster General Dawn Primarolo assured him that the BVI
government will be informed promptly of any proposed amendments to the directive, which is scheduled to take effect on 1st July 2005. ...In her
letter, Primarolo wrote that the UK government would endeavour to use its influence in a bid to challenge misconceptions concerning the EU directive and its implementation, and will continue to push for adoption
of the legislation as geographically far afield as possible.
Friday, November 26, 2004 ~ 10:00 a.m., Dan Mitchell Wrote: The newly installed European Commissioner for Taxation, Laszlo Kovacs this week reiterated his opposition to proposals advanced by
France and Germany for more control to be exerted over national corporate tax rates at the European level. In an interview with the Budapest Business Journal, the former Hungarian Foreign Minister
repeated comments made during his confirmation hearing in the European Parliament last week, arguing that there is no need for a minimum EU corporate tax rate, as suggested by members of the
German and French governments. ...He added: "I believe that taxation should remain a national competence, because there are no studies proving beyond doubt that taxes are of major consideration when
investors pick a location."
Friday, November 26, 2004 ~ 9:30 a.m., Dan Mitchell Wrote: ...the center-right opposition in Romania contains an unprecedented proposal: a flat tax of 16 percent, for both corporate and income tax,
coupled with lower compulsory social contributions. Usually, when a party with the best chance to win the parliamentary and presidential elections (scheduled for November 28) offers such a daring proposal, it
reflects a massive shift in preferences of the electorate. How is it that such a change appeared in a country characterized by the slow pace at which it has left communism behind? After the fall of communism, in
December 1989, the Social-Democratic party -inheriting the young wing of the former communist party - adopted a progressive taxation system,
based on four classical brackets. However, in recent years, this system has become less and less efficient, due to increases in taxation levels and
widespread corruption. In the years 2000-2004, the black and gray economy was constantly evaluated at 40 percent. In real terms, this means that most firms declare zero profit, to avoid taxation, preferring
to distribute the money through illegal operations. Often firms employ people with two salaries: a declared (nominal) one, at the lowest level
allowed by the law, and a real one, usually two or three times higher. ...The Alliance built its whole political program, the "Platform of
Governing for Romania" on the base of the flat tax. Submitting a macroeconomic projection of the flat tax's impact on the economy, it evaluated the budgetary revenues and expenses based on a 16 percent
tax on corporate income. The main argument was simple: while the (nominal) taxation level is at about 23-25 percent, due to evasion, the effective taxation rate is in fact 16 percent. So why not lower the
nominal tax rate to match the real one, at 16 percent, thus enlarging the taxation base? ...That the flat tax is such a major issue in the campaign
reflects a profound change in the social structure and preferences of the country. When a political force (i.e. the Alliance) believes it can win
votes with the revolutionary proposal of renouncing at the progressive taxation, maybe Romania has finally left communism behind.
Friday, November 26, 2004 ~ 8:13 a.m., Dan Mitchell Wrote: In their report, entitled "Tax System Desirable for the Declining Birthrate and Aging Population," the committee addressed inequities relating to inter-generational tax burdens. Specifics include an incremental increase in the consumption tax rate from the current 5 percent to a "double-digit figure" over the next decade. At the same time, there would be a broadening of the tax base on individuals to allow Tokyo to hike social welfare spending. Implementing these proposals would increase the overall tax burden and dampen economic activity by reducing business investments and household savings. Consider that Japan's economy recorded slow or no growth after capital-gains tax rate rose from 0% to 20% in 1990, and a national sales tax implemented in 1989 was increased during the late-1990s. By contrast, data from Holland and Ireland as well as the US and the UK indicate that reducing the tax burden can boost growth and cause beneficial changes in the structure of the economy. In all events, high rates induce evasion and avoidance that make it harder to meet revenue targets. ... Japan's policy makers might consider following the example of "supply side" economics in the 1980s in the US and the UK where sharp cuts in
income and corporate taxes brought higher economic growth. One element of this is portrayed vividly by the so-called Laffer Curve that indicates that permanent tax cuts can increase tax revenues when
households and businesses work and invest more when granted greater control over prospective earnings. One approach might be to implement a flat tax with a low marginal tax rate to replace the maximum income
tax that was recently reduced to 50 percent from 65 percent.
Thursday, November 25, 2004 ~ 12:30 p.m., Dan Mitchell Wrote: Tenth in 1999, Kansas has assumed the lofty spot as the nation's most economically free state, followed closely by Colorado and Virginia.
Idaho, at the top of the 1999 list, remains high at fourth. Rhode Island, Connecticut, California, and New York bring up the rear. ...Turning to
the states that made the biggest progress from 1999 to 2004, we found that Arizona advanced 14 places, and Colorado, Maine, Oklahoma, and Oregon each jumped 12 places. In contrast, Mississippi fell 19 places,
Alabama 14, and Illinois, Kentucky, Ohio, and South Dakota each sank 10 spots. ...We constructed an economic model that explains the level of
state annual income per capita in 2000... The regression results, robust across specifications, show that more economic freedom is associated with higher income per capita across the U.S. states. The results are
virtually identical if economic freedom rankings are substituted for economic freedom scores. The statistical analysis shows that a 10-percent improvement in a state's economic freedom score yields, on
average, about a half-percent increase in annual income per capita. ...Relative to the freest state, Rhode Island residents suffered the largest
reduction in annual income per capita due to their loss of economic freedom, $3,607, followed by Hawaii at $2,963, and New York and New Jersey at around $2,400 each. The national average was $1,161. This
might not sound like much, but over a 40-year working life at a conservative 3 percent interest rate, this translates into $87,541 that would have otherwise gone into the pocket of an average working
American. Rhode Island also had the highest effective "oppression tax," 13.17 percent, followed by Hawaii at 11.36 percent, Maine at 7.61
percent, and New York at 7.45 percent. The national average was 4.42 percent of income. State institutions have a substantial impact on income
levels across the U.S. states. Economic freedom matters significantly.
Thursday, November 25, 2004 ~ 11:49 a.m., Andrew Quinlan Wrote: More than 14 million uninsured are already eligible for public programs such as Medicaid and SCHIP. More than 15 million have incomes
exceeding $50,000 and likely could afford private coverage if they found value in it. Approximately 5.7 million are "shortterm uninsured,"
possibly between jobs or recent college graduates. ...So-called "health insurance" has come to be a very different breed of animal. Most health
insurance is based on a three-party arrangement in which a person pays a premium to an insurance company, which pays a physician or a hospital to provide a service to the consumer. It is a triangular
relationship that causes great confusion and administrative costs, and results in little accountability between the three parties. It also results in
excessive utilization as patients are insulated even from knowing the price of the services they consume. Once the premium has been paid, the services are all free or nearly so. There is no economic constraint
whatsoever on consumption of services. The only constraint is imposed by the payer through some form of rationing, which is very expensive to enforce and very intrusive on the relationship between patient and
provider. Our near-exclusive reliance on third-party payment to finance health care services has resulted in our health care system being in a
state of perpetual crisis as we lurch between panic about cost increases one year, poor quality the next, and inadequate access after that.
Thursday, November 25, 2004 ~ 10:30 a.m., Dan Mitchell Wrote: In 1997 the corporate tax in Bulgaria was 40.2 percent. At the moment it is 19.5 percent and the government wants to cut it to 15 percent from
the beginning of 2005. The personal income tax's top rate was 40 percent in 1997; it is 29 percent now and it will be cut to 24 percent in 2005 according to government plans. Thus in 2005 Bulgaria will have
one of the lowest profit and income taxes in Europe. Moreover, the Institute for Market Economy started a campaign for introducing a 10 percent flat rate for all direct taxes - corporate tax, personal income tax
and social security tax. So the tax cutting in Bulgaria will most probably continue. ...according to Eurostat, Germany collects only 0.6 percent of
GDP through the corporate tax. In Bulgaria the revenues from the corporate tax are about 3 percent of GDP. Obviously Bulgaria's lower tax rate generates more revenues than Germany's high rate with many
loopholes. But this is not a problem of the Bulgarian government - it is a decision of the German government to create such a tax system and only
the German government can change that system. If the loopholes are eliminated, the German government can introduce a corporate tax rate of 5-10 percent without any loss of revenue.
Thursday, November 25, 2004 ~ 9:54 a.m., Dan Mitchell Wrote: Just as the hubbub over France and Germany's tax harmonization proposals (aimed at strangling investment in new EU countries) has quieted down the Polish government comes up with its own idea for imposing greater fiscal burdens on small business owners in the country. ...The businessmen argue that they already pay too much. They admit also that they seriously consider emigration, because they do not believe
that their voice counts. Many of them already talk of relocating to the neighboring Slovak Republic where they would pay only 19 percent flat
income tax and where - unlike in Poland - the state tries to make country attractive for business.
Wednesday, November 24, 2004 ~ 12:03 p.m., Dan Mitchell Wrote: When Reagan sent his tax reform proposal to Congress in May 1985, it emphasized fairness, saying the state and local taxes deduction mainly
benefited those with high incomes and those in high-income states. Because the loss of revenue is large, requiring higher federal tax rates,
the result is that low-income taxpayers and those in low-income states in effect subsidize the rich. These are still valid arguments. The states that
benefit most from the state and local deduction are those with the highest taxes, which generally are those with the highest per capita incomes. Because the top federal income tax rate is 35 percent, in effect
the top state and local income tax rate is reduced by 35 percent. A state rate of 10 percent is really only 6.5 percent when federal deductibility is
taken into account. This encourages states to impose higher tax rates than they might otherwise adopt, have governments provide services that the private sector might better be able to deliver and finance such
services with deductible taxes rather than nondeductible fees that might be more efficient. Low-tax states and those without income taxes in effect underwrite these larger governments and higher taxes.
Wednesday, November 24, 2004 ~ 11:32 a.m., Dan Mitchell Wrote: ...we hope the point has been driven home that investors don't bet on countries that debase their currencies. All the more so when the nation's
leading policy makers seem blase, not to say clueless, about the matter. Treasury Secretary John Snow has been roaming the world saying that
he favors a "strong dollar" policy even as he lobbies for a weaker dollar against Asian currencies. Investors who observe what Mr. Snow does
tend to discount what he says. Mr. Snow is also fond of repeating the nonsense that exchange rates should be set by "market" forces.
However, a currency isn't just another commodity, like wheat or copper; it is a store of value. And unlike other commodities, its supply is determined by a central bank, in the U.S. by the Federal Reserve, which
has a monopoly on dollar creation. The global currency markets are dominated by a cartel of central banks, and currency values are a function of their relative monetary policies. Isn't a Treasury Secretary
supposed to know that? The larger worry is that the Bush Treasury, and perhaps Mr. Bush himself, seem to have fallen for the notion that a
country can devalue its way to prosperity. This is the patent medicine of the manufacturers' lobby, as well as the kind of economist who has done
so much for Argentina, Mexico and other nations over the years. Britain tried this in the 1970s, and had to call in Margaret Thatcher to save the
country from sinking to Third World status. The Carter Administration also tried talking down the dollar and ended up inspiring a global run on
U.S. assets. ...The Fed has been running an easy-money policy for more than two years, continuing with negative real interest rates despite such
early inflationary warnings as $50 oil, nearly $450 gold, and a 24% decline in the dollar since 2002. Mr. Greenspan certainly knows that the federal budget deficit isn't the cause of current dollar weakness,
especially since that deficit is now declining. But he probably doesn't mind if the press corps uses his remarks to blame any economic troubles on White House fiscal policy instead of blaming the Fed.
Wednesday, November 24, 2004 ~ 10:43 a.m., Dan Mitchell Wrote: In a hard-hitting column to appear in Tuesday's edition of Il Foglio newspaper, Berlusconi repeated his threat to bring down his government
if recalcitrant coalition allies refused to back his plans for income tax cuts in 2005. Berlusconi said the cuts were needed to revive a lethargic economy, but stressed the strength of the euro currency was also
weighing heavily and called on his EU partners to revise the Maastricht Treaty on which the stability pact is based. "The blessed introduction of
the single European currency has thus far produced the exact opposite result of what the euro was created for -- an asphyxiated economy and
hobbled growth under the burden of 'stupid' ties," Berlusconi wrote.
Wednesday, November 24, 2004 ~ 10:00 a.m., Dan Mitchell Wrote: Kavaric's Ministry has helped push through a 20 percent top corporate tax rate, and he assured me that by the end of next month there will be a
corporate flat tax rate of only 9 percent--one of the lowest in Europe. Furthermore, there are no capital flow restrictions, or limits on foreign
ownership of business and even banks. Furthermore, 99 percent of prices are freely determined, and foreigners are treated as nationals in all
business legislation. Foreigners can also repatriate all profits to their home nations if they wish. And privatization of key services like telecoms
and aluminum plants has already begun. With a 17 percent sales tax (except on staple products) and a top rate of personal tax of 25 percent, Montenegro now has one of the most attractive climates for foreign
investment in Europe. ...Kavaric concluded his comments to me with much optimism: "I anticipate Montenegro joining the EU within the next
decade, but probably not the next five years." To have another low tax pro-growth country within the EU will further demonstrate the benefits
of lower tax rates and make it harder for the high tax treasuries in Paris and Berlin. This has to be beneficial, not only to Montenegrins but for the rest of us as well.
Tuesday, November 23, 2004 ~ 11:17 a.m., Dan Mitchell Wrote: Social Security benefits are not guaranteed. Just like all entitlement programs, they can -- and have been -- changed by Congress. The Social
Security administration itself says so and so did the Supreme Court when it ruled, in Flemming v. Nestor, that workers and retirees have no legal
claim to benefits. Regardless of how much in taxes they have paid into the system. But here, too, a solution is at hand. Look no further than Plan Two offered by the President's Commission to Strengthen Social
Security, in 2001. This plan would allow workers to divert 4% of their payroll taxes, up to $1000, to personal accounts. Workers who decide to
open personal accounts would forego a portion of their traditional Social Security benefit -- depending on the amount of payroll taxes they diverted. That offset however does not get the system to solvency. For
that, Plan Two changes the way benefits are allowed to grow. How? You guessed it, by replacing the computation of benefits via wage indexing to
a policy under which initial benefits would grow from one cohort to the next at the rate of price increases. Thus, workers with identical real
wages would receive the same real benefit, regardless of age difference.
Tuesday, November 23, 2004 ~ 11:03 a.m., Dan Mitchell Wrote: Government aid for Hurricane Frances bought Miami-Dade County residents rooms full of furniture, new wardrobes and thousands of appliances, including microwaves, refrigerators and sewing machines, even though the brunt of the storm missed the county. With damage limited primarily to a few fallen trees and power lines, residents claimed Frances destroyed 5,260 television sets and 1,440 air conditioners, according to records from the Federal Emergency Management Agency. Disaster relief paid for lawn mowers, vacuum cleaners, space heaters and cars. FEMA paid $4,500 for one resident's funeral, even though the county medical examiner recorded no storm-related deaths. In six instances,
FEMA blamed damage on "ice/snow." ...The Labor Day weekend storm made landfall in Martin County, more than 100 miles north of Miami-Dade. ...At the Old Hickory Bar, a check-cashing and liquor store
in Liberty City, manager Eddie Thornton, who is also a landlord, said he was surprised when one of his tenants arrived to cash a $4,700 FEMA
check for damage at one of his properties. "I own the place and I know there wasn't no damage," Thornton said. "I put the shutters up." He
estimated his store has cashed as much as $500,000 in FEMA checks. ...As the cause of damage, inspectors cited "tornado-wind" for 195,909
items, although the National Weather Service recorded no tornados in the county during Frances. The top sustained winds reached 47 mph, less
than a tropical storm. Inspectors blamed "sewer backup" in 14,644 instances. The Miami-Dade County Water and Sewer Department knew of no problems.
Tuesday, November 23, 2004 ~ 10:28 a.m., Andrew Quinlan Wrote: ...on Wednesday Henry Hyde's House International Relations Committee held hearings revealing how some of the money financed terrorism.
Specifically, some of the kickbacks paid by oil buyers and humanitarian goods suppliers ended up in an account at the Rafidain Bank in Amman, Jordan, from whence cash was funneled by the Iraqi ambassador there
to the families of Palestinian suicide bombers. Saddam also gave oil vouchers to Abu Abbas, the man responsible for the 1985 hijacking of the cruise ship Achille Lauro and the murder of American Leon
Klinghoffer. Maybe now the part of our foreign policy establishment that continues to deny that Saddam supported terrorism will pipe down.
Tuesday, November 23, 2004 ~ 9:18 a.m., Andrew Quinlan Wrote: Other "golden eggs" laid by the Congressional geese include $450,000 for the Baseball Hall of Fame, $200,000 for the Dennison Railroad
Depot Museum in Ohio, $350,000 for the Rock and Roll Hall of Fame, $1.5 million for the Anchorage Museum/Transit intermodal depot in Alaska, $250,000 for the Country Music Hall of Fame, $100,000 for the
Municipal Swimming Pool in Ottawa, Kan., $35,000 for the Alabama Sports Hall of Fame, $300,000 to build the Great Falls parking garage in Auburn, Maine, and $1.5 million for departing Congressman Richard
Gephardt's archive at the Missouri Historical Society. There is no mandate in the Constitution, or anywhere else, for unnecessary and wasteful spending at any time, much less in a time of record deficits and
debt. ...If it was their own money they were spending, not ours, perhaps Congress would be more frugal. The president should use his veto and shame the Republican Congress into spending less and guarding the
taxpayer's purse. As the president said during the 2000 campaign, it isn't the government's money, it's your money.
Tuesday, November 23, 2004 ~ 9:00 a.m., Dan Mitchell Wrote: Last week the Pension Benefit Guaranty Corporation, the quasi-government agency that insures private pension plans, announced
a record deficit of $23.3 billion. ...the Bush Administration made a sensible stab at pension reform. The idea was a trade-off between granting some short-term relief to underfunded companies and then
requiring all companies to put their funding on a sound basis for the long term. But Congress flubbed the challenge and the White House caved in
an election year. ...Congress promptly dumped the long-term provisions, voted in the short-term relief and -- doubling up on the largesse -- gave a
special break to seriously underfunded plans like those in the airline and steel industry. This last provision was a truly staggering example of
short-term mindlessness. It allowed plans to ignore something called "deficit reduction contributions," which required companies with under
90% of funding requirements to close the gap over a three-to-seven year period. By permitting these companies to stretch out catch-up payments
to up to 30 years, this provision insured that funding shortfalls would grow. Since most of these companies will terminate their plans anyway,
it also sticks the PBGC with an additional multi-billion dollar burden. In other words, Congress and the White House produced a big, fat bailout for the most financially shaky companies, and some of those same
companies are now joining the queue to dump their liabilities on the feds. Meanwhile, PBGC's deficit was left to balloon, as it now has -- by $12
billion with 155 company plans terminating. ...One popular solution is to raise the premiums paid by companies -- which haven't been increased since 1994 -- along with adjusting those premiums for risk. But a
premium increase would make it more likely that healthy companies will drop out of the system, and risk-adjusted premiums give those financially
fragile companies a strong incentive to terminate their plans. The big problem is that the agency, by insuring private pension plans, has created its own moral hazard. Essentially, PBGC is writing a put option
for which any private plan that is not fully funded is in-the-money; therefore, exercising the put by dumping liabilities onto the PBGC is
attractive. Ultimately, of course, the put is written by taxpayers to the tune of tens of billions of dollars. This slow motion train wreck is almost
a perfect re-enactment of the thrift crisis in the 1980s. Back then, the government kept trotting out short-term fixes that deepened the problem
until, finally, the thrift industry collapsed, presenting taxpayers with a $200 billion bill.
Tuesday, November 23, 2004 ~ 7:30 a.m., Dan Mitchell Wrote: Eliot Spitzer's current campaign against major insurance brokers and insurance companies has reaped massive media indignation... In an era
of general acceptance of deregulation and privatization, Mr. Spitzer has introduced the world to yet a new form of regulation, the use of the criminal law as an in terrorem weapon to force acceptance of
industry-wide regulations. These rules are not vetted through normal authoritative channels, are not reviewable by any administrative process, and are not subject to even the minimal due-process
requirements our courts require for normal administrative rule making. The whole process bears no resemblance to a rule of law; it is a reign of
force. And to make matters worse, the regulatory remedies are usually vastly more costly to the public than the alleged evils. ...Since Mr. Spitzer
wins his cases in the media, where business is now all but defenseless, the best hope is for the American business community to develop its own
public voice. The free-market scholarship needed for this purpose is available, though it is rarely availed of in these fights. Too often the corporate defenders conclude, out of ignorance to be sure, that the
opposition really has the better case. But make no mistake: Eliot Spitzer represents, wittingly or not, an attack on the entire corporate
free-enterprise system. Clearly we need new or invigorated institutions to defend industries and companies publicly when they come under unwarranted or disproportionate attack. Responsible leaders of the
business community should make it a high priority to develop these capabilities before more harm is done.
Tuesday, November 23, 2004 ~ 6:45 a.m., Dan Mitchell Wrote: John McKay, an aide to Canadian Finance Minister Ralph Goodale, is urging the government to follow the tax-cutting lead of the United
States, or risk seeing economic growth eroded along with the fiscal surplus. According to the Globe and Mail, Mr McKay pointed to the tax-cutting policies that are likely to be pursued by the Bush
administration in Washington in the coming years, and argued that "we simply cannot be too far behind that." "We need to worry about
productivity - otherwise, we won't go from seven surpluses to eight. We may go to our first deficit, because the economy will shrink," he warned.
Tuesday, November 23, 2004 ~ 5:30 a.m., Dan Mitchell Wrote: The Incredibles are a family of superheroes who are forced into early retirement because their feats had incurred too much collateral damage;
lawsuits on superheroics had made the Incredibles a liability. So they were required to go into hiding, to restrain their unique powers, to conceal their genetically given talents. The fundamental moral of the
movie is that this restraint is wrong and needs to be overcome: Letting the talented earn the proud rewards of their labor, and the fruits of their
destiny, harms no one and actually helps those in the greatest need. ...it is pro-talent and pro-opportunity. It is in favor of the urge to get out
there and achieve things without apology. Within the right-left rubric of American cultural discourse, the movie is therefore rightward-tilting.
And that's why many critics on the left have decried it. ...At home, the Democrats spoke too easily of people injured by fate or economic transition or social injustice, while scanting the positive things that
people can and will do to change their own circumstances, to beat the odds, to rise above their own limitations. They had a trial lawyer as vice-presidential nominee and a candidate who had spent a lifetime in
politics achieving very little, even by the standards of the U.S. Senate. ...The truth is, there is a conservative majority in this country not
because the religious right is a majority but because Republicans have been able to corner the market on the themes of achievement, individualism, energy, and action. And they have also won over those
who disdain the politics of resentment, whining, and permanent criticism. If James Dobson represents one wing of contemporary Republicanism, Arnold Schwarzenegger represents the other. Democrats will never win
over the Dobsonites. But they can win over the blueish voters who voted red last time because the pious, do-good, elite whining of Gore and Teresa and Hillary seemed so alien to Americans' entrepreneurial,
anti-p.c., and irreverent popular culture.
Monday, November 22, 2004 ~ 11:47 p.m., Andrew Quinlan Wrote: It's become an unwelcome tradition in Italy: Prime Minister Silvio Berlusconi's annual admission that long-promised income tax cuts will
have to wait. But the latest rendition -- which came last week, after Mr. Berlusconi realized he couldn't win support for a modest EUR6 billion
cut -- may signal his understanding that other economic policy changes are overdue. Mr. Berlusconi swept into office in 2001 largely thanks to
his "contract with Italians" to reduce the country's crushing tax burden and stoke the economy. Those in the highest tax bracket -- annual
income of EUR70,000 and above -- fork over 45% of their earnings to the government. Mr. Berlusconi promised to slash taxes to stimulate economic growth. But he has run into trouble sticking to his pledge in
part because until recently, reducing government spending wasn't part of the plan. In fact, a "contract" pledge to increase pensions is one promise
the prime minister has kept. ...But waiting for better growth to arrive so you can "afford" pro-growth tax cuts gets it backward: Growth won't
come from nowhere. Mr. Berlusconi talks as if he understands the change in entrepreneurial incentives that Italy needs to jump-start its economy; that's why, rhetorically at least, he's backed important cuts in
the top marginal tax rates.
Monday, November 22, 2004 ~ 9:45 p.m., Dan Mitchell Wrote: | |||||||||||