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www.freedomandprosperity.org |
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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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Friday, December 31, 2004 ~ 8:12 p.m., Dan Mitchell Wrote: One of the things to celebrate when the clock strikes midnight Friday is the end of the global system of textile quotas. As the deadline approaches, it has been accompanied by
world-wide panic over who will "lose out" to textile behemoth China. But the alarmists fail to recognize that many new winners will be created -- not the least of which will be the American consumer,
who finally will be allowed to pay a better price for clothing. ...It's not just U.S. shoppers who stand to benefit. The chief victims of the quota system have been the world's poor, who were denied the
opportunity to use the textile industry as the first step on the path to industrialization. Income gains for developing countries are estimated at $24 billion a year, a report by the United Nations Conference on
Trade and Development calculates, while their export revenue gains could reach $40 billion.
Friday, December 31, 2004 ~ 7:00 a.m., Dan Mitchell Wrote: According to the November forecast of the Organization for Economic Cooperation and Development, gross domestic product in the U.S. is
expected to increase by 4.4% in 2004. Elsewhere, the OECD predicts growth of 4% for Japan, 2.7% for the U.K., 2.1% for France and 1.2% for Germany. For the 12-country euro zone, the figure is 1.8%. To put
matters in historical perspective, the last time Japan, Britain, France and Germany had growth rates at or in excess of 4.4%, the years were 1990, 1994, 1989 and 1991, respectively. ...Overall, the U.S. economy
has added 2.3 million jobs since the third quarter of 2003, bringing the unemployment rate down to 5.4% from 6% in October 2003. In Germany, the unemployment rate is 10%; in France it's 9.5%. For the
27 countries of the OECD, the average unemployment rate is 6.8%. Only Britain and Japan, among the major economies, have unemployment rates lower than the U.S. ...To look closely at international economic
data is to be reminded that countries with comparatively low tax rates and regulatory burdens consistently outperform countries with high
ones. Of course it's nice to know that America's "sluggish" economy remains a world-beater. It's even better to know why.
Friday, December 31, 2004 ~ 6:45 a.m., Andrew Quinlan Wrote: To this scene in recent months we may add the reports of rape and child molestation committed by U.N. peacekeepers in Africa, allegations of
sexual harassment involving the heads of both the U.N. refugee agency and the internal audit division, a revolt against "senior management" by
the U.N. staff union, the findings of an internal U.N. integrity survey that a lot of U.N. employees fear retaliation if they speak out, and the
statements of a few brave whistle-blowers, fighting for their jobs, to precisely that effect. Plus, if you like, there's the expanding saga of how
the secretary-general until confronted by the press allegedly failed to notice that his son had allegedly been doing lucrative business deals with
a major U.N. contractor under the Oil for Food program. All of which has been subject to the marvelously circular argument that the press should shut up until the U.N., in between firing off hush letters to its
contractors and employing Mr. Annan's U.S.-taxpayer-funded staff to lambaste the U.N.'s critics, can carry out allegedly full and independent investigations of all these troublesome matters. By now, the debate
outside the U.N. walls has expanded from calls for Mr. Annan to resign over Oil for Food to arguments that he really ought to resign over U.N. toleration of genocide, in which he has played a sustained part
Friday, December 31, 2004 ~ 6:12 a.m., Dan Mitchell Wrote: Iowa Senator Tom Harkin and Connecticut Congresswoman Rosa DeLauro plan to re-introduce bills requiring chain restaurants with more
than 20 outlets to list calorie counts either on menu boards or printed menus. And once that law went into effect? As sure as New Year's
resolutions follow holiday gorging, watch for "mislabeling" lawsuits. Watch too, for prices to go up; a legislative labeling mandate isn't
cost-free for restaurant owners. But all this is really beside the point. Yes, too many Americans are overweight. But this isn't exactly a state
secret. The solution to the obesity problem isn't requiring restaurants to tell us that a glass of egg nog contains a gazillion more calories than a Diet Coke. It's learning to say no to the egg nog.
Thursday, December 30, 2004 ~ 11:30 a.m., Dan Mitchell Wrote: ...every week in 2005, more than 120,000 people will continue to die prematurely in poor countries from malaria, dirty water, indoor air
pollution, lack of sanitation and malnutrition. Most of these deaths, and indeed many of those caused by the tsunami, could have been prevented
but for the anti-growth, anti-technology policies of governments in poor countries. ...Puritan environmentalists in Britain -- abstaining from the
traditional holiday consumption and merriment -- were quick to exploit Sunday's tragedy. A British newspaper quoted one such activist responding to Indian Ocean earthquake and tsunami: "Here again are
yet more events in the real world that are consistent with climate change predictions." Such pronouncements are not merely scientific jibberish,
they are glib and self-serving. Multinational environmental groups promote the view that natural disasters are increasingly caused by global warming. This draws attention to their organizations, helping to
swell their coffers and promote their anti-growth, anti-technology policies. Meanwhile, the poor continue to suffer. This week's tragedy illustrates why environmentalists' proposals are preposterous and
counterproductive. Policies such as the Kyoto Protocol -- a global treaty to limit emissions in industrialized countries -- would in fact harm the
poor the most, by slowing economic growth and distracting attention from real and present problems.
Thursday, December 30, 2004 ~ 10:45 a.m., Dan Mitchell Wrote: Social Security was developed at a time when the number of workers paying into the system greatly outnumbered those who were receiving
funds, and thus the promise made by government was easily kept. But times change while policies atrophy, and Social Security has evolved into a system that places an increasingly onerous burden on the young; the
ratio of workers to elderly has shifted from 41-to-1 in the 1930s, to 3-to-1 today. Young workers today are being told that their Social Security contributions -- or taxes -- may have to increase to support the
burgeoning elderly population. Moreover, those young workers are being warned that the same benefits will not apply to them -- that they will have to work longer and receive less than the folks they are now
supporting. Such are government promises, especially those grounded on ill-founded policy. ...The reason we need to have mandatory retirement
accounts is not because people are irrational, but precisely because they are perfectly rational -- they know exactly what they are doing. If, for
example, somebody knows that they will be cared for in old age -- even if they don't save a nickel -- then what is their incentive to save that
nickel? Wouldn't it be rational to spend that nickel instead? So, indeed, people are acting rationally when they choose not to save. We have
rational people making choices based on the rules. The trick is to get the rules right. A mandatory retirement system, properly designed, would establish effective rules.
Thursday, December 30, 2004 ~ 9:22 a.m., Dan Mitchell Wrote: Europeans will have to pay for what Americans may have for free. A European court ruled that Microsoft must comply with sanctions
imposed by former EU Commissioner Mario Monti in March on the basis that the corporation was abusing its dominant position. ...intellectual property rights are at stake: if Microsoft has to share its
codes with competitors, the very idea of an exclusive right to the fruits of one's intellectual labor is in trouble. If this is the case, the EU is
taking a serious step towards less competitiveness, less innovation, and less research & development -- again, the EU actual policy is very far from the rhetoric of the Lisbon Strategy, a commitment aimed at
strengthening EU's ability to innovate and compete on global markets. Moreover, there seems to be no such thing as presumption of innocence
in Europe, at least for large corporations. Any other citizen, under any legal system, would be regarded as innocent until a reasonable certainty
has been reached on her or his possible guilt. ...consumers should and are contesting it, since they realize they will have either to pay or to
spend time to find an American version of Windows in order to enjoy the pleasure of listening to music or watching a movie. Apparently, former Commissioner Monti's idea of competition is a matter of numbers: you
have to have as many companies as possible in any given field. But the real competition is something else: it's about process and freedom of entry -- and this is the only way how consumers may benefit from
competition.
Wednesday, December 29, 2004 ~ 11:45 a.m., Andrew Quinlan Wrote: Despite the urgings of many tax economists and scholars in the major think tanks (as well as some in the Bush White House), Mr. Snow has
done little to insist his own tax revenue operation move away from static analysis and do more realistic dynamic tax scoring. Moreover, he has
tolerated performance by some of his staff whose personal agendas have undermined administration positions. One example is a proposal (made in the last week of the Clinton administration) by the Internal Revenue
Service to provide tax information to certain foreign governments (such as France) on nonresident aliens who invest in the U.S. economy and have no U.S. tax liability. Senior White House economic officials and
many members of Congress, plus virtually every regulatory agency, industry group and public-policy organization that testified on the proposal oppose it. Opposition is intense because the move would
undermine our economic and national security, violate financial privacy rights and weaken the dollar. Mr. Snow told several senior members of Congress he would withdraw the proposal. By not doing so he has
damaged his credibility.
Wednesday, December 29, 2004 ~ 11:09 a.m., Dan Mitchell Wrote: As trade and investment barriers fall, investors are able to take advantage of an ever increasing number of investment opportunities.
That sounds like good news, doesn't it? The problem with this scenario, if you are one of the bloated, high-tax Western European welfare states, is that you are witnessing an exodus of investment capital to
jurisdictions that are more tax friendly. ...If private parties engage in rate fixing, they are subject to fines and jail, but when government
officials do basically the same thing, it is perfectly legal. Why is that? Their excuse is that they are doing it in the public interest. But how is it
in the public interest to raise tax rates? ...There is an inverse relationship between the rates a government charges and the rate of economic growth. Countries that have the lowest tax rates tend to have
the highest economic growth. One reason for that is because investment capital tends to flow into low tax countries and out of high tax countries. ...Since low rates foster economic growth and the expansion
of employment, and since these are among the OECD's stated goals, it seems inappropriate that it should be targeting low tax countries instead of high tax countries. Targeting low tax countries makes the OECD's
claim that it is not trying to raise tax rates very difficult to believe. ...If the bloated welfare states of Western Europe want to be competitive
with the lean non-welfare states, they can be competitive. All they have to do is relinquish their welfare states and let taxpayers keep more of the
money they have earned. They should not use the force of government to impose sanctions that only do harm to nations that have done nothing wrong.
Wednesday, December 29, 2004 ~ 9:30 a.m., Dan Mitchell Wrote: The Turkish government has stated its intention to cut a series of taxes next year in a bid to boost foreign investment. In an announcement
made on Tuesday, Prime Minister Recep Tayyip Erdogan revealed that the corporate tax rate will be cut to 30% from 33%, ...The programme of tax reform, designed to simplify the tax system and increase
compliance, will also see the top rate of personal income tax fall to 35% from 40%. These changes will go into effect from January 1, 2005.
..."Our government is confident it would not lose any tax revenue as a result of the cuts because lower rates would push down tax evasion," he added.
Tuesday, December 28, 2004 ~ 10:15 a.m., Andrew Quinlan Wrote: ...in the world of environmental zealotry, even an event such as this is seen as an opportunity to press the agenda. Thus, the source of the
South Asian tsunami is being located in global warming. ...People prone to hysteria often become further unhinged in the face of a great disaster... That is all the more reason to come to grips with the real
causes of calamities such as this. Geologists say that groups of giant earthquakes hit Sumatra every 230 years or so. The last quakes there were in 1797 and 1833--and surely not even Greenpeace would blame
those on greenhouse gases--and so Sunday's latest quake was more or less on schedule. ...The more sensible response to natural disasters is to improve forecasting, put in place efficient communications and
evacuation procedures and, should the worst arrive, conduct relief efforts and rebuild what nature has destroyed. Those cautionary measures, as is now clear, cost money. The national income necessary to
afford them is made possible only by economic growth of the sort too many of environmentalists retard with their policy extremism. Rich countries suffer fewer fatalities from natural disasters because their
prosperity has allowed them to create better protective measures. Consider the 41,000 death toll in last December's earthquake in Iran compared with the 63 who died when a slightly stronger earthquake hit
San Francisco in 1989.
Tuesday, December 28, 2004 ~ 9:56 a.m., Dan Mitchell Wrote: Maybe Vioxx or Celebrex is too dangerous, all things considered. Maybe not. The problem is that all things are not considered. Too many people
seem to think that if the risk of stroke or heart attack is doubled when you take some medication, that is the end of the story. ...Studies indicate
that the great majority of people taking even heavy doses of these drugs over an extended period of time did not have either a stroke or a heart
attack. However, the small number of people who did was greater than among those who did not take these drugs. Obviously people would not be taking these or other medications unless they had a problem that
these drugs were intended to help. The question then is whether the benefits exceed the costs or vice-versa. ...But that is not good enough for
"safety" advocates, many of whom have no medical training. If a drug is not "safe," they say it should not be allowed on the market. But nothing
is categorically safe. Some people can die from eating ordinary wholesome foods like salmon or peanut butter. If the government banned every food that was fatal to someone, we might all die of
malnutrition. If a drug is not safe, neither is the illness for which the drug is prescribed. Nor are alternative drugs likely to be perfectly safe,
since nothing else is. Life involves weighing alternative risks, whether in football, pharmaceutical drugs, or a thousand other things.
Tuesday, December 28, 2004 ~ 8:48 a.m., Dan Mitchell Wrote: In its concluding statement on the 2004 Article IV consultation with the United Kingdom, the International Monetary Fund (IMF) announced
that the country's economic performance remains "impressive", but suggested that Chancellor Gordon Brown's growth estimates are over-optimistic. ...The IMF warned that either cuts in spending or tax
increases will likely be necessary to balance the Chancellor's books and bridge what some observers are referring to as the 'budget black hole'.
"We would favor an approach that relies on spending restraint - both to reduce the current risks of running into limits on absorbative capacity
and to allow more time to assess value for money," the Fund announced. However, it continued: "If more reliance on revenue measures were desired, broadening the tax base would be preferable to
raising tax rates, given potential adverse effects on supply."
Monday, December 27, 2004 ~ 10:48 a.m., Dan Mitchell Wrote: Chile runs the most advanced and oldest of the reformed plans; it relies mostly on the second pillar. When it was established in 1980, workers
were allowed to opt out of the government pension plan and contribute 10% of pre-tax wages to personal, private accounts. ...Workers can choose among several private companies to manage their accounts.
...Average real rates of return for these private accounts have been high -- around 10% a year. Just as nice, pension funds have now accumulated
about $50 billion in assets. This giant pool of savings has contributed to the more than doubling of the rate of economic growth in Chile, which
has been running at a little over 7% a year. ...Australia started its reform program in 1992. Employers make mandatory payments of 9% of employee salaries into a privately managed fund. Currently,
employers select the fund but, starting next year, workers will be able to choose among a variety of funds. Workers also have tax incentives to
make additional, voluntary pension contributions. Pension plan assets have grown from $238 billion in 1992 to almost $700 billion now. Almost 90% of workers are covered. ...And then there's Sweden --
otherwise known as the most socialized economy in the West. In 1998, Sweden transformed its retirement plan -- a defined-benefit, pay-as-you-go system -- into a mainly second pillar program requiring
contributions of 18.5% of earnings, split between employers and workers. The plan has two parts. The first part set up defined contribution accounts with a mandatory contribution rate of 16% of
earnings. ...The second part requires a contribution of 2.5% of earnings into individual accounts. Here, workers can choose among many investment options (including both domestic and global mutual funds)
and returns depend on the success of each worker's investment strategy. At retirement age, the money must be withdrawn and annuitized.
Monday, December 27, 2004 ~ 9:27 a.m., Andrew Quinlan Wrote: Shouldn't President Bush be asking if it isn't time to dump the United Nations and to start anew? What kind of an organization is the United
Nations whose General Assembly, with its automatic anti-Israel majority, devotes its time and finances (the United States pays almost a quarter of the U.N. budget) to badgering Israel, the only genuine
democracy in the Middle East? What kind of organization is the U.N. Security Council in which a has-been like France is a permanent member but Germany, India and Japan are not? Does it make any sense
to give French President Jacques Chirac, America-hater No. 1 and the best friend Saddam Hussein ever had, a veto over U.S. foreign policy to which fortunately we pay no attention? ... am referring to the
oil-for-food outrage, a crime by any standard, but the United Nations is immune from chastisement. In fact, the perpetrators of this crime will
undoubtedly retire with full pensions plus the usual golden handshake, paid for by the U.S. taxpayer. But there are other U.N. crimes. The U.N. Commission on Human Rights is a tragic joke. Members of the
commission include China, Cuba, Saudi Arabia, Sudan - Sudan, for heaven's sake - and Zimbabwe. ...The United States is assessed 25 percent of the U.N. general budget, double the assessment of Japan, the
next closest underwriter. Is it worth the money? If you ask me, no.
Sunday, December 26, 2004 ~ 6:10 a.m., Dan Mitchell Wrote: Schwarzenegger suggested that the Republican Party should move left in order to attract more voters. ...Why would Schwarzenegger want to
trade a winning strategy for one that has a proven record of failure? When the Republican Party was controlled by lefties like Nelson Rockefeller and House Minority Leader Charles Halleck, the party lost
elections. For 40 years, the moderate-liberal wing of the Republican Party never achieved majority status in the House of Representatives. The change began with Barry Goldwater in 1964 and culminated in the
election of Ronald Reagan in 1980. By then, the once "Solid South" on which Democrats could rely for their electoral and congressional base
had all but disappeared. In 1994 the GOP "revolution" erupted, led by Newt Gingrich. Republicans have maintained - and in the last election,
they expanded - their majorities in the House and Senate. None of this was done by appealing to liberal voters. Schwarzenegger told his interviewer Republicans could win 5 percent more of the vote by moving
"a little to the left." ...The Schwarzenegger "strategy"- if one can call political suicide a strategy - would gain favor with editorial page editors
in Los Angeles, San Francisco and New York, but it would return the Republican Party to minority status virtually overnight. Conservatives would either stay home or vote for a third-party candidate, not so much
in protest as to demonstrate that for them convictions mean more than party loyalty.
Saturday, December 25, 2004 ~ 3:45 p.m., Dan Mitchell Wrote: The new management will also have to get cracking with those in Congress, the Bush Administration and the Federal Reserve who want to
rein in Fannie and its fellow quasi-government lender, Freddie Mac. Between them, Fannie and Freddie hold or guarantee about half the nation's $8 trillion in residential mortgages. For two years Mr. Raines
and his pals in Congress have resisted more oversight, but they've brought it on themselves now. It's also probable that Fannie's capital requirements will be raised to a level closer to that of other financial
organizations of its size. More broadly, Fannie Mae's problems should serve as a cautionary tale. Advocates of the notion that government
should have a role -- through subsidies or partnerships -- in "helping" market forces achieve public-policy goals (in housing or even health
care) need to come to grips with what happened here. They created Fannie as a vehicle to increase American home ownership, a worthy goal, but the time has come to retire the quasi-public model of doing
good on a massive scale. ...Fannie Mae -- a slick, semi-private firm operating with the patronage of politicians -- is the kind of institution one still expects to find in a country like France. It is wholly
inappropriate to a modern economy, as here in the U.S.
Saturday, December 25, 2004 ~ 12:34 p.m., Dan Mitchell Wrote: South Africa matters, because if it fails, the rest of Africa hasn't a prayer. Yet if it booms, it could do for the poorest continent what Japan
did for East Asia. It has Africa's most sophisticated economy, by far. ...Economic growth sputters along at a whisker above population growth. The poor have grown poorer since '94, partly because of AIDS,
but also because about half of all blacks are jobless. Only rapid economic growth can solve that problem, but the government has not made this a priority. ...Instead, the focus is on redistribution. And not the
conventional sort, from rich to poor, but from white to black, which is not the same. South Africa has embarked on probably the most extreme affirmative action program anywhere. Private companies above a
certain size are obliged to try to make their workforces "demographically representative" (i.e. 75% black, 50% female, etc.) from factory floor to boardroom. This is not a minor irritant, like
affirmative action in the U.S. ...Unlike private companies, the government finds it easy to hire by race rather than merit, because it has
no competitors and cannot go bust. This is nice for the blacks it employs, but less good for the much larger number who depend on the state for
health care, water, roads and pensions. The state does not even try to deliver these services cost-effectively. Black-owned contractors can charge more and still win public-works contracts, so poor blacks get
fewer clinics than they otherwise would have. Legions of white managers have been pushed out to make way for inexperienced blacks, and then hired back as expensive consultants to tell their replacements
how to do their jobs. The most insidious effect of the new racial laws has been to provide a cloak for the sort of cronyism that has wrecked the rest of Africa. The black tycoons who made fortunes by parlaying
political connections into a share of someone else's business actually believe they are helping to "de-racialize" the economy. They regard themselves as role models for black youth, and magazine covers
reinforce this delusion. The idea that wealth needs to be created is little aired.
Friday, December 24, 2004 ~ 3:11 p.m., Dan Mitchell Wrote: ...this column announces the first annual Joseph Goebbels award for that journalist who best exemplifies the spirit and the practice that Dr.
Goebbels pioneered. For people too young to remember or too unschooled in history to know, Dr. Joseph Goebbels was the minister of propaganda in the Nazi regime back in the 1930s and 1940s. Facts
never distracted him from his mission nor did a lack of facts inhibit his zeal. ...This year's Joseph Goebbels award goes by a narrow but decisive
margin to CBS News anchorman Dan Rather for his planned broadcast on "60 Minutes" -- just days before the election -- to discredit President
Bush's National Guard service 30 years earlier. Leave aside for the moment the fact that discrepancies in the documents he relied on have convinced experts and many others that they were forgeries. Why was
what George W. Bush did or didn't do 30 years earlier "news" in 2004? ...Dan Rather's closest competition for the Joseph Goebbels award was
Ted Koppel, whose "Nightline" broadcast went to a Communist country to get witnesses to speak on camera -- with a Communist official present
-- to discredit what the Swift Boat Veterans had said about an incident involving John Kerry during the Vietnam war. Not one of the American eyewitnesses, who could have spoken freely in a free country, was
interviewed in this "Nightline" broadcast.
Friday, December 24, 2004 ~ 1:43 p.m., Dan Mitchell Wrote: A Canadian parliamentary committee has called upon the government to continue cutting corporate taxes to allow the country to compete
effectively with the United States in attracting international business. In its pre-budget report, the House of Commons Finance Committee recommended a number of changes to the Canadian system of business
taxation, including a review of the timetable for the elimination of the federal large corporation tax. ..."Like a number of our witnesses, the
Committee believes that our tax environment should be competitive with that of the US, recognizing that competitive does not mean identical,"
the committee report stated. It went on to add that: "Otherwise, there is a danger that Canadian businesses will not prosper to the extent that they can, and to the extent that they should."
Friday, December 24, 2004 ~ 10:55 a.m., Andrew Quinlan Wrote: Governor Mark Warner of Virginia, who heads the NGA, is leading the effort. Governor Warner is a "new" Democrat, meaning he was smart
enough to blame the tax hike he signed this year on the Republican Legislature. In his effort to mine the Web for more tax dollars, however, Mr. Warner and other pro-tax Governors are getting help from
Republicans in Congress. No sooner had the Internet tax moratorium been extended than Mike Enzi of Wyoming took to the Senate floor to announce that his colleagues should turn their attention to the
Streamline Sales and Use Tax Act, a bill he's introduced that would eliminate federal barriers to state and local taxation of interstate commerce and Internet sales. Senator Enzi says his bill is needed to help
states respond to a "budget crisis" and "begin to recover from years of budgetary shortfalls." His Senate colleague Lamar Alexander, the
former Governor of Tennessee and another proponent of Internet taxes, goes so far as to claim that states will be forced to raise other taxes if
they can't get their paws on e-commerce transactions. We're all for tax simplification, but the Enzi bill looks more like collusion. It would
require each state to "provide a central point of administration for all state and local sales and use taxes." In essence this would establish a
national sales tax -- albeit for use by the states -- by easing the process of collecting taxes for the purposes of more easily raising them. Moreover, the Senators' references to state budget crises makes us
wonder when they last looked at the revenue data. According to the Bureau of Economic Analysis, state and local tax revenue is rising, and has been for more than a year. Even the Conference of State
Legislatures, no foe of tax hikes, acknowledges that "more money is flowing into state coffers." Earlier this month, its revenue report noted
that "Personal income and sales tax collections -- about two-thirds of state tax collections -- are above target in almost every state," and that
corporate income taxes "also are coming in above expectations."
Thursday, December 23, 2004 ~ 11:00 a.m., Dan Mitchell Wrote: Since the Social Security system was created, the payroll tax has applied only to a portion of total wages. Originally, the limit was $3,000, which
Congress raised from time to time. Since 1972, the wage base has been indexed and rises automatically each year. This year, it was $87,900.
Starting on Jan. 1, the taxable wage base will rise to $90,000. Thus, the maximum tax one can pay will rise by $260. When Franklin D. Roosevelt
put this system into place, it wasn't out of love for the wealthy. Rather, it was in order to maintain some reasonable relationship between taxes
and benefits for everyone who pays into Social Security. ...If the cap is removed and benefits are limited to current levels, the return for high- income workers will become nonexistent. This means that Social
Security will no longer be a pension system to which one earns benefits, but will instead be nothing but a welfare program. ...Of course, another
consequence of raising the cap is that it will constitute a massive marginal tax rate increase. The top rate on wages will, in effect, rise by
12.4 percent, raising the de facto top rate from 38 percent to more than 50 percent (including the 2.9 percent Medicare tax, which has applied to all wages since 1993). This will reduce labor supply, encourage
tax-sheltering activities and move tax policy in the opposite direction that President Bush has been going for the last four years. A study by the
Institute for Research on the Economics of Taxation says that the negative economic effects of raising the wage cap could be devastating: "On an income-weighted basis, there would be a net reduction in work
incentives economy-wide." A Heritage Foundation analysis found that lifting the wage cap would constitute the largest tax increase in American history, raise the unemployment rate, reduce the personal
saving rate by about one half of a percentage point and reduce real economic growth by about a tenth of a percent per year. ...every proposed solution to the "Social Security funding gap" that eschews private accounts just promises to leave younger generations
facing disappointing and delayed Social Security benefits and much higher taxes. And that, in turn, is why we need to get started on private accounts -- to give those now in their 20s and 30s some time to build
bigger and more reliable sources of retirement income than simply relying on the unlikely generosity of increasingly scarce young taxpayers
in the future. If the "Social Security funding gap" was all that mattered, that could easily be fixed by raising the Social Security retirement age
from 67 to 77, or perhaps 97. Such solutions pretend to "fix the system" by putting young people in a fix. They try to dodge the unavoidable
reality that during the next few decades, too many older people will be trying to retire at the expense of too few young taxpayers. The threat of
increasingly punitive tax rates on future workers (or, even worse, trying to dump the burden on a few with high salaries) is not even part of a workable solution and is, in fact, the fundamental threat to future
prosperity for workers and retirees alike.
Thursday, December 23, 2004 ~ 10:36 a.m., Andrew Quinlan Wrote: Keeping the numbers small, suppose the annual value of what Americans produce, our gross domestic product, is $100. If government
spends $40 of it, of necessity the government must force us to spend $40 less. There are several ways this can be done. Government could tax us $40. Government could borrow, thereby driving up interest rates and
reducing private spending. Government could simply print money, which would cause inflation and reduce our purchasing power. Finally, government could employ some combination of the three. The bottom
line is that if government spends $40 of our GDP, we can't spend that same $40. There's no question that tax reform is needed, but tax reform is secondary to a much larger issue -- federal spending. From 1787 to
1920, except during war, federal spending was a mere 3 percent of GDP, compared to today's 20 percent. If the federal government takes only 3 percent of the GDP, just about any tax system is relatively
non-oppressive. However, if government were to take 50 percent, 60 percent or 70 percent of the GDP, you tell me what tax system would be non-oppressive. ...Before we accept a national sales tax, there are two
minimal requirements. First, there must be a repeal of the 16th Amendment so Congress can't hit us with both an income and sales tax. Second, there must be a constitutional amendment fixing the national
sales tax at a certain percentage that can only be increased by a three-fourths vote of the House of Representatives. People have advocated a national sales tax or a flat income tax for years, and I don't
want to rain on their parade. But here's my prediction: Congress will never enact a sales tax or a flat tax. Why? The two most powerful congressional committees are the House Ways and Means Committee
and the Senate Finance Committee. Both dispense tax favors to different Americans that come at the expense of other Americans. With a sales or
flat tax, their Santa Claus roles, not to mention campaign contributions, would be diminished. On top of that, they'd have restricted opportunities
for social engineering through fiddling around with the tax code.
Thursday, December 23, 2004 ~ 9:31 a.m., Dan Mitchell Wrote: America and Europe have profoundly different views on fundamental and basic values and attitudes. Take their views on poverty, inequality
and the welfare state. According to the World Value Survey, (a respected attitudinal survey conducted in about 40 countries) 60 per cent of
Americans believe that the poor are "lazy," 26 of Europeans have the same belief. The exact opposite proportions (60 per cent of Europeans
and 29 per cent of Americans) believe that the poor are trapped in poverty. According to evidence drawn from surveys about well being, Americans are much less bothered by inequality than Europeans. In fact
even the American poor do not mind inequality, which they see as a social ladder that they can climb, while the European poor view it as an insurmountable social obstacle. ...European culture remains profoundly
affected by a Marxist tradition in which classes are viewed as cast in stone-which implies that it is almost impossible for a "poor"
("proletarian" in the old language) to become rich. Marxism assumes social immobility to justify the concept of "class." In many European
countries political institutions were shaped in revolutionary periods with a strong and powerful presence of Socialist and Communist parties, and European Constitutions often reflect an emphasis on equality and
redistribution. In America the Marxist cultural influence was much more limited. Instead the culture (or myth) of the self- made man was an
excellent ideological tool for the social conservatives to justify limited government intervention. The American Constitution, though reshaped,
amended and adapted to changing times, still reflects its origin as a document which had a strong flavor of defense of private property against the State.
Thursday, December 23, 2004 ~ 9:08a.m., Dan Mitchell Wrote: The Italian Senate last week approved the 2005 budget, although some key changes are likely to negate the effect of tax cuts which Prime
Minister Silvio Berlusconi fought hard to have included. Under the version of the budget approved by the upper house, more than EUR1 billion will be raised in revenues from increases in indirect taxes such as
stamp duty, while local governments will be given new powers to push up rates of local income tax. Economists fear that the benefits from EUR6 billion in tax cuts that Berlusconi insisted should be included in
budget to help boost growth, will be cancelled out by the revenue-raising measures. "The new measures in the amendment add to my conviction
that the budget will do very little to boost consumer spending," observed Giada Giani, an economist at Banca Intesa in Milan, according to Dow Jones.
Thursday, December 23, 2004 ~ 8:44 a.m., Dan Mitchell Wrote: From Mobile, Ala., to Detroit to rural eastern North Carolina, the federal government has approved millions in assistance to areas largely
unaffected by disasters, even after local officials warned of possible fraud. The $29.2 million sent so far to residents of Miami-Dade County
for Hurricane Frances, the Labor Day storm that struck 100 miles to the north, is not an anomaly, the South Florida Sun-Sentinel found in its
continuing investigation. "It's just the same nationwide," said Paulette Williams, emergency management director in Mobile County. he Federal
Emergency Management Agency gave Mobile residents $29.5 million for flooding last year, despite repeated calls and letters from Williams saying that the county suffered no damage. ...Officials in Wayne County,
Mich., learned from the Sun-Sentinel that more than 30,000 of their residents collected $33.9 million for storms in May and June. "That's
just staggering," said Mark Hammond, Wayne County's deputy director for homeland security and emergency management. "I could see 2,000
homes, but not 30,000." ...In North Carolina, the emergency manager in Columbus County, Ronnie Hayes, had no idea residents have collected $3.9 million for Frances so far. A tornado touched down during the
storm but damaged at most 50 homes, he said. "We did have some damage," Hayes said. "Did we have $3 million worth? Not in my
opinion. I didn't see that. I sure didn't." In nearby Cumberland and Scotland counties, emergency managers did not think any of their
residents had even applied for FEMA assistance after Frances. "We only had two residents who were impacted at all," said Scotland's director,
Roylin Hammond (no relation to Mark). Yet, FEMA records show 560 residents of Scotland and Cumberland counties applied for aid, receiving $398,442 as of last week. ...Byrd, an emergency manager for 16 years,
said FEMA needs to be overhauled. "This business of bailing people out every time a disaster happens," Byrd said, "it's going to break the United States."
Wednesday, December 22, 2004 ~ 11:15 a.m., Dan Mitchell Wrote: ...our forefathers' preferred design of a federal system allowed for ample competition between the individual states, and free movement of citizens
between the states, for a good reason. Should a state pursue policies that are harmful to overall welfare, its citizens could pick up and move to a
neighbor. The federal system set up a competition between states that acted as a natural governor of the growth of harmful government. This political insight was later incorporated into the economic lexicon by
economist Charles Tiebout, who demonstrated that "voting with your feet" often leads to efficient provision of government. As the United
States turns its gaze outward to the world community, therefore, it must entertain the possibility that membership in an aggregated global governing body may be necessary in order to ensure that global public
goods are adequately provided. But it must weigh the benefit of improved coordination in the provision of these public goods with the potential costs of harmonizing policies with nations that have far
different social preferences. And the citizens of the United States should be wary of entering into compacts that limit the beneficial competition
that preserves liberty and constrains the growth of inefficient and intrusive government. ...In an isolated nation, with no factor mobility, it
is easy for the government to tax labor, capital or both. When these factors can move freely between countries, then the power to tax is undermined and sometimes eliminated. Today, capital is highly mobile
between countries, and this has set off a raging tax competition. The biggest mover in this contest has been Ireland, which began lowering its
corporate tax rate from 50 percent in the late 1980s to the current rate of 12.5 percent and has experienced remarkable and persistent economic growth, as tax-dodging capital from around the world flowed
across its borders. Subsequently, many other nations (most recently Greece) have sought to copy the Irish example. Clearly, as my colleague Eric Engen and I noted in a recent article in Tax Notes, the world may
be headed for an equilibrium with a zero capital tax. However, tax competition need not erase the ability to tax altogether. First, countries can always tax immobile factors such as land. Second, mobile
individuals might voluntarily expose themselves to taxation if valuable government services are bundled with it. Indeed, individuals are likely
more sensitive to the quality of public goods (parks, schools, clean air) than is capital. Accordingly, taxes on labor will not necessarily be eliminated by global tax competition, even as the homogenization of
cultures, language and low cost of travel makes migration more common. If a country offers a good mix of public goods and taxes, laborers will choose to work there, just as many Americans voluntarily
move to high-tax suburbs. If it does not, they will move to a country that does. ...cartels formed by the world's governments to prevent competition will likely do so to protect redistribution. Germany and
France, for example, have social welfare states that put a heavy burden on all of their revenue raising devices. Tax competition from countries
like Ireland reduces their ability to rely on capital taxes, making their spending plans difficult to finance. The problem is not that paupers move to these countries. Rather, it is that those with the financial
wherewithal to finance the democratic socialists' objectives are moving away, literally and figuratively. Similarly, heavy labor-market regulation
has made unemployment high throughout most of Europe and has led to higher emigration. This impact of policy on mobility is becoming visible in the data, a sign that competition may be heating up in many areas.
And multinationals are not the only mobile players in the game. If one plots net migration patterns in OECD countries against the Heritage Foundation's index of economic freedom, for example, one can see a
clear and statistically significant tendency for individuals to move toward countries with more freedom. In response to these and other factors, Germany and France have attempted to force fellow members
in the EU to harmonize tax and regulatory policy in their direction. So far they have failed on taxes. The benefits to deviating from the harmonized policy, as Ireland has demonstrated, are too rich to ignore.
Wednesday, December 22, 2004 ~ 10:54 a.m., Dan Mitchell Wrote: Snow said the most important element of the Bush's ideas is his determination not to allow higher Social Security taxes. He contended
Europe's socialist economies during the second half of the 20th century showed high payroll taxes hurts employment and the economy. "We
don't want to go the way of Europe," Snow said. "We want to keep robust employment levels and growth levels. So, ruling out increases in payroll taxes is awfully important."
Wednesday, December 22, 2004 ~ 9:42 a.m., Andrew Quinlan Wrote: In The United States of Europe: The New Superpower and the End of American Supremacy, T. R. Reid provides an overstated but
inadvertently insightful treatment of the European challenge to American hegemony. On his intended thesis - that "the planet has a
second superpower now" - Reid fails to convince. Nevertheless, his book offers a valuable portrait of a continental political class obsessed with
"counterweighting" the United States of America. ...So far, it is true, the euro has succeeded, but double-digit unemployment, a declining
birthrate, soaring taxes, and a union-dominated welfare state suggest a grimmer economic future. A controversial blue-ribbon commission, chaired by former Dutch prime minister Wim Kok, reported in
November that Europe, with a growth rate roughly half the world average, will fail to meet its goal of outperforming the U.S. economy by 2010. Instead, its economy appears even more booby-trapped than our
own. Reid assumes that if EU regulators are strong, the EU must be too. Devoting an entire chapter, "Welch's Waterloo," to the EU's veto of the
GE-Honeywell merger, he misses the larger point. Europe's regulators legislate the length of leeks and the curves of cucumbers, mandate minimum tax rates, and prop up a pathetically inefficient agricultural
sector. Rather than making a superpower, the EU's ham-fisted regulators keep the world's largest unified market from reaching its full potential.
Wednesday, December 22, 2004 ~ 8:08 a.m., Dan Mitchell Wrote: California Gov. Arnold Schwarzenegger suggested in a German newspaper interview published Saturday that the Republican Party
should move "a little to the left," a shift that he said would allow it to pick up new voters. ...In an interview with Germany's Sueddeutsche
Zeitung daily, Schwarzenegger said that "the Republican Party currently covers only the spectrum from the right wing to the middle, and the
Democratic Party covers the spectrum from the left to the middle." "I would like the Republican Party to cross this line, move a little further
left and place more weight on the center," he was quoted as saying. "This would immediately give the party 5% more votes without it losing anything elsewhere."
Tuesday, December 21, 2004 ~ 12:15 p.m., Dan Mitchell Wrote: The current tax code is a drag on the economy, discouraging saving and investment, and requiring individuals and businesses to spend billions of
dollars and millions of hours each year to comply with the system. The President has stated that his goals are to make the tax code simpler, to
make it more fair, and to further promote growth and job creation. ...As a general matter, the less the tax code distorts decision-making, the
better the allocation of resources, and the more prosperous the economy will be. Standard economic theory indicates that the distortion of any tax rises with the square of the tax rate. That is why the standard
mantra for economists interested in tax reform is .broaden the base, lower the rates. A large scholarly literature in economics has pointed out
that another way to strengthen the economy would be to reduce the tax bias against saving and investment inherent in the current system. This
literature suggests that the optimal tax system would use consumption, rather than income, as the tax base. Under an income tax, a person who
immediately spends all his wages pays lower taxes over his lifetime than his neighbor who earns the same amount but chooses to save and invest
in order to enjoy a more prosperous retirement or to leave a bequest to his children. By contrast, under a consumption tax, these two families would pay the same tax in present value. Savers would no longer be
disadvantaged relative to spendthrifts. The result would be greater saving, increased capital accumulation, and higher growth in productivity and wages. ...one of the first questions to ask about the
corporate income tax is whether it should have a global reach, or whether it should apply only to income earned within the United States . My reading of the literature on this topic is that economics profession
once favored a global tax system. But that consensus is now eroding, and recently many economists have favored a territorial system.
Tuesday, December 21, 2004 ~ 11:50 a.m., Andrew Quinlan Wrote: The federal income tax code. Your position should be simple: Get rid of it. Start over. Replace it with a flat tax... The current system is an abomination. It is a stain on our national character and our politics. It retards economic growth and encourages the worst in us. It bars our people from fully realizing one of the critical components of the American dream -- the opportunity for each of us to discover and develop to the fullest our God-given talents. Income tax rates are far higher than they should be because of the code's Byzantine complexities. Think of it this way: Politicians tax us a dollar and then give us back -- unevenly, inequitably -- 50 cents in various credits, deductions, exemptions. Why not just tax us 50 cents in the first place and save everyone all the trouble? High tax rates retard economic growth. Taxes are a price. The tax you pay on your income is the price you pay for working; on profits, the price you pay for being successful; on capital gains, the price you pay for taking risks... The dollar. Leave it alone. Get away from this crazy theory that a cheap dollar will cure our perceived trade woes and give us greater prosperity. Richard Nixon had the same illusion in 1971, when he severed the dollar from gold -- a cheap dollar would improve our balance of trade, he thought. All we got was a decade of stagnation and inflation. Urge Alan Greenspan to have the Federal Reserve soak up excess dollars until the price of gold goes below $400 an ounce. The dollar should be a fixed measure of value, just as is the foot (12 inches) or the hour (60 minutes). ...The dollar's value is not an economic issue -- it is, fundamentally, a moral one. When an individual receives a dollar for his labor, what right have politicians, central bankers or other "we-are-smarter-than-the-American people" Mandarin types to change the value of what that individual receives for his or her labor? No windfall losses, no windfall gains. Debasing the dollar just breeds inflation. ...Inflation is a destroyer. It undermines the social fabric. "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose," is John Maynard Keynes' apt summary. Social Security. Keep in mind that any proposed changes to the system will create a political firestorm, that Democrats and other demagogues
will rail that you are undermining the wellbeing of the elderly. Rather than recommend tepid reform, you may as well go for something big. Instead of allowing workers to put 2% (out of 12.4%) of their Social
Security taxes into personal accounts, allow them to put in 6% or 8%. That way workers who choose to take this option would start seeing meaningful money quickly accumulate in their accounts. Critics will cry
that we will have to float bonds to implement this kind of reform. So what? Social Security's unfunded liabilities are well in excess of $10
trillion, versus the $7 trillion of our official national debt. So the liability is already there. A well-structured reform would mean that any borrowings could be amortized over a 30-year to 40-year period. It
would turn Social Security from a pay-as-you-go liability into a capital-creating, economy-growing asset.
Tuesday, December 21, 2004 ~ 11:00 a.m., Dan Mitchell Wrote: Although the ETI [elasticity of taxable income - the degree to which taxable income rises or falls as the tax rate decreases or increases]
literature appears to be moving toward a consensus, a deeper look at the research suggests little agreement. Despite the complexities inherent
in the estimation, several recent articles suggest a consensus value of about 0.40 (see Table 1). Carroll (1998), Saez (2003) and Gruber and Saez (2000) all find an overall elasticity of 0.40, even though they
examine different tax changes and use alternative methodologies. A closer examination of the studies suggests, however, that focusing on that single number masks considerable variation in the estimates. In
addition, Saez (2004) and Kopczuk (2003) suggest a great deal of uncertainty surround their ETI estimates. In some cases the overall elasticities vary greatly depending on specification. ...The ETI, which
measures the responsiveness of reported income to changes to marginal tax rates, is a key parameter for estimating the impact of income-tax-rate changes on tax revenues and for measuring the
efficiency implications of those rate changes. Studies have examined the tax changes of 1981, 1986, 1990, and 1993, as well as the bracket creep of the late 1970s and early 1980s, to estimate an overall ETI with
respect to the net-of-tax rate. In addition, some studies have separately estimated ETIs for different income groups. Estimated elasticities appear to vary by income, with the highest-income households being the
most responsive.
Tuesday, December 21, 2004 ~ 9:47 a.m., Dan Mitchell Wrote: Massachusetts already bears the dubious distinction of having more lawyers per capita than any state. Now it seems its legal class would like
to game the system to ensure they are also the best paid and least threatened with competition. That's the way to read a recent Massachusetts Supreme Judicial Court proposal to define the "practice
of law." The legal class has been on a mission to create such definitions to prohibit anyone but themselves from giving legal advice or working
on legal documents. Proponents say such rules are necessary to protect consumers from fraud and to give nonlawyers guidance on services they can legally perform. And if you believe that, we've got another lawyer
joke to tell you. In practice, these definitions shield lawyers from competition, curtail access to the justice system and saddle consumers
with fewer options and higher costs. ...the definition could (read: would) be interpreted by lawyers to prevent real estate agents from explaining
smoke detector laws to clients, prohibit software makers from selling will-writing programs, or constrain advocacy organizations from providing information about legal rights. And that's just for starters.
Tuesday, December 21, 2004 ~ 9:00 a.m., Andrew Quinlan Wrote: Someone ought to apply this logic to the internationalist agency our space program has become. NASA will cost taxpayers $16.2 billion in
fiscal 2005... That is an astronomical sum, considering not only the less-than-stellar returns NASA has yielded Americans recently... When the Clinton administration signed a deal in 1993 to include the Russians
in the station, Aerospace Daily said the deal would bring Russia's "cash-strapped aerospace industry some $1 billion in U.S. funds over the
life of the project." Clintonites pitched the project as a transnational jobs program. "Officials said it has the added benefit of helping forestall
unemployment for workers at Russia's Baikonur space-launch site," reported The Washington Post. The International Space Station is international socialism, and it exemplifies why many have fallen out of
love with NASA. ...In January, President Bush announced a bold plan to build a permanent base on the moon as a stepping-stone to Mars. But he
didn't pitch it like Kennedy's moon shot. "The vision I outlined today is a journey, not a race," said Mr. Bush, "and I call on other nations to join
us on this journey in a spirit of cooperation and friendship." It cost $100 billion in today's dollars to put an American on the moon in 1969. How
many U.S. tax dollars will it take to put a Russian on a moon base? NASA outgoing director didn't believe his NASA job was worth the sacrifice his children might face if they incurred a great debt for college.
How many taxpayers want their children to incur a great national debt to put an international station on the moon?
Monday, December 20, 2004 ~ 10:30 a.m., Dan Mitchell Wrote: Some of the most painful errors in economic policy resulted from the belief monetary problems were not monetary but fiscal - caused by
budget deficits. Blinded by such fiscal fundamentalism, President Hoover persuaded Congress to triple income tax rates in 1932, President Lyndon Johnson proposed a surtax as a counterproductive alternative to
Federal Reserve tightening in 1968-69. A series of Japanese governments imagined wasteful public works schemes and new taxes on consumers and investors would somehow undo the Bank of Japan's
prolonged deflation. Over the past two decades, the U.S. dollar has often gone up and sometimes down. Although these ups and downs were transparently unrelated to budget deficits or surpluses, apostles of the
quaint Keynesian faith have nonetheless misspent two decades alternating between predictions that budget deficits must push the dollar
up or down. ...Any proposal to "fix" the current account deficit by imposing brutal European or Japanese tax policies on the United States
simply aims to weaken the U.S. economy and thus reduce demand in general, including demand for imports. It "works" only in the same sense recessions have always cut our need for imported industrial
materials, components and equipment, and our ability to pay for them.
Monday, December 20, 2004 ~ 10:13 a.m., Dan Mitchell Wrote: ...the idea that lobbyists have gained power with term limits is laughable. Oh, you can probably find lobbyists who will advance the
claim, when they argue against term limits, but such talk is a ruse. All in all, the shorter the terms served, the more time lobbyists have to spend
re-investing in new representatives. Politicians are hard to buy, actually. It's often said that you can only rent them. But with term limits, lobbyists
are limited to the length of the rental agreements. That's why lobbyists are so consistently against term limits. | ||||||||||