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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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Saturday, September 30, 2006 ~ 6:52 p.m., Sven Larson Wrote: Today the U.S. Supreme Court announced it will review Washington v. Washington Education Association and Davenport v. Washington Education Association in its upcoming session,
giving hope to millions of teachers across the country that they may no longer be forced to pay union dues that fund political causes with which they disagree. "This is excellent news and a first step
toward securing the First Amendment free speech rights of teachers and 17 million union-represented employees across the country," said Michael Reitz of the Evergreen Freedom Foundation (EFF), an initial
complainant in the case. "We look forward to the oral arguments and are optimistic that the Court will restore justice for teachers." The cases began in Washington State where teachers have been
embroiled in a conflict with the NEA-affiliated teachers' union over whether the union has a right to use nonmembers' dues however it chooses. (Nonmembers have resigned from the union but are forced to pay
collective bargaining fees.) Passed by nearly 73 percent of voters in an initiative, Washington's paycheck protection law has been on the books for over a decade. It requires that union receive the
"affirmative authorization" of workers prior to spending their mandatory dues or agency fees on politics. The union flagrantly violated the law, even admitting to multiple violations during a state
investigation.
Friday, September 29, 2006 ~ 7:41 a.m., Dan Mitchell Wrote: The US and Canada share the spotlight with such countries as the Republic of Congo, China, Brazil and Germany in having some of the
highest effective tax rates on capital among 81 developed and developing countries, according to a study by the CD Howe Institute, the Canadian conservative think tank. The 2006 Tax Competitiveness
Report scores 81 developed and developing countries according to their tax treatment of business investment. The study was co-authored by Jack M. Mintz, Professor of Business Economics, Rotman School of
Management at the University of Toronto and Fellow-in-Residence at the Institute and Duanjie Chen, George Weston Tax Analyst at the Institute. … Unsurprisingly, the most tax-favoured jurisdictions include
Hong Kong at 6.1%, Singapore at 11.5% and Ireland at 14%, reflecting their low corporate income tax rates. … "The US certainly looks like a
high-tax country when it comes to business taxation," Chen and Mintz noted, agreeing with the conclusions of the Presidential tax reform panel
that the US corporate tax system is "a major barrier to investment and growth, degrading other strengths of the US economy." "Instead of
using the tax system to interfere with economically sound business decisions, it would be much better to have a broadbased neutral corporate income tax with low rates to create a better business
environment. Simplification would make it easier for taxpayers to comply with the system and for the IRS to administer the tax system," they observed. "The saving in compliance and administrative costs
would be good for the US economy as well," they added.
Friday, September 29, 2006 ~ 7:15 a.m., Dan Mitchell Wrote: …the Beijing-appointed chief executive is coming up with bad ideas all by himself. Last week Donald Tsang declared the end of "positive
noninterventionism," or laissez faire governance. Predictably -- and encouragingly -- the claim ignited a furor in Hong Kong, whose prosperity was built on free trade and small government. But the Donald
held firm. On Tuesday, he argued in an op-ed published in a number of Chinese- and English-language newspapers that "government has to
adapt its work" to suit "changing needs." We thought that was the role of the private sector. Thanks to "positive noninterventionism," Hong
Kong boasts one of the world's wealthiest, most flexible economies. In the 1960s, the city industrialized; in the 1970s, it exported; in the 1980s,
it moved its manufacturing base to mainland China; in the 1990s, its service sector blossomed. Today, average unemployment hovers between 3% and 4%; growth is forecast at around 6.2% this year, 5.5% next
year. Mr. Tsang has a better idea. The government needs "to act when there are obvious imperfections in the operation of the market mechanism," he wrote. Perhaps he's forgotten a few recent government
ventures. Take Hong Kong Disneyland, to which the territory shelled out HK$23 billion ($2.95 billion) in subsidies. After a year, the park has proved a flop. Or Cyberport, a government-backed entree into the
hi-tech era. Now it's just another property development. … "Positive noninterventionism" was the term coined in the 1980s by former Financial Secretary Sir Philip Haddon-Cave to encapsulate the Hong
Kong's government's longstanding policy of minimal meddling in the economy. This week Mr. Tsang insisted that only the name has changed and that he still believes in the principle of "big market, small
government." If so, it doesn't help to talk about the death of a policy that has provided the foundation for Hong Kong's economic success.
Thursday, September 28, 2006 ~ 8:49 a.m., Dan Mitchell Wrote: More London-based insurers are likely to follow Hiscox P.L.C. and Omega Underwriting to Bermuda in a bid to compete with rivals already
based in the tax haven. The firms' announcements they are moving their headquarters has reignited the debate over whether London can resist the growing challenge from the tiny Atlantic island, which has quickly
transformed itself into a leading insurance center. Despite the London insurance market's attempts to overhaul its business practices to make
itself a cheaper and more attractive venue, the simple issue of lower tax is an incentive for businesses with international reach, which can be
conducted anywhere, to move offshore. "I think it's inevitable others will follow us," said Bronek Masojada, chief executive of Hiscox. While Mr.
Masojada said the company's decision was prompted primarily by the fact that over half the group's business now comes from the United States and Bermuda, he agreed that "the tax and regulation issues are a
combined second." The logic of moving overseas is simple and compelling. Moving to Bermuda means you can cut your tax rate to close to 10% from around 30% in the United Kingdom. "More than
halving your tax rate obviously has a fairly substantial effect on your net earnings and your value to shareholders," said Gerald Farr, insurance
analyst at Seymour Pierce. A move to the tax haven could boost your company's value to shareholders by up to 20%, said Mr. Farr.
Thursday, September 28, 2006 ~ 8:22 a.m., Sven Larson Wrote: Imagine you sign a two-year lease with your landlord. After the first year, you decide you're tired of paying rent and would like to buy the
property instead. You make him an offer, which he rejects as too low. In response, you go to the board of aldermen and ask them to declare the apartment blighted, condemn it, and turn it over to you for
redevelopment. It might sound absurd, but something very similar is happening right now in Saint Louis. The story demonstrates just how ripe for abuse Missouri's eminent domain laws have become. And there's
little reason to think the eminent domain bill the state legislature passed in May will prevent such abuses in the future, because the "blight"
loophole being used by the city was not closed by the legislation.
Thursday, September 28, 2006 ~ 8:09 a.m., Sven Larson Wrote: Not the least unfortunate aspect of the United Nations is its habit of providing Third World despots with a prominent pulpit to speechify
against the agency's principal sponsor: the United States. Last week was no exception, as three worthy claimants to the title of most anti-American head of state -- Iran's millenarian President Mahmoud
Ahmadinejad; Venezuela's Castro protégé President Hugo Chavez; and Bolivia's Bolshevist President Evo Morales -- descended on Turtle Bay to
diabolize President Bush, denounce American foreign policy, and revel in the adulation of the UN's correspondingly anti-American membership. The results were entirely predictable. Ahmadinejad thundered against
the "aggression, occupation and violation of international law" by the United States and pronounced the establishment of Israel a "tragedy;"
Chavez snarled that President Bush was "the devil," derided free-market capitalism as one of the "great evils and the great tragedies" and
identified the United States as the main agent of "international terrorism;" Morales, the most conciliatory of the three, raged against
American efforts to inhibit the Bolivian cocaine industry as "an instrument of recolonization or colonization."
Wednesday, September 27, 2006 ~ 8:39 a.m., Dan Mitchell Wrote: In almost all studies it has been found out, that the tax and social security contribution burdens are one of the main causes for the
existence of the shadow economy. Since taxes affect labor-leisure choices, and also stimulate labor supply in the shadow economy, the distortion of the overall tax burden is a major concern of economists.
The bigger the difference between the total cost of labor in the official economy and the after-tax earnings (from work), the greater is the incentive to avoid this difference and to work in the shadow economy.
Since this difference depends broadly on the social security burden/payments and the overall tax burden, they are key features of the existence and the increase of the shadow economy. …Empirical results
of the influence of the tax burden on the shadow economy is provided in the studies of Schneider (1994b, 2000, 2004, 2005) and Johnson, Kaufmann and Zoido-Lobatón (1998a, 1998b); they all found
statistically significant evidence for the influence of taxation on the shadow economy.
Wednesday, September 27, 2006 ~ 8:24 a.m., Sven Larson Wrote: ...an individual's skills and personal choices are far more important in determining household wealth than inheritances. In fact, the contribution
of inheritance is surprisingly small. More importantly, skills acquired through education, entrepreneurship and hard work determine whether individuals move from one wealth level to another. ...The principal
argument for the estate tax is the notion that without it wealth would become more concentrated in the hands of financial dynasties. However, wealth is highly mobile ¡ª being raised in a rich family does not
guarantee that these children will be rich themselves when they retire. Only one in five children of the rich will themselves be rich when they
reach retirement age. On the other hand, more than half of the children whose parents are in the bottom half will end up in the top half by the time they retire.
Wednesday, September 27, 2006 ~ 8:00 a.m., Dan Mitchell Wrote: A primary reason why health care costs are soaring is that most of the time when people enter the medical marketplace, they are spending
someone else's money. When patients pay their own medical bills, they are conservative consumers. Economic studies and common sense confirm that people are less likely to be prudent, careful shoppers if
someone else is picking up the tab. Thus, the increase in spending has occurred because third parties — employers, insurance companies or government — pay almost all the bills. …For every $1 worth of hospital
care consumed, the patient pays only about three cents out of pocket, on the average; 97 cents is paid by a third party. For every $1 worth of
physician services consumed, the patient pays less than 10 cents out of pocket, on the average. For the health care system as a whole, every time patients consume $1 in services, they pay only 14 cents out of
pocket. Thus the incentive for patients is to consume hospital services until they are worth only three cents on the dollar, on the average. The
incentive is to consume physicians' services until they are worth only 10 cents on the dollar. And for the health care system as a whole, patients
have an incentive to utilize everything modern medicine offers until the value to them is only 14 cents out of the last dollar spent. Health care
costs over the past 40 years have risen as the proportion of health care paid for by third parties has increased. Prior to the advent of Medicare
and Medicaid in 1965, health care spending never exceeded 6 percent of gross domestic product. Today it is 16 percent. These two government programs unleashed a torrent of new spending and led to rising health
care prices. For instance, a recent study by Amy Finkelstein of the Massachusetts Institute of Technology found that half the growth in health care expenditures was due to Medicare. …Cosmetic surgery is
one of the few types of medical care for which consumers pay almost exclusively out of pocket. Even so, the demand for cosmetic surgery exploded in recent years. …Despite this huge increase, cosmetic
surgeons' fees remained relatively stable. The average increase in prices for medical services from 1992 through 2005 was 77 percent. [See the figure.] The increase in the price of all goods, as measured by the
consumer price index (CPI), was 39 percent. Cosmetic surgery prices only went up about 22 percent. Thus, while the price of medical services generally rose almost twice as fast as the CPI, the price of cosmetic
surgery went up slightly more than half as much. …Another example of price competition is the market for corrective eye surgery. In 1999, only a few years after LASIK was approved, the price was about $2,100 per
eye, according to the ophthalmic market research firm MarketScope. Within a short time, competition drove the price down to a slightly more than $1,600. The cost per eye of the standard LASIK is now about 20
percent lower than six years earlier. …When patients pay with their own money, they have an incentive to be savvy consumers. A second reason is supply. As more people demanded the procedures, more surgeons
began to provide them. Since almost any licensed medical doctor may obtain training and perform cosmetic procedures, entry into the field is relatively easy. A third reason is efficiency. Many providers have
operating rooms located in their clinics, a less-expensive alternative to outpatient hospital surgery. Surgeons generally adjust their fees to stay
competitive and usually quote patients a package price. Absent are the gatekeepers, prior authorization and large medical office billing staffs needed when third-party insurance pays the fees.
Wednesday, September 27, 2006 ~ 7:54 a.m., Sven Larson Wrote: If tax dollars are not a panacea for Tennessee's education woes, where can the state turn to ensure quality instruction for the workforce of
tomorrow? The answer may lie in taking a signal from the business community and allowing teachers to become entrepreneurs. The idea is not as radical as it may seem. In Athens, teachers, including Socrates,
Plato, and Aristotle peddled their services to potential students. This system helped produce one of the most literate, sophisticated societies in
history. In the early United States, families and towns contracted with entrepreneurial teachers to educate their children. Long before the
creation of public education, these arrangements helped produce literacy rates above 80 percent. In Minnesota, a group of teachers are taking
their cue from history-and from the business community. Fed up with the status quo, these teachers sought a better way to deliver education.
Rather than being employees of their local school district, they formed a cooperative and sold their services to a charter school. The charter school saw its enrollment double after contracting with these
enterprising teachers. Bill Gates was so impressed that his foundation donated more than $9 million to start other cooperatives in the region.
The cooperative has been so successful that it now provides its services to 2,500 students in more than 30 schools in urban, suburban and rural
neighborhoods in Wisconsin and Minnesota. The first charter school with which the cooperative contracted boasts ACT scores higher than the national average and a 90% satisfaction rate among its students and
their parents.
Tuesday, September 26, 2006 ~ 12:06 p.m., Sven Larson Wrote: [The] world body moved ahead on September 19 with a plan for global taxes to generate more foreign aid. This new scheme could make the
oil-for-food scandal look penny-ante. There was a minor media breakthrough on this matter, with the New York Times noting, "A group of countries led by France plan to raise at least $300 million next year,
mostly through taxes on airline tickets, to help pay for the treatment of children with AIDS, tuberculosis, and malaria, a senior French official said yesterday. The countries, acting through a new Geneva-based
organization called UNITAID, plan to pool their buying power and have asked former President Bill Clinton's foundation to negotiate with drug
companies for volume discounts." Some reports say the plan envisions spending of $450 million. The Times was careful not to describe these as
international or global taxes. But the taxes are designed to go for global purposes and finance international agencies. In an official press release,
the U.N. announced, "UNITAID will be funded by innovative financing mechanisms such as a contribution on air tickets...and the Secretary-General congratulated the Governments of France, Brazil,
Chile, Norway, and the United Kingdom for leading the way in developing the initiative." The phrase, "innovative financing mechanisms," is a euphemism for global taxes. By insisting the money
will go to fight deadly diseases, the U.N. hopes that opposition to global taxes can be overcome.
Tuesday, September 26, 2006 ~ 8:44 a.m., Dan Mitchell Wrote: Presenting the last budget prior to the election on November 22, Holland's long-serving Finance Minister Gerrit Zalm stated that the
government will continue to cut the rate of corporate income tax, which will fall to 25.5% in 2007 from 29.1%, putting it below the European
Union average. This represents a 5% cut in corporate tax since 2005. In addition, small and mid-sized companies whose profits are liable to income tax will receive an exemption of 10%. There will also be a small
income tax cut for individuals, with the lowest tax bracket reduced by 0.50% and the second bracket by 0.05%. Unemployment insurance contributions, which are paid by all working persons, will also be cut by
1.35%.
Tuesday, September 26, 2006 ~ 8:17 a.m., Dan Mitchell Wrote: Sweden became internationally known as the country that went from rags to riches with the second highest growth rate in the world between
1890 and 1950. Then, economic policy took a more socialist turn and it became a prime example of a society with a big state taking care of people from the cradle to the grave - using their own money. And in the
1990s, there was quite a lot of attention around the Swedish market-oriented reforms. The summary of Swedish success and failure is a story of markets against the state. Every time Sweden has taken a step
towards freer markets, it has been very successful. And every time it has increased the size and power of the state, success has sooner or later faded away. During the phase when Sweden went from agriculture and
poverty to industry and wealth, the economy was very open and flexible. …Entrepreneurs started up small businesses easily in a dynamic environment with low taxes and strong property protection. In fact, the
tax pressure rose only from 10 to 20 per cent of GDP between 1890 and 1950. During the socialist phase, however, the size of the state exploded. The tax pressure increased to 50 per cent of GDP during the three
decades up to 1980. Many companies were socialised by the state. The state interference in markets grew and the ultimate aim was a more centrally planned economy. The socialist period created problems.
Growth decreased and Sweden started its decline in the OECD list of countries in GDP per capita. Inflation soared and so did budget deficits, at times at around ten per cent of GDP. Unemployment reached high
levels. Problems with matching supply and demand in markets with state intervention and in the welfare monopolies were mounting. Only one of the 50 biggest companies today has been started before 1970, which
indicates which period was successful and which one that was not. This was followed by a rather intense period of market-oriented reforms from
the late 1980s to the mid 1990s. …Marginal tax rates were cut, making education and work more profitable. Many markets, such as telecom, taxi, finance and gas - were de-regulated. …A pensions reform
substantially reduced the level of state pensions and allowed citizens to invest part of the state pension in the private market. Where does that
put Sweden today? A neo-liberal country that became socialist and then embarked on market-oriented reforms in several areas. Today, Sweden contains both socialism and free markets. But the same truth as before
applies: where there has been free-market reform, there is success, and where there is socialism, there are problems.
Monday, September 25, 2006 ~ 11:13 a.m., Sven Larson Wrote: The European Court of Justice has just ordered the British to adopt some of the more rigid work rules of Continental Europe. One reason
the British have prospered more and have almost half of the unemployment rate of Germany and France is the British have much more flexible work rules. Now the European Union demands the staff in
British firms have at least 11 hours off between work days, a minimum of one day off per week, and an extended break at least every six hours.
Such rules may seem reasonable on average, but they ignore the reality of necessary "crunch time" at many accounting firms at tax time, law
firms during intense negotiations, high-tech firms at critical product development times, retailers during the week before Christmas, hotels and restaurants during high season, farms during harvests, and in news
rooms during critical events, etc. They also deny employees the fundamental freedom to bunch their working time if they so choose, and to work as hard and to earn as much as they wish. ...France, Germany
and some of the other European countries have extremely rigid work rules, such as the French requirement that workers not work more than 35 hours weekly, even if they want to, and the almost impossibility of
firing workers, no matter how lazy and incompetent. The predictable result is there has been little growth in private-sector employment in these countries -- the U.S., with a smaller population, has created more
private sector jobs in the last four years than Europe has in the last 20.
Monday, September 25, 2006 ~ 8:59 a.m., Dan Mitchell Wrote: …unless we can exploit the dramatic demographic and economic changes that are before us, our future will be much poorer. Instead of
stepping into an easy retirement, many retirees will tumble into a future marked by bankrupt government social programs and declining asset
values that will quickly deplete their cherished nest eggs. This forecast is not based on an unpredictable future, but on events that have already
transpired. Aside from immigration, we know almost exactly how many people over the next 20 years are going to reach the working age of 20 and the retirement age of 65. …In the U.S. in 1950 there were seven
people of working age (20-65) for every retiree, and even today, there are almost five. But by 2030, when the last of the baby boom generation
retires, that ratio will fall by nearly one-half, down below 3 to 1. The aging of the population in Europe and Japan is even more extreme than
in the U.S. In Japan by mid-century, the ratio of workers aged 20-65 to retirees will fall to just over one-for-one. At that time the most populated
five-year age segment in Japan will be those aged 75-80. The same will be true in Italy, Spain, Greece and other European countries.
Monday, September 25, 2006 ~ 8:45 a.m., Dan Mitchell Wrote: …last year, the federal government spent more than $477 billion on some 50 different programs to fight poverty. That amounts to $12,892
for every poor man, woman, and child in this country. And it does not even begin to count welfare spending by state and local governments. For all the talk about Republican budget cuts, spending on these social
programs has increased an inflation-adjusted 22 percent since President Bush took office. Despite this government largesse, 37 million Americans
continue to live in poverty. In fact, despite nearly $9 trillion in total welfare spending since Lyndon Johnson declared War on Poverty in
1964, the poverty rate is perilously close to where it was when we began, more than 40 years ago. Clearly we are doing something wrong. Throwing money at the problem has neither reduced poverty nor made
the poor self-sufficient. But government welfare programs have torn at the social fabric of the country and been a significant factor in increasing out-of-wedlock births with all of their attendant problems.
They have weakened the work ethic and contributed to rising crime rates. Most tragically of all, the pathologies they engender have been passed on from parent to child, from generation to generation. Welfare
reform was supposed to fix all that. And, indeed, it has had some positive effects. Welfare rolls are down. Since 1996, roughly 2.5 million families have left the program, a 57 percent decline. Critics predicted
that welfare reform would throw millions into greater poverty. Instead, it led to modest reductions in poverty, particularly for children, black
children, and single-mother households. Most of those who left welfare found work, and of them, the vast majority work full-time. As you would expect, studies show that as former welfare recipients gain work
experience, their earnings and benefits increase. …An enormous amount of evidence and experience shows that private charities are far more effective than government welfare programs. While welfare provides
incentives for counterproductive behavior, private charities can use their aid to encourage self-sufficiency, self-improvement, and independence.
Private charities can individualize their approaches and target the specific problems that are holding people in poverty. One definition of insanity is doing the same thing over and over and expecting different
results. Perhaps that's something to keep in mind the next time we hear a call for more welfare spending.
Monday, September 25, 2006 ~ 8:16 a.m., Sven Larson Wrote: The Arizona Constitution declares that "governments . . . are established to protect and maintain individual rights." As the lawmaking branch of
government, the legislature has the potential to be the greatest guardian or the greatest offender of those constitutionally enshrined rights.
...During the 2006 legislative session, legislators considered nearly 1,600 bills, memorials, and resolutions on issues from equine dentistry to
income tax relief. ...As the most comprehensive analysis of the Arizona Legislature, the annual Goldwater Institute Legislative Report Card measures each legislator's votes against the yardstick of the state
constitution. ...This year the legislature increased ongoing General Fund spending (FY 2007) by more than 12 percent over FY 2006 (a permanent spending increase of $1.09 billion); failed to pass a comprehensive
school-choice reform bill or an institutional mechanism to limit General Fund growth; and added dozens of well-intentioned but detrimental commissions and regulations. Indeed, legislators' lowest scores once
again came in the Regulation category, indicating a collective failure to protect the public from the burden of excessive regulation. ...Between
2003 and 2005, average scores rose nine points in both the House and Senate. This year's scores have returned to 2003 and 2004 levels. The Regulation category continues to be the major point of weakness, with
legislators imposing more rules and limitations on the free market. Average scores are highest in Constitutional Government.
Sunday, September 24, 2006 ~ 6:17 p.m., Dan Mitchell Wrote: Rebalancing the voting to reflect economic progress is probably overdue. But in this case it's also like rearranging flowers before a funeral. Since
the collapse of Bretton Woods in 1971, the IMF has been searching for a mission. Before the days of global capital markets, it financed bankrupt
governments. Later, in the 1990s, it bailed out private-sector investors who had made bankrupt bets on governments. Lately, with the world economy humming, the IMF has been scrambling for a new purpose.
…Good advice certainly would be welcomed in developing countries, which would benefit from cleaner government and more openness to trade and foreign investment. But is the IMF the institution to provide
this kind of counsel? Indonesia is still suffering from the fallout from the Fund's advice during the 1997-98 Asian currency crisis; South Korea
and Thailand have only recently recovered. Argentina isn't exactly a poster child for IMF smarts (see above). This week, too, the Fund focused on all of the wrong problems. Its meetings were peppered with
talk of looming global imbalances, unstable exchange-rate regimes and the buildup of central bank reserves. These conditions have persisted for years without damage to the global economy. Perhaps the Fund would
do its 184 members a better service by focusing on strengthening economies so foreign-exchange fluctuations, for instance, wouldn't have such a large effect. It's ironic that the Fund met in Singapore, which
boasts one of the most business-friendly environments in Asia, and somehow missed this point. We didn't hear one serious discussion of how low taxes, simple and clear regulatory regimes, and protection of
property rights boost economic growth.
Saturday, September 23, 2006 ~ 10:30 a.m., Sven Larson Wrote: The eurozone risks breaking up in the near future putting the entire EU single market into jeopardy unless member states - particularly Italy -
undertake crucial economic reforms, according to a new report. Entitled Will the eurozone crack?, the report by the London-based Centre for European Reform, argues that instead of European Monetary Union in
1999 leading to progress in the reform needed for membership of a single currency zone, it resulted in national governments becoming complacent and no longer feeling obliged to push through unpopular
economic changes. The result is that today the 12-nation zone faces a situation where Italy, the laggard among the EU economies that matter, could eventually be forced to leave the common currency because the
economic costs of staying in outweigh those of leaving. "A failure by Italy to regain competitiveness would ultimately bring into question its
membership of the eurozone and the sustainability of EMU itself," says the 59-page report which puts the odds of an Italian eurozone exit as high as 40 percent.
Saturday, September 23, 2006 ~ 9:48 a.m., Dan Mitchell Wrote: One of the best illustrations for the simplification of government is the federal income tax system. It is time to throw out our 55,000-page tax
code — which is impossible to follow accurately any more — and replace it with a flat tax. …There would be no estate tax, no accounting games,
and we'd get rid of most of the tax accountants and lawyers. If possible, employment taxes would be merged into the flat income tax so as to make them more progressive. Today, they are the most regressive taxes
we have. …If a true flat tax were enacted, individuals and businesses would save billions of dollars in time and money. They no longer would have to keep track of documents and spend billions of hours on
bookkeeping and accounting. They would be free! One of the biggest benefits of a true flat tax, however, would be for our form of government. A true flat tax would eliminate the extensive involvement
of businesses in government — leaving the governance of America to its individual citizens. This is because, with the eliminate of 90 percent of
the tax code, businesses would have little incentive to get involved in government via lobbying and politics because their major activity — i.e., getting favorable tax breaks — would be no longer exist.
Friday, September 22, 2006 ~ 8:51 a.m., Dan Mitchell Wrote: Revenues to the state budget increased in real terms by 15.27 percent - to approximately 11 billion euros - in the first eight months of the
current year, said the president of the National Agency for Fiscal Administration (ANAF), Sebastian Bodu. The ANAF official said that accumulated funds of the state budget, the health insurance budget,
state social insurance, unemployment insurance and local budgets will represent this year 32.3 percent of the gross domestic product, compared to the 30.4 percent registered in 2004. Bodu believes the advance in
revenues should put an end to the discussions regarding an eventual "hole" in the state budget caused by the introduction of the flat tax, at
the beginning of 2005. Between January and August, collections from the profit tax increased by 8.86 percent, while those from revenue tax increased by 30.67 percent.
Friday, September 22, 2006 ~ 8:30 a.m., Dan Mitchell Wrote: Vaclav Klaus…is an unapologetic free-marketer, fan of the United States and critic of the EU's insatiable drive for centralization of
decision-making in Brussels. He wants the EU to return to its humbler roots as a free trade association. As such, Klaus has been criticized for
his apparent lack of commitment to the European "super-state" and successfully caricatured as the antithesis of a good EU citizen. But Klaus's views are today more relevant than ever and the EU leaders
would do well to listen to him. …The European project is faltering, as member states cannot agree on the most basic issues pertaining to the
future economic and political direction of the EU. That is why faith in the European project is now more important than ever. That is also why
critics of the European project are increasingly treated like apostates. The British writer G.K. Chesterton once quipped, "When people cease to
believe in God, they don't believe in nothing, they believe in anything." European politicians, it seems, have found their new religion. Sadly, it may be a false one.
Friday, September 22, 2006 ~ 7:44 a.m., Dan Mitchell Wrote: People often picture families at all quintiles looking pretty much alike except for income and ethnicity. But that picture is false. One of the
main ways they are not alike is in the number of people working in the household. In the lowest quintile, 58.7 percent of households had no one earning money, 35.9 percent had one earner, and only 5.5 percent of
households had two or more earners. (These percentages total 100.1 percent due to rounding.) In the highest quintile, by contrast, only 2.6 percent had no one earning money, 21.1 percent had one earner, and a
whopping 76.3 percent had two or more earners. In the middle three quintiles -- which, unfortunately, the Census didn't break down further -- only 14.9 percent had no earners and 42.8 percent had two or more
earners. In the lowest quintile, 64.2 percent of the heads of household (the Census now calls them "householders") did not work at all and only
14.0 percent worked full-time year-round. By contrast, in the highest quintile only 11.3 percent of heads of households did not work, while
73.0 percent worked full-time year-round. In the middle three quintiles, 26.3 percent of heads of households did not work and 54.7 percent of
heads of households worked full-time year-round. The message is clear: if you want to have an extremely high probability of avoiding the lowest
quintile, get a job, ideally a full-time job, and live with someone who has a job. … Only 17.9 percent of households in the bottom quintile had a
married-couple family; by contrast, 79.0 percent of households in the top quintile had a married-couple family.
Thursday, September 21, 2006 ~ 11:15 a.m., Sven Larson Wrote: In short, populists argue, the market is broken. The rules are rigged. The reigning ideology in Washington must be upended. Unions must be
revived. Globalization needs to be reorganized. The problem with this narrative is that it doesn't really fit the facts. First, workers over all are
not getting a smaller slice of the pie. Wages and benefits have made up roughly the same share of G.D.P. for 50 years. Second, offshore outsourcing is not decimating employment. According to the Bureau of
Labor Statistics, outsourcing is responsible for 1.9 percent of layoffs, and the efficiencies it produces create more jobs at better wages than
the ones destroyed. Third, jobs are not more insecure. Workers are just as likely to hold a job for 20 years as they were in 1969. Fourth, workers
are not stuck in dead-end jobs. Social mobility is roughly where it was a generation ago. Fifth, declining unionization has not been the driving
force behind inequality. David Card of the University of California , Berkeley , has estimated that de-unionization explains between 10 and 20 percent of the rise in inequality, and that effect was probably
strongest decades ago. These days the working class is not falling behind the middle or upper-middle class. Instead, the big rise in inequality is
within the office parks, among people who were never unionized. Middle managers are falling behind top executives.
Thursday, September 21, 2006 ~ 8:24 a.m., Dan Mitchell Wrote: When the International Monetary Fund and the World Bank convene their annual meetings in Singapore in the next few days, they will be
eager to discuss a common problem: how to justify their existence in a world that no longer wants or needs them. …In a world of floating exchange rates and open capital markets, the IMF's raison d'être no
longer exists. Its "clients" are rapidly repaying their outstanding loans. Macroeconomic accountability has improved world-wide, not because
the fund mandates it but because without the guarantee of IMF rescues, investors now impose their own discipline. If hazards remain it is because, with the IMF still hanging around looking for work, future
bailouts cannot be ruled out. The IMF's sister, the World Bank, is also facing an existential crisis on its lending side. The bankers at the International Finance Corporation, which is dedicated to the private
sector, now busy themselves financing big business, a job that ought to be left to the market. The bank's main business of lending to governments in middle-income countries -- that neither seek nor require
bank loans -- is drying up. More broadly, foreign aid as a tool for development has increasingly come under scrutiny as wasteful and even counterproductive. If only the bank would pay more attention to its own
research, specifically the annual report titled "Doing Business," which looks at the regulatory policies and tax climate of 175 countries. The
2007 edition was released last week and, not surprisingly, finds that poor countries could be much better off if only they would stop discouraging legal, tax-paying business activity.
Thursday, September 21, 2006 ~ 8:00 a.m., Dan Mitchell Wrote: The median household income of Wal-Mart shoppers is under $40,000. Wal-Mart, the most prodigious job-creator in the history of the private
sector in this galaxy, has almost as many employees (1.3 million) as the U.S. military has uniformed personnel. A McKinsey company study concluded that Wal-Mart accounted for 13 percent of the nation's
productivity gains in the second half of the 1990s, which probably made Wal-Mart about as important as the Federal Reserve in holding down inflation. By lowering consumer prices, Wal-Mart costs about 50 retail
jobs among competitors for every 100 jobs Wal-Mart creates. Wal-Mart and its effects save shoppers more than $200 billion a year, dwarfing such government programs as food stamps ($28.6 billion) and the
earned-income tax credit ($34.6 billion). People who buy their groceries from Wal-Mart -- it has one-fifth of the nation's grocery business -- save
at least 17 percent. But because unions are strong in many grocery stores trying to compete with Wal-Mart, unions are yanking on the Democratic Party's leash, demanding laws to force Wal-Mart to pay
wages and benefits higher than those that already are high enough to attract 77 times more applicants than there were jobs at this store. … Liberals think their campaign against Wal-Mart is a way of introducing
the subject of class into America's political argument, and they are more correct than they understand. Their campaign is liberalism as condescension. It is a philosophic repugnance toward markets because
consumer sovereignty results in the masses making messes. Liberals, aghast, see the choices Americans make with their dollars and their ballots, and announce -- yes, announce -- that Americans are sorely in
need of more supervision by ... liberals. Before they went on their bender of indignation about Wal-Mart (customers per week: 127 million), liberals had drummed McDonald's (customers per week: 175 million) out
of civilized society because it is making us fat, or something. So, what next? Which preferences of ordinary Americans will liberals, in their role
as national scolds, next disapprove? Baseball, hot dogs, apple pie and Chevrolet?
Wednesday, September 20, 2006 ~ 8:59 a.m., Dan Mitchell Wrote: Governments and financial sector authorities in the Caribbean should keep a close eye on the latest initiative by European Union (EU) tax
officials to cast their tax net beyond their own shores. On 4th September, the European Commission is reported to have said that it wants to extend the European Union Savings Directive (EUSD) to Hong Kong,
Singapore, Japan, Macao, Bahrain, Dubai, Canada and the Bahamas. The EUSD requires countries either to provide information on interest paid into the bank accounts of EU citizens to the tax collectors in their
country of origin, or to apply a withholding tax on the interest payments that is then remitted to the revenue departments of the relevant EU
countries. The inclusion of the Bahamas on the EU list is ominous. For when the Organisation for Economic Cooperation and Development (OECD) launched its so-called "harmful tax competition initiative" in
2000, it identified the smallest and weakest nations in the world to name and shame; many of them were in the Caribbean. There followed an unrelenting three-year campaign against these countries, describing
them as "non-cooperative countries and territories" (NCCTs) and demanding that their Head of Government sign a letter committing to the removal of "harmful tax practices" which included information
exchange. Almost every Head of Government of a small country signed a letter which was promptly displayed trophy-like on the OECD website.
Fortunately, the Republican administration, which came to power in the United States under President George W Bush, disagreed with the high-tax stance implicit in the OECD initiative, and this helped to
weaken the OECD resolve. In the end, the OECD juggernaut was brought to halt by the resistance of some of its other members – Switzerland, Luxembourg and Liechtenstein in particular - who refused
to go along with the demands of their more strident sister states in the OECD for fear of the harmful effect on their vital financial services
sector. …After the first nine months of the operation, EU tax officials were clearly dissatisfied with their haul from the traditional tax havens
in the EU and dependent territories in the Caribbean such as Anguilla, the British Virgin Islands (BVI) and the Cayman Islands. Figures bandied about are a high of US$100 million from Switzerland through
US$4 million from Guernsey to less than fifty thousand United States dollars from the BVI. The theory now seems to be that the monies have left Europe and its dependencies, where the EUSD has been enforced,
and wandered off to Hong Kong and Singapore in particular. The Bahamas is named because, apart from Cayman and the BVI, which are already captured in the EUSD, it has the most financial institutions in
the region.
Wednesday, September 20, 2006 ~ 8:40 a.m., Sven Larson Wrote: "The OECD has been on a long process of backing down," says Jason Sharman, a University of Sydney researcher who wrote the forthcoming
book Havens in a Storm - the Struggle for Global Tax Regulation. "It started off with ambitious aims and has pretty much become a voluntary
exercise." After early successes in places like Vanuatu, the OECD has made little headway. The project began to wither in 2001 - when the Bush Administration found its voice. Behind the scenes, right-wing think
tanks had been rallying congressmen and Administration officials to the cause of tax competition. The lobbyists say they fought on a question of
principle: since when do Republicans punish countries for having low tax rates? ...Dan Mitchell, who chairs and co-founded the Center for Freedom and Prosperity and is an influential fellow at the Heritage
Foundation, is credited with being the key agitator. "It's a moral issue. It comes down to what's the best way to deal with tax evasion," he says.
"The option we prefer is to lower tax rates and reform your system - the Reagan example" ..."Or you can go the other way: destroy privacy,
destroy due process, strip away people's constitutional rights and create some massive Orwellian world." ... Mitchell says it did not take long for
congressmen and the Administration's top economists, Glenn Hubbard and Larry Lindsay, to see that European nations like France were conspiring at the OECD to eliminate tax competition and protect their
high-taxing and inefficient regimes. ..."The OECD was a cockroach and we turned a light on in the room," says Mitchell. "And they said OK, it's
repulsive, let's stamp it out." ...Mitchell and his colleagues did not confine their efforts to Washington and Paris. They travelled the Caribbean pointing out that tax havens are not exclusively found on
palm-fringed islands. ...They explained that a company in the state of Delaware, for example, faces no company tax, no requirement to conduct a genuine business and has no need to have a physical presence
in the country. Wyoming and Nevada allow owners to nominate bogus directors and receive anonymous "bearer" shares - which are notoriously difficult to trace. ...Thomas Bayer claims OECD countries
are shutting down developing world tax havens like Vanuatu and Nauru so they can steal their business. ..."I would say America is probably the
largest violator. You can still set up companies without disclosing beneficial interests, and nobody says a word," he says. "The agenda of
the OECD is to squeeze out the small centres because that business will not disappear ... it will go back to them."
Wednesday, September 20, 2006 ~ 8:32 a.m., Sven Larson Wrote: In May, President George W. Bush signed a bill passed by Congress that sharply raises tax rates for overseas citizens with salaries plus taxable
benefits totaling $93,000 a year or more. The biggest effect so far has been on businesses. The new law taxes much more of the rent assistance provided by companies for employees abroad. The United States is the
only developed country that taxes its citizens while they are overseas, so nationals of countries like Canada, Britain, Australia and New Zealand
can often afford to work for less and do not need to ask employers for costly tax assistance. "The concern is universal between the companies,
where they feel they're losing their competitive advantage if they hire Americans," said Harley Seyedin, chief executive of First Washington Group, a power company, and president of the American Chamber of
Commerce in Guangzhou. "Most companies are looking outside the U.S. if they need to hire." Americans living overseas, particularly those facing
high taxes on employer-provided benefits like housing assistance and tuition for children in school, are wondering not only whether they can
afford to stay, but also whether their employers will try to transfer them home. "You really have to be able to differentiate yourself to justify
someone hiring you over a Brit or an Australian or a Canadian," said Robert Keys, a partner in the Hong Kong office of PricewaterhouseCoopers. Keys and other tax experts said that in poring
over the two main changes enacted in May - higher marginal tax rates and higher taxes on housing assistance - they had found several features
that were not obvious at first. Initial discussions of the tax increase in Washington focused on its cost to corporations, notably oil companies,
which often help pay their overseas employees' tax bills. But many companies demand that Americans become employees of their overseas subsidiaries and give up their expatriate benefits, including tax
assistance, if they settle down and stop moving to another city every several years. ...Until this year, the first $80,000 earned overseas was
excluded from taxation in the United States, with the next dollar earned overseas treated as though it were the first dollar of income and scarcely
taxed. Taxes paid to foreign countries can then be used to reduce tax liability in the United States as well, although this also reduces the value of the $80,000 exemption. The new law increases the exclusion to
$82,400. But under a provision known as "stacking" in the new law, the next dollar of income is now being taxed as though it were the 82,401st dollar of income.
Wednesday, September 20, 2006 ~ 8:11 a.m., Dan Mitchell Wrote: …the rich world cannot disown all interest in global poverty and inequality: to some extent, the fate of every individual in the world
affects us. …Redistribution needs to be globally progressive—that is, to satisfy the same criteria that we require from redistribution within a nation-state. …How could it be done? By creating a global body
(Agency) that would be financed by a tax raised from the rich in rich countries (that is, a tax on goods or activities with very high income
elasticity) and which would transfer these funds to poor individuals in poor countries. A global redistribution through taxes that would be levied by an international body is an idea that may seem far-fetched
today, but which the logic of development we have recently witnessed—away from the nation state—suggests may eventually come to pass.
Tuesday, September 19, 2006 ~ 9:56 p.m., Dan Mitchell Wrote: This study evaluates the 50 states between fiscal years (FY) 1994 to 2004, examining the impact that the level of taxation has on three
important measures of economic prosperity: population growth, personal income growth and employment growth. This time period was chosen because it is a full decade long, includes an entire business cycle
(i.e., recovery from 1991 recession to the boom in late 1990s to the recession in 2001 and back to the recovery from 2001 recession), and includes the most recent tax burden data available by state. …The ten
lowest tax states had an average tax burden of 9.5 percent, while the ten highest tax states averaged 13 percent. The lowest tax states level of taxation was 27.2 percent lower than the highest tax states.
Correspondingly, the low tax states had population growth that was 172.1 percent higher, personal income growth that was 31.9 percent higher, and employment growth that was 78.6 percent higher.
Tuesday, September 19, 2006 ~ 6:16 p.m., Dan Mitchell Wrote: Europe's left likes to hold up the "Swedish Model" as the perfect amalgam of capitalism and socialism. But even in its home country,
paying punishing taxes to finance a generous welfare state isn't that popular anymore, as Sunday's elections show. The Swedish Social Democrats had their worst result since 1914, as Fredrik Reinfeldt and
his four-party center-right Alliance ousted incumbent Prime Minister Göran Persson. …Unemployment is officially around 5% but include those on job training programs, early retirement and sick leave, and the
figure soars to about 17%, according to McKinsey. Mr. Reinfeldt argued that if you add in Swedes on some form of government handout and those who want to work but can't find a full-time job, the unemployment
figure is closer to 40%. …The Alliance scored particularly well among the young, whose unemployment rate is 25.9%. It appears that the prospect of spending one's life on the dole, no matter how generous
those welfare payments may be, is not every young Swede's dream. If those actually living under the much-vaunted Swedish Model opt for change, there is hope for the rest of Europe. Unemployed you say? We can't really offer you a job... but we could classify you as mentally disabled to improve our labor market statistics!
That's the message 25-year-old Swedish citizen Jessica Pettersson got from the state unemployment office. Pettersson has a high school degree in economics and has worked in a post office and in a grocery store,
among other jobs. After being out of work for a while, her supervisor at the unemployment agency told her that she ought to meet with a
work-psychologist since "it is so hard to be without a job". Petterson told the Swedish daily paper Expressen that she had no desire to go to a
psychologist but was persuaded to do so by the unemployment agency. The psychologist gave her a number of tests that she found stressful and humiliating, such as building objects with wooden blocks. To her
surprise the psychologist said that Petterson should be classified as disabled since she wasn't good enough at mathematics. Jessica was shocked to hear this: "I might not be a math genius, but I know how to
count," she told the paper. The unemployment agency explained that it was simply a matter of changing a code in her status as unemployed. If
she agreed to be classified as mentally disabled she would be entitled to a range of government subsidies. …Alarmingly, what happened to Petterson is not an isolated incident in Sweden. The state unemployment
agency is constantly attempting to force people to "admit" to being disabled. Today 19.3 percent of those seeking jobs at the unemployment
office are being classified as disabled. Stockholm University professor Mikael Holmqvist, who has done research on the subject of Samhall's
workers, believes that most of these people are in fact not disabled at all. They have been lured or threatened into agreeing to become classified as
such. The reason for this is simply that if you are disabled you are removed from the statistics of open unemployment, something that the current Social Democratic government greatly appreciates. It is bad
enough that the Swedish government hides the country's true unemployment rate by hiring people through various state projects and by manipulating official statistics. But classifying healthy young people
as disabled is truly a shameful exercise. The good economic numbers out of Sweden are for real, but the nanny-state enthusiasts get their causality backward. The country
bounced back from a painful recession in the past decade in spite of its socialist system, not because of it. The "Swedish model" crowd
conveniently ignores that the revival came after free-market reforms in the early 1990s, including cuts in marginal tax rates and welfare benefits, the creation of independent central bank, and deregulation. A
nationwide school voucher program was put in place and pensions partially privatized. The ruling center-left Social Democrats, which took
power in 1994, played their part, too, by repealing the death tax. If only American pols were as innovative. … Sweden still has one of the highest income tax rates and most expensive welfare systems in the OECD.
Unemployment is officially 4.5%, but it rises to 17% if the hidden jobless (people on sick leave, retraining or in early retirement) are included, according to the McKinsey Global Institute. High labor costs and
iron-clad firing rules prevent companies from hiring. Youth unemployment is 25.9%, according to Eurostat.
Tuesday, September 19, 2006 ~ 10:33 a.m., Sven Larson Wrote: Remember Kojo Annan's Mercedes? The car that reporters kept asking about last year, finally sending Kofi Annan into a temper tantrum at a
televised press conference? I'm talking of course about the green Mercedes SUV that Kofi Annan's son, Kojo, back in 1998, bought in Europe and shipped to Ghana - saving himself more than $20,000 in the
process by making false use of his father's name and privileges as United Nations secretary-general. ...The tale of Kojo's luxury car is emblematic
of both the abuses of privilege, and the cover-ups, that are hallmarks of today's U.N. Many of the mysteries surrounding that car have yet to be solved - including how a Mercedes imported into and registered in
Ghana in the name of U.N. Secretary-General Kofi Annan (documentation can be found here ) ended up wrecked seven years later in Nigeria. (Assuming the car was indeed wrecked, or for that matter,
that it indeed ended up in Nigeria. Neither Kojo, nor Kofi, nor the U.N. has released to the public any evidence, documentary or otherwise, of
this alleged wreck). To make even the simplest journey to Nigeria, from Ghana, the car would have had to motor across at least two other countries, Togo and Benin. Did it cross these borders while registered in
Kofi Annan's name? Did it travel with diplomatic plates? If so, who drove it under U.N. auspices? Was ownership ever transferred out of Kofi's name? If so, are we to believe that the staff of the U.N.
Development Program office in Ghana, which handled the paperwork for the customs exemption and car registration in Ghana, in the secretary-general's name, kept no further records whatsoever of the fate
of a Mercedes presumably belonging to their top boss back in New York? ... But what's really at issue here is not simply money - or a Mercedes -
but the integrity of a United Nations that in handling crises demands the public trust. And what we still need from Kofi Annan is not a quip, but
serious answers to the many questions still out there ... about that Mercedes
Tuesday, September 19, 2006 ~ 10:00 a.m., Sven Larson Wrote: Several EU member states are pressing the European Commission to introduce a broad health services law to protect the sensitive sector from competition, while MEPs are calling for more legal clarity in the whole area of public services. The EU executive is currently preparing new health services legislation to be unveiled in December. The initiative is in reaction to several rulings by the European Court of | |||||||||