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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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Tuesday, October 31, 2006 ~ 1:11 p.m., Andrew Quinlan Wrote: ...for much of its history the OECD focused on collecting statistics and publishing innocuous studies. ...In the mid-1990s, the OECD abandoned its traditional mission and
launched a "harmful tax competition" project to make it easier for governments to impose high tax rates and to hinder the flow of capital from high-tax to low-tax nations. ...American policy makers
have expressed dissatisfaction with the OECD's project. ... Congress also has warned the OECD about its efforts to hinder tax competition ... Politicians from uncompetitive, high-tax welfare states do not like
the liberalizing impact of tax competition, but many U.S. officials are appropriately skeptical of "one-size-fits-all" harmonization schemes. ... Several Nobel Prize winners have commented specifically
on tax competition. James Buchanan points out that "...the intergovernmental competition that a genuinely federal structure offers may be constitutionally 'efficient'..." and that "...tax
competition among separate units...is an objective to be sought in its own right." Milton Friedman, meanwhile, writes, "Competition among national governments in the public services they provide
and in the taxes they impose is every bit as productive as competition among individuals or enterprises in the goods and services they offer for sale and the prices at which they offer them."
And Gary Becker observed that "...competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations." ...Interestingly, even OECD economists admit that tax competition is desirable, writing that "[T]he ability to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively." It does not try to scapegoat so-called tax havens. Instead, this bureaucracy says the real problem is bad tax policy. It explains that, "[I]llegal tax evasion can be contained by better enforcement of tax codes. But the root of the problem appears in many cases to be high tax rates." ...Talking points generated by the OECD, echoed by groups such as the United States Council for International Business, assert that the Paris-based bureaucracy somehow plays a crucial role in the enforcement of U.S. tax law. This is false, but irrelevant. The Senate-approved language does not restrict the OECD's benign work on issues such as tax treaties and transfer pricing. The Senate language merely restricts the OECD from using American tax dollars to interfere with tax competition and national sovereignty.
Additional information: October 27, 2006, NTU and ATR support appropriations language restricting OECD funding for international tax harmonization schemes. October 23, 2006, Paris-Based Bureaucracy may lose tax dollars because of anti-U.S. policies. October 19, 2006, Is the OECD using U.S. tax dollars to lobby American lawmakers for bigger government? October 5, 2006, As OECD Lobbies for More U.S. Tax Dollars, Senators Ask Paris-Based Bureaucracy to Clarify Misleading Claim About Taxes February 22, 2006, Time to cut wasteful spending at the OECD. February 2006, Coalition letter to Joshua Bolten on OECD funding:
Tuesday, October 31, 2006 ~ 12:04 p.m., Sven Larson Wrote: Much fanfare accompanied Sweden's recent election of a center-right government. Yet the center-right's success involved jettisoning proposals
to systematically reform Sweden's increasingly unaffordable welfare-state. In short, the Swedish center-right has morphed into a Social Democrat-lite movement. Likewise, the British Conservative
Party-Margaret Thatcher's party-has disassociated itself from proposals to seriously reduce state economic interventionism. Its leaders are, for
example, unwilling to commit a future Conservative government to tax cuts and recently praised Britain's fiscally-bankrupt National Health Service. In Italy, Romano Prodi's 2006 budget was characterized by
protectionist policies and higher taxes. This included reinstating death-taxes on the wealthy (defined by Italy's center-left government as anyone earning over 40,000 euros annually). To the north, Austria has
elected a Socialist-led government disinterested in continuing the outgoing Schüssel administration's extremely modest economic liberalization efforts. Turning to France, unemployment recently rose to
9 percent. Yet, with the possible exception of Nicholas Sarkozy, no major politician on the French right or left appears willing to contemplate major economic change. Across the border, Angela Merkel's
grand-coalition government has implemented some of Germany's highest-ever tax increases. Its only change to Germany's profligate welfare-system has been raising the pension-entry age from 65 to 67.
Then there is the subject no European politician likes discussing: Western Europe's hidden unemployment levels that, some estimate, double official
unemployment rates. Given, for example, Belgium's 13.9 percent official unemployment figure, is it any wonder politicians ignore this issue? ...An
example of Europeans' rethinking government's economic functions may be found in those thinkers whose work inspired West Germany's transformation from post-war rubble to a "miracle economy": the
Freiburg Ordo-Liberal school. Relatively unknown outside Germany, this school consisted of intellectuals associated with the University of Freiburg in the 1930s. Strongly anti-Nazi and anti-Communist, Freiburg
scholars wanted to define the essential institutional rules that promoted liberty and prosperity (hence, the phrase "ordo-liberal"). Drawing upon
Christian natural-law and Scottish Enlightenment insights, the ordo-liberals...asked what would constitute government's economic tasks if the objective were freedom and economic abundance for all. To this
end, they identified the state's economic responsibilities as upholding rule of law, property rights, and contractual freedom and liability; ensuring
open markets and competition; and, lastly, preventing inflation. Beyond these areas, ordo-liberals warned, governments should hesitate to tread economically.
Tuesday, October 31, 2006 ~ 8:49 a.m., Dan Mitchell Wrote: ...the Sarbanes-Oxley Act of 2002 was the most substantial securities legislation since the Securities Acts of 1933 and 1934. ...Since the new
regulatory mechanisms have been put in place, developments in the U.S. capital market have not been positive. In 2000, 90% of the funds raised
by foreign companies through new stock offerings were raised in the U.S. The "90% rule" held in 2005, too, but in reverse -- 90% of the funds
raised by foreign firms through new listings occurred in Europe and other non-U.S. markets. Last year, only two of the world's 25 largest
initial public offerings listed in the U.S. In the universe of global IPOs, the fraction of non-U.S. IPOs listed in the U.S. has fallen to under 10%
so far in 2006 from 37% in 2000. ...Concerns about listing in the U.S. relate to domestic firms too, as U.S. firms contemplate "going private"
or do not "go public" for regulatory and legal reasons. While global economic growth and a welcome trend toward financial reform have put
wind in the sails of overseas financial centers, could U.S. capital market regulation also be a factor in their increased competitiveness? There is
historical evidence that suggests it could be. In the 1960s, U.S. banks went to London and helped spur the growth of the Eurobond market because of interest-rate ceilings and reserve requirements at home. U.S.
regulators subsequently allowed international banking facilities with lower reserve requirements and abolished Regulation Q ceilings on interest rates, but the London market had already taken off. The
Eurobond market also drew sustenance from U.S. tax policy in the form of the interest equalization tax. Subsequent tax changes did not slow
down that market's development once started. ...subjecting regulation to rigorous cost-benefit analysis is surely right. Though much of the regulatory scrutiny will lie with the SEC and the PCAOB, we can also
harness the expertise within other departments and agencies represented in the President's Working Group on Financial Markets, which includes the Department of Treasury, Federal Reserve and the Commodity
Futures Trading Commission. Input from such institutions that have primary responsibility for investor protection will be necessary to prudently address broad tradeoffs between regulation and possible
consequences of lost competitiveness. America's capital markets have been an enviable model for job creation and increasing national wealth. But the efficiency and competitiveness of our markets cannot be taken
for granted.
Tuesday, October 31, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: Just when you thought that there weren't any small-government conservatives left in the Republican Party, along comes South Carolina
Gov. Mark Sanford, who may be the only politician in America this year under assault for governing as a fiscal tightwad. What's really unusual about Mr. Sanford's bid for re-election is that some of his most
formidable adversaries are the old bull politicians in his own party. The state's Republican Senate Finance Committee chairman Verne Smith, for example, has just cut a campaign ad for Tommy Moore, the Democrat
running against the governor. The ad slams Mr. Sanford for his attempts to squeeze too much grease from the state budget. ...He has vetoed hundreds of spending bills, including the entire budget in 2004 and 2006
-- although almost all of these vetoes were overridden by -- who else? -- the state Republican House and Senate. "If I weren't fighting the
legislature on overspending, I wouldn't be doing my job," he says about this intraparty squabbling. Then he adds: "Frankly, I wish there were
more of this budget strife in Washington." Words for George W. Bush to live by. Despite the turmoil Mr. Sanford has stirred up during the past
four years, he's racked up some pretty impressive accomplishments. Though his effort to phase out the state income tax was killed in the senate, he chopped the personal income tax rate on small businesses, to
5% from 7%, for the first time in South Carolina history. He took a state that was labeled a "judicial hell hole" and passed reforms, despised by
trial lawyers, that will penalize frivolous lawsuits. He even cut the average wait time to get a driver's license renewal to 15 minutes from over an hour. Mr. Sanford's real passion is school reform -- which is
urgently needed in a state that ranks 48th, 49th or 50th in almost all measures of student performance. He openly ridicules the "failed
monopoly" school system and for this the left has accused him of being virulently anti-public education (although school spending rose 20% in
his first term). He also persuaded the legislature to approve charter schools and a private school tax credit bill... with qualifications like his,
it is no wonder that a number of leading conservatives across the country, disgusted with GOP gorging on pork and deficit spending, are looking at Mr. Sanford as a potentially attractive new entrant into the
2008 presidential race.
Tuesday, October 31, 2006 ~ 8:32 a.m., Dan Mitchell Wrote: Federal spending, aside from interest, has grown 47 percent since 2001-a huge increase that has been widely critiqued. A related but unexamined
trend is the growth in the number of different federal programs. In recent years, the scope of federal control over society has widened as politicians
of both parties have favored nationalizing many formerly state, local, and private activities. ...A net 271 new programs have been added since 2000, which is the largest increase in programs since the 1960s.
Tuesday, October 31, 2006 ~ 6:22 a.m., Dan Mitchell Wrote: If you are fed up with paying taxes, you'll certainly like the idea of tax competition. It gives the opportunity to escape fiscal pressure from your
own government by eventually "voting with your feet" to other jurisdictions with more favourable tax regimes. And it gives strong incentives for governments elsewhere to lower their own taxes.
Luxembourg for example is considered as a "tax heaven" in the heart of Europe, benefiting not only European but also world taxpayers. But some
governments are trying, through the European Commission, to impose tax harmonisation across Europe. …The Commission has a very strange concept of free competition, with an absence of tax pressure defined as
"state aid". It is easy to grasp how public subsidies to business - which involves confiscating resources from some parties and giving them to
others - should be regarded as assistance that runs counter to free competition. But how can the fact that certain taxes are not levied be placed on the same footing? Tax relief indicates that government is
actually leaving wealth in the hands of its creators, without this constituting assistance. Does the fact that someone is not trying to trip you up mean that he is helping you walk? …Pursuing the harmonisation
moves undertaken by Brussels may result in greater tax pressures on everyone. If the Commission truly wished to promote free competition, it should have suggested having tax relief of the sort provided in
Luxembourg and Estonia apply all across the EU. Or it ought simply to let tax competition play out in Europe. This remains an unrivalled way of encouraging governments to reduce the tax pressure weighing down
taxpayers' purchasing power and European companies' competitiveness. It is also a means of creating greater economic prosperity.
Monday, October 30, 2006 ~ 8:58 a.m., Dan Mitchell Wrote: Financial regulators on both sides of the Atlantic may not be able to resolve policy disputes through co-operation and the creation of a global
regulator should be considered, according to Barney Frank, the senior Democratic congressman.
Monday, October 30, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: Where did the revolution go astray? How did we go from the big ideas and vision of 1994 to the cheap political point-scoring on meaningless
wedge issues of today -- from passing welfare reform and limited government to banning horsemeat and same-sex marriage? The answer is simple: Republican lawmakers forgot the party's principles, became
enamored with power and position, and began putting politics over policy. Now, the Democrats are reaping the rewards of our neglect -- and we have no one to blame but ourselves. ...Since the party won the
majority in 1994, the GOP Conference had been consistent in requiring offsetting spending cuts for any new spending initiatives. (In fact, during
the aftermath of a large Mississippi River flood, Rep. Jim Nussle even waited to find and approve offsets before moving the relief legislation for
his own state of Iowa.) But by the summer of 1997, the appropriators -- rightly called the "third party" of Congress -- had begun to pass
spending bills with Democrats. As soon as politics superseded policy and principle, the avalanche of earmarks that is crushing the party began.
Now spending is out of control. Rather than rolling back government, we have a new $1.2 trillion Medicare prescription drug benefit, and non-defense discretionary spending is growing twice as fast as it had in
the Clinton administration. ...How can the Republicans respond? The leadership must remember that the modern conservative movement is a fusion of social and fiscal conservatives united in their belief in limited
government. The party must keep both in the fold. Republicans also need to get back to being the party of big ideas. The greatest threat to American prosperity today is a catastrophic fiscal meltdown resulting
from long-term entitlements. Democrats have already lined up behind the solution of raising taxes and reducing benefits. But Americans want more
freedom and choice in education, health care and retirement security. Republicans -- too busy dreaming up wedge issues to score cheap points
against Democrats -- have lost sight of their broad national agenda. The likely Republican losses in next week's elections will not constitute a
repudiation of the conservative legacy that drove the Reagan presidency and created the Contract With America. To the contrary, it would represent a rejection of big government conservatism.
Monday, October 30, 2006 ~ 8:18 a.m., Dan Mitchell Wrote: Oil companies are subject to market forces. They may make big profits when the price of oil rises, but those profits invariably fall back down to
Earth when oil prices decline. This is also what happened in the 1990s, as oil crashed below $20 a barrel after the heights reached in the 1970s.
The companies and their shareholders swallowed those declines, as they should have. This cycle is typical of commodity markets, and is part of
the risk of doing business. The run-up in oil prices over the past couple of years was rooted in worries about supply related to hurricanes, Middle
East tensions and low stockpiles, as well as growing demand in a strong global economy and the Federal Reserve's easy money policy. As supply fears and demand have ebbed and the Fed has tightened, prices have
fallen back down, albeit still to higher levels than a decade ago. The recent price decline is also proof of the folly of a "windfall profits" tax or
similar punitive measures against Big Oil favored by so many politicians. Only this week, however, Democratic Leader Nancy Pelosi repeated her
pledge to soak the oil companies if her party takes over the House next month. Her policy seems to be that when oil prices decline, oil company
shareholders must absorb all the market risk and the lower profits. But when oil prices rise, the companies must hand over a cut of their profits
to Members of Congress to spend as they like. The only "windfall" is for the political class.
Monday, October 30, 2006 ~ 7:41 a.m., Dan Mitchell Wrote: EU monetary affairs commissioner Joaquin Almunia has said that Brussels could in theory take Sweden to Europe's top court for not
joining the euro despite meeting all the economic criteria - but he added that such action "is not necessary or desirable" for now. ...Sweden,
which entered the EU in 1995, is legally obliged to enter the eurozone, an obligation enshrined in its EU accession treaty as in the case of ten member states that joined the union in 2004.
Sunday, October 29, 2006 ~ 4:11 p.m., Dan Mitchell Wrote: Health care costs are not just soaring, they're reaching unaffordable levels, meaning that we'll have to look to managed care (again) or find a
government solution, a prescription for rationing. With spiraling costs projected to continue, thereby doubling spending in the next 8 years, that
choice will be made by 2014 unless we find a third option. What's the cure? Congress needs to administer a strong dose of capitalism. ...In the rest of the economy, we have moved away from regulations, price
controls, and overreaching government agencies. Yet in health care, we have distorted the tax code, bulked up the Medicaid rolls, and let a million regulations bloom. Medicare alone has more than 100,000 pages
of them. Price controls are endemic to Medicare and Medicaid. The result is a half-broken, semi-socialist system, low in satisfaction and high in cost. ...American health care is the most regulated sector in the
economy. The result? A health insurance policy for a 30-year old man costs four times more in New York than in neighboring Connecticut because of the multitude of regulations in the Empire State. Americans
can shop out-of-state for a mortgage; they should be able to do so for health insurance. ,,, Medicaid spending is spiraling up, now consuming
more dollars at the state level than K-12 education. Like the old Aid to Families with Dependent Children, part of the problem stems from the fact that the program is shared between both the federal and state
government -- and is thus owned by neither. Congress should fund Medicaid with block grants to the states, and let them innovate.
Sunday, October 29, 2006 ~ 11:54 a.m., Dan Mitchell Wrote: Two northeast Ohio counties are being ordered by the state to try to boost the number of Amish receiving food stamps. Geauga and Holmes
counties plan to start advertising campaigns to encourage Amish to enroll in the subsidy program. Holmes may use a billboard to get the message out. State officials said it's important that the Amish know the
benefit is available. But county officials question whether the effort is a waste of time and money. Amish oppose accepting government assistance. …a Spanish-language news report and television ad campaign have spurred thousands of immigrants in Orange County over the last several
weeks to contact a nonprofit organization that offers a Spanish-language class called "Food Stamps in Four Hours." The stream of immigrants
contrasts sharply with what was going on just a few months ago when only a handful of immigrants would attend the free course. The news report and ads were heard throughout Southern California, but those
who responded in Orange County were directed to a nonprofit organization. Most other callers to the toll-free number were directed to county offices. The Orange County strategy has been lauded throughout
the state as a way to reach immigrants who are reluctant to get help from the government. "They won't come on their own," said Jerry Sanders, food bank manager of the nonprofit Community Action
Partnership of Orange County in Garden Grove. "They come from countries where they think the government isn't to be trusted. They figure
there's a catch to free food." … "The Mexican man is macho. He doesn't want to come to this country and beg," said Alfonso Chavez, the
Community Action Partnership's outreach coordinator. "I tell them this is a program that will help the children. The kids are American-born, and
they have a right to this program." A Los Angeles County Department of Social Services task force is looking at ways to find eligible families to
enroll. County workers have signed up families at food banks with only minor success. "We recognize that people in Orange County are ahead of
us," said task force member Bruce Rankin, the executive director of the Westside Food Bank in Los Angeles. "The rest of us in the state are
looking at Orange County for ideas." Low participation, he said, "is a dilemma in the state." … In 2004, Department of Agriculture Food and
Nutrition Service and the Mexican Embassy agreed to jointly disseminate brochures and create the public service announcements. The agreement led Mexican Consul Luis Miguel Ortiz Haro to tout the food stamp
program on Univision's KMEX Channel 34 six weeks ago. The newscast included the partnership's phone number. More than 1,200 people called the partnership in the following days, Sanders said.
Sunday, October 29, 2006 ~ 10:29 a.m., Dan Mitchell Wrote: Nine years ago, I predicted that lawn mowers would one day fall victim to onerous and unnecessary EPA air pollution standards, despite Clinton
EPA administrator Carol Browner having stated in sworn testimony to Congress in 1997 that such regulations are "not about outdoor barbecues and lawn mowers." Frank O'Donnell, then-executive director
of the Clean Air Trust, called talk of regulating lawn mowers "crazed propaganda." Today, however, EPA openly seeks implementation of pollution standards for lawn mowers that would supposedly cut
smog-causing emissions by 35 percent. As for O'Donnell, he's now president of Clean Air Watch where he's working hard to implement that
"crazed propaganda." So what else is new? The EPA and green groups lie because they're on a mission: Where you might see a freshly-mowed
lawn, they see an opportunity to extend another regulatory tentacle. …Lawn-mower emissions comprise perhaps 3 percent of all EPA-monitored air pollutants, according to the agency's National
Emissions Inventory. Meanwhile those overall emissions are less than half of what they were in 1970. Thirty-five percent of 3 percent of 50
percent of what we breathed a generation ago is essentially equivalent to a hair on a flea's leg. A small flea.
Saturday, October 28, 2006 ~ 7:17 p.m., Dan Mitchell Wrote: Members of Hong Kong's Legislative Council last week supported a motion opposing the introduction of a Goods and Services Tax in the
territory. The motion, moved by Dr Hon Yeung Sum, stated: "That this Council opposes the introduction of a Goods and Services Tax." Commenting on the motion last Thursday, Financial Secretary, Henry
Tang told journalists that: ..."The income disparity issue is something that the Government must address and we will address in any future tax
system. We will not launch any tax system that is not fair and that would not address this income disparity issue."
Saturday, October 28, 2006 ~ 3:34 p.m., Dan Mitchell Wrote: The buzz phrase of the moment in Brussels is "better regulation." But to judge by the European Commission's approach to high tech, it's not
catching on. Look no further than the pending "modernization" of the bloc's laws for television. EU regulators today do nearly everything short
of personally picking the shows. A 1989 "Television Without Frontiers" directive dictates the way stations operate: how often they break for
commercials, what share of programs must be "European" and which "major events" (the World Cup, say, or a royal inauguration) are shown
free of charge. What's left for TV bosses to do? Worry, mainly, about the explosion of competition -- from YouTube to pay-per-view movies on iTunes to consumers who watch the tube on their cellphones. …This
highly dynamic industry is crying out for liberalization. Instead, Brussels, under the leadership of Commissioner Viviane Reding, has come up with
arbitrary rules that are little better than the current antiquated regime. The Media and Information Society department, which Ms. Reding heads,
starts by drawing up two sets of rules for advertising -- one for "linear" programming that follows a fixed transmission schedule, and another for
"nonlinear" or on-demand content. That's a distinction that exists only in a eurocrat's imagination. "Linear" programming already can be seen in
a number of "nonlinear" ways: Viewers can buy conventional TV programs on the Web, or in DVD form, or record them for later viewing,
skipping the ads. The effect of the proposed rules will be to tie the hands of broadcasters even as they face ever stiffer competition. Back when all
the rivals had similar business models, the advertising restrictions were at least even-handed, if not justifiable. Now, Brussels is boosting the
on-demand crowd at the expense of the old guard, rather than letting the market decide. Not that the newbies are getting off scot-free. On-demand
content will be subject to the EU's opinion of what might offend one party or another, even if its content, as the name implies, must be requested by the viewer. Providers will have to make an undefined effort
to "promote the production and distribution of European works and ... cultural diversity." How any of this will be enforced is anyone's guess.
Friday, October 27, 2006 ~ 12:30 p.m., Andrew Quinlan Wrote: Kristina Rasmussen, National Taxpayers Union: There is a clear need for this provision. American taxpayers provide roughly 25 percent of the
OECD's operating budget (around $85 million), and are supposed to receive in return a forum committed to the market economy along with international statistical reports. While NTU questions whether this is
worth such a large expense, it is clear that the OECD has repeatedly overstepped its mission by advocating for higher taxes within OECD member countries and against worldwide tax competition. Examples
include suggesting the U.S. adopt a value-added tax in October 2006 and endorsing the creation of a global taxation system in May 2005. ...As a
grassroots organization dedicated to lowering taxpayer liabilities, we find it particularly galling that Americans are forced to subsidize the very
international agencies that would add to citizens' tax bills here at home and make our country a less attractive place to set up shop. Grover Norquist, Americans for Tax Reform: I would highly encourage all senators to support your push for accountability at the OECD.
...American taxpayers provide about one-quarter of the OECD's budget. Despite this generous support, the Paris-based OECD has labeled the
United States and other low-tax nations as rogue regimes. Capital flows have sought to escape the high-tax regions of Western Europe to other,
more reasonably-taxing nations like the U.S. ...The OECD has taken it upon itself to move from an international financial think tank to being
the world investment police-and all at the expense of the U.S. taxpayer it denigrates. If we are going to pay for one-quarter of the OECD, we
should at least require that they not undermine American sovereignty on tax and financial issues. Monday, October 23, 2006, Paris-Based Bureaucracy may lose tax dollars because of anti-U.S. policies. Thursday, October 19, 2006, Is the OECD using U.S. tax dollars to lobby American lawmakers for bigger government? Friday, October 13, 2006, In major decisions that also damage OECD tax harmonization hopes, Hong Kong and Singapore reject expanded EU savings tax directive. Tuesday, October 3, 2006, OECD makes absurd claim about "harmful tax regimes" in member nations.
Friday, October 27, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: As a nation that has built a vibrant economy through market-driven innovation, the United States should not underestimate its diverse
network of profit-seeking research organizations. Even if the major oil companies truly are implacable foes of alternative fuels, as conspiracy
theorists contend, America has plenty of entrepreneurs with no vested interest in preserving the status quo. The failure thus far of market-driven efforts to produce a silver bullet for energy independence
does not necessarily prove that the profit motive is unequal to the task. Perhaps it merely underscores how formidable the challenge is.
Friday, October 27, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: Unlike its Continental counterparts, Britain has proved itself open to foreign investors time and again. So when Tata, based in India, moved
for Britain's largest steelmaker, the Blair government simply shrugged. "It's not a matter for the government but the companies concerned," the
head of a state trade agency explained. Contrast that with the histrionics from the leaders of France and Luxembourg earlier this year when Indian steel magnate Lakshmi Mittal made an unsolicited offer for
Arcelor. Their aux barricades! attitude looked silly when Arcelor's board and shareholders later agreed to the deal. In the past, Britain has met
foreign maneuvers for cell phone company O2, ports group P&O and other firms with nonchalance. That openness is a major reason the British economy has outperformed the large Continental economies.
Friday, October 27, 2006 ~ 7:00 a.m., Dan Mitchell Wrote: ...a new CNN poll conducted by Opinion Research Corporation...found an overwhelming number of Americans (78 percent) believes "our system
of government is broken." ...It isn't actually our "system" of government that is broken. The Constitution established an excellent system from
which contemporary leaders regularly seem to depart. ...Members of both parties have asked government to do for them what they should first be
doing for themselves. And instead of telling people about self-sufficiency, government has subsidized and encouraged self-indulgence. ...Instead of
government as a last resort, too many (Republicans included) turn to government as a first resource. Government was not designed to carry the burdens placed on it by the public, lawyers and lobbyists. The
Founders created a system of limited government. It is not functioning like one today because we now view government as unlimited. ...In his
book, "Demosclerosis," journalist Jonathan Rauch draws on the insights of economist Mancur Olson to argue (and Zakaria quotes him in his
book), "that the rise of interest groups has made American government utterly dysfunctional. Washington is unable to trim back - let alone
eliminate - virtually any government program, no matter how obsolete."
Friday, October 27, 2006 ~ 6:18 a.m., Dan Mitchell Wrote: Mr. Blackwell is trailing badly in the polls and not expected to win. And the reason has little to do with any alternative vision put forward by Mr.
Strickland. Indeed, Mr. Blackwell's real problem isn't his opponent so much as Ohio's disastrous GOP governor, Bob Taft, and a state party establishment that has self-destructed. The Democratic strategy in many
congressional races this year is essentially to run against George W. Bush by portraying the Republican candidate as a stand-in for the unpopular
president. In Ohio, however, Mr. Strickland has made his opponent a stand-in for Mr. Taft, who has lower job-approval numbers than even the current White House occupant. Between 1994 and 2004, Ohio's operating
budget grew by 71%, faster than any other state's. And on Mr. Taft's watch, Ohio's state and local tax burden has become the nation's third-highest. First elected in 1998, Mr. Taft has also come to embody
the corruption that now taints the state Republican Party. …Richard Vedder, an Ohio University economist and longtime follower of state politics, said there's something cruelly ironic about Mr. Blackwell paying
for the sins of an Ohio GOP that's lost its way. "Ken is the one good Republican in the state of Ohio," says Mr. Vedder. "He was the guy who
maintained Republican principles, who wanted moderate spending growth, wanted to use budget surpluses--when we had budget surpluses--to lower taxes, wanted to move to a flat-rate income tax at a
relatively low rate. This is the kind of thing Ken has been talking about for years." Mr. Blackwell is still talking about it today, and for good
reason: Ohio has lost 200,000 manufacturing jobs--a fifth of its total--in the past five years. The state's 5.7% jobless rate is more than a full percentage point above the national mean. Household incomes lag
behind the rest of the country, and mortgage foreclosures continue to rise. "Capital seeks the path of least resistance and greatest opportunity," said Mr. Blackwell, addressing a small crowd in Meigs
County. "We've put too many obstacles in the way of capital investment in Ohio. We have a confiscatory tax code that needs to be changed. We
have one of the toughest regulatory roads to navigate in the country."
Thursday, October 26, 2006 ~ 8:22 p.m., Dan Mitchell Wrote: …she "launched a one-woman campaign against four bills" that would have suspended the tariff. Her campaign succeeded. The suspension was
cancelled. The Post reported the story as a David-versus-Goliath tale." [T]ax breaks delivered to corporations in the form of tariff suspensions
have gone largely without public notice," said the Post. What? How can the removal of a tariff from a foreign company be a tax break for an American company? A tariff taxes foreign goods and helps domestic
manufactures charge higher prices than they could in a free market. By any definition, that's a special-interest privilege. Government interferes
with free trade to help favored businesses. But if a tariff is a privilege, how can suspension of a tariff also be a privilege? …The Post also
claimed that Congress's power to suspend tariffs "cost taxpayers hundreds of millions of dollars in lost revenue." But anyone who thinks
tariffs are good for taxpayers needs to wake up and smell the money. The only way a tariff can produce tax revenue is by forcing consumers to pay
more for things they want. So whatever taxpayers seem to gain through tariffs is cancelled out by what consumers lose in higher prices. Defenders of tariffs look at only one side of the ledger while pretending
that a dollar in your pocket is equivalent to a dollar in a government account. I'd rather have the dollar in my pocket. I am sympathetic with
those who dislike the influence-peddling involved in selective tariff suspensions. But there's an easy answer to that: Get rid of all tariffs permanently! A free and competitive economy -- meaning free trade and
no tariffs -- is the best deal for consumers. So let's get the politicians out of the way. If they have no privileges to dispense, no special interests will be lining up to influence them. Mr. Buchanan, my longtime friend, is right about a lot of things, but he's wrong about trade. First, he laments, "Europeans, Japanese, Canadians
and Chinese sell us so much more than they buy from us, because they have rigged the rules of world trade." But so what? I buy more from my
grocer than he buys from me. It wouldn't make a difference if I lived 2 feet south of the U.S.-Canadian border and my grocer lived 2 feet north of it. Like many, Buchanan worries about our foreign trade deficit,
pointing out that it's reaching an annual rate of $816 billion, and that means "dependency on foreigners." Actually, the foreign dependency is a
two-way street. I'll explain it, starting with the alleged trade deficit I run with my grocer. When I purchase $100 worth of groceries, my goods
account (groceries) rises by $100, but my capital account (money) falls by $100. That means there's really a balance in my trade account. By the
same token, my grocer's goods account (groceries) falls by $100 but his capital account (money) rises by $100, also a balance in his trade account. …Then there's Buchanan's worry about U.S. manufacturing job
loss. U.S. farming has a similar history. Farm employment peaked between 1840 and 1870. In 1900, 40 percent of American workers were employed in farming; today, it's less than two percent. Technological
advances made that possible. U.S. manufacturing employment reached its peak in 1950 and has been in decline ever since. This has more to do with technological innovation than outsourcing. It's a worldwide
phenomenon. Since 2000, China has lost 4.5 million manufacturing jobs compared to the loss of 3.1 million in the U.S. Nine of the top 10 manufacturing countries, who produce 75 percent of the world's
manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada, and Mexico), have lost manufacturing jobs, Italy being the exception. …I'm one of those whom Pat calls
"robotic free-traders." That might be another label for those of us who support peaceable, voluntary exchange, and I plead guilty. Buchanan,
like so many others, points to the government subsidies and tariff protections given to businesses in other countries, a practice from which
we can't plead complete innocence. Protectionists call for "free trade but fair trade." They call for a "level playing field." In effect, they're saying
that if other governments rip off their citizens with business subsidies and import duties, forcing them to pay higher prices, our government should
retaliate by using the same tools to rip off its citizens. The next time I see Pat, I might ask him what he would do if we both were at sea in a
rowboat and I shot a hole in my end of the boat. Would he retaliate by shooting a hole in his end?
Thursday, October 26, 2006 ~ 4:51 p.m., Sven Larson Wrote: Although the vast majority of Ohioans have access to high-speed Internet service, consultants, most recently those descending on the Columbus
suburb of Gahanna, still claim that government needs to step in. A look back at other government-backed technology ventures, however, shows
that these projects are not needed and will not deliver on the consultants' promises. The main pitch is that some towns in Ohio still don't have
access to high-speed Internet technology. Although upwards of ninety percent of Ohioans can get such service, apparently the consultants feel
this is inadequate. ... A similar story was told the same ten years ago. Consultants tried to sell towns on the idea that if they wanted the latest
cable television technology for their citizens, they needed to invest taxpayer money and provide it themselves. If cities did this, consultants
promised, citizens would see lower rates, governments would have a new source of revenue, and businesses would grow. That simply did not happen. As we can see today, the municipal cable television ventures
were a waste of taxpayer money and they did little to help consumers. ... For instance, in Butler County built a fiber optic system that only has a handful of users, at a cost of millions of dollars.
Thursday, October 26, 2006 ~ 1:39 p.m., Sven Larson Wrote: ...however useful, "aid" is not the solution. It is not sufficient and, in the long term, Southern countries can only overcome their dependency on
rich donors when their governments are able to mobilize enough domestic resources to guarantee universal access to reasonable quality essential public goods and services. New perspectives are needed. The
basic starting points for achieving this goal include, among others, an effective tax system that enables governments to raise the necessary
resources, and transparent and democratic ("participatory") budgets that focus on the financing of key development tasks. ... However, up to
now the mobilization of domestic resources and the strengthening of fiscal policies for the purposes of poverty eradication and social redistribution has been met by several internal and external obstacles.
Southern countries lose billions of dollars of potential income every year. Some of the main causes of those leaks are the following: Ineffective tax
systems fail to reach landowners, foreign corporations and wealthy individuals. This comes hand in hand with a corrupt financial administration that is not in a condition to actually stop tax revenue
from falling. Through tax cuts and frequent tax exemptions for foreign investors, developing countries forego revenues without ensuring the corresponding development benefits of the investments thus promoted.
This is particularly true in the more than 3,000 currently existing export processing zones (sometimes called "special economic zones"), where
workers' rights and environmental regulations are frequently abolished. The competition to attract foreign investment becomes a "race to the
bottom" in tax terms. Transnational corporations profit from this practice, but the local populations seldom see the benefits. The globalization of corporate activities allows firms with a transnational
presence to manipulate the prices of their internal transactions so that the profits are accounted for in the countries where the taxes are lower,
in a move known as "transfer pricing". While markets and production are globalized and money can circulate around the world in seconds, tax
policy is confined within national borders. Even countries with properly functioning tax systems lose billions of dollars every year due to capital
flight to tax havens. Finally, the pressure towards trade liberalization and tariff reduction deprives many countries in the South from vital
income. In Africa in particular, customs revenues provide an important percentage of government income. Dropping tariffs and providing no replacement leaves a gap in the budget. The resources that are actually
lost through capital flight, tax avoidance and tax fraud can only be estimated, as there are no official statistics on these phenomena.
Thursday, October 26, 2006 ~ 8:57 a.m., Dan Mitchell Wrote: Getting rid of the food tax has been on the conservative agenda for years... Now with the state enjoying a large surplus and Gov. Mike
Huckabee retiring, the stars are aligning to abolish the tax that brings in a mere $200 million a year. And it's Democrat Mike Beebe who is leading
in the polls with his promise to phase it out. ...There's a lesson here for the GOP. ...On taxes, Republicans win when they are unequivocally on
the side of paying less. And in the states where GOP lawmakers have waffled or, worse, raised taxes, the party tends to implode. In Tennessee, GOP Gov. Don Sundquist spent his last few years in office trying to
create a state income tax and voters rewarded his party in 2002 by sending Democrat Phil Bredesen to the governor's mansion. This year Gov. Bredesen will likely walk his way into a second term. In Colorado,
the Republican foundation has crumbled in the past few years. It shouldn't be lost on anyone on the right that two years ago GOP Gov. Bill Owens led the effort to suspend the state's Taxpayers' Bill of Rights to
allow for sharp increases in spending and a five-year suspension of rebates the state would otherwise have been forced to mail to taxpayers. Gov. Owens is on his way out now, and it should come as no surprise
that Republicans will almost certainly see Democrats capture the governor's mansion next month. Rocky Mountain Republicans are divided and disillusioned. Democrats are not. The unreported story this
election cycle is that while scandals and the war have dominated congressional races, on the state level conservative economic ideas are still winning elections. Voters continue to support promoting economic
growth by cutting taxes.
Thursday, October 26, 2006 ~ 8:46 a.m., Dan Mitchell Wrote:
Thursday, October 26, 2006 ~ 8:13 a.m., Dan Mitchell Wrote: Last week President Bush signed a law that will try to impede online gambling by prohibiting American banks from transferring money to
gambling sites. Most Americans probably didn't notice or care, but it may do significant political damage to the Republicans this fall and long-term
damage to Americans' respect for the law. So, a month before a major election, the Republicans have allied themselves with a scattering of voters who are upset by online gambling and have outraged the millions
who love it. Furthermore, judging from many hours of online chat with Internet poker players, I am willing to bet (if you'll pardon the expression) that the outraged millions are disproportionately electricians,
insurance agents, police officers, mid-level managers, truck drivers, small-business owners--that is, disproportionately Republicans and Reagan Democrats. … In the long term, something more ominous is at
work. If a free society is to work, the vast majority of citizens must reflexively obey the law not because they fear punishment, but because
they accept that the rule of law makes society possible. That reflexive law-abidingness is reinforced when the laws are limited to core objectives that enjoy consensus support, even though people may
disagree on means. Thus society is weakened every time a law is passed that large numbers of reasonable, responsible citizens think is stupid. Such laws invite good citizens to choose knowingly to break the law,
confident that they are doing nothing morally wrong. The reaction to Prohibition, the 20th century's stupidest law, is the archetypal case. But the radical expansion of government throughout the last century has
created many more. For example, all employers are confronted with rules and regulations from Occupational Safety and Health Administration and the Equal Employment Opportunity Commission that
they regard with contempt--not because they cut into profits, but because they are, simply, stupid. They impede employers yet provide no collateral
social benefit. And so employers treat the stupid regulations as obstructions to be fudged or ignored. When they have to comply, they do not see compliance as the right thing to do, but as placating an agency
that will hurt them otherwise. The same thing applies to lesser degrees to all of us who find ourselves doing things that we know are pointless
(think of various aspects of tax law) only because we fear attracting a bureaucracy's attention. For millions of Americans, our day-to-day
relationship with government is increasingly like paying protection to the Mafia--keeping it off our backs while we get on with our lives.
Wednesday, October 25, 2006 ~ 7:39 a.m., Dan Mitchell Wrote: ....a glance at the state of economic policy in the U.S. suggests that whoever wins in November would have an enormous opportunity to do
good. A list of the possibilities provides an interesting glimpse at what a new Contract with America might look like. ...The first step for the new
Congress should be a tax overhaul that moves the current system toward a progressive consumption tax. The economic literature suggests that a
well-designed system that maintains a distribution of tax burdens similar to today's could add 5 percent to 10 percent to gross domestic product
over a decade. A nice way to look at those estimates is to note that GDP might be about $1 trillion higher today if we had adopted such a reform
a decade ago. A new code could tax pollution more and capital less. It could lower the effective corporate tax rate significantly, and make the
U.S. a competitive location for investment again. ...government spending is $791 billion higher than it was when Bush took office. If the tax reform
levels the playing field by removing or capping costly items such as the mortgage-interest deduction, then it would be easy to concoct a package
of reduced spending and higher revenue that would balance the budget. ...The fourth step for the new Congress should be to roll back the Sarbanes-Oxley legislation that needlessly saddles America's companies
with excessive accounting costs. There are countless signs that these costs have had a large effect on America's competitiveness, with large
swaths of domestic capital escaping Sarbanes-Oxley by going private, or moving abroad. Our accounting rules should be rolled back to where they were before Sarbanes-Oxley. The fifth step should be to restore
balance to Social Security by reducing the growth rate of benefits and allowing a portion of each worker's payroll tax to be contributed to a personal account.
Wednesday, October 25, 2006 ~ 7:26 a.m., Dan Mitchell Wrote: …reforms did not go far enough. The business sector is overregulated and governments spend too much money. This fuels corruption and
public dissatisfaction with the democratic process. In general, Central Europe is a success story. The Czech and Slovak republics, Hungary and
Poland are free-market democracies. Formerly part of the Warsaw Pact, they are now members of the North Atlantic Treaty Organization and the European Union. Central Europeans have higher incomes, life
expectancies and school enrollments than ever before. Yet liberalism, the philosophy of political, civil and economic freedom that was instrumental
in bringing about those advances, is on the defensive. In Slovakia, a nationalist-socialist coalition defeated Mikulas Dzurinda's reformist government. In Poland, a coalition deal between conservatives and
nationalists kept the liberal Civic Platform out of power. In the Czech Republic, the liberal Civic Democratic Party won the elections but is too
weak to form a government. In Hungary, the populists were kept from gaining power -- but only by a whisker, and only because the ruling socialists lied about the real state of the economy. ...Many commentators
saw the poor performance of liberal parties in the elections as a sign of weakening public support for the free market. In fact, the most comprehensive survey in the EU accession countries, conducted by the
Gallup Organization in 2003, found most Central Europeans supported free competition and less government intervention in their lives. Similarly, many of Mr. Dzurinda's radical reforms, including the flat tax,
had the support of the majority of the Slovak public shortly before the 2006 elections. The rise of the populist parties in Central Europe is partly
attributable to their promise to wage a war on corruption. For example, Poland's rating in Transparency International's Corruption Perception
Index slumped to 3.4 in 2005 from 4.6 in 1998. The Czech rating fell to 4.3 from 4.8, Hungary's remained at 5, and Slovakia's rose to 4.3 from
3.9. In contrast, Iceland, which was the world's least corrupt country, received 9.7 points out of 10. Why does corruption remain such a big problem in Central Europe? Despite a dramatic rise in the region's
economic freedom since the end of communism, Central European economies remain overregulated. The World Bank found that Slovakia, the Czech Republic, Hungary and Poland were more heavily regulated
than most developed economies, including most EU member states. This means the armies of bureaucrats in these four countries have plenty of opportunities to extract bribes from private companies.
Wednesday, October 25, 2006 ~ 7:11 a.m., Dan Mitchell Wrote: Seeking stronger growth, the government is implementing a flat-tax of 12 per cent for both personal income and corporate profits from January
1, 2007 and will reduce both rates to 10 per cent from January 1, 2008, said Gruevski.
Wednesday, October 25, 2006 ~ 6:34 a.m., Dan Mitchell Wrote: Medicare is the fiscal equivalent of the Titanic, and its unfunded liability is the iceberg that lies ahead. Proposals to increase government's role in
funding health care amount to adding passengers to the Titanic. Until someone figures out how government is going to pay for its existing
promises in health care, it is not realistic to make new promises. For our health care finance system, pooling our spending on health care is the
problem, not the solution. Today, consumers are insulated from about 85 percent of the cost of their medical procedures. Instead, consumers ought
to be responsible for more like half the cost of their medical treatments, so that they take cost into account when making health care decisions. …
We need to rethink what it means to have health insurance for people under 65. The real need is for insurance against really expensive illnesses, of the kind that require tens of thousands of dollars of spending
over a period of years. Discretionary care and minor expenses ought not to be covered.
Tuesday, October 24, 2006 ~ 8:57 a.m., Dan Mitchell Wrote: ...what we have not fully considered is the extent to which globalized markets produce pressures for globalization of government policies. And
some policymakers and officials want to build dikes to prevent the regulatory policies of other countries from leaking into theirs. In Europe, the big worry is that what the European Union considers excessively
burdensome financial regulation will seep into Europe's financial markets. So Ed Balls, the new Economic secretary to the British Treasury, and the chancellor of the exchequer's principal ally, is assuring
the City that in the event of a takeover of the London Stock Exchange by NASDAQ, now deemed likely, the government will save the City from the dreaded heavy hand of American regulation, most especially the hated
Sarbanes-Oxley Act. Stock exchanges in America are facing such competitive pressure from London's less-heavily regulated exchanges that they are scrambling to lighten the regulatory load. Secretary of the
Treasury Hank Paulson and New York Mayor Mike Bloomberg, both intimately familiar with the working of financial markets, see the globalization process as a threat to the ability of New York to compete
with London in the competition for share listings. So they are each initiating studies of ways to make Wall Street less regulated, and therefore more competitive. Which in practice, means getting Congress
to modify Sarbanes-Oxley by exempting smaller firms from the act's requirements. ...More and more companies operating in high-tax venues are casting envious eyes on lower-tax Ireland and a variety of island tax
havens. Britain's chancellor Gordon Brown has always resisted calls of high-tax E.U. countries for "tax harmonization," fearing that meant
imposing on the United Kingdom the stultifying tax regime of the European Union. Now the shoe is on the other foot, and the market is attempting to impose on him the low-tax regime of countries that British
companies are beginning to consider as havens from the Inland Revenue's apparently insatiable desire for funds, and the intrusiveness of its 70,000 tax collectors. We are witnessing on an international scale the
sort of tax competition that has always existed among our states in their scramble to attract business.
Tuesday, October 24, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: ...last Friday the president signed into law Prohibition II. You almost have to admire the government's plucky refusal to heed history's
warnings about the probable futility of this adventure. This time the government is prohibiting Internet gambling by making it illegal for banks or credit-card companies to process payments to online gambling
operations on a list the government will prepare. ...The number of online American gamblers, although just one sixth the number of Americans
who visit real casinos annually, doubled in the last year. This competition alarms the nation's biggest gambling interests-state governments. It is an
iron law: When government uses laws, tariffs and regulations to restrict the choices of Americans, ostensibly for their own good, someone is going to make money from the paternalism. One of the big winners from
the government's action against online gambling will be the state governments that are America's most relentless promoters of gambling. ...Granted, some people gamble too much. And some people eat too
many cheeseburgers. But who wants to live in a society that protects the weak-willed by criminalizing cheeseburgers? ...Prohibition I was a
porous wall between Americans and their martinis, giving rise to bad gin supplied by bad people. Prohibition II will provoke imaginative evasions as the market supplies what gamblers will demand-payment methods
beyond the reach of Congress. But governments and sundry busybodies seem affronted by the Internet, as they are by any unregulated sphere of life. The speech police are itching to bring bloggers under
campaign-finance laws that control the quantity, content and timing of political discourse. And now, by banning a particular behavior-the entertainment some people choose, using their own money-government
has advanced its mother-hen agenda of putting a saddle and bridle on the Internet.
Tuesday, October 24, 2006 ~ 8:17 a.m., Dan Mitchell Wrote: The following features of extensive social safety nets are often found to have a negative impact on employment rates and GDP per capita: Unemployment compensation systems offering high benefits and, in particular, entitlement of long or indefinite duration, have the potential to impede the adjustment of real wages to labour market conditions and to create large supply distortions by reducing job-search intensity and lowering the opportunity costs of not working. …The interaction of social protection benefits | ||||||||||