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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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Sunday, December 31, 2006 ~ 12:41 a.m., Dan Mitchell Wrote: As Europeans prepare to light up the skies with fireworks to celebrate the new year, the EU is set in 2007 to hammer out a bill boosting security measures for various
pyrotechnic materials, including setting a minimum age for their use. ...National authorities will however be allowed to increase the age limits for consumers or to lower them for trained staff. Member states
can also ban the sale of certain categories of noisy pyrotechnic articles, such as bangers or flash banger batteries.
Sunday, December 31, 2006 ~ 12:05 a.m., Dan Mitchell Wrote: One of the questions often asked by those obsessed with income "gaps" and "disparities" is: "Is anyone really worth the millions of dollars a year
that some people receive as personal income?" ...But if there were an objective value -- whether of goods or of labor -- then economic transactions would make no sense. When you buy a computer, the only
reason you part with your money is that the computer is worth more to you than the money. But the only reason someone sells you the computer
is that the money is worth more to them than the computer. ...It is the same story when Derek Jeter gets paid millions of dollars to play shortstop for the Yankees. He gains by exchanging his time and skills for
the money that George Steinbrenner pays him. But Steinbrenner also gains by paying Jeter to play shortstop -- which helps bring in more money in gate receipts, the sale of television rights, and other sources of
revenue. As for the rest of us, it is none of our business what Steinbrenner pays Jeter. It's their deal. If we don't understand it, there is no reason why our ignorance should influence what happens. ...Many
poverty-stricken people in the Third World work harder than most Americans work but, for a number of reasons, they don't produce as much. That is why these countries are poor. Transferring wealth from
300 million Americans and spreading it out over more than two billion people in India and China is not going to do much. But enabling more people in India or China to become more productive can help them and
us -- and has. Multinational corporations are among the biggest spreaders of greater productivity to Third World countries and they usually pay higher wages than local employers. But moral exhibitionists
who are hot for the redistribution of other people's money are among the biggest critics of multinational corporations.
Saturday, December 30, 2006 ~ 1:11 p.m., Dan Mitchell Wrote: The Ministry for Gender Equality is offering cash to companies whose male employees pledge not to pay for sex after office parties. Men are
being urged to register on the ministry's website. The companies with most pledges will receive a reward. Officials say they want to put an end
to a culture in which men get drunk at parties and go on to buy sex. But some critics have described the move as a waste of money.
Saturday, December 30, 2006 ~ 12:23 p.m., Dan Mitchell Wrote: ...full privatization is, or ought to be, the way of the future. Germany did it several years ago with great success when the government stripped
Deutsche Post of its monopoly and started selling shares in the enterprise. DP has since become a major player in the global logistics market, acquiring DHL along the way. While Congress was passing its
postal "reform," the EU announced its plan to explore eliminating national postal monopolies entirely. Deutsche Post could soon offer more
than 50% of its stock to the public. It says something when the U.S. trails even Germany in reforming outdated government monopolies. One lesson is how difficult it is to reform any part of government once it
becomes a political fixture. The Postal Service has one big thing going for it: the lobbying power of its unions, members of which inhabit every
ZIP Code in the country. Like the steelworkers union, they will ride their sinecures into economic irrelevance. Fortunately for the private economy, the Postal Service was not allowed to monopolize parcel
service or electronic communication, and thus technological progress long ago allowed anything truly vital to be sent by FedEx or fax or email.
Friday, December 29, 2006 ~ 9:00 a.m., Dan Mitchell Wrote: A timeworn bit of political wisdom has been that larding one's district with pork projects can act as an incumbency protection program. And
the Republican leaders in Congress ardently followed that principle. The leadership talked all the time about how we've got to use earmarks to help these vulnerable members," said Representative Jeff Flake,
Republican of Arizona, who has become one of Washington's loudest opponents of earmarking. "But what this election showed was that
earmarks just aren't that important to voters." ...The number and total cost of earmarks reached record highs over the last two years, but they
seemed to offer little help to some members. Representative Anne M. Northup, a Kentucky Republican who was a member of the House Appropriations Committee, was defeated after five terms despite
bringing earmarks to her district, which includes Louisville, that were worth more than five times that of two other districts without competitive races. Mr. Flake identified her as one of the Republican
leaders who pushed for earmarks to help troubled incumbents.
Friday, December 29, 2006 ~ 8:35 a.m., Dan Mitchell Wrote: Stealing is wrong. Stealing from a 95-year old widow is despicably wrong. But somehow, when the stealing is done by the very folks pledged
to serve and protect - by one's own government - well, wrong becomes wicked.
Friday, December 29, 2006 ~ 8:13 a.m., Dan Mitchell Wrote: The Social Security problem today can be defined as follows: "If something isn't done, by the time today's young workers retire there will
only be enough revenue to pay two thirds of promised benefits." The price-indexing solution says, "Not to worry. We will change the basic
benefit formula so that by the time today's young workers retire Social Security will only pay them two-thirds of the currently promised
benefits." Is that a solution, or is that really part of the problem we should be trying to solve? ...the system acts as an effective tax on rising
incomes: It takes away benefits faster for those who earn more. This has the same negative economic effects as a marginal tax-rate increase.
...One idea being loudly discussed is an increase in the maximum taxable annual income for the payroll tax, which is currently set at $94,200 per
year. That cap is already indexed to grow each year with wages, but the proposed increase would raise it in one leap to between $125,000 and $150,000, with the wage-indexed increases to continue thereafter.
Workers in this income range would pay as much as $7,000 per year more in Social Security taxes. This would especially hurt small businesses and the self-employed who pay both the employee and employer shares of
the tax directly. The top marginal tax rate would be raised by 12.4 percentage points, which is the total Social Security payroll tax rate, more than offsetting the Bush income-tax cuts. This would retard the
economy and produce less tax revenue than expected. The maximum annual taxable income limit is not some loophole for the rich. Workers who do not pay taxes on income over the limit also do not receive
benefits for income over the limit. If the taxable limit is raised, more income will be counted towards future benefits as well, leaving little net
gain over the long run. What sense does it make to require these workers to pay more into the program for a negative real return?
Thursday, December 28, 2006 ~ 8:10 a.m., Dan Mitchell Wrote: SOX costs us a lot more than anybody anticipated. ...As an investor, I don't want my portfolio companies spending a dollar on "good corporate
governance" unless doing so adds at least a buck to the bottom line. I don't have any voice in how much to spend on corporate governance,
however. Instead, those decisions are made by boards of directors and top management. Unfortunately they have strong incentives to overinvest in compliance. Why? The answer lies in the incentive
structures of the relevant players. Who pays the bill if a director is found liable for breaching his federal or state duties? The director. If the
director has adequately processed decisions and consulted with advisers, will the director be held liable? Unlikely. Who pays the bill for hiring corporate governance consultants, lawyers, investment bankers,
auditors, and so on to advise the board? The corporation and, ultimately, the shareholders. ...According to the Wall Street Journal, publicly traded
U.S. corporations routinely report that their audit costs have gone up as much as 30 percent, or even more, as a result of the tougher audit and
accounting standards imposed by SOX. Indeed, just paying the fees now required to fund the Public Company Accounting Oversight Board can run as much as $2 million a year for the largest firms. Professional
surveys of U.S. corporations confirm the Journal's report. Corporate law firm Foley & Lardner, for example, found that senior managers of public
middle-market companies expect costs to increase by almost 100 percent as a result of SOX, new SEC regulations, and changes to exchange listing
requirements. ...The SEC initially estimated that Section 404 compliance would require only 383 staff hours per company per year. According to a
Financial Executives International survey of 321 companies, however, firms with more than $5 billion in revenues will spend an average of $4.7
million per year to comply with Section 404. The survey also projects expenditures of 35,000 staff hours-almost 100 times the SEC's estimate.
In addition, the survey estimates that firms will spend $1.3 million on external consultants and software and an extra $1.5 million in audit fees,
a jump of 35 percent. ...These costs have substantially distorted corporate financing decisions. On the one hand, SOX has discouraged privately held corporations from going public. On the other hand, many
publicly held corporations are going private. SOX thus reduces investor choice, makes many investments less liquid, and in the long run likely
discourages entrepreneurship by denying start-ups access to financing in the capital markets. By raising the cost of access to the capital markets,
SOX will likely retard economic growth. ...another major cost associated with SOX is the federalization of corporate governance. The country as a
whole benefits from corporate governance being regulated by the states rather than the federal government. ...By expanding the federal role in
regulating corporations, SOX has reduced the ability of the states to engage in...valuable experimentation.
Thursday, December 28, 2006 ~ 8:00 a.m., Dan Mitchell Wrote: Over the years, the alarmists have veered from an obsession with lethal global cooling around the turn of the 20th century to lethal global
warming a generation later, back to cooling in the 1970s and now to warming once again. You don't have to be a scientist to realize that all these competing narratives of doom can't be true. Or to wonder whether
any of them are. Perhaps that is why most Americans discount the climate-change fear-mongering that is so fashionable among journalists and politicians. Last spring, as Time magazine was hyperventilating
about global warming ("The debate is over. Global warming is upon us -- with a vengeance. From floods to fires, droughts to storms, the climate is
crashing"), a Gallup poll was finding that only 36 percent of the public say they worry "a great deal" about it. ..."The whole aim of practical
politics," wrote H.L. Mencken, "is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series
of hobgoblins, all of them imaginary." Mencken was writing in 1920, but some things never change.
Thursday, December 28, 2006 ~ 7:17 a.m., Dan Mitchell Wrote: CEO pay--including the record bonuses paid this year to heads of Wall Street firms such as Morgan Stanley and Goldman Sachs--is
attention-grabbing and has increased sixfold over the past 25 years. But, as economists Xavier Gabaix of MIT and Augustin Landier of NYU
concluded in a study in July, that increase "can be fully attributed to the sixfold increase in market capitalization of large U.S. companies during
that period." CEOs get paid more because they run bigger, more valuable companies. ...The Yankees' Alex Rodriguez earned $29 million from June 2005 to this summer. Jeff Immelt of General Electric makes
less than Dr. Phil does. If a good CEO can boost profits by $200 million, he's easily worth $10 million, or more. Certainly, some CEOs, like some
ballplayers, make more than they deserve. Angry shareholders have a remedy--dump the stock. The bigger problem, as we show in The American, the magazine I edit, is that publicly traded
companies--because of pressure from politicians, the media and unions--could be underpaying CEOs. The best and brightest managers are migrating to private-equity firms, hedge funds and privately owned
businesses out of the spotlight. With 5% of the world's population, the USA is home to half the world's largest companies. Our system of compensating CEOs has served the nation well. Let's not let politicians
mangle it.
Thursday, December 28, 2006 ~ 6:56 a.m., Dan Mitchell Wrote: The centre-left Social Democrats are heading a campaign to put an end to what it calls "unfair tax competition", in response to the introduction
of degressive tax rates by several cantons in recent years. These cantons have among the lowest corporate tax rates in the world, which has
attracted multinational companies to set up holdings there. The issue has also led to a dispute between Switzerland and the European Union, which says it may contravene a 1972 Free Trade Agreement.
Wednesday, December 27, 2006 ~ 8:36 p.m., Dan Mitchell Wrote: The European Central Bank called for new regulation of hedge funds, including American ones. Germany's government declared that hedge
fund oversight would be on the agenda when it hosts next year's Group of Eight meetings. Not to be outdone, the U.S. Securities and Exchange Commission proposed a rule that would bar all but the wealthiest 1.3%
of households from investing in these demon vehicles. How to explain all this suspicion? Hedge funds are simply pools of money whose managers are paid according to performance. This system of rewards is no more
sinister than the patent system, which spurs inventors with the prospect of fabulous profits. Like intellectual property laws, hedge fund performance fees have created some impressive fortunes. Like
intellectual property laws, they have inspired innovation, too. In their ceaseless search for profits, hedge funds have sought out inefficiencies on
the financial frontier. After Hurricane Katrina, some traditional insurers recoiled from covering offshore structures, a classic example of overreaction to a bad event. Hedge funds hired academic climatologists,
crunched the numbers and made a tidy profit by underwriting storm risk. ...What's not to like about all this invention? Hedge funds stand accused
of being risky -- hence the SEC's proposal to raise the bar for investing in them from the current $1 million in assets (including primary residence)
to $2.5 million in assets (excluding your home). But investing in hedge funds is not actually riskier than another practice that the SEC condones
cheerfully: investing in individual stocks. In the 10 years ending in August 2006, according to one calculation, an investor who put his money into the stock of a randomly chosen company and kept it there for
a month had about 12 chances in 10,000 of losing half or more of his stake. Over the same period, a randomly chosen hedge fund would have been six times as safe. Michel Prada, a senior member of the International Organisation of Securities Commissions (IOSCO), told the European Parliament that
hedge funds made markets more efficient but presented several risks. IOSCO is a global umbrella group of national market regulators that forges common standards. Systemic risk and price manipulation were
just two dangers, Prada told the parliament's economic affairs committee. "The third risk is of shareholder activism that is carried perhaps too far. As such it translates into an impact on the corporate
governance of listed companies," said Prada, who also chairs France's Autorite Des Marches Financiers (AMF). ... Earlier, European Central Bank President Jean-Claude Trichet repeated his call for possible
regulation. ... The European Union's top market regulator, Internal Market Commissioner Charlie McCreevy, has rebuffed calls for new EU-level rules on hedge funds. McCreevy believes hedge funds keep
company management on their toes, to the dismay of lawmakers.
Wednesday, December 27, 2006 ~ 8:11 a.m., Dan Mitchell Wrote: Over the past year, the real average wage for non-supervisory employees has risen 2.8%. That equates to about a $1,200 increase in purchasing
power for the typical household this year. Last year, real median household income was also up 1.1% after inflation. ...income and wages are still about 2% below the peak they hit in 2000 before the dot-com
bust and recession. But a new Treasury Department analysis finds that, measuring from the start of the peak of each expansion, wages so far in
this decade's cycle are running ahead of the recovery pace during the 1990s. Thus the "stagnant wages" story can join the "jobless recovery,"
the "outsourcing" crisis and the runaway budget deficit as other tales of woe that have all turned out to be evanescent. ...the surge in business
capital spending that began in 2003 with the passage of the investment tax cuts has increased the capital to labor ratio that is a major driver of
wage increases over time. Contrary to popular myth, worker benefits have also been rising, not falling. ...the Labor Department measures employer pay packages and finds that fringe benefits paid to workers
have risen 39% since 2000, or nearly twice the 22% rate of increase in nominal wages. Take-home pay would be rising even faster if the cost of
health benefit plans hadn't climbed by 65% since 2000. Health insurance now costs the average employer $2 an hour per employee--money that
could otherwise be paid in wages. But that $2 still goes toward benefits, not into corporate profits. All told, the pattern of wage growth this
decade isn't all that different from that of the 1990s. Wage increases always lag behind economic growth, corporate profits and productivity
gains. In the 1990s in fact, workers didn't enjoy really big paycheck gains until 1997. ...A recent study for the American Enterprise Institute by
economists Kevin Hassett and Aparna Mathur examined 72 nations over 22 years and found that "wages are significantly responsive to corporate
taxation." In today's global economy, capital migrates across national borders away from high-tax nations to places where tax systems are less
punitive. Workers suffer when capital flees, and job and wage growth slow. Many political leaders have adapted to this reality, which is why
the average corporate tax rate across the globe has fallen over the past 25 years to an average of about 30% from 50%. The AEI study finds that, if the U.S. were to cut its 35% corporate tax to the OECD average
of 30%, American manufacturing workers would gain nearly a 10% pay raise dividend within five years, which is the equivalent of roughly a $3,500 a year pay boost. Some on the political left have other ideas for
raising wages, such as more and easier unionization, more trade and tariff barriers, or a government takeover of employer health care. But all
of these would make the U.S. more like Old Europe, where job growth is far slower than it is here.
Wednesday, December 27, 2006 ~ 6:23 p.m., Dan Mitchell Wrote: ...if this obsession with income disparities is to be something more than mere hand-wringing or gnashing of teeth, obviously the point is that
somebody ought to "do something" to change what you don't understand. Usually that means that the government -- politicians -- should impose policies based on your ignorance of what is going on. Can
you imagine anything more dangerous than allowing politicians to decide how much money each of us can earn? Of course, such political control
of incomes is usually advocated only to deal with "the rich." But, when income taxes were imposed in the early 20th century, they applied only to
"the rich" and they took a very small percentage of their income. Once the floodgates are opened to this kind of political power, however, we
have seen with the income taxes that they not only spread far beyond "the rich," they took a serious share of even middle class incomes. Moreover, the income tax has spawned an intrusive bureaucracy,
creating so much complexity and red tape that millions of ordinary citizens have to go get some accountant to fill out the forms for them --
and then sign under penalty of perjury that it was done right. ...Today's "progressives" want to expand political control of incomes even more.
They call it "social justice" but you could call it Rumpelstiltskin and it would still mean politicians deciding how much money each of us can be
allowed to have. It is also worth noting that the people who are said to be earning "obscene" amounts of money are usually corporate executives. There is no such outrage whipped up when Hollywood movie
stars make some multiple of what most corporate executives make.
Wednesday, December 27, 2006 ~ 5:25 p.m., Dan Mitchell Wrote: The representatives of the Civic Democrats (ODS), the Christian Democrats (KDU-CSL) and the Greens want to introduce a 17 to 19
percent flat tax, they agreed during the talks about their future government on Tuesday, the daily Mlada fronta Dnes (MfD) writes today.
...If the centre-right coalition pushes the flat tax through, it will probably take effect as from 2008, the paper says. The 17-19 percent tax would
also concern companies and the basic VAT level would be the same, too. ...At present, there are four income tax levels for individuals ranging
from 12 to 32 percent, while companies pay a 24-percent tax. The flat tax was one of the main reasons why the government-forming talks between the ODS and the Social Democrats (CSSD) failed last week as
the CSSD strongly rejected any type of flat tax.
Tuesday, December 26, 2006 ~ 9:17 p.m., Dan Mitchell Wrote: Americans who earned more than $1 million in adjusted gross income paid $178 billion, or an average of $740,000 per filer, in income taxes in
2004. That's up about one-third from 2002, the year before the Bush tax cuts in marginal income-tax and dividend and capital gains rates. The wealthiest 1% of tax filers paid a remarkable 35% of all individual
income-tax payments that year. Yes, we know: Some will claim that this merely shows that the Bush tax cuts made the rich richer. In fact, the
Statistics of Income data reveal that there were more Americans filing taxes in every income category from $50,000 and up in 2004. In other words, Americans across income categories were (and are) making more
money thanks to the buoyant economy spurred in part by the tax cut. ...The 2004 tax and income statistics also show that reported taxable income rose from 2002 to 2004 despite the cuts in tax rates. Reported
taxable income from those in the highest tax bracket rose by 39%; dividend income was up 42%, and income reported from capital gains nearly doubled (up 98%). As for capital gains tax collections, they were
roughly 50% higher in 2004 than before the tax cut. ...If House Speaker-elect Nancy Pelosi wants to keep revenues flowing to pay for her priorities, the best thing she can do is leave the lower Bush tax rates
alone to soak the rich some more.
Tuesday, December 26, 2006 ~ 7:34 p.m., Dan Mitchell Wrote: For decades, the trade deficit has been a political and journalistic lightning rod, inspiring countless predictions of America's imminent
economic collapse. The reality is different. Our imports grow with our economy and population while our exports grow with foreign economies,
especially those of industrialized countries. Though widely criticized as an imbalance, the trade deficit and related capital inflow reflect U.S.
growth, not weakness -- they link the younger, faster-growing U.S. with aging, slower-growing economies abroad. ...Since the 2001 recession, the
U.S. economy has created 9.3 million new jobs, compared with 360,000 in Japan and 1.1 million in the euro zone excluding Spain. This despite our trade deficit and their trade surpluses. Like the U.S., Spain (3.6
million new jobs) and the U.K. (1.3 million new jobs) ran trade deficits and created jobs rapidly in this five-year period. Wages are rising solidly
in these three. The economics is clear (for once) that a liberal trading environment allows more jobs with higher wages as people specialize.
...With all the negativism about the U.S. economy, it's easy to forget its attractiveness. Foreigners are as eager to invest in the U.S. as we are to
buy goods and services from them -- it's a two-way street. Our 10-year government bonds yield 4.6% per year versus 1.6% in Japan, while our government debt is 38% of GDP versus 86% in Japan. The comparisons
with Europe are not as extreme as Japan's, but still heavily favor the U.S.
Tuesday, December 26, 2006 ~ 5:19 p.m., Dan Mitchell Wrote: Racial profiling controversy is nothing new. For a number of years, black Americans have made charges of racial profiling by police and store
personnel who might give them extra scrutiny. ...It turns out that some physical attributes are highly correlated with other attributes that are
less easily, or more costly, observed. Let's look at a few, and the associated "profiling," that cause little or no controversy. Mortality rates
for cardiovascular diseases were approximately 30 percent higher among black adults than among white adults. The Pima Indians of Arizona have
the world's highest known diabetes rates. Prostate cancer is nearly twice as common among black men as white men. Would anyone bring racial profiling charges against a doctor who routinely ordered more frequent
blood tests and prostate screening among his black patients and more glucose tolerance tests for his Pima Indian patients? ...whether we like it
or not, or want to say it or not, that there is a strong correlation between terrorist acts and being a Muslim, and being black and high rates of
crime. That means if one is trying to deter terrorism and in some cases capture a criminal, he would expend greater investigatory resources on Muslims and blacks. A law-abiding Muslim who's given extra airport
screening or a black who's stopped by the police is perfectly justified in being angry, but with whom should he be angry? I think a Muslim should
be angry with those who've made terrorism and Muslim synonymous and blacks angry with those who've made blacks and crime synonymous. The latter is my response to the insulting sounds of car doors locking
sometimes when I'm crossing a street in downtown Washington, D.C., or when taxi drivers pass me by. It would be a serious misallocation of resources if airport security intensively screened everyone. After all,
intensively screening someone who had a near zero probability of being a terrorist, such as an 80-year-old woman using a walker, would not only be a waste but it would take resources away from screening a person
with a much higher probability of being a terrorist.
Monday, December 25, 2006 ~ 2:31 p.m., Dan Mitchell Wrote: ...when one compares the employee tax and insurance costs as a proportion of the total remuneration paid. Ireland continues to have the
lowest level at 6.34% post-Budget, with Cyprus in second place at 8.77%. This confirms Ireland as a low tax jurisdiction for employees. Also, when
one compares the employer social insurance costs as a percentage of remuneration, Ireland is in fifth position. Denmark has the lowest percentage at 1.36%. Ireland, at 9.71%, is just behind Cyprus, Malta and
the UK which have percentages of approximately 9.1%. Comparing the combined costs of tax and employee and employer social insurance costs with the total cost of employment, Ireland post-Budget is found to have
the lowest percentage cost. This was only a marginal advantage in 2005, but the gap between Ireland and Cyprus has increased to 1.44%. Malta
and Luxembourg continue to occupy third and fourth places respectively. Commenting on the results of the survey, Pat Cullen, tax partner with
Deloitte, stated that: "The survey shows the continued commitment of the Irish Government to keep the tax and social welfare costs down and
hence keep the costs of employment down. However, Ireland continues to be exposed to pressures from eastern Europe where employment costs are still relatively low. As those economies gather pace and start to
compete more effectively for international mobile investment, Ireland will be at a considerable disadvantage."
Monday, December 25, 2006 ~ 12:34 p.m., Dan Mitchell Wrote: But Johnny Hallyday, the King -- version française -- who last week abdicated his French seat for the friendlier tax climes of Switzerland, has
unleashed furies of class warfare that are bound to hang on well past his departure and through next year's presidential campaign. ...The
63-year-old rocker, a star for over four decades, declared himself "sick of what they make us pay in taxes," and moved his residence to a
multi-million euro chalet in Gstaad, a sleepy Alpine ski resort. Thanks to France's punishing tax on wealth introduced by the Socialist two decades
ago, the "French Elvis" last year gave 68% of his EUR6.6 million income back to the government. Mr. Hallyday, né Jean-Philippe Smet to
a Belgian father, was hardly the first millionaire to go into tax exile, joining other French icons such as singer Charles Aznavour and actor
Alain Delon. By one count, a millionaire a day has left France since 1997. ...Jacques Chirac, a big Johnny fan, tut-tutted him for poor citizenship,
while Prime Minister Dominique de Villepin said he "profoundly regretted" a move "unjustified by the tax regime in our country."
Monday, December 25, 2006 ~ 10:11 a.m., Dan Mitchell Wrote: Christmas stories, from Dickens to Seuss, need a villain. We'd like to nominate your friendly neighborhood state governments, which for years
now have been predicting dire declines in state finances because untaxed online shopping would erode the revenue-raising ability of sales taxes.
...The third quarter of this year saw state tax revenues up 4.6% over last year, and that was a deceleration from growth that has bumped along at
close to 10% at times in recent years. State sales-tax receipts grew at 4% in the third quarter--and that was the slowest growth in three years. The
biggest news about the sales-tax apocalypse is that it isn't happening. But the strong trend lines for overall tax receipts and sales-tax revenue in
particular haven't slowed the move among states to grab a piece of the online-sales pie. In the 14 years since the Supreme Court ruled that the
myriad state and local taxes were too complex for mail-order retailers to be expected to master, there's been a movement to obviate that argument by "streamlining" the country's many sales-tax regimes.
...never underestimate the determination of politicians to impose a new tax. The Supreme Court left open the possibility of dispensing with the
brick and mortar test if complying with various sales taxes could be made dramatically easier. So six years ago the National Governor's Association, the National Conference of State Legislatures and other
politicians seeking more of your money founded a new organization to oversee the mammoth effort of aligning sales taxes across state lines. And the group--the Streamlined Sales Tax Governing Board--has made a
lot of headway. ...this political exercise is already reducing the tax competition among states that has been a rare incentive for keeping the tax burden low. We are heading, willy-nilly and without much debate,
toward a de facto national sales-tax regime. ...One reason New York City has felt compelled to exempt purchases of clothing items below $110 from its 8.375% sales tax is to prevent too many shoppers from heading
to New Jersey or Connecticut. The lack of an income or sales tax in New Hampshire has also forced nearby states like Massachusetts and Rhode Island to cut their own levies lest they lose even more taxpayers to
Nashua or Manchester. And in the European Union, Ireland and the Baltic states have used low corporate rates or flat taxes to attract capital, driving the high-tax French and Germans to demand "tax
harmonization" from the bureaucrats in Brussels. The same self-interested impulse is driving the American state politicians who are quietly building this uniform multi-state online sales tax.
Sunday, December 24, 2006 ~ 11:39 a.m., Dan Mitchell Wrote: ...protectionists enormously exaggerate the negative effects of globalization by attributing virtually all manufacturing job losses to
competition with China. We are told by union leaders and some politicians that America is exporting millions of jobs to China. This is absolutely untrue. Scholarly studies show that most job losses in the
United States are attributable to domestic causes such as increased domestic productivity. A few years ago it took 40 hours of labor to produce a car. Now it takes 15. That translates into a need for fewer
workers. Protectionists who blame China for such job losses are being intellectually dishonest. In fact, both China and the U.S. have lost manufacturing jobs due to rising productivity, but China has lost ten
times more -- a decline of about 25 million Chinese jobs from over 54 million in 1994 to under 30 million ten years later. ...The ability to buy inexpensive, quality Chinese-made shoes and Japanese-made cars at
lower prices disproportionately benefits lower income Americans. The Wall Street banker who pays $350 for Church's shoes benefits relatively
little, but the janitor who buys shoes for $25 rather than $50 at Payless or Target or Wal-Mart benefits greatly. Lower prices due to imports from
China alone -- ignoring all other similar results of globalization -- probably raise the real incomes of lower income Americans by 5 to 10 percent. That's something no welfare program has ever accomplished.
...the larger perspectives on globalization is that open economies adjust faster to their real competitive advantages, allowing them to employ their own people. The most recent U.S. unemployment rate was 4.4
percent. France, along with other relatively protected economies, typically has twice as high a proportion of the population unemployed because their workers are stuck in inappropriate jobs. Still more
protected economies, like many in Latin America, often run much higher rates of unemployment -- up to 40%. Economies more open than the U.S. -- like Singapore and Hong Kong -- historically run lower rates of
unemployment. ...Globalization has brought countries with about 3 billion people from subhuman conditions of life into modern standards of living with adequate food, basic shelter, modern clothing rather than
rags, and life spans that are over 60 rather than under 45.
Sunday, December 24, 2006 ~ 9:23 a.m., Dan Mitchell Wrote: New figures from the Office for National Statistics (ONS) show that taxes on income are now equivalent to 23.6 per cent of wages and
salaries. The figure is the highest since records were first kept in 1987. ...Taxes on incomes rose by 6.7 per cent over the past year, much higher than the 4.6 per cent rise in wages and salaries.
Saturday, December 23, 2006 ~ 5:12 p.m., Dan Mitchell Wrote: France's recent foray into international environmental policy has the whiff of blackmail about it. Prime Minister Dominique de Villepin last
month proposed a European Union carbon tax on imports from industrialized countries that won't commit to a post-2012 Kyoto Protocol. In other words, sign the treaty or else .... "We have decided to
reinforce the principle that the polluter pays," he said. As long as the "polluter" is from the U.S. or Australia, that is, the two developed
economies that rejected Kyoto and aren't in any mood to approve a successor treaty. As these pages reported last week, France and the rest of the EU signed up to Kyoto and proceeded to emit greenhouse gases at
a faster clip than America. Only two of the 15 old EU members are on track to meet their emissions commitments by 2010. The Gauls are with the majority. Someone in Brussels is willing to stand up to Paris for a
change. Trade Commissioner Peter Mandelson yesterday pointed out practical and legal problems, such as how to choose what goods to target? The Villepin plan also probably runs foul of the WTO, Mr.
Mandelson said. After all, "not participating in the Kyoto process is not illegal. Nor is it a subsidy under WTO rules."
Friday, December 22, 2006 ~ 6:59 p.m., Dan Mitchell Wrote: More long-term unemployed people could have their benefits cut - or stopped altogether - under new proposals. Work secretary John Hutton
said he wanted to end the "can work but won't work" culture, saying society should expect more in return for benefits. He said a "hardcore"
of claimants was not competing with east European migrants for jobs. ...There was no shortage of vacancies for low-skilled workers, even in
areas of relatively high unemployment, he argued. "Economic migration from the EU has only served to highlight this issue. "If workers from
Poland can take advantage of these vacancies in our major cities - why can't our own people do so as well?," he said.
Thursday, December 21, 2006 ~ 8:48 a.m., Dan Mitchell Wrote: People in Luxembourg have on average over eight times the spending power of people in EU member-states-to-be Romania and Bulgaria,
Eurostat says in a survey showing startling contrasts in wealth in the new European Union. The study, which shows the Grand Duchy enjoys a GDP/capita level of 251 percent of the EU average while the Balkan duo
have 33 and 34 percent, matches popular perception in western Europe that Romanian and Bulgarian villages are a far cry from London or Paris. Of the old EU15 countries, Ireland, the Netherlands, Denmark and
Austria lead the pack, while Slovenia and the Czech republic stand out in the new EU10, having already leapfrogged Portugal in 2005 and beginning to catch up on Greece. ...People in European Economic Area
partners Iceland, Norway (oil and gas-rich) and Switzerland (international banking centre) are all better off than the average Joe in the EU. Meanwhile, US citizens live at 150 percent compared to the EU
mean - a stratosphere transcended only by the tiny Luxembourg tax-haven.
Thursday, December 21, 2006 ~ 8:21 a.m., Dan Mitchell Wrote: The ongoing dispute between Bern and the European Union over Swiss corporate tax breaks was cranked up when the two sides met in Brussels
on Thursday. Switzerland once again reiterated its view that plummeting cantonal tax rates do not contravene the 1972 Free Trade Agreement with the EU. ...The stakes were raised last month... Eneko Landaburu,
general director of the EU external relations commission, announced he was preparing a dossier denouncing the Swiss cantonal tax regime. The declaration drew a scathing response from Swiss Finance Minister
Hans:Rudolph Merz who suggested the EU was "jealous" of the country's success in the field of tax competition. Foreign Minister Micheline Calmy:Rey was also drawn from her usual pro:Europe stance
to declare: "there is absolutely no room for negotiation." And senior foreign ministry official Michael Ambühl recently told swissinfo that cantonal tax breaks "do not constitute a subsidy".
Thursday, December 21, 2006 ~ 8:17 a.m., Dan Mitchell Wrote: The media - and The Examiner is no exception - typically run stories whenever a government construction project doesn't meet its estimated
completion date or exceeds its allotted budget. We may have to rethink this practice because it's become so commonplace, it's really no longer
news. The latest example is the Capitol Visitor Center, which is already two and a half years behind schedule and more than $335 million over its original $265 million budget, according to the Government
Accountability Office. ...Not every problem that pops up during a construction project can be anticipated, but no projects would ever get built if the people writing the checks didn't have a reasonably firm
expectation of when they'd be finished - and for how much. No bank would even loan money to remodel a humble kitchen based on such open-ended parameters. The government shouldn't accept them, either.
Wednesday, December 20, 2006 ~ 5:31 p.m., Dan Mitchell Wrote: ...the Republican Party of movement conservatives on Capitol Hill and in the think-tank world-will argue that the "big government
Republicanism" of the Bush era has been a reason for recent defeats. Like all fundamentalists, the antigovernment conservatives preach that
greater influence requires a return to purity-the purity of Reaganism. But the golden age of austerity under Reagan is a myth. During the Reagan
years, big government got bigger, with federal spending reaching 23.5 percent of GDP (compared with just over 20 percent under the current president). But the Reagan reality is more admirable than the myth. He
wisely chose what was historically necessary-large defense increases and tax reductions-over what was politically unachievable: a massive rollback of government. And the critics believe in a caricature of recent
budgets. Well over half of President Bush's spending increases have gone to a range of unexpected security necessities, including military imminent-danger pay, unmanned aerial vehicles and biological-weapons
vaccines. ...As antigovernment conservatives seek to purify the Republican Party, it is reasonable to ask if the purest among them are conservatives at all. The combination of disdain for government, a
reflexive preference for markets and an unbalanced emphasis on individual choice is usually called libertarianism. ...Conservatives have generally taught that the health of society is determined by the health of
institutions: families, neighborhoods, schools, congregations. Unfettered individualism can loosen those bonds, while government can act to strengthen them.
Wednesday, December 20, 2006 ~ 5:17 p.m., Dan Mitchell Wrote: Want to know why costs keep rising? Look no further than the federal government. For decades it has grossly distorted the market to the point
where consumers are all but indifferent to the cost of care. ...To get an idea of what's driving costs, a Kaiser Family Foundation survey recently asked workers with employer-provided health plans about their
sensitivity to the cost of care. The results were stunning. * Fewer than half said they consider costs when deciding to see a doctor or filling a
prescription. * Just 38% ask their doctors about lower-cost alternatives for recommended treatments. * Less than one-quarter bother to ask about the cost of a visit before making an appointment. * And only one
in 10 said they chose a lower-cost option for a test or treatment in the past year. ...At the same time, providers have little incentive to improve
efficiency, offer discounts or compete on price. Even simple things, like transparent pricing, are largely missing from the industry. The effect is
rampant inflation. Between 1984 and 2004, spending on health care increased nearly twice as fast as the overall economy. This bizarre market is no accident. It is the result of federal policy that has
encouraged the growth of "third party" payment of health care. Tax laws provide a full tax benefit only for health care paid by employer-sponsored plans. This has given rise to low-deductible plans
that funnel as much health spending as possible though insurance companies. At the same time, Medicaid, Medicare and other government programs increasingly take on the burden of paying for health care.
...Exposing consumers to the direct costs of care, not surprisingly, makes them more careful about how they spend their dollars. The same Kaiser
survey found workers in so-called "consumer-directed health plans" - which combine high deductibles with a health savings plan to pay routine
health costs - are far more likely to ask about and choose lower-cost options. ...The problem is that most health care reform ideas - and
particularly those offered in the past by Hillary & Co. - would further insulate consumers from the cost of care. If reform is to work, it must
start by recognizing the economic distortions already in the system and eliminate them. Market forces have improved quality and kept inflation
in check just about everywhere else in the economy. There's no reason they can't have the same effect on health care, if given a chance. More than 70 percent of U.S. consumers say they know little or nothing about how much their doctors charge compared to other doctors,
according to a survey sponsored by HealthMarkets, a leading provider of affordable health and life insurance to individuals, the self-employed and
small businesses. When it comes to Americans estimating the cost of health care, usually, the price is wrong - because the estimate is too low.
Most adults (65 percent) think that, in general, a high-priced doctor in the U.S. charges two or three times as much for the same procedure as a
low-priced doctor. In fact, a review of HealthMarkets data for several selected procedures shows that some doctors charge nearly 10 times what others charge for the same procedure. "Most Americans have no
idea how much health care costs or how much it varies from one provider to another," HealthMarkets President and CEO William J. Gedwed said. "If consumers are going to effectively manage their health
care dollars, they need to know how much things will cost them."
Wednesday, December 20, 2006 ~ 5:10 p.m., Dan Mitchell Wrote: EU trade commissioner Peter Mandelson will on Monday (18 December) speak out against a controversial French proposal on taxing trade with
countries that refuse to ratify a post-Kyoto Protocol - an international agreement to limit climate change by lowering greenhouse gas emissions. According to the Financial Times, Mr Mandelson will dismiss the
so-called carbon tax as a probable breach of international trade rules and also label it as "not good politics". He says such a tariff to cancel the
competitive advantage of countries that are not cutting carbon emissions to fight global warming, would be "highly problematic under World
Trade Organisation (WTO) rules and almost impossible to implement in practice". ...French prime minister Dominique de Villepin made headlines
around the world during a UN climate change conference in Nairobi last month by suggesting that countries that do not sign up to a post-2012
international treaty on climate change could potentially face extra tariffs on their industrial exports. ...The French government is expected to make concrete proposals about how such a tax might work by March
2007.
Wednesday, December 20, 2006 ~ 5:04 p.m., Dan Mitchell Wrote: On November 21, at around 7 p.m., narcotics officers in vests that said police (but not full uniforms) served a no-knock warrant to 933 Neal
Street in Northwest Atlanta. The resident, Kathryn Johnston--88 years old by some accounts, 92 years old by others--pulled a pistol on the intruders. The police fired on their assailant. When it was over, three
officers were wounded and Johnston lay dead. The warrant, alleging drug activity at her address, appears to have been issued in error. And, although the FBI is investigating, the Fulton County Assistant District
Attorney defended his cops: "This seems like another tragedy involving drugs." Actually, it seems like another tragedy involving gun policy. On
July 1, a new Georgia law went into effect granting anyone who feels attacked on his or her property the "right to meet force with force,
including deadly force." Georgia Senate Bill 396 also immunizes such a shooter from prosecution and civil penalty (though not, in Johnston's
case, from return fire). It's not unreasonable to suppose that, had this law not passed last summer, Johnston might not have fired on those strange men barging into her house, and she might be alive today.
Tuesday, December 19, 2006 ~ 9:00 a.m., Dan Mitchell Wrote: ...after Congress sharply raised taxes this year for many Americans living abroad, some international tax lawyers say they detect rising demand
from citizens to renounce ties with the United States, the only developed country that taxes it citizens while they live overseas. Americans abroad
are also taxed in the countries where they live. "The administrative costs of being an American and living outside the U.S. have gone up
dramatically," said Marnin Michaels, a tax lawyer with Baker & McKenzie in Zurich. ...Mr. Sundberg said. "With the Internet and the
speed and the ubiquity of information, people are more aware of what's happening." With the changes in the tax laws, he said, some Americans
living abroad fear "they're heading toward a real storm." He cited a survey by the American Chamber of Commerce in Singapore, which polled its members in October and November and found that many were
considering returning to the United States because of the higher taxes. Concern about taxes among Americans living abroad has surged since President Bush signed into law a bill that sharply raises tax rates for
those with incomes of more than $82,400 a year. The legislation also increases taxes on employer-provided benefits like housing allowances.
...The legal ritual of renunciation is largely unique to the United States because other countries base taxation on residency, not citizenship,
according to Ingmar Dörr, a tax lawyer with Lovells in Munich. "We don't have that issue," he said. "We only have the problem that rich
people who don't want to pay taxes in Germany just move to a lower-tax country in Switzerland." ...In 1996, Congress tried to address a wave of
tax-driven expatriation by the wealthy by requiring former citizens to file tax returns for a decade and forbidding Americans who renounced their
passports for tax reasons from visiting the United States. But in practice, the government is mainly interested in wealthier ex-citizens with a net
worth of more than $2 million - few of whom pay further United States taxes because they generally avoid making American financial investments after giving up citizenship, Mr. Ledvina said. As for the rule
barring entry to tax refugees, he said, it has not been enforced by the authorities. CF&P's Dedicated Web Page on Section 911 and Americans Living and Working Abroad:
Tuesday, December 19, 2006 ~ 8:51 a.m., Dan Mitchell Wrote: The Sarbanes-Oxley Act powerfully illustrates the law of unintended consequences. Due to hasty drafting by Congress in the wake of the
Enron and WorldCom scandals, Sarbox has cost the U.S. economy over $1 trillion, according to one study published by the AEI-Brookings Center. To add insult to grievous injury, it is unconstitutional. ... First,
plaintiffs claim that Sarbox violates the constitutional requirement that power to enforce federal law be vested in the president or in executive
branch officials answerable to the president. Because the Board exercises important governmental powers, its members are "officers of the United
States," who must be appointed in the manner set forth in the "appointments clause" of the Constitution (Article Two, Section Two) --
that is, by the president and with the advice and consent of the Senate. Congress instead drafted the statute to insulate the Board's wide-ranging
exercise of executive and administrative powers from presidential oversight or control. By granting to the SEC, rather than the president, power to appoint Board members -- Sarbox violates the appointments
clause. Second, Congress gave the Board disturbingly broad powers with only minimal oversight. The PCAOB has wide-ranging executive and administrative powers. These include setting standards regulating
accounting firms and exercising disciplinary power over them. The Board is also immune from any effective control by the president or any head of an executive-branch department -- the chairman of the SEC cannot
remove PCAOB members at will. Third, Sarbox confers impermissible legislative authority on the Board. The PCAOB can finance its own operations; it can levy fees on all public companies and even set its own
salaries. But Congress cannot delegate its own legislative power: this is a basic violation of our bedrock system of separation of powers. ...the
government's theory seems to be: "Why worry? There are no real problems here. If there are, the SEC can take care of them." But our
constitutional system is not structured that way. Unelected commissions should not have the power to regulate, tax, and even punish companies and individuals.
Tuesday, December 19, 2006 ~ 8:27 a.m., Dan Mitchell Wrote: ...there are just four institutions through which human beings imbue their lives with meaning: vocation, family, community, and faith. ...the only
way that government can achieve that goal is leaving those institutions alone--protecting them against predators, yes, but otherwise leaving them alone. If you want a symbol of what happens when government
tries to help, I invite you to drive through rural Sweden, as I did a few years ago. In every town was a beautiful Lutheran church, freshly painted, on meticulously tended grounds, all subsidized by the Swedish
government. And the churches were empty--even on Sundays. Or take a look at the countries with the most extensive networks of child allowances, free day-care centers, and generous maternity leaves. You
are also looking at countries with fertility rates far below replacement, plunging marriage rates, and soaring illegitimacy ratios. Go to countries
in which the jobs are most carefully protected by government regulation and mandated benefits are most lavish. You are also looking at countries
in which work is most often seen as a necessary evil, and the proportions of people who say they love their jobs are the lowest. The more government tries to help, the feebler the four institutions become. The
explanation for the paradox is simple: the real problem with the welfare state is not that it is inefficient in dealing with social needs (though it is),
nor that it is ineffectual in dealing with them (though it is), nor even that it exacerbates the very problems it is supposed to solve (as it does). The
real problem with the welfare state is that it drains too much of the life from life itself.
Tuesday, December 19, 2006 ~ 8:08 a.m., Dan Mitchell Wrote: Japan's ruling parties are poised to extend the tax breaks on capital gains and dividends into fiscal year 2008 after concluding that ending the
measures could disrupt the stock market. Individual investors now enjoy a reduced tax rate of 10% on capital gains and dividends, compared with the usual 20%. The government's tax commission, an advisory body to
the prime minister, had recommended earlier that these tax breaks be allowed to expire as scheduled in fiscal year 2007. However, at a meeting
of senior officials of the Liberal Democratic Party's research commission on the tax system, the predominant view was that ending the tax breaks
would hurt stock prices, which have recovered. The LDP is set to extend the tax breaks by one year to avoid a situation in which the Shinzo Abe
government's first tax-reform package triggers a decline in stock prices, especially since one of the pillars of Prime Minister Abe's policy is that the government budget cannot be put back into balance without
economic growth. ...In addition, the tax reforms for fiscal year 2007 are to include measures to reduce the tax burden on corporations, such as more generous depreciation rules.
Tuesday, December 19, 2006 ~ 7:55 a.m., Dan Mitchell Wrote: How often have you heard that the vast majority of families' incomes in the United States are rising little or not at all, that the middle class is
shrinking, that real wages are stagnating, that the top 20%, or 5%, or 1% are getting the lion's share of the gains in the U.S. economy, that
average CEO pay is getting to be a couple of orders of magnitude larger than average people's pay, or that mobility across income groups has
declined? ...All of the above claims are either absolutely false or at least highly misleading. I wrote an article in 2005 laying out the fact that
income mobility has not declined, in which I pointed out David Wessel's misleading use of language that left most readers thinking that mobility
had declined. I wrote another article pointing out that it's not true that only people in the top income groups are seeing their incomes increase.
Charles Hooper and I wrote an article laying out the fact that if one looks across the whole world's population that has ever existed, the vast
majority of Americans are in the top 1%. ...To say that the middle class is vanishing, one must have a definition of the middle class. A sensible
person would probably define it as the group of people in the middle, say the middle quintile or the middle three quintiles. But that's not how the
commentators who have made the claim have defined the middle class. Instead, they take the group of people making income within a fixed range in inflation-adjusted dollars, say, between $35,000 and $50,000,
and show that the percent of the overall number of families within this range is falling. In commenting on this way of defining the middle, Reynolds points out an obvious but, nevertheless, often completely
overlooked fact: "Such a fixed definition ensures that the proportion of households in the middle group must decline with a rise in general
prosperity, because rising prosperity causes a rising percentage of families to earn more than $50,000." (emphasis his) Reynolds continues
by telling of a 2004 story in the Washington Post titled, "The Vanishing Middle-Class Job." The Post article pointed out that in 1967, nearly a
quarter (22.3 percent) of households made between $35,000 and $49,999 in inflation-adjusted terms, but that that share was down to 15 percent
by 2003. Reynolds notes that the same article showed that the percentage of U.S. households with a real income higher than $50,000 rose from 24.9 percent in 1967 to 44.1 percent in 2003. Moreover, the percentage
with income lower than $35,000 fell from 52.8 percent to 40.9 percent. In other words, the "middle class" was shrinking because people were
moving out of the Post's statically defined middle class into a higher income class.
Monday, December 18, 2006 ~ 8:43 a.m., Dan Mitchell Wrote:
Monday, December 18, 2006 ~ 8:30 a.m., Dan Mitchell Wrote: If we take it as an axiom of justice that people should be free to leave a society, either as individuals or in groups, then the competitive
equilibrium is not only efficient but it is also just. In some sense, the core provides an axiomatic basis for the libertarian embrace of competitive market outcomes and rejection of income redistribution.
Monday, December 18, 2006 ~ 8:12 a.m., Dan Mitchell Wrote: Few things became the 109th Congress so much as its departure. After two years of missed opportunities and scandal, the Members were finally
able to leave Washington on the weekend having made a few notable last-minute accomplishments. At the top of the list, renegade GOP Senators Jim DeMint and Tom Coburn led the charge against 12,000
earmarks that Appropriators had hoped to stuff into the remaining fiscal 2007 spending bills. Among the early Christmas booty was $4.9 billion in
"emergency" relief for farmers, and millions for parking garages, jazz museums and bike paths. Also on the favor list was a too-creative $682
million tax credit for a New York City rail project that these columns highlighted last week. Despite much howling from special interests and
New York politicians, the rebels prevailed and Congress instead passed a stopgap "continuing resolution" that will fund the government at 2006
levels until mid-February and save taxpayers as much as $17 billion. The earmarks died. Democrats may well power up the spending machine come January, but at least it's on idle for the moment. ...The final days
even included one miracle of genuine bipartisanship. Nearly half of all Democrats (92 ayes and 96 nos) and 120 Republicans combined to approve normal trade relations with Vietnam and extend important trade
agreements with Haiti, sub-Saharan Africa and the Andean nations. The textile industry was pushing hard against Vietnam and Haiti, and that lobbying peeled away more than the usual number of pro-trade GOP
votes. Democrats made up the difference, led by next year's Ways and Means Chairman, New York's Charlie Rangel, who noted the importance
of trade with a "poor nation" like Haiti and rounded up 16 Members of the Congressional Black Caucus in favor. Even Speaker-to-be Nancy
Pelosi voted yes. Despite all the protectionist bluster of the recent election, this suggests a bipartisan majority may still understand the importance of freer trade and may bode well for trade deals with Peru
and Colombia that still need Congressional approval.
Monday, December 18, 2006 ~ 7:53 a.m., Dan Mitchell Wrote: ...thanks to U.S. military action that Mr. Annan did everything in his power to prevent--we learned that he had presided over the greatest
bribery scheme in history, known as Oil for Food. We learned that Benon Sevan, Mr. Annan's trusted confidant in charge of administering the
program, had himself been a beneficiary of Iraqi kickbacks to the tune of $160,000. We learned that Mr. Annan's chief of staff, Iqbal Riza, had
ordered potentially incriminating documents to be destroyed. We learned that Mr. Annan and his deputy, Louise Frechette, were both aware of the
kickback scheme but failed to report it to the Security Council, as their fiduciary duties required. However, we haven't yet learned whether the
senior Annan illegally helped his son Kojo obtain a discounted Mercedes, an issue on which the Secretary General has stonewalled reporters. ...Mr.
Annan was also forced to place eight senior U.N. procurement officials on leave pending investigations on bribery and other charges. Vladimir Kuznetsov, the head of the U.N. budget-oversight committee, was
indicted this year on money-laundering charges. Alexander Yakovlev, another procurement official, pled guilty to skimming nearly $1 million off U.N. contracts. The U.N.'s own office of Internal Oversight found
that U.N. peacekeeping operations had mismanaged some $300 million in expenditures.
Monday, December 18, 2006 ~ 7:04 a.m., Dan Mitchell Wrote: ...technology firms are the leading edge of the U.S. knowledge economy; they made possible the productivity revolution of the past decade. But the
same could just as well be said of hedge funds, which allocate the world's capital to the companies, industries, and countries that can use it most
productively. ...the volume of money managed by U.S. hedge funds has risen from about $300 billion to well over $1 trillion, according to HedgeFund Intelligence. In Europe and Asia, meanwhile, assets under
hedge-fund management have grown to $325 billion and $115 billion, respectively, and London has emerged as a hedge-fund center second only to the New York area. ...The fear of the growing influence of hedge
funds is compounded by the aura of mystery that surrounds them. Whereas financial markets thrive on transparency, hedge funds are limited in what they can disclose to the public at large. They are sold
through privately distributed prospectuses that describe the funds' investment parameters, terms of investment, redemption rules, and the like. ...fear of hedge funds is overblown, based more on ignorance or
simplistic caricatures than on actual knowledge. Many of the proposals for new regulation are so vague as to be impossible to evaluate or are poorly suited to address the supposed problems at issue. And even the
most serious cause for concern -- that hedge-fund operations might generate a "systemic risk" for the financial system as a whole -- is
neither limited to the hedge-fund sector nor best addressed through regulation of it. Rather than seeing hedge funds as sources of dangerous
financial fires, in fact, it is more accurate to see them as the financial system's benevolent fire fighters -- and to let them have the tools they
need to do their jobs well. ...Like any other investors, hedge-fund managers are subject to prosecution for insider dealing or fraud; they are overseen by the SEC if they have broker or dealer affiliates; they
may be regulated by the Commodity Futures Trading Commission if they trade futures or by the Federal Energy Regulatory Commission if they trade energy contracts; their borrowing is indirectly monitored by the
Federal Reserve; and so on. ...Contrary to popular mythology, hedge funds are not precipice dwellers. In the United States and Europe, regulations restrict access to hedge funds to rich individuals and
institutions on the theory that the funds are too risky for the average investor. But because most hedge funds hold a portfolio of positions and
can go short as well as long -- borrowing stocks and selling them, in the hopes of buying them back after their prices have fallen -- they can be
less volatile than individual stocks or standard mutual funds. ...hedge funds collectively do not so much create risk as absorb it. The funds can
be viewed as quasi insurers; by shouldering risks that others wish to avoid, they remove a potential obstacle to business. ...hedge funds can
reduce the chances that markets will rise to unsustainable levels in the first place. Unlike most other investors, they can profit from falls in the
market as well as from rises. Their ability to short stocks has given rise to a cottage industry of specialist funds that scour the financial press for
glowing corporate profiles and bet against the hype. ...the proliferation of hedge funds actually diminishes the risk of the nightmare scenario,
and so regulation that discouraged the creation of new funds would be counterproductive. The more hedge funds there are, the less likely it is
that they will all be concentrated on one side of a given trade, and the more likely it is that if trouble at one hedge fund initiates a downward
spiral in a particular corner of the market, falling prices will draw in other funds smelling a bargain. ...critics of hedge funds would do well to
remember why this sector has emerged as such a force. Until the late 1960s, the financial world was quaintly stable: exchange rates were inflexible, interest rates were regulated, and the whole system was
anchored by a fixed gold price. But that world collapsed when inflation drove the dollar off the gold standard and currencies and interest rates
began to float; from then on, it became impossible to amass savings without facing financial uncertainty. Tools for coping with that uncertainty -- deep markets in futures, options, and other derivative
instruments -- sprang up in response to the newly volatile environment. And hedge funds emerged as the masters of these tools, providing quasi insurance to investors and firms and introducing a healthy dose of
contrariness into financial markets. For this, they are accused of generating risk. But their real systemic function is to manage it -- and it
is their very success in doing so that has generated both their profits and their phenomenal growth.
Sunday, December 17, 2006 ~ 1:33 p.m., Dan Mitchell Wrote: Rocker Johnny Hallyday is just one of the famous or anonymous French nationals who pull out of the country's tax base daily in a rarely
discussed phenomenon fueled by European fiscal competition. "Like many French people, I've had enough of the taxes we are forced to pay and this is it, I've made my choice," Hallyday told French radio
Thursday... The 63-year-old, who has sold 100 million discs over the past 40 years, will now live part of the year at his Swiss chalet in the tony ski
resort of Gstaad. ...The issue of fiscal exile from France has long been almost taboo. The number of those who move abroad, often quietly, to
escape burdensome income and wealth taxes is estimated at "one per day" by Gilles Carrez, a member of Sarkozy's UMP party... Other French
personalities who live abroad include actor Alain Delon, actor/singer Charles Aznavour, former formula one champion Alain Prost and tennis champion Amelie Mauresmo. The former head of construction group
Vinci, Antoine Zacharias, who stepped down amid sharp controversy over his pay package, has recently settled in Geneva, the financial daily Les Echos reported. ...French President Jacques Chirac expressed regret
at Hallyday's decision... Favored destinations include Switzerland with its tradition of banking secrecy, but also Belgium, in particular for entrepreneurs who have sold their companies and seek to avoid both
capital gains and wealth taxes. Britain and the United States welcome others with more modest fortunes, according to Dassault's report. ...Conservative deputy Lionnel Luca called on the French government [http://search.breitbart.com/q?s=%22French+ Sir Mark Thatcher is believed to be planning a move to Gibraltar. ...If successful, Baroness Thatcher's controversial son could escape with
paying only £20,000-a-year tax on his estimated £65million fortune. ... He stands a good chance of gaining residency, according to insiders, because of new rules brought in to attract the super-wealthy. They
require only that Sir Mark pay a £1,000 fee, prove he is worth more than £2million and buy or rent a property appropriate to sustaining the
lifestyle of a wealthy individual'. ... He does not even need to reside in Gibraltar for his income tax to be capped at £20,000. It is 50 miles from a villa in Marbella he already rents for £3,000 a week.
Sunday, December 17, 2006 ~ 11:09 a.m., Dan Mitchell Wrote: Is there a better way to help the poor than by creating jobs -- opportunities for self-improvement? And when businesses make useful
products cheaper and more plentiful, that helps the poor more than charity. Discount retailers like Wal-Mart help low-income people tremendously. Would Sam Walton have done as much for the poor by
giving all his money to charity? I don't think so. That's what T.J. Rodgers, founder of Cypress Semiconductor, thought when Turner gave $1billion to the United Nations, a bureaucracy famous for squandering
money. "What he said is patently stupid," Rodgers told me. "What he should do is take his money and invest it. And to have the companies and
buildings and plants that are created with his investment create jobs and wealth and products for other people. So running around giving his
money away is a way to maybe make himself feel good. But it sure as hell isn't a good way to help people!" ...We lavish praise on the philanthropist, but you can't give away what hasn't been created.
Saturday, December 16, 2006 ~ 4:24 p.m., Dan Mitchell Wrote: The Transportation Department announced this week that it's giving up its effort to liberalize the antiquated laws governing ownership of U.S.
airlines. Congressional protectionism, 1; common sense 0. ...Unions...fear that a little opening today might pave the way to more competition -- and less generous contracts for American workers --
tomorrow. ...The foreign ownership limits are a protectionist vestige from an age when airlines were treated like national totems. That day has long passed, and the rules now serve mainly to protect industry and
labor special interests. With AFL-CIO favorite James Oberstar of Minnesota about to take over the House Transportation and Infrastructure Committee, change is even less likely. Air travelers out for
better service and lower prices face yet another delay.
Friday, December 15, 2006 ~ 6:16 p.m., Dan Mitchell Wrote: In 2000, the top 1 percent of the world's population - some 37 million adults with a net worth of at least $515,000 - accounted for about 40
percent of the world's total net worth, according to the report. The bottom half of the population owned merely 1.1 percent of the globe's wealth. The net worth of the world's typical person - whose wealth was
above that of half the world's population and below that of the other half -was under $2,200. The widening gap between the global haves and the have-nots in large measure reflects the failure of less- developed
countries to develop, while rich countries - particularly the United States - have experienced fast economic growth and a spectacular buildup of assets. ...Americans have amassed much of the world's treasure.
According to the report, in 2000 the United States accounted for 4.7 percent of the world's population but 32.6 percent of the world's wealth.
Nearly 4 out of every 10 people in the wealthiest 1 percent of the global population were American. ...Income inequality shows few signs of
abating in most countries. Still, there is evidence that the global gap in wealth may close somewhat over coming years. Paradoxically, the reason is the fast growth of China and India. Inequality is growing
rapidly in both those countries. As tens of millions of Chinese and Indians climb out of poverty, they are leaving tens of millions of less fortunate
Chinese and Indians behind. But even as wealth and income become more unevenly distributed within China and India, these hundreds of millions of people making their way into the middle class and
accumulating assets will actually make global wealth distribution more equal than it was before.
Thursday, December 14, 2006 ~ 8:57 a.m., Dan Mitchell Wrote: Our current tax code is an abomination, and we desperately need that change. The time Americans spend simply complying with our tax code
comes to 5.8 billion hours of record-keeping, filing taxes, consulting, legal and accounting services. Breaking those hours down to a 40-hour
work week, it translates into a workforce of 2.77 million people. That's more than the workforce of our auto, aircraft, computer and steel manufacturing industries combined. The Fair Tax has much to
recommend in its favor, such as being a more efficient form of taxation. It would go a long way toward protecting our privacy and preventing Congress from using the tax code to micromanage our lives. The Fair
Tax is an excellent idea, but only under three conditions: first, the repeal of the Sixteenth Amendment that created the income tax; second, a
provision fixing the tax at, say, 23 percent; and third, a constitutional amendment mandating that a tax increase requires a three-fourths vote
of Congress. Notwithstanding any provisions within the Fair Tax, if the Sixteenth Amendment weren't repealed, down the road we'd find ourselves with a national sales tax and an income tax.
Thursday, December 14, 2006 ~ 8:40 a.m., Dan Mitchell Wrote: In the summer of 2003, shoppers in Southern California began getting a break on the price of milk. A maverick dairyman named Hein Hettinga
started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the
rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down
retail prices at supermarkets and warehouse stores. That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three
years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid [http://projects.washingtonpost.
Thursday, December 14, 2006 ~ 8:02 a.m., Dan Mitchell Wrote: New York City's board of health voted last week to ban the use of trans fats in restaurants, a step that will force many of the Big Apple's 26,000
eating establishments to radically alter the way they prepare food. The prohibition is being called a model for other cities, such as Chicago,
where similar bans have been proposed. Is it a good idea to avoid food made with trans fats? That depends on what you consider good. Trans
fats are said to raise the risk of heart disease by increasing levels of LDL ("bad") cholesterol. They also contribute to the appealing taste of many
baked and fried foods, and provide an economical alternative to saturated fats. As with most things in life, trans fats carry both risks and benefits. Do the possible long-term health concerns outweigh the
short-term pleasures? That's a question of values -- one that scientists and regulators aren't competent to answer. Different people have different priorities. They make different choices about the fats in their
diet, just as they make different choices about whether to drive a Toyota, drink their coffee black, or get a tattoo. In a free society, men and
women decide such things for themselves. In New York, men and women are now a little less free. The city government -- which recently considered letting people officially designate themselves a sex different from the one indicated by their
anatomy -- has decided it cannot stand by as citizens exercise their own choices about eating trans fat. Why not? Judging from the allegations,
because it's the worst food additive since E. coli. "It's basically a slow form of poison," charged David Katz, director of the Yale-Griffin
Prevention Research Center. City health commissioner Thomas Frieden was not talking about radioactive polonium when he declared, "New Yorkers are consuming a hazardous, artificial substance without their
knowledge or consent." ...today, you have ample choices. If you don't want your fries cooked in partially hydrogenated oil, you are free to
patronize Wendy's. If you prefer the taste conferred by trans fat, and have no desire to attain your maximum possible lifespan, McDonald's will accommodate you. In neither case do you need the City Council of
New York, or any other government body, to ride up and yank the decision out of your hands. This is not some nasty contaminant that no one would conceivably want in their food. It's an ingredient with
advantages and disadvantages, which different individuals will weigh differently.
Thursday, December 14, 2006 ~ 7:50 a.m., Dan Mitchell Wrote: … one European government or another will propose taxing air travel to "compensate" for the industry's alleged contribution to global warming.
After all, the EU Parliament endorsed just such a measure this summer in a nonbinding vote. British politicians have mulled an aviation-carbon
tax in light of the Stern report on climate change in October. French President Jacques Chirac has already created an aviation tax to fund foreign aid… In the meantime, however, the British, French, German and
Spanish governments may grant up to €3.75 billion ($5 billion) in subsidies for the development of Airbus's new midsize jetliner, the A350-XWB. That's right. Governments that are happy to blame air travel
for the world's environmental problems are bankrolling new planes. Just imagine if Europe were to subsidize domestic agriculture and then give
aid to poor countries whose farmers lose out as a result. Oh, wait -- they do that, too. …here's a modest proposal for those who believe cheap
airfares will wind up killing the planet: Cut off the subsidies, and let the market determine the demand for new planes and flights.
Wednesday, December 13, 2006 ~ 5:18 p.m., Dan Mitchell Wrote: The Netherlands has allowed itself to become a tax haven for thousands of foreign companies, whose real presence is often little more than an
Amsterdam postbox number. …During the course of 2006, the number of foreign companies establishing a financial presence on Dutch soil rose by
50 per cent over the previous year - or by about 1,600 new companies. A recent study by the Centre for Research on Multinational Corporations (known by its Dutch abbreviation SOMO) found that more than 20,000
multinationals and rich individuals were registered in the Netherlands for tax purposes. …Apart from the Dutch Treasury, which benefits to the
tune of 1.2 billion euros (1.5 billion dollars) a year, 132 trust companies and their employees earn considerable sums through the provision of
financial services. In 2002, the last year for which figures are available, some 3.6 trillion euros - eight times the Dutch gross domestic product in
that year - flowed through the country. …A tax change comes into effect next year that cuts tax on income from interest to a mere 5 per cent, as opposed to standard corporation tax at around 30 per cent.
Multinationals would thus have an even stronger incentive to conduct their loans to their subsidiaries under the Dutch tax dispensation, charging market rates of interest and paying minimal tax on the
proceeds. …'The main conclusion of this report is very simple: the Netherlands is a tax haven,' the authors say. …The report notes that many of the trails from the Enron scandal in the United States and the
Parmalat scandal in Italy ran through Dutch 'mailbox companies.' And it points out that well-known companies like Ikea, Airbus manufacturer EADS and Mittal Steel, have their headquarters in the Netherlands,
despite being run from outside the country. …The researchers estimate that half the cash and liquid assets held by the rich of Latin America is
held in tax havens. The figure for the Middle East is a staggering 70 per cent.
Wednesday, December 13, 2006 ~ 5:06 p.m., Dan Mitchell Wrote: The introduction of a 3% increase in the rate of Germany's value-added tax rate on January 1, 2007, is likely to have a significant impact on the
German economy, with the net effect on demand likely to be negative, according to the conclusions of a new study. The Royal Bank of Scotland (RBS) with Bloomberg and NTC Economics have surveyed retailers and
service providers across Germany to gauge their expectations of the impact the VAT hike will have - thought to be the first comprehensive study to date quantifying the little-known effects on demand and prices.
The research suggested that nearly 80% of the increase will be passed on to consumers, with most of the impact being felt in January. However, a
significant proportion of price rises will also be implemented in advance, with over a fifth of respondents having either already increased prices or
planning to do so before the end of the year. …"These survey results clearly show that it will be a significant macro economic event for the
German economy," observed Jacques Cailloux, RBS, Chief Euro Area Economist.
Wednesday, December 13, 2006 ~ 5:00 p.m., Dan Mitchell Wrote: Californians were promised wonder cures if they passed Proposition 71 to fund stem-cell research in 2004. Turns out they have bought a $3
billion jug of snake oil. … With the hype over, the scientists involved in the California Institute for Regenerative Medicine now admit they may
not find cures over 10 years for even one of the diseases like autism, AIDS, Lou Gehrig's disease, lupus and multiple sclerosis that stem-cell
activists had insisted a $3 billion state institute would find cures for. "Gone are the allusions to healing such afflictions such as spinal cord
injuries and Parkinson's and Alzheimer's diseases that dominated the 2004 campaign for Proposition 71 in 2004," the Los Angeles Times noted. Too bad. … The medical groups who bucked hardest for the
California Stem Cell Research and Cures Act are making plenty of money off it, not just from grants, like the $150 million loan that Gov. Arnold Schwarzenegger fronted for their favorite research institutions to
skirt taxpayer suits, but also for the golden opportunity to buy California bonds to finance it. … doctors in other parts of the country are
reportedly following the gold rush in droves to sunny California, because they know the highest concentration of cash for stem-cell research
anywhere in the U.S., including federal sources, is in California. The only people who get nothing out of this $3 billion boondoggle are the California taxpayers who are writing the checks, and the medical
patients who have been sold a bill of goods by stem-cell activists about sure-thing medical cures from public, instead of private, funding. …
Public money is no better than private money in reaching a medical cure for AIDS, Alzheimer's disease and lupus. The only difference is, the private sector has an obligation to use its cash efficiently, and show
results — something no government institute is obliged to do. … stem cell research is worthwhile only if it shows meaningful results. To date, the
private sector has spent only $120 million on this research. Virtually all of it has gone into adult and umbilical-cord stem-cell research. Bill
Gates, for instance, has spent only $2 million on it, and all of it in China. Yet 72 treatments have emerged from adult and umbilical stem-cell research — and none from embryonic stem-cell research — showing the
market's efficiency.
Tuesday, December 12, 2006 ~ 8:24 a.m., Dan Mitchell Wrote: Members of the Swiss government have reiterated their determination not to give an inch to the European Union regarding the country's tax
system. According to the European Commission, the Swiss tax system is "incompatible" with the 1972 free trade agreement between Switzerland
and the EU because it distorts trade within the bloc. The EC takes issue with laws that allow local cantonal governments considerable freedom to
set their own levels of taxation in a bid to attract international holding companies and high-net-worth individuals to relocate in Switzerland.
However, speaking earlier this week, Michael Ambuhl, a senior official of the Swiss Foreign Ministry, repeated the government's long-held view
that the Swiss tax system has no bearing on the trade agreement with the EU. "Our position is absolutely clear," he stated, according to Swiss
Radio, continuing: "The cantonal taxes do not constitute a subsidy – indirect or direct – to the exchange of goods, and as such do not affect the free-trade agreement."
Tuesday, December 12, 2006 ~ 8:16 a.m., Dan Mitchell Wrote: A Norwegian appeals court has ruled that striptease is an art form and should therefore be exempt from value-added tax (VAT). …Lawyers for
the club's owners argued that striptease dancers were stage artists just like sword-swallowers and comedians and deserved the same status.
"Striptease, in the way it is practised in this case, is a form of dance combined with acting," the judges ruled, according to AFP news agency.
The court's ruling upholds an earlier verdict of May 2005.
Tuesday, December 12, 2006 ~ 7:52 a.m., Dan Mitchell Wrote: The government continues to waste tens of millions of dollars in its Hurricane Katrina relief efforts, including giving rent checks to evacuees
already living in free housing and student aid to ineligible foreigners, U.S. investigators said Wednesday. The Government Accountability Office (GAO) also found that the Federal Emergency Management
Agency (FEMA) has been able to recoup only $7 million of the more than $1 billion in improper payments identified by investigators months ago.
"The taxpayers are the new victims here," the GAO's Greg Kutz told the Senate's Homeland Security and Governmental Affairs Committee during
the fourth and final hearing into government waste, fraud and abuse related to Katrina. …The GAO reported that FEMA spent: Nearly $17 million in improper or fraudulent rental payments to evacuees already
living for free in trailers provided by the agency. Nearly $20 million in double payments to people who claimed damage to the same property from Hurricanes Katrina and Rita. $3 million to more than 500 foreign
students who are ineligible for aid. $156,000 to 25 foreign workers in the USA on temporary work visas.
Tuesday, December 12, 2006 ~ 7:39 a.m., Dan Mitchell Wrote: Good for Henry Tang. Hong Kong's Financial Secretary pulled his proposal for a goods and services tax on Tuesday, on which he's bet a
large chunk of his political capital. The notion of a sales tax has been kicking around Hong Kong for years, and Mr. Tang's idea to broaden out
the territory's narrow tax base wasn't a bad one, theoretically speaking. It's just hard to sell a tax hike when you're swimming in cash and funding
a hugely bloated public sector. …the Hong Kong government has handily squandered the city's fiscal reserves since the 1997 handover. Part of
that is bureaucratic sprawl; currently, 160,000 well-paid civil servants serve a city of about 6.9 million. Social welfare spending is also soaring.
According to Mr. Tang's office, only a little over a third of Hong Kong's workforce pays taxes. But is a system that delivered a HK$14 billion
($1.8 billion) fiscal surplus at the end of the 2005-06 fiscal year really in need of fixing? Even if you think it is, why not trim personal income tax
allowances, which kick in at a generous HK$100,000 ($12,873), and which wouldn't create new layers of bureaucracy? Better yet, cut the 17.5% corporate tax to encourage more businesses to set up shop in
Hong Kong. If you want to soak the rich, it's best to make more people richer.
Monday, December 11, 2006 ~ 9:00 a.m., Dan Mitchell Wrote: Despite an intensified campaign against poverty, World Bank programs have failed to lift incomes in many poor countries over the past decade,
leaving tens of millions of people suffering stagnating or declining living standards, according to a report released Thursday by the bank's autonomous assessment arm. Among 25 poor countries probed in detail
by the bank's Independent Evaluation Group, only 11 experienced reductions in poverty from the mid-1990s to the early 2000s, while 14 had the same or worsening rates over that term. The group said the
sample was representative of the global picture. …In a statement distributed with the report, World Bank management rejected its
assessment as "overly bleak," arguing that the overall trend is improving in every region except Africa. …Overall, from 1990 to 2002, the
percentage of the world's people who subsist on less than $1 per day declined from 28 to 19, according to World Bank research. But officials
with the evaluation group noted that much of the advance was registered in China, which has rejected many of the tenets of the development model advocated by the West and barely relied on the largesse of the
World Bank. "If you take out China, the numbers would be unfavorable," Thomas said.
Monday, December 11, 2006 ~ 8:42 a.m., Dan Mitchell Wrote: Bolton was a Gulliver dispatched to Lilliput, a truth-teller in a den of diplomats. As a principled man in a dishonest institution, he was a threat
to a whole raft of special interests that feed off the U.N. system. …This is the U.N. that in recent years has incubated such scandals as oil-for-food,
procurement bribery, and peacekeeper rape. This is the U.N. whose "reforms," in answer to these scandals, have consisted largely of demands for more money, and a revamped so-called Human Rights
Council that has devoted itself entirely to condemning Israel. This is the U.N. system that still does not provide coherent accounts of how it
spends about $20 billion per year, about one-quarter of that supplied by U.S. taxpayers.
Monday, December 11, 2006 ~ 8:19 a.m., Dan Mitchell Wrote: Fans of political irony will appreciate that Democrats in Congress are saying they now want to address the "wealth gap" even as they deplore
and want to eliminate the Alternative Minimum Tax, or AMT. It was a previous crusade against the wealthy that created the AMT. Haven't we learned anything about the perils of tax policy rooted in political envy?
The AMT became law in 1969 after LBJ's last Treasury Secretary, Joseph Barr, created a liberal uproar by disclosing that 21 millionaires had
managed to pay little or no income tax in 1967. Thus the "alternative" tax was designed to capture high earners who claimed a lot of deductions, and somehow Democrats never raised a peep over the years
when the AMT was whacking mostly Republican voters. But the tax has now become the monster that ate Marin County, to pick just one of the blue state redoubts where the AMT hits especially hard. This year it will
strike four million Americans, and next year without a change in law it will snare 23 million -- one in four tax filers. … One lesson: Whenever a
politician claims a tax will only hit "the rich," don't believe him. Sooner or later the tax always soaks the middle class, because that's where the
money is. The latest data indicate that the eight states with the highest percentage of tax filers subject to the AMT all voted heavily Democratic
in 2004 and 2006 -- including Massachusetts, Connecticut, New Jersey and Rhode Island. …here's a possible deal between the Bush Administration and the Pelosi Democrats: Junk the IRS code and use the
AMT as the basis for tax reform. The AMT provides at least the crude framework for a much simpler tax code, because it eliminates almost all deductions and special interest carve-outs. It requires only about
one-tenth as many tax forms as the regular code. It has a broad tax base and only two tax rates, 26% and 28%. Yes, a load of sticky tax issues would still need to be negotiated: The double and triple taxation of
investment and savings would have to be eliminated, and adjustments would also be needed lest many families with children be socked with a huge tax hike as they are under the current AMT.
Monday, December 11, 2006 ~ 8:02 a.m., Dan Mitchell Wrote: If personal accounts are off the table, the tax increases should be, too. …the taxes that fund Social Security could be made more progressive.
There is a cap on the amount of wages that is subject to the payroll tax. That cap could be raised. This is where Democrats want to go, and Republicans have good reasons for resisting: It would increase marginal
tax rates for the affected workers quite a bit, and it would not raise much money. But if the cap were not raised much, and the revenues gained were used to fund the tax credits or to lower the payroll-tax rate,
Republicans might find their objections dwindling. The contours of a deal are starting to appear around a payroll-tax increase and cuts in promised future benefits for higher income workers
— both of which spell major collateral damage for American workers. Meanwhile, personal accounts may not be included in any compromise deal. Taken together, these measures are entirely about what's best for
government: They are about finding a way to make the books balance on paper so that the feds can keep spending our Social Security dollars on unrelated, wasteful programs. …The problem today is not that Social
Security benefits are too high; it's that they're so much lower than real investments could provide. Any increases in Social Security taxes, or cuts
in benefits, would only make a bad deal worse, giving young workers what would amount to a negative return. Raising the wage cap is a key part of the rumored White House bargain with Democrats. The wage
cap is the amount of income that is subject to Social Security taxes. So, a worker with a $125,000 income could face a tax hike of $3,400 next year
if the cap, $97,500 for 2007, is raised to apply to all of that worker's income. This would cancel out many of the gains of the Bush income-tax
cuts, the president's signature policy achievement. …The present political obsession with Social Security's solvency parallels the obsession with
eliminating the budget deficit. Balanced budgets and trust funds in actuarial balance are only good things when overall spending is restricted. In its most recent long-range fiscal policy brief, the
Congressional Budget Office projected that government will consume between 38 and 55 percent of the economy by 2050, largely because of entitlements. If that is allowed to happen, and especially if taxes are
raised to fully fund those obligations, government will place a crushing burden on the U.S. economy.
Monday, December 11, 2006 ~ 7:50 a.m., Dan Mitchell Wrote: One of the projects to be funded: a new train from Manhattan to John F. Kennedy Airport. Why people in Oshkosh or Olympia should have to pay
for this urban choochoo is a mystery. What makes this project especially objectionable is the creative financing conjured up to pay for it. This earmark hangs like a Christmas ornament from a must-pass bill to
extend certain annual tax credits. And how's this for a misnomer? The subsidy is called the "New York Liberty Zone Tax Credit." Here's how it
would work: New York would receive up to $2 billion over 10 years (about $1.3 billion of which is September 11 money, for a net new subsidy of $682 million). Of course, New York City doesn't pay federal
taxes, so this bill allows the Big Apple to retain the employer share of the payroll taxes that the city collects on behalf of its public employees. And
through some accounting sleight of hand, Treasury would reimburse the Social Security trust fund for the missing dollars. … Imagine the precedent this sets for Democrats preparing to take over the subsidy
levers next year. Congressmen in both parties are already lining up to adopt the "New York model" for securing tax pork. Get ready for the
Des Moines "Freedom Tax Credit" for wheat and corn production. …Just what Congress needs: new forms of chicanery to raid the Treasury.
Monday, December 11, 2006 ~ 7:36 a.m., Dan Mitchell Wrote: In 2005, the equivalent of just over 1 million people – over 21 per cent of the registered population aged 20–64 – were supported by social
benefits. In 2006 over 12 per cent of the working age population is receiving benefits related to ill health (sickness benefit and rehabilitation
cash benefit or activity and sickness compensation), nearly 8 per cent benefits related to employment and approximately 1.5 per cent financial
assistance. …On 1 January 2007 the first step will be taken to lower the income tax on work. A tax reduction on wages and business income will be introduced to improve the economic incentives to work. Both the
average tax and the marginal tax on earned income will be lowered. …the wealth tax on financial assets will be halved on 1 January 2007. The Government intends to do away with the wealth tax on real and
financial assets entirely during this electoral period. …The work on simplifying tax regulation will continue. A committee of inquiry has been
appointed with the remit to propose reformed rules for procedures in the area of direct and indirect taxes. This forms part of the work to meet the
target in the area of taxation of a 20 per cent reduction of businesses' administrative burden by 2010.
Sunday, December 10, 2006 ~ 5:25 p.m., Dan Mitchell Wrote: When it comes to retirement, French civil servants are among the luckiest in the world. Les fonctionnaires stop work younger and enjoy
much more generous pensions than the private sector. That is not all. The tax-payers also pay them a fat permanent bonus if they retire to an island
in the South Pacific or the Indian ocean. President Chirac's government has just chickened out of an attempt to put an end to this astonishing
scandal, which is known as the "jackpot pension". …The scheme, introduced in 1950, covers such places as Tahiti and New Caledonia in the Pacific and La Réunion, in the Indian Ocean. …You can labour all
your life in rainy Paris and jet off to the sun to enjoy the huge pension boost. Since French state servants retire on average at 57, this leaves
plenty of time for the beach. Some 30,000 former civil servants now enjoy the sunshine bonus, costing the Treasury an extra 250 million euros
a year. …A quarter of the French work force toils for the state though not all qualify for the jackpot clause.
Sunday, December 10, 2006 ~ 4:44 p.m., Dan Mitchell Wrote: While the administration may oppose government-run health care in principle, the government's role in the vast health industry has been
expanding. By various measures, the United States is about halfway toward a system in which the government and taxpayers fully fund health care. And trends are pushing the government to become more involved
each year. Out of a total population of about 300 million, 35.6 million elderly Americans were on Medicare in 2005. Of the working-age population, which reached 257.8 million in 2005, some 45.5 million were
covered by Medicare, Medicaid or military health programs, according to the benefits institute. An additional 18.2 million workers had health
insurance through jobs in the public sector, which includes state, federal and local governments, public schools and state universities, according
to Paul Fronstin, director of the institute's health research and education program. Millions of those workers' dependents are covered as well.
Even if those dependents are not included in the tally, taxpayers paid the bill for almost two-fifths of all Americans with insurance in 2005.
…Viewed strictly in terms of dollars and cents, the government already accounts for more than half of the nation's health care spending. …So
even as politicians rail against the pernicious effects of government-run health care, taxpayers, one way or another, are likely to be footing more of the nation's huge and mounting medical bills. About 10 years ago, I broke my leg playing basketball. After I came out of surgery, with a cast stretching from my ankle to the top of my leg, an
orderly asked me whether I had ever used crutches before. I hadn't, so he showed me what to do, swinging through them from one end of the room
to the other. The whole lesson lasted about 90 seconds. When I got my hospital bill, I saw that I had been charged $150 for "gait training on
crutches." I did what all insured Americans do: I forwarded the bill to my insurance company. Why should I care? I wasn't paying for it. One of the
problems with American health care, as David Gratzer notes in "The Cure," is precisely a payment system that takes the patient out of the
equation. In the early 1960s, the average American paid out of pocket one of every two dollars that he spent on health care; today the figure is
one dollar in seven. The inevitable effect is hugely wasteful spending (and inflated hospital bills like mine). In fact, per-patient costs have gone up
almost exactly in inverse proportion to the share of spending borne by the consumer. Dr. Gratzer cites a remarkable Rand Corp. study that tracked health-care spending by 2,000 families over eight years. The
families who got free health care spent 40% more than the families with cost-sharing arrangements. And yet the health outcomes for the two groups were the same. …In Canada, the average wait between a doctor
visit and prescribed surgery is 17 weeks. American patients are twice as likely as Canadians to get lifesaving treatments like dialysis, three times
more likely to get a coronary bypass and four times more likely to get coronary angioplasty. The survival rate for leukemia, breast cancer,
colon cancer and heart disease is much higher if you are treated in a U.S. hospital than in a Canadian one or, for that matter, in a European one.
And it isn't only health-care "delivery" that is affected by suppressing market forces. Dr. Gratzer rightly spends part of "The Cure" celebrating
the medical marvels that a dynamic, capitalist economy has helped to make possible by allowing capital to flow in productive directions.
"Death due to cardiac disease has fallen by nearly two-thirds in the past five decades," he writes. "Polio is confined to the history books.
Childhood leukemia, once a death sentence, is now almost always curable. Depression and mental illness are now treatable. . . . The death rate from heart attack and heart failure has fallen by more than half
since 1950." In short, the medical progress of the past 50 years has been breathtaking.
Sunday, December 10, 2006 ~ 2:16 p.m., Dan Mitchell Wrote: "Free" health care comes with a big bill that, for the average German, eats up around 14.2% of gross pay, about half of it covered by the
employer. Sen. Kennedy's proposed Medicare for All Act would make the U.S. more like Germany by imposing a new 1.7% payroll tax on workers and 7% on employers to extend federal health insurance, currently
limited to seniors and disabled, to all Americans. In Germany, such punishing payroll taxes make companies less willing to hire and contribute to double-digit unemployment, currently at 10.2%.
Perniciously, a rise in joblessness drives up payroll taxes to cover those on the dole, making it harder in turn for companies to hire. …A big part
of the problem in health is the incentive structure. As Germans have already forked out so much through their taxes for usually zero-deductible plans, patients have no incentive to keep costs down by
going to the doctor selectively. Britain's NHS is plagued by long waiting lines and regular hospital visits for the common cold. Inefficiencies
plague other parts of the German system. The health care insurers, quasi state-run bureaucracies, which cover nine in 10 Germans (the other 10%
earns enough to be allowed to opt out and go to a private scheme), are free from competitive pressure. …About 12,000 doctors have found jobs abroad, some of them also in the U.S. If the new Congress ends up
importing Bismarck's system, that escape route for German doctors will be closed. But Americans will at least get the "free medicine" that Germans have lived with for well over a century.
Saturday, December 9, 2006 ~ 7:04 p.m., Dan Mitchell Wrote: Britain's 54 billionaires are paying personal taxes on only a fraction of their wealth as experts identify the UK as the world's first "onshore tax
haven". The Sunday Times commissioned Grant Thornton, the accountancy firm, to calculate the scale of legal tax avoidance by the country's wealthiest people. …According to Grant Thornton, the UK
billionaires paid income tax totalling just £14.7m on their £126 billion combined fortunes, and only a handful paid any capital gains tax. At
least 32 of the individual billionaires or family groupings are calculated not to have paid any personal taxes on their fortunes, although they are
liable for Vat and council tax. …the country is increasingly regarded as an "onshore tax haven" by the super-rich and their advisers. Mike Warburton, senior tax partner at Grant Thornton, said the overall
impact was positive for the British economy because although the billionaires paid low rates of tax, they were important net contributors. "Some of the world's wealthiest people are now using London as their
base. One of the reasons is that for many of them the UK is effectively a tax haven," he said. "It means you attract people with enterprise and wealth…" The most common loophole used by billionaires is to take
advantage of the British system of offering "non-domicile" status to foreigners, or those with foreign-born parents, living in this country. Under the scheme, wealthy foreigners can legitimately claim they are
"domiciled" abroad even though they may carry British passports and may have lived in Britain for decades. So-called "non-doms" place their assets in offshore tax havens and pay tax only on money brought into
Britain. …Brown promised to scrap the loophole when in opposition and it has been "under review" for many years. It is believed the Treasury has concluded that non-doms bring significant economic benefit to the
country and they would simply leave — rather than pay tax — if the system was changed. Among those who benefit from the loophole are Lakshmi Mittal, Britain's richest man with a fortune of £14.8 billion; the
Hinduja brothers; Roman Abramovich, owner of Chelsea football club; and Poju Zabludowicz, who owns several Las Vegas casinos but lives in London. Chris Hancock, a vice-president of JP Morgan private bank,
said: "The UK is a pretty benign tax regime for people who come to live here from overseas. "It's arguably an onshore tax haven. However, the withdrawal of tax-favoured status to the non-domicile community would
have a major impact on the attractiveness of London as a place to work and could damage London's status as one of the financial centres of the world."
Friday, December 8, 2006 ~ 8:51 a.m., Dan Mitchell Wrote: Lithuania has been chosen to host a new EU gender institute - set to be up and running next year with a seven-year budget of EUR52.5 million.
EU social affairs ministers on Friday (1 December) agreed unanimously that the new institute should be located in Vilnius and gather data on gender-related issues and policies across Europe, as well as make
recommendations and organise seminars and conferences on the topic. Following this week's approval of the institute's regulations in the European Parliament's womens affairs' committee - set to be followed by
a plenary vote - the new body should start working in 2007 with 15 employees, with the number of staff due to double by 2013. ...The hosting of agencies is viewed as prestigious for countries and good for the
economy, as they organise conferences with international participants.
Friday, December 8, 2006 ~ 8:15 a.m., Dan Mitchell Wrote: November's elections brought a small, but encouraging bit of news for disbelievers of the proposition that government exists to advantage the
already advantaged. Voters in Seattle overwhelmingly approved a ballot measure ending taxpayer subsidies for professional sports franchises. ...studies of publicly funded facilities over the past 30 years have
consistently shown that municipalities do not earn back their foregone tax revenues. Increasingly over that period, stadiums have failed even to
recover their operating expenses, much less their debt service. ...Contrary to the myths perpetrated by the drinkers at the public trough,
attracting a professional sports team to a city does not generate new entertainment expenditures. It merely shifts consumers' dollars from
other forms of entertainment. ...Despite the empirical evidence, and even though American professional sports thrived for the first 90 years
without taxpayer subsidies, the outcome of Seattle's vote is sadly the exception. Recognizing that the value of their franchises can be spectacularly enhanced by public provision of a rent-free stadium, team
owners bankroll massive public relations campaigns to assure victory in referendums.
Thursday, December 7, 2006 ~ 8:52 a.m., Dan Mitchell Wrote: Wal-Mart is the big bugaboo these days but what "power" does Wal-Mart have? I lived three-quarters of a century without ever setting
foot in a Wal-Mart store and there is not a thing they can do about it. It so happened that this past summer in Page, Arizona, I needed to buy
some toiletries, which caused me to go into a nearby Wal-Mart for the first time. Inside, it looked more like a small city than a large store. But
the prices were noticeably lower than in most other places. Is that the much-dreaded "power"? Apparently Wal-Mart does not pay its
employees as much as third-party observers would like to see them paid. But obviously it is not paying them less than their work is worth to other employers or they probably would not be working at Wal-Mart.
Moreover, third parties who wax indignant are paying them nothing. One of the morally indignant "films" (more high-toned than "movies")
coming out of Hollywood makes the same complaint against Starbucks, depicting poverty-stricken Ethiopian coffee growers providing beans for
the big-bucks coffee store chain. Are the Ethiopian coffee growers worse off now that Starbucks is buying their beans? Supply and demand would
suggest otherwise. But moral crusaders seldom have time for economics.
Thursday, December 7, 2006 ~ 8:40 a.m., Dan Mitchell Wrote: Sweeping and costly new regulations such as Sarbanes-Oxley need not be negatives. If the new regulations improve transparency, then they may
provide benefits to investors that outweigh the costs. …The only way to tell is to look at the behavior of financial markets before and after the
legislation. The numbers are quite damning of the new regulations. One of the most compelling tidbits involves the U.S. listing premium. The U.S.
has historically been an extremely attractive public market. If you list here, then a very deep and liquid financial pool is at your fingertips. In
addition, listing in the U.S. has signaled quality to investors, allowing you to sell your equity at a premium. One way to measure that premium is to
look at cross-listed companies. If one dollar worth of book assets sells for two dollars in the U.S. but only $1.50 in a foreign market, then the
premium for listing in the U.S. would be 50 cents. The report presents evidence that the listing premium dropped about 50 percent after Sarbanes-Oxley, suggesting that the costs of the law far outweigh the
benefits.
Thursday, December 7, 2006 ~ 8:24 a.m., Dan Mitchell Wrote: In a surprising about turn, the Hong Kong government said yesterday that it will abandon plans for a goods and services tax in the face of
widespread public hostility to the idea. "We have heard clearly a strong opposition to the GST from the public," said Financial Secretary Henry
Tang Ying-yen on Tuesday. He said that the government would still put forward ideas for widening the tax base, something that has been strongly urged on Hong Kong by the IMF and other bodies, but that they
would not include the GST as an option. … In August, thousands of demonstrators took to the streets of Hong Kong to protest against the planned tax. The pro-business Liberal Party, which organised the march,
claimed that as many as 10,000 people, including local businesses operators, traders and retailers took part... Miriam Lau, deputy chairwoman of the Liberal Party argued at the time that: "This march
indicates that a GST would seriously impact trades and businesses and they are very anxious to tell the government that they do not wish it to implement it." …it is clear from the views collected that we have not been able to convince the majority to accept GST as the main option to address the
tax base problem. We accept that at this time there is insufficient public support nor are the conditions right for introducing GST. Hence, for the
remaining part of the consultation, we will not be advocating GST.
Thursday, December 7, 2006 ~ 7:17 a.m., Dan Mitchell Wrote: Since 1950, women have entered the labor market in increasing numbers, as labor-saving devices have caused a shift away from housework. In
addition, the proportion of women among college graduates has increased, at a time when the proportion of jobs that require higher education has been rising. With women earning a higher share of family
income than was the case in 1950, inequality is now affected by assortive mating (or assortative mating). Assortive mating means that men with high earnings potential tend to marry women with high earnings
potential. ...In an age where people seem inclined to worship government, the tendency is to blame government for the rise in income disparities. Surely, the all-powerful deity in Washington can ameliorate
this phenomenon. I do not think that government is going to step in to stop people from engaging in assortive mating. As long as people are allowed to choose their own spouses freely, that source of rising
inequality is going to remain with us. I also do not think that government is going to do much about divorce and single motherhood. These phenomena arise out of individual choices. In terms of economic policy,
government faces a trade-off: providing assistance to non-traditional families can help those families raise their living standards; however,
such assistance serves to encourage more non-traditional families. The net effect might be to increase poverty, a concern led to the 1996 welfare
reform. Finally, I do not think that government can do much about the economic shift away from large, stable corporations. Trying to preserve and protect large, dying industries is a very expensive and perhaps
ultimately futile proposition. At the other end of the scale, government involvement in entrepreneurship is not helpful. The Small Business Administration is basically a pork barrel.
Thursday, December 7, 2006 ~ 7:03 p.m., Dan Mitchell Wrote: Switzerland and the European Union are sticking to their different positions over the controversial issue of corporate tax privileges offered
by Swiss cantons. Swiss Foreign Minister Micheline Calmy-Rey and EU Commissioner for External Relations Benita Ferrero-Waldner decided on Thursday that solutions had to be found at the political and judicial
levels. ...Calmy-Rey said it was an important political question of tax sovereignty. ...The dispute centres on how much Switzerland is integrated into the EU's single market and to what extent it has to take EU
regulations on board.
Wednesday, December 6, 2006 ~ 5:23 p.m., Dan Mitchell Wrote: Unlike today's Americans, the founders of our nation were suspicious, if not contemptuous, of government. Consider just a few of their words.
James Madison suggested that "All men having power ought to be distrusted to a certain degree." Thomas Paine observed, "We still find
the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping at the spoil of the multitude. . . . It watches prosperity as its prey and permits none to escape without a
tribute." ...Thomas Jefferson gave us several warnings that we've ignored: First, "The natural progress of things is for liberty to yield and
government to gain ground." Second, "The greatest [calamity] which could befall [us would be] submission to a government of unlimited
powers." ...Could a person with similar sentiments win the presidency today? My guess is no. ...Today's Americans hold a different vision of
government. It's one that says Congress has the right to do just about anything upon which it can secure a majority vote. Most of what Congress does fits the description of forcing one American to serve the
purposes of another American. That description differs only in degree, but not in kind, from slavery. ...At least two-thirds of the federal budget
represents forcing one American to serve the purposes of another. Younger workers are forced to pay for the prescriptions of older Americans; people who are not farmers are forced to serve those who
are; nonpoor people are forced to serve poor people; and the general public is forced to serve corporations, college students and other special
interests who have the ear of Congress . ... The supreme tragedy that will lead to our undoing is that so far as personal economic self-interests are
concerned, it is perfectly rational for every American to seek to live at the expense of another American. ...In other words, once Congress
establishes that one person can live at the expense of another, it pays for everyone to try to do so. You say, "Williams, don't you believe in helping
your fellow man?" Yes, I do. I believe that reaching into one's own pockets to help his fellow man is both laudable and praiseworthy. Reaching into another's pockets to help his fellow man is despicable and
worthy of condemnation. ...when God gave Moses the commandment "Thou shalt not steal," I'm sure He didn't mean thou shalt not steal unless you got a majority vote in Congress.
Wednesday, December 6, 2006 ~ 8:58 a.m., Dan Mitchell Wrote: Some EU member states charge much higher excise duties than others. Britons, for example, pay 70 times more excise on wine than Frenchmen
do. For that reason, tax collectors in high-excise nations worried about losing billions in revenue if the law were overturned and firms were
allowed to set up delivery services from low-excise member states. The Court let them off the hook, taking the strictest possible interpretation of
what it means for citizens to buy goods for their own use and transport them personally. So if the head of a Dutch oenophile club orders wine on
behalf of the entire group from France and arranges to have it shipped to Holland -- as the person who filed this case did -- he still must pay
Dutch excise taxes. This hinders open commerce and tax competition... EU members don't face any external pressure to lower excise taxes as
long as they can set rates in a vacuum. Tax sovereignty is important, and we wouldn't want to see the Commission or anyone else to set tax rates
for member states. Competition, though, is vital to the cause of lower taxes. Citizens might vote for politicians who promise to reduce income
or capital gains taxes, or even relocate to a country where the levies are already lower. Excise duties, though, are too insignificant a part of most
people's budgets to move their votes. In these areas, tax competition is the best way to hold leaders accountable for the rates they set.
Wednesday, December 6, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: Chuck [Schumer] swung by the Daily News for an editorial board meeting this morning, which you'll be able to read more about in
tomorrow's News. ..."We're in better shape than [Republicans] are, because they don't realize that Reaganomics is dead, that the Reagan
philosophy is dead," he said. ..." He had said a bit earlier, "The old Reagan theory which dominated -- which is, 'Government is bad, it's out
of touch, chop off its hands as soon as it moves.' -- is over."
Wednesday, December 6, 2006 ~ 8:46 a.m., Dan Mitchell Wrote: The Government is spending more on welfare than on education or law and order, but the vast sums are doing little to relieve poverty, according
to a think-tank. A study entitled Reforming Welfare says that Gordon Brown, the Chancellor, has constructed an expensive welfare and benefits system that is "not fit for purpose" and requires a radical
overhaul. The study...claims that Labour has created a benefits nation, with two in five households - including many of the richest - claiming handouts. Rather than encouraging people to work, the benefits often
end up punishing those who want to better themselves. ...The welfare state cost £79 billion last year, more than is spent on the entire education
system, twice as much as on law and order and almost as much as on the NHS. It totals nearly £3,000 a household a year. There are 51 different
benefits, with 39 per cent of households claiming one or more. ...The benefits system has become so generous that being "on welfare" is no
longer a mark of even relative poverty. Households with incomes of up to £66,350 - which puts them in the richest fifth - can be entitled to welfare.
...Britain now has the deepest poverty trap in the Western world, with thousands of people stuck in low-paid and part-time work because any extra money that they earn by finding a better job or working longer
hours would have to be handed over to the Treasury. Just under 800,000 working parents lose more than 70p in every extra pound they earn, and nearly 400,000 lose more than 90p in the pound. About 34,000 people
lose more than £1 for every £1 they earn. The study says: "The combined effect of different means-tested benefits has been to create a system
which actively dissuades millions from bettering their position. Incentives to work have weakened, not strengthened, since 1997."
Tuesday, December 5, 2006 ~ 8:33 a.m., Dan Mitchell Wrote: There's no time to waste. Governments around the world have learned the benefit of tax cuts. Between 1990 and 2005, the average OECD
company tax rate dropped from 37% to 27%. In Australia, corporate taxes are now 30%, down from 34% in 2000, and personal taxes have been cut progressively over the past five years. The Australian threshold
for the top personal income tax rate, for example, has been pushed out -- from $46,200 in 2002-03 to $115,800 in the current tax year -- while in
New Zealand the upper tax threshold has remained at $40,200 ever since the top rate was increased in 1999 to 39%. Little wonder, then, that in 2005 more than 20,000 New Zealanders moved to Australia, with our
expatriates there reporting average incomes more than a third higher than back home. Multinationals are avoiding us and local companies' growth prospects are constrained. GDP growth last year was a paltry 1.9%.
Tuesday, December 5, 2006 ~ 8:07 a.m., Dan Mitchell Wrote: Washington has no shortage of bullies, but even we can't quite believe an October 27 letter that Senators Jay Rockefeller and Olympia Snowe sent
to ExxonMobil CEO Rex Tillerson. Its message: Start toeing the Senators' line on climate change, or else. ...its essential point is that the
two Senators believe global warming is a fact, and therefore all debate about the issue must stop and ExxonMobil should "end its dangerous
support of the [global warming] 'deniers.' " Not only that, the company "should repudiate its climate change denial campaign and make public
its funding history." And in extra penance for being "one of the world's largest carbon emitters," Exxon should spend that money on "global
remediation efforts." The Senators aren't dumb enough to risk an ethics inquiry by threatening specific consequences if Mr. Tillerson declines this
offer he can't refuse. But in case the CEO doesn't understand his company's jeopardy, they add that "ExxonMobil and its partners in denial have manufactured controversy, sown doubt, and impeded
progress with strategies all-too reminiscent of those used by the tobacco industry for so many years." (Our emphasis.) ...Let's compare the balance
of forces: on one side, CEI; on the other, the Pew Charitable Trusts, the Sierra Club, Environmental Defense, the U.N. and EU, Hollywood, Al
Gore, and every politically correct journalist in the country. We'll grant that's a fair intellectual fight. But if the Senators are so afraid that a
handful of policy wonks at a single small think-tank are in danger of winning this debate, they must not have much confidence in the merits of
their own case. ...The Senators' letter is far more serious because they have enormous power to punish Exxon if it doesn't kowtow to them. A
windfall profits tax is in the air, and we've seen what happens to other companies that dare to resist Congressional intimidation. It's to Exxon's
credit that, in its response to the Senators, the company said that it will continue to fund free market research groups because "there is value in
the debate" that helps promote "optimal public policy decisions." Too bad that's not what the Senators care about.
Tuesday, December 5, 2006 ~ 7:40 a.m., Dan Mitchell Wrote: If there is one thing the Department of Education does well, it is collect statistics about schools. According to its National Center for Education
Statistics, Americans in recent decades paid for a massive increase in spending on government schools. Between the 1970 and 2002 school years, average per-pupil spending in public elementary and secondary
schools rose 111 percent, from $4,170 (in constant 2001-2002 dollars) to $8,802. From just 1990 to 2003, average per-pupil spending increased
25 percent, from $7,692 (in constant 2003-2004 dollars) to 9,644. This big run-up in spending did not cause a big run-up in student performance. ...In 2005, they averaged 260. Only 29 percent were rated
grade-level "proficient" or better. In other words, 71 percent rated less than proficient in reading. Math results were a little better. Between 1990
and 2005, the average eighth-grade score rose from 262 to 278. Again, only 29 percent were rated grade-level proficient or better. In other
words, 71 percent rated less than proficient in math. Private schools did better. The 2005 NAEP tests rated students in Catholic and Lutheran
schools. Forty-nine percent of eighth-graders in both rated "proficient" or better in reading. Forty-four percent of eighth-graders in Lutheran
schools, and 40 percent in Catholic schools, rated "proficient" or better in math. Increasing per pupil spending by another 111 percent -- whether
it is done by compassionate conservatives in Washington, D.C., or plain old liberals in your home state -- will not fix public schools. It's time to
give all American parents vouchers equal to the per-pupil spending in local government schools. Then parents can decide whether the government schools deserve their children -- or whether they will try the
apples elsewhere, thank you.
Monday, December 4, 2006 ~ 8:55 a.m., Dan Mitchell Wrote: A substantial number of US expats living in Singapore are considering returning home as a result of changes to income tax laws passed by the
US Congress earlier this year, according to a survey. The survey, conducted by the American Chamber of Commerce in Singapore during October and November 2006, polled 585 members, and received 144
responses. It found that almost 40% were thinking about returning home to avoid being hit by increased tax. Half of the sample also believed that
the tax changes would prompt employers to hire less US workers abroad. The Tax Increase Prevention and Reconciliation Act (TIPRA), signed by President Bush in May 2006 increased the amount that can be earned
free from US taxes to $82,400 from the previous level of $80,000. However, income earned by expats above this threshold is now typically subject to higher tax rates. Furthermore, high housing costs, much of
which previously could be excluded from the computation of US tax, will now be treated as a taxable benefit and taxed often at 30% to 35%, making many individuals worse off, or leaving the employer to pick up
the extra bill. The legislation is retroactive to January 1, 2006. "These tax changes are disastrous for Americans abroad and for American
business. No other developed country imposes such onerous taxation on the earnings of its workers abroad and our members are seriously concerned about the financial impact on them and whether it is worth
remaining overseas selling American goods and services," stated AmCham Executive Director, Nicholas de Boursac. ...AmCham says that the financial impact will be felt most by those American expatriates who
are not tax-equalized and whose employers do not absorb the additional tax impost. 66% of those surveyed are not tax-equalized, and of this group, 30% expect a tax increase of between US$5,000-15,000, while a
third expect increases of more than US$15,000. AmCham warned that even those US expats who are not directly financially impacted by the changes will still be affected because companies will hire less expensive
employees. "Basically, employers will hire Australians, Canadians or Europeans who do not cost as much as Americans," noted de Boursac.
"As well as being inequitable to Americans abroad, these tax changes are just bad policy. By making Americans more expensive to hire, it will
mean fewer Americans working abroad. This will be bad for US exports and US businesses, ultimately reducing US global competitiveness," he warned. CF&P's Dedicated Section 911 Reform Web Page:
Monday, December 4, 2006 ~ 8:43 a.m., Dan Mitchell Wrote: Increasingly, Hong Kong and London are the places where companies are finding it easier and cheaper to list their shares and raise capital.
Last year, of the 25 largest initial public offerings in the world, only one took place in America. This year, Hong Kong is likely to end up as the
No. 1 market for stock offerings world-wide. Perhaps the top culprit in New York's relative decline as a trading center is the Sarbanes-Oxley
corporate accountability rules that were put in place in 2002 in the wake of the Enron and WorldCom scandals. Henry Tang, Hong Kong's financial secretary, couldn't be more blunt on the good fortune
Sarbanes-Oxley has brought his city. "Our success is giving [Treasury Secretary] Hank Paulson a few raised eyebrows," he told a delegation
from the Fraser Institute, a Canadian free-market think tank, last week. "Thank you, Mr. Sarbanes and Mr. Oxley," he said, referring to Democratic Sen. Paul Sarbanes and GOP Rep. Mike Oxley, the law's
chief sponsors. ...Audit fees for Fortune 1000 companies have more than doubled on average. Worse, the rigid and cumbersome rules are driving away business without significantly improving corporate governance.
"Managers are increasingly losing their appetite for risk and innovation," says Hank Greenberg, former chairman of the insurance giant AIG. ...Other stock markets are doing all they can to avoid
emulating U.S.-style regulation. Ed Balls, Britain's economic secretary, says that his government will continue "to safeguard the light touch and
proportionate regulatory regime that has made London a magnet for international business." He recently traveled to Hong Kong to call for a
"strengthened partnership" between the "two leading global financial centers." It's well known that more large global IPOs are happening outside the United States, and the report notes this fact. But most regulators have
chosen to explain away this trend rather than confront it. Charles Niemeier, a board member of the Public Company Accounting Oversight Board -- created by Sarbanes-Oxley -- even made the case in a prominent
September speech that U.S. financial-market regulation was an optimal mix of costs and benefits. ...Global capital markets are becoming more competitive, and the U.S. is now more likely to be punished for
over-regulation than it was in the past. The report also sheds light on some other significant financial trends. For example, the vast majority of
those global IPOs -- over 90% -- that bypass the U.S. public markets still elect to sell their shares to so-called "qualified" U.S. investors. Qualified
investors are institutions and individuals rich enough to buy stakes in these companies outside of the publicly traded equity markets. Like a
hedge fund, a company that markets only to the very rich is not subject to most securities laws or Sarbox. So in other words, non-U.S. companies
are still raising billions in the U.S. through IPOs. They're just doing it in a way that skirts most of our capital-market regulation. Another warning
sign is venture capital, long an engine of American economic growth. Traditionally, VC firms have used the U.S. IPO market as their exit strategy; in the 1990s, IPOs accounted for 90% of VC investment
"exits." Today, however, nearly 90% of those venture-capital-backed startups are sold to strategic buyers in private transactions. ...Defenders
of current regulation claim that the rise in private equity has been driven by low interest rates globally, and there's some truth in this. But that
doesn't explain why so much of this global liquidity has gone into private equity rather than, say, the stock markets. The Hubbard-Scott report
makes the case that overregulation and litigation risk are a big part of that reason.
Monday, December 4, 2006 ~ 8:10 a.m., Dan Mitchell Wrote: The European Commission is to move ahead with plans to create a common corporate tax base throughout the single market, according to
the EU Commissioner with responsibility for taxation, Laszlo Kovacs. His plans are opposed by the Irish government and by Ireland's EU Commissioner Charlie McCreevy, who both say the proposals will hurt
''tax competition'' between European member states. Tax competition suits Ireland because of low tax rates here, though other European countries believe that Ireland has an unfair advantage in attracting
inward investment. Kovacs recently made a presentation to the council of European finance ministers on the need for a common tax base in Europe, but his report was opposed by Ireland and other members.
...Kovacs will shortly introduce proposals for ''tax policy co-ordination'', and plans to introduce a legislative proposal in 2008. This will be
rejected by member states - it needs unanimous support to pass - but the Commission will then formulate proposals for the introduction of a common corporate tax base under the EU's enhanced co-operation
measures. This would enable a number of states to adopt a common base among themselves. Other member states could later choose to opt in if they wished. McCreevy has described the plans as tax harmonisation ''by
the back door''. ...The Irish government remains opposed to the proposition, and believes it has allies in Britain and several of the new member states operating low tax regimes.
Monday, December 4, 2006 ~ 7:47 a.m., Dan Mitchell Wrote: It would certainly be desirable for the SEC to address the problems that have made the implementation of Section 404, the external auditor
certifications of internal controls, a synonym for wasteful expense, bureaucracy, and paperwork. With costs that have outweighed the benefits, Sarbanes-Oxley implementation has been to the net detriment,
not benefit, of investors. Consistent with this conclusion, Alan Greenspan has suggested that, as summarized by the Boston Herald, the rules have "become a 'nightmare' and should be scrapped."
Monday, December 4, 2006 ~ 7:40 a.m., Dan Mitchell Wrote: ...the White House is getting ready to throw personal retirement accounts over the side in an attempt to cut a Social Security deal with the new
Democratic Congress. Will a tax increase be the next concession? President Bush has made no secret of his desire to claim some kind of Social Security deal as a legacy before he leaves office. Asked last week
about possible negotiations, Treasury Secretary Hank Paulson declared there would be "no preconditions." Without quite admitting that personal
accounts have to go, White House aides say dropping them is the price Democrats will demand even to discuss Social Security. ... genuine Social
Security reform is about more than federal accounting and "solvency." It ought to be about individual ownership and retirement independence.
Personal accounts are a way to let younger workers--especially lower-income workers--put some of their payroll taxes into accounts that they would own and could grow over time. They would build wealth, and
their future benefits wouldn't depend on the whims of future politicians. ... Odds are that Democrats will pocket Mr. Bush's concession on private
accounts and then move the goal posts. In return for even the modest Pozen reductions in benefit growth, they'll demand that Mr. Bush agree
in the name of "fairness" to raise taxes too. And if Mr. Bush does that, his own political coalition will splinter like a tree hit by lightning. We
wish we were confident that Mr. Bush will resist this temptation, but Presidents on a legacy hunt are hard to predict. The Beltway press corps
and many of his own advisers will also be cheering him on. ...On Social Security, Mr. Bush fought the good fight, only to be foiled by Democratic
intransigence... He shouldn't tarnish that by signing onto one more temporary Washington fix that trades an immediate tax increase for the promise of future benefit cuts.
Sunday, December 3, 2006 ~ 10:57 p.m., Andrew Quinlan Wrote: ...this supposedly "moderate" governor seems willing to spend whatever it takes on passenger rail projects - no matter how ineffective that effort
may be. ...The first Richardson-sponsored rail boondoggle is a commuter rail train. This project, known as the Rail Runner, is projected to cost $400 million. The first leg of the project, connecting downtown
Albuquerque and the suburban city of Bernalillo, went into service earlier this year. By the time tracks are laid to Santa Fe (approximately 60 miles
north of Albuquerque), the cost may exceed $500 million. ...With a population of just 7,000, Bernalillo is hardly the sort of place that needs
a rail link. But in New Mexico - with its sparse population and wide-open spaces - very few places make sense for commuter rail. That is why 9 out
of every 10 dollars needed to run Richardson's Rail Runner will be taxpayer subsidies. ...Perhaps someday we will move away from government-financing of infrastructure towards an actual
free-market-based transportation system. In the meantime, voters need to know that taxpayer-financed rail projects are a one-way ticket to higher taxes.
Sunday, December 3, 2006 ~ 9:18 p.m., Dan Mitchell Wrote: Early in his first term, Mr. Pataki did cut income taxes and institute spending control. But as time passed, so did fiscal discipline. Today, the
state's fiscal health and its overall economy are not much better than when Mario Cuomo left office. Spending has nearly doubled in the Pataki
years, well above the rate of inflation. To support that spending, New York has the highest state and local tax burden of any state in the nation.
This has done little to spur economic growth. Since 1990 New York has consistently lagged behind the rest of the country in job creation. In the
last 10 years, it ranked 41st among states in private-sector job growth. It still has not gained back all of the jobs it lost in the 2001 recession. With
high taxes and weak job prospects, the state's population is only barely growing. While New York City and its suburbs are muddling through, upstate New York is really being affected. Since 1990, a weak upstate
economy has meant a decline of more than 25% in the population of 25- to 34-year-olds, as young, educated people flee for the South and West. ... Republicans grew too comfortable with power and in so doing often
forgot why they were elected in the first place. What happens when a party, whose central philosophical principle is that of limited government
and the attendant preference for the free market over state bureaucracy, takes the reins of power? Unfortunately, we now have a good idea what the answer is. With few exceptions, we have gotten bigger government
and more spending, and few reforms of already existing programs.
Saturday, December 2, 2006 ~ 10:14 a.m., Dan Mitchell Wrote: Householders face a £100 fine for dumping food in the wrong bin under a council's new dustbin diktat. The latest crackdown is part of an
unrelenting rise of new rules on rubbish disposal in Britain but residents have condemned the move as simply a moneyspinner. The Draconian demands insist that items to be recycled include pizza boxes minus the
pizza, and cling film boxes and tubes but not foil. It will mean people meticulously separating empty containers of scraps of food and different
materials. Many householders fear that the detailed requirements for putting out the rubbish may be practically impossible to follow. ...Many
said the scheme was actually turning them against recycling even though they initially supported the greener procedure in principle. They even feel
they will now have to stand guard over their bins to prevent strangers from contaminating them. ...Shop manager Anthony Platt, 26, also of
Hucknall, said: "I can't see how this can work in an honest way. It just can't be enforced properly. "My partner and I recycle every week but
now I feel like I'm going to have to stand guard over my bins all night before they are collected. "It's just another way for the council to raise
funds. We try our best to recycle, but what if something slips through and ends up in the wrong bin?" Sales assistant Gemma Brown, 38, added:
"It's just another way of making money and really makes you wonder whether it's anything to do with recycling at all.
Friday, December 1, 2006 ~ 8:52 a.m., Dan Mitchell Wrote: Flat income tax systems - where income is taxed at the same percentage rate throughout the income scale - have spread throughout Central and
Eastern Europe since Estonia introduced one in 1994. Nine countries in the region currently operate flat tax systems and Macedonia plans to be the 10th next year. Flat taxes are credited with improving work
incentives (by cutting marginal tax rates, thereby giving taxpayers more of every extra dollar earned), broadening the tax base (by boosting compliance as high earners practice less tax avoidance), and cutting
administration costs (by simplifying the tax code). To their advocates this is just the first step, as flat taxes should be constantly pushed downwards, to shrink government spending and the size of the nanny
state. The installation of such a radical free-market idea has helped signal that the former communist states of Central and Eastern Europe have decisively moved away from a state-dominated economy. It has
therefore played a role in attracting foreign direct investment, though for businesses corporation tax is clearly much more relevant. However, there
are now signs of a backlash. For one thing, flat taxes have become a vote loser in Central Europe because they are seen as unfairly reducing
the contribution of the rich to the running of the state. It had looked this year that Poland and the Czech Republic would catch the flat tax wave,
but parties backing the idea suffered fierce criticism on the issue in their election campaigns and were unable to form a workable government to push through the change. And in Slovakia, where a flat tax on both
personal and corporate income took effect in 2004, voters elected a left-wing government promising to abandon the flat tax and switch back to a progressive system.
Friday, December 1, 2006 ~ 8:29 a.m., Dan Mitchell Wrote: People who identify themselves as conservatives donate money to charity more often than people who identify themselves as liberals. They donate
more money and a higher percentage of their incomes. It is not that conservatives have more money. Liberal families average 6 percent higher incomes than conservative families. You may recall a flap during
the 2000 election campaign when the fact came out that Al Gore donated a smaller percentage of his income to charity than the national average.
That was perfectly consistent with his liberalism. So is the fact that most of the states that voted for John Kerry during the 2004 election donated
a lower percentage of their incomes to charity than the states that voted for George W. Bush. Conservatives not only donate more money to charity than liberals do, conservatives volunteer more time as well. More
conservatives than liberals also donate blood. According to Professor Brooks: "If liberals and moderates gave blood at the same rate as conservatives, the blood supply of the United States would jump about
45 percent."
Friday, December 1, 2006 ~ 7:37 a.m., Dan Mitchell Wrote: According to a new survey conducted on behalf of the Confederation for British Industry, business leaders believe the UK's corporate tax regime
is worse than it was five years ago, and think the Government should cut business taxes and simplify the system to halt the country's declining international competitiveness. The survey, published on Monday,
revealed that seven in ten business leaders believe the UK is a poorer international business location than in 2001, and three-quarters think
that the corporate tax regime is worse. Almost all are concerned with the increased complexity of the tax system, and the demands of compliance, as well as the rate of corporate tax compared internationally.
...Two-thirds of respondents (typically chairmen, chief executives and board directors) were dissatisfied with the Government's overall approach to tax and international competitiveness, and 77% said it does
not adequately consider the latter when making tax changes. Almost all (93%) believe that the Government does not give sufficient thought to the compliance burden, and 73% think it does not understand how -
increasingly - tax features in corporate decision-making. One in four respondents think the UK business tax system is worse than other EU states with only 17 per cent preferring it. ...Richard Lambert, CBI
Director-General, argued that: "In today's world of global markets, companies have many more choices to make about where to invest their
capital and their talent than they did in the past. Business tax is one of the most important considerations that firms have to take into account,
and it is easily measured. Our survey shows that business leaders believe the UK's corporate tax regime is more burdensome than it was five years
ago, and that this is making the UK less attractive as an international business location. The worry is that on current trends our position relative to other developed economies will deteriorate further over the
next two or three years. A couple of companies have already relocated to more friendly regimes, others have publicly said they've considered it, and more are refusing to rule it out." |
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