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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.

The Market Center Blog

Observations and insights on the global fight
for economic freedom and prosperity

CF&P's Market Center Blog Archives
February 2004

Sunday, February 29, 2004 ~ 1:15 p.m., Dan Mitchell Wrote:
High taxes lead to more crime. The Washington Times reports today that Maryland is engaged in a major effort to stop cigarette smuggling. As the article notes, cigarette smuggling is a growing problem, both in America and around the world and even has been associated with the financing of terrorism. The article also notes that the problem was created when governments imposed huge tax increases on tobacco. Not surprisingly, politicians are exploring every option to stop this crime other than the one that will work - lower taxes. Apparently, greed for more money trumps every other consideration, including the fight against terrorism. According to the Washington Times:
             Law-enforcement officials say higher cigarette taxes nationwide in the past 10 years
             have spawned a cigarette-smuggling racket that finances crime syndicates and
             terrorist groups.... [Maryland's] crackdown coincided with an apparent spike in
             cigarette bootlegging after Maryland raised the cigarette tax from 36 cents to 66
             cents per pack in 1999 and then to $1 in 2002. ..."As taxes go up, smuggling is more
             and more prevalent," said Jonathan Gruber, an economics professor at the
             Massachusetts Institute of Technology..."
http://www.washtimes.com/specialreport/20040229-124325-8213r.htm

Sunday, February 29, 2004 ~ 12:11 p.m., Dan Mitchell Wrote:
Social Security reform needed to reduce government's long-term debt. Opponents of Social Security privatization correctly note that the creation of personal accounts will require the government to borrow more money. This is because younger workers will be shifting some of their payroll tax into personal accounts, yet the government will still pay all promised benefits to current retirees and older workers (benefits that currently are financed by payroll taxes). Does this mean Social Security reform will increase the nation's debt? Not at all. Personal accounts reduce the giant long-term unfunded liability in the Social Security system, and this reduction in long-term debt more than offsets the increase in short-term debt. In other words, Social Security privatization is akin to refinancing a home mortgage. It costs more in the short-run, but yields big savings in the long-run. An editorial written by two economists in today's Washington Times explains the need for reform:
             Social Security currently faces a financial shortfall of $10.5 trillion in present value,
             equal to about 100 percent of GDP. Each year that passes without a reform makes
             that shortfall larger, and it increases the cost of fixing the program's finances hence
             the need for immediate corrective measures. ... In explaining the consequences of
             reform, it is important to emphasize that this debt is not being created by the reform:
             It already exists.
http://www.washtimes.com/commentary/20040228-104608-2930r.htm

Sunday, February 29, 2004 ~ 10:39 a.m., Andrew Quinlan Wrote:
Serves them right. Most Republican politicians privately admitted that creating a prescription drug entitlement was bad policy, but they thought that expanding the Medicare program was good politics. Maybe Republicans should think again. Trying to compete with the Democrats by making government bigger is a very foolish strategy. It irritates conservative voters and makes them likely to sit on their hands at election time. Similarly, it has no effect on voters who want to feed at the public trough since those people inevitably decide to vote for Democrat candidates - especially since Democrats can always out-bid Republicans when the debate revolves around who can spend more of other people's money. The Washington Post's coverage of this story should be a lesson to Republicans who think you govern by sticking your finger in the wind:
             Three months after the GOP-controlled Congress expanded Medicare to include
             prescription drug benefits that Americans have long wanted, the political bounce
             that Republicans had hoped for is eluding them, as critics rail against the new law
             and voters say they still trust Democrats more on the issue.... "There is buyers'
             remorse among many who voted for it," said Sen. Lindsey O. Graham (R-S.C.), who
             opposed the bill and said he has encountered no criticism from constituents.
             ...Democrats say the law does not provide Medicare patients enough help in affording
             medicine and gives too much money to the health insurance and pharmaceutical
             industries.
http://www.washingtonpost.com/wp-dyn/articles/A14991-2004Feb28.html

Saturday, February 28, 2004 ~ 12:09 p.m., Dan Mitchell Wrote:
Progress for 2nd Amendment rights. In 1994, President Clinton pushed through a phony anti-crime bill that restricted the right of law-abiding gun owners to possess so-called semi-automatic assault weapons. The anti-gun zealots based their case on two factors: 1) these guns look scary, and 2) banning these guns will reduce crime. The first argument was rather silly. Semi-automatic weapons do not become more dangerous simply because they have a pistol grip or a folding stock. The second argument was harder to deflect. While there were numerous studies available in 1994 showing that gun control is not effective in fighting crime, some lawmakers may have thought the Clinton gun-ban somehow would work. They were wrong. John Lott and Grover Norquist explain that:
             ... there is not a single academic study showing that these bans have reduced violent
             crime. Even research funded by the Justice Department under the Clinton
             administration concluded merely that the ban's "impact on gun violence has
             been uncertain."
Fortunately, the "assault weapons" ban is about to expire. This is good news for constitutional rights.
http://www.foxnews.com/story/0,2933,112545,00.html

Friday, February 27, 2004 ~ 7:02 p.m., Dan Mitchell Wrote:
Have the French always been economically illiterate? Jonah Goldberg has a column explaining how efforts to fix the so-called flaws of the marketplace generally do more harm than good. As usual, his analysis is correct, but the foray into French history is the most interesting part of his article. According to Goldberg, French price controls on bakeries created shortages of bread in the late 1700s. The rest, as they say, is history:
             The problem was that since French bakers were denied the ability to make cheap
             bread at a profit, and forced to sell expensive bread at a loss, they did the only
             rational thing possible: They made very little bread at all. That's how we got bread
             riots and maybe even the French Revolution.
http://www.townhall.com/columnists/jonahgoldberg/jg20040227.shtml

Friday, February 27, 2004 ~ 5:45 p.m., Andrew Quinlan Wrote:
Make the tax cuts permanent. President Bush's tax policy deserves praise. Not only has he resisted various European tax harmonization initiatives, his tax cuts have reduced marginal tax rates on pro-growth behavior and therefore helped restore economic growth. The downside, however, is that some of these tax cuts expire at the end of 2008 (the dividend and capital gains tax rate reductions) and 2010 (the income tax rate reductions and the death tax repeal). Letting tax burdens climb back to Clinton-era levels would be a big mistake, as Investor's Business Daily explains:
             If we let Bush's tax cuts expire, we'll basically be raising taxes on those who work,
             save and invest - the most productive members of society. Tax anything at a higher
             rate, and you'll get less of it.
http://www.investors.com/editorial/issues.asp?v=2/27

Friday, February 27, 2004 ~ 3:17 p.m., Dan Mitchell Wrote:
Speaking of tax cuts, three cheers for "trickle-down economics." The left condemns certain tax cuts because so-called rich people benefit. Advocates of class warfare specifically criticize lower tax rates on savings and investment, referring to such proposals as "trickle-down economics." But since all economists - even Marxists - agree that capital formation is the key to long-run growth, this accusation is rather odd. Writing in National Review, William P. Kucewicz explains:
             An economy depends on the availability of financial capital to fund new ventures,
             transform ideas into reality, and raise productivity. Pumping in investment capital
             thus creates new jobs, boosts real wages, and ups living standards. But Washington's
             tax-and-spenders ignore financial capital's crucial role. They treat this money as if it
             can be taxed away from individuals (and corporations) with impunity. Nothing could
             be farther from the truth.
This also explains why tax harmonization proposals such as the proposed Clinton-O'Neill IRS interest-reporting regulation are such a bad idea. Chasing capital out of America means fewer jobs and lower living standards in America.
http://www.nationalreview.com/nrof_kucewicz/kucewicz200402270819.asp

Friday, February 27, 2004 ~ 1:31 p.m., Dan Mitchell Wrote:
The world is a better place. Advocates of smaller government and individual freedom sometimes get gloomy. After all, greedy politicians and clever special interest groups always seem to be devising new ways to expand the power of government. Nonetheless, there are some reasons for optimism, including the fact that tax competition is constraining the growth of government and compelling governments to lower tax rates. But the most compelling victory for freedom since World War II is the collapse of communism. I heartily recommend this article  by Victorino Matus to get just one small glimpse into the meaning of this important event.
http://www.weeklystandard.com/Content/Public/Articles/000/000/003/783zmvou.asp?pg=2

Friday, February 27, 2004 ~ 12:14 a.m., Andrew Quinlan Wrote:
The EU fantasy land. It is widely recognized that European economies are weak because government is too big, yet the EU bureaucrats continue to believe that tax harmonization is a good idea. Amazingly, they even argue that harmonization will help them catch up with the United States. According to the Bureau of National Affairs:
             Taxation Commissioner Frits Bolkestein will drive home the need to establish a
             common tax base as a crucial element of the EU's drive to overtake the United States
             by 2010 as the most competitive knowledge-based economy in the world.
As discussed Wednesday (see More tax harmonization talk from Brussels), the ability to choose a common tax base would help Europe by creating competitive pressure for better tax policy. The imposition of a common tax base, by comparison, is a form of harmonization.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8c7b3q0 (subscription required)

Thursday, February 26, 2004 ~ 9:59 p.m., Dan Mitchell Wrote:
Help the third world by cutting foreign aid. Tech Central Station augments their excellent coverage of the foreign aid issue with an article by Richard Tren, Director of Africa Fighting Malaria:
             A simple regression using World Bank data shows that there is no relationship
             between aid transfers and economic growth. A rich country can throw money at a
             poor country to bridge that "investment gap" and it will have no effect. Part of the
             reason that donor aid will not increase wealth is that it hampers the true source of
             wealth creation. When investment in a country is financed by aid, it comes under the
             auspices of the state and becomes a public asset. Aid therefore leads to the growth of
             the public sector and increases government consumption; two things that undermine
             wealth creation. Aid also hampers behaviour change. Any government can implement
             bad policies that reduce economic freedom, slow growth and increase poverty;
             indeed most African governments have done just this. Yet instead of realising that in
             order to become wealthy, those policies should change, governments can continue to
             finance themselves through aid transfers. In fact the more bankrupt a country
             becomes, the more likely it is to be bailed out by a rich country. The incentive is there
             not to implement positive changes, but to continue with bad policies.
http://www.techcentralstation.com/022604C.html

Thursday, February 26, 2004 ~ 5:21 p.m., Dan Mitchell Wrote:
Will political correctness turn America into France. The bureaucrats who run government schools in America need a good dose of common sense. Children are being suspended or expelled for preposterous reasons. According to an article in the Birmingham News:
             A third-grader at Sun Valley Elementary was suspended this week for bringing a G.I.
             Joe toy handgun to school. ... Austin Crittenden, 9, and his family say the school in
             eastern Birmingham went too far by sending him home for bringing a tiny plastic
             handgun that accompanied a G.I. Joe action figure. ... There have been questions
             recently about whether strict adherence to such codes has gone too far, especially
             after a Clay-Chalkville teen was sent to an alternative school for violating the
             school's zero-tolerance policy after being caught taking a Motrin. Last April, two
             boys at Oak Mountain Middle School received one-day suspensions for playing with
             toy guns one had brought for a project on Treasure Island. A 10-year-old was
             arrested in October at an Alabaster school, accused of threatening someone with a
             toy gun. It's not just Alabama: Last month, an 8-year-old was suspended from a
             Spokane, Wash., public school for taking two similar G.I. Joe guns to school.
Instead of turning American kids into a bunch of anti-gun wimps, let's fire the bureaucrats who make these dumb decisions and use the money to provide vouchers to the persecuted students so they can attend a private school.
http://www.al.com/news/birminghamnews/index.ssf?/base/news/1077790588221710.xml (registration required)

Thursday, February 26, 2004 ~ 1:05 p.m., Dan Mitchell Wrote:
Do we need government permission to get married? Using the homosexual marriage issue as a springboard, Larry Elder has an interesting proposal: 
             How about government simply getting out of the marriage-license-granting business?
             (Ditto for government licenses necessary to cut hair, drive a taxi, open a business or
             enter a profession.) Leave marriage to non-governmental institutions, like churches,
             synagogues, mosques, and other houses of worship or private institutions.
This appeals to my libertarian instincts. I remember being offended at the notion that I had to get a license when I got married (with retrospect, maybe the government should have said no!). I admit that I have no idea whether this notion is practical, but it certainly has intuitive appeal.
http://www.townhall.com/columnists/larryelder/le20040226.shtml

Thursday, February 26, 2004 ~ 10:35 a.m., Dan Mitchell Wrote:
Parents fight back. The school choice debate is largely a conflict between poor parents who want better options and rich left-wingers who are in hock to the political power of the teacher unions. As Tom Sowell writes, some parents are not pulling punches in their fight for quality education:
             Among the parents who have not been intimidated is a black woman named Virginia
             Walden-Ford. She has not only confronted members of Congress in hearings, her
             organization of parents has taken out ads in the states represented by Congressmen
             who voted against vouchers. These ads point out that liberal politicians who send
             their own children to private schools are preventing black parents from having that
             same choice. These parents don't hesitate to compare liberals like Ted Kennedy to
             Southern segregationists of the past like George Wallace and Bull Connor, who tried
             to block the advancement of blacks.
http://www.townhall.com/columnists/thomassowell/ts20040226.shtml

Thursday, February 26, 2004 ~ 9:44 a.m., Andrew Quinlan Wrote:
A better approach on trade. The Wall Street Journal defends the morality of free trade and proposes real solutions to make America more competitive:
             One might also ask the Democrats, is it moral for a government to deprive Americans
             of their freedom to enhance their standard of living by buying foreign goods and
             services? Or is it moral to stop foreign people from working their way out of poverty
             by closing access to the U.S. market? The moral imperative of trade looked very
             different to John F. Kennedy, who proposed an Alliance for Progress to open the U.S.
             to goods from Latin America because reducing poverty saves lives.... If the Democrats
             really want to call free-traders immoral, perhaps we should look at the rights and
             wrongs of employment in America. A National Association of Manufacturers study
             two months ago found that the primary competitive challenge facing manufacturers
             was not competition from cheaper foreign workers, but the extra cost of doing
             business in the U.S. The costs contributing to the loss of jobs were high corporate tax
             rates, mandated employee benefits, tort litigation, regulatory compliance and energy.
             In other words, the Democrats' agenda of higher taxes, more regulation and coddling
             the tort lobby makes them the biggest sinners of all.
http://online.wsj.com/article/0,,SB107775483351839505,00.html?mod=opinion (subscription required)

Thursday, February 26, 2004 ~ 8:56 a.m., Dan Mitchell Wrote:
The Russia flat tax is a big success. Tax-news.com reports that money is pouring into Russia, but this should not be a surprise. Russia's low-rate 13 percent flat tax is an investor-friendly policy that is helping the nation recover from 70 years of communism. But the story also has a lesson for the tax harmonizers in Paris and Brussels. Much of the money flowing into Russia is coming from so-called tax havens. In other words, the incentive to evade and avoid taxes is much lower if a government adopts good tax policy.
             Foreign investment into Russia jumped 50% last year compared with 2002 as the
             country attracted record amounts of foreign inflows, figures from the State Statistics
             Committee have revealed....Whilst interest is Russia is growing from foreign banks
             and corporations, the figures indicate that many Russians are pulling back money
             they transferred out of the country after the fall of the communist regime in the early
             nineties. As a result, significant amounts of the inflows originated from offshore
             jurisdictions - investors from Cyprus, the British Virgin Islands, Switzerland and
             Luxembourg accounted for 30% of all investments as Russians repatriated their
             assets.
http://www.tax-news.com/asp/story/story.asp?storyname=15191

Thursday, February 26, 2004 ~ 7:11 a.m., Dan Mitchell Wrote:
Assigning blame. If someone has a pet dog and he whips it and kicks it every night, who should get blamed if his dog runs away and stays with his neighbor - especially if the neighbor treats the dog kindly. Most of us would blame the owner and praise the neighbor for giving the mistreated animal a safe haven. The same principle applies to government. If governments cripple economic growth by taxing too much and spending too much, the victims of that oppression have the right to flee. This is why the current campaign to demonize Switzerland is so misguided. To their credit, the Swiss Banks are defending themselves:
             The Swiss Bankers Association lashed out on Wednesday at critics who last month
             accused the country of encouraging "capital flight". ... "Once again, Swiss
             bank-client confidentiality is being blamed for economic problems in some part of
             the world - this time in developing countries," [Urs Roth, the head of the Swiss
             Bankers Association] said. Roth said Switzerland was not the only country attracting
             assets from developing countries. He suggested that similar volumes of assets were to
             be found in other international financial centres such as London, New York, Paris
             and Frankfurt.
The Swiss also are correct to note that much of the flight capital from the third world is protected in nations like the United States and the United Kingdom.
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=4743808

Thursday, February 26, 2004 ~ 12:26 a.m., Dan Mitchell Wrote:
Markets should determine executive pay. William McDonough, Chairman of the Public Company Accounting Oversight Board, recently stated that executive pay is too high and "that the private sector at the top is not a closed club of people guided by their own selfishness and greed and their own interests." This is empty rhetoric. All people are motivated by self interest, and any effort to interfere with the pursuit of self interest is bound to harm the economy. McDonough's assertion that the pursuit of self interest is a sign of greed and selfishness is rather odd, given that his income is higher than 99.9 percent of the world's population. But so what if he is a hypocrite; what about his assertion that executive pay is too high? According to a Bureau of National Affairs article: 
             McDonough ... cited a recent study by consultants Towers Perrin showing that the
             pay of chief executive officers is 500 times that of the average worker, as well as a
             survey by the National Association of Corporate Directors indicating that 66 percent
             of corporate boards of directors grade themselves as below par in overseeing
             executive pay. In 1980, he said, the average CEO of a large company made 40 times
             what the average employee in the firm made.
These pay disparities are significant, but that doesn't mean that they are not justified. If CEOs can generate billions of dollars in profits for shareholders, they are worth tens of millions of dollars. But there is a fly in the ointment. Anti-takeover laws make it very difficult for shareholders to remove managers that don't perform. This form of government intervention almost surely does protect executives who are overpaid. In other words, there is a right way and a wrong way to deal with executive pay. The wrong way is to assert that high pay is a sign of greed, thus giving credence to those who want increased government intervention. The right way is to eliminate the anti-takeover laws that protect inefficient executives from market discipline.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8c5q8w7 (subscription required)

Wednesday, February 25, 2004 ~ 5:04 p.m., Andrew Quinlan Wrote:
More evidence that outsourcing is good for the economy. Lou Dobbs of CNN has descended into the fever swamps of protectionism, attacking companies that outsource and attempting to shame them by listing them on his website (the list can be found at http://www.cnn.com/CNN/
Programs/lou.dobbs.tonight/). Jim Glassman of Tech Central Station demonstrates how foolish Dobbs is by examining the market performance of these companies:
             Using data from Bloomberg, we calculated that the annual return for the Dobbs
             Rogue Fund, if it had existed over the past year (12 months ending Feb. 23, 2004),
             was a remarkable 72.44 percent. That compares with a return of 39.11 percent for
             the benchmark Standard & Poor's 500-Stock Index over the same period.
Needless to say, if companies that outsource perform better, they attract more capital, and that means they can create more jobs. This is why free trade is a good idea. It allows resources to be used efficiently, and that maximizes job creation in the long run.
http://www.techcentralstation.com/022504F.html

Wednesday, February 25, 2004 ~ 12:51 p.m., Dan Mitchell Wrote:
Boston newspaper attacks corporate tax planning. An article in the Boston Globe discusses the various steps that multinational corporations take to lower tax burdens. The article implies, not surprisingly, that it is somehow wrong for companies to lawfully protect the interests of workers and shareholders. So what should be done? The article notes:
             "Companies are increasingly international," said Pamela F. Olsen, treasury
             undersecretary for tax policy. "The IRS has dedicated staff watching this, but my
             concern is their resources may not be as sophisticated as those on the other side.
             We need statutory change."
Pam Olson, who actually just departed from Treasury, is right - but only if "statutory change" means fixing the tax law (see http://www.heritage.org/Research/Taxes/BG1691es.cfm for more information). If "statutory change" means more power for the IRS, by contrast, then America's anti-competitive tax system will become even worse.
http://www.boston.com/business/globe/articles/2004/02/24/corporate_income_stows_away_a broad/

Wednesday, February 25, 2004 ~ 11:57 a.m., Dan Mitchell Wrote:
Remember the S&L crisis? About 15 years ago, taxpayers incurred more than $100 billion of costs to bailout the savings and loan industry. Unfortunately, politicians didn't learn any lessons from this fiasco, and there is still widespread government intervention in the credit market. Two of the biggest taxpayers risks are Fanie Mae and Freddie Mac, special government-created corporations designed to subsidize home mortgages. These subsidies interfere with the efficient allocation of capital, create undeserved windfalls for Fannie and Freddie shareholders, and they also could impose a multi-hundred billion dollar bailout on taxpayers if the housing market goes sour. In today's Wall Street Journal, Bert Ely argues that the Administration should impose limits on these corporate free-loaders.
             The time has come for the Bush administration to rein in Fannie's and Freddie's asset
             growth, growth that does nothing to lower mortgage rates or advance home
             ownership. It can do that by simply using the long-standing power Congress has
             given the Treasury Department to judge the public purpose served by the GSEs' debt
             issuances. Exercising that power will help greatly to reduce the interest-rate gambles
             Fannie and Freddie have taken, at great risk to taxpayers. It also would open the
             door to fully privatizing these two anachronistic institutions, which Mr. Greenspan
             also favors.
http://online.wsj.com/article/0,,SB107767155080838464,00.html?mod=opinion (subscription required)

Wednesday, February 25, 2004 ~ 11:01 a.m., Dan Mitchell Wrote:
More tax harmonization talk from Brussels. Like a broken record, EU bureaucrats relentlessly fight to undermine tax competition. The newest effort is a campaign to harmonize the corporate tax base (the definition of taxable income). Proponents argue that this is needed to simplify business tax calculations. This is a legitimate argument. After all, filling out 15 different tax returns (soon to be 25) for various EU nations is not a good use of resources. But simplification can be achieved without harmonization. The best option would be to let companies choose their country of incorporation, and the tax laws of that nation then would determine the definition of taxable income in other EU nations. Many European governments don't like this option, however, since it would promote - rather than retard - tax competition. Tax-news.com has been covering the story:
             In a statement likely to concern the governments of Britain and Ireland, Europe's
             Taxation Commissioner Frits Bolkestein, has called upon a handful of member states
             to press ahead with the harmonisation of their tax bases in order to improve fiscal
             transparency across the European Union. ... Bolkestein told the French daily Le
             Monde last week: "With the path being blocked, there needs to be an 'enhanced
             cooperation' to harmonise the corporate tax base in some (countries)."
Bolkestein, incidentally, is supposed to the the "free market" EU Commissioner. So you can only imagine how bad the rest of them are.
http://www.tax-news.com/asp/story/story.asp?storyname=15173

Wednesday, February 25, 2004 ~ 9:13 a.m., Dan Mitchell Wrote:
Court defends free speech, rejects mandatory ad campaign for dairy industry. In a welcome decision, the US Court of Appeals for the 3rd Circuit ruled unanimously that dairy farmers should not be compelled to finance an advertising campaign for the milk industry. A free market is based on voluntary choices, not government coercion to maximize milk sales. Congratulations to the Institute for Justice, the tenacious civil liberties law firm that fights for "...a rule of law under which individuals can control their destinies as free and responsible members of society."
http://www.ij.org/media/first_amendment/got_milk/

Tuesday, February 24, 2004 ~ 6:43 p.m., Dan Mitchell Wrote:
Does tax reform lead to bigger government? Two economists, including Nobel Laureate Gary Becker, have an article in the Journal of Law and Economics hypothesizing that tax reform could facilitate bigger government. This counter-intuitive result might occur because a flat tax, for instance, would dramatically reduce the burden of the tax code, and this would ameliorate the pressure to control the size of government. As the economists write:
             An improvement in the efficiency of either taxes or spending would reduce political
             pressure for suppressing the growth of government and thereby increase total tax
             revenue and spending.
These findings don't mean tax reform is a bad idea. Instead, it simply indicates that controlling excessive government in one area makes it even more important to fight against excessive government in other areas.
http://www.journals.uchicago.edu/JLE/journal/issues/v46n2/460203/brief/460203.abstract.html

Tuesday, February 24, 2004 ~ 12:30 p.m., Dan Mitchell Wrote:
Class warfare myths. The left falsely claims that there are million of low-income people who are permanently trapped in poverty by an unfair and exploitative capitalist system. The left engages in this demagoguery because it allows them to increase the power of government, notwithstanding the fact that the data show that there is substantial upward mobility in America. According to Tom Sowell:
             The thesis of both media liberals and political liberals is that there are vast millions
             of people who work hard all their lives and still remain poor. ...Are there genuinely
             poor people who stay poor? Yes. However grossly exaggerated the numbers, there are
             such people. But studies that follow the same individuals over time find that most of
             those in the bottom 20 percent of income earners are also in the top 20 percent at
             some other time in their careers.Only a fraction of the people who are in the bottom
             20 percent in income at any given time will be there for more than a few years.
             ... Those who pose as the biggest champions of the poor ...want bigger government
             and the poor are just a means to that end.
http://www.townhall.com/columnists/thomassowell/ts20040224.shtml

Tuesday, February 24, 2004 ~ 11:42 a.m., Dan Mitchell Wrote:
More pork-barrel spending means fewer jobs. Even though Republicans control both the Presidency and Congress, they disagree about how much to spend on highways. In large part, this fight exists because the White House has been reluctant to say no to special interests. Bruce Bartlett writes:
             In many ways, the president is like a parent, and Congress is the children. Especially
             on spending, the latter will always push for more. It is the president's job to say,
             "No." ...Unfortunately, up until now President Bush has been like an overindulgent
               parent who has let her child get away with too much for too long. By not vetoing any
             bills and signing many that were far over budget, often stuffed with blatant
             pork-barrel provisions, he has set up a confrontation with Congress over the pending
             transportation bill.
But the best part of Bruce's article is the explanation of why politicians should not assume that highway spending will magically create jobs. Simply stated, the jobs that are created to build roads are offset by the jobs that are destroyed when the government takes money from the productive sector of the economy to finance the road building. This doesn't mean roads should never get built, but it does mean that politicians (ideally at the state and local level) should examine the costs and benefits of any particular project and not assume that road-building is a giant free lunch.
http://www.townhall.com/columnists/brucebartlett/bb20040224.shtml

Tuesday, February 24, 2004 ~ 10:09 a.m., Andrew Quinlan Wrote:
We told you so. There is growing evidence that the proposed tax increase in Virginia is designed to make government bigger. According to today's Wall Street Journal:
             ...this is all looking like an old-fashioned tax increase, followed by a spending spree.
             As soon as the governor pitched his billion-dollar tax hike, legislators from both
             parties proposed billions in new spending. Even the governor's proposed $59 billion
             biennial budget includes $2.4 billion in new spending.
Giving politicians more money is like putting blood in a pool of hungry sharks. It doesn't matter if they are Democrats or Republicans. As a matter of fact, the Republicans deserve more condemnation because they should know better.
http://www.opinionjournal.com/columnists/bminiter/?id=110004730

Tuesday, February 24, 2004 ~ 8:59 a.m., Dan Mitchell Wrote:
Bursting the myth that low wages in other nations take away American jobs. As the outsourcing debate indicates, protectionists believe that low-wage nations are going to "steal" all of the jobs in America. Yet if this is true, why aren't all the world's jobs in Haiti, Bangladesh, and Mozambique? The obvious answer, as Tom Sowell explains, is that businesses make decisions based on a combination of both wages and worker productivity:
             Wage rates per unit of time are not the same as labor costs per unit of output. When
             workers are paid twice as much per hour and produce three times as much per hour,
             the labor costs per unit of output are lower. That is why high-wage countries have
             been exporting to low-wage countries for centuries. An international study found the
             average productivity of workers in the modern sector of the Indian economy to be
             15% of that of American workers. In other words, if you paid the average Indian
             worker one-fifth of what you paid the average American worker, it would cost you
             more to get the job done in India.
High wages in America depend on maintaining our productivity advantage, and this means boosting saving and investment by lowering taxes on capital (for example, by eliminating the death tax, the capital gains tax, and the double-tax on dividends). Interestingly, the left opposes these measures even though they claim that they want to help workers.
http://online.wsj.com/article/0,,SB107758475144137292,00.html?mod=opinion (subscription required)

Tuesday, February 24, 2004 ~ 8:23 a.m., Dan Mitchell Wrote:
Australian Labour Party leads on Social Security reform. Australia has one of the world's most advanced private social security systems (see http://www.heritage.org/Research/Social
Security/BG1149.cfm for more information). These reforms were implemented by the Labour Party in the 1980s and 1990s, largely because Australian unions understood that building real wealth through savings was good for workers. Unfortunately, US labor unions have made an unholy alliance with big government and oppose reforms that would benefit workers. Senator Nicholas Sherry, a Labour Party member of the Australian Parliament, discussed his nation's reforms before the Senate Aging Committee. The Bureau of National Affairs reported:
             With an aging population, Australia had to change its retirement system to make it
             sustainable and fair, especially to low income workers, Sherry said. The Australian
             Government's policy intention is to deliver to most Australians a world class
             standard of living in retirement without substantially and unfairly imposing the cost
             burden on future young Australians, Sherry said, adding that the purpose is to
             maintain inter-generational equity.
Social Security reform should be a bipartisan issue. About two dozen nations already have implemented personal accounts, and there is no doubt that privatization works. President Bush has expressed support. Now it is time for action.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8c4t4u2 (subscription required)

Tuesday, February 24, 2004 ~ 7:14 a.m., Dan Mitchell Wrote:
France chasing down runaway tax slaves. The French government is upset that successful people are moving to Monaco to escape an oppressive tax regime. But rather than lower tax rates, the French want to extend their punitive wealth tax (ISF) to Monaco. What a surprise! Critics note that this is the wrong approach:
             Wealth tax opponents claim that ISF assessment is unsuitable in a global economy,
             alleging that the levy is behind the move of France's family fortunes out of the
             country. The high number of French residents in low-tax, extremely high-income
             Monaco--at least 30 percent of the small country's population--is often seen as proof
               that ISF is leading to delocalization.
Bureau of National Affairs Story, www.bna.com (subscription required)

Monday, February 23, 2004 ~ 4:09 p.m., Andrew Quinlan Wrote:
The economics of gay marriage. Set aside momentarily the question of whether homosexual marriages should be legal. The more interesting question is why gays and lesbians want to get married when government fiscal policy penalizes marriage. The tax code, for instance, imposes a higher tax burden on married couples. The Bush tax cuts reduced this penalty, but the bias still exists, especially for married couples with higher incomes. The Social Security system is another example. Dual-earner married couples receive lower benefits than unmarried couples, even if both couples pay the same amount of payroll tax. For those interested in the broader public policy debate on homosexual marriage, Tech Central Station has an interesting article examining the issue.
http://www.techcentralstation.com/022004G.html

Monday, February 23, 2004 ~ 3:30 p.m., Dan Mitchell Wrote:
The Germans don't get it. Black market labor now accounts for 17 percent of German GDP. You would hope that this startling number would convince the German government to reduce payroll tax rates, which have reached confiscatory levels. Sadly, but perhaps not surprisingly, the politicians in Berlin chose to create a new government bureaucracy to increase enforcement. The Bureau of National Affairs reports today that:
             The agency would focus on sectors and companies likely to have the highest
             amounts of tax and social fee evasion. The agency would employ 7,000
             inspectors--2,500 already in customs, 2,500 to be reassigned from the federal
             labor agency, and another 2,000 new hires, a spokeswoman for the Finance
             Ministry said.
This certainly won't be good news for the German economy. But look at the bright side: This creates ideal jobs for the East German secret police officials that were thrown out of work when the Berlin Wall fell. 
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8c3d5f3   (subscription required)

Monday, February 23, 2004 ~ 9:55 a.m., Dan Mitchell Wrote:
If we can't predict the weather next week, why listen to global warming alarmists who warn that the earth's climate will be different 50 years from now? Self-styled environmentalists assert that the earth is warming and that this will cause catastrophic results. But climate-change models are probably even less accurate than economic forecasting models, and that is quite an achievement. This does not necessarily mean ideological bias, or that the models are sloppy, "garbage-in, gabage-out" contraptions. Instead, it may be that some things are inherently unpredictable, as Sterling Burnett points out in today's Washington Times:
               In the realm of climate change research, different models looking at the same
               phenomenon using the same principles of atmospheric physics often produce
               dramatically varied results. Thus some scientists warn we can expect the polar
               ice sheets to melt, which would dramatically raise sea levels. Other scientists...
               predict the coming of the next ice age with rapidly falling sea levels. Still other
               scientists who examine the recent study predicting a "warming" induced ice age
               argue that, rather than a new ice age, the world's climate will "flicker" between
               colder and warmer states for decades at a time. The latter scenario could be called
               "same as it ever was," since it is precisely what has happened during the 150 years
               since science began to systematically measure weather and climate trends.
Environmental extremists might admit that the science of global warming is speculative, but they would argue that prudence requires that nations ratify the Kyoto Protocal and reduce greenhouse gases. Nonsense. Prudence requires policy makers to, a) consider the possibility of global warming, b) investigate the consequences of inaction, and c) compare the estimated economic costs of policy changes with the purported benefits of those policy changes. The fact that environmentalists resist this prudent approach certainly creates a presumption in my mind that they are motivated by ideology, not science.
http://www.washingtontimes.com/commentary/20040222-103504-1476r.htm

Sunday, February 22, 2004 ~ 12:23 p.m., Dan Mitchell Wrote:
Trade creates jobs. The economy suffers when politicians and bureaucrats restrict the freedom of individuals to engage in voluntary exchange. This is why protectionism is so misguided. It seeks to protect a few highly visible jobs (thus presumably gaining votes for politicians), but only at the expense of reducing overall job creation and economic growth. Sadly, neither political party today seems willing to defend the principle of free trade. Bruce Bartlett accurately notes that Bill Clinton had lots of flaws, but at least he contained the protectionist instincts of the Democratic party:
             ..Clinton made the simple calculation that increased trade and investment was good
             for him politically and protectionism was not. Unfortunately, President Bush made
             the opposite political calculation, as have Democratic Senators John Kerry (MA)
             and John Edwards (NC), the leading contenders to replace him in November.  All
             seem to be engaged in a race to the bottom to see who can pander more to the
             unemployed by blaming all their woes on foreigners.
http://www.townhall.com/columnists/brucebartlett/bb20040221.shtml

Sunday, February 22, 2004 ~ 10:11 a.m., Dan Mitchell Wrote:
Eroding First Amendment freedom. The Constitution's Bill of Rights explicitly forbids legislation restricting free speech. Yet Congress approved the McCain-Feingold "campaign finance" bill, even though the legislation was designed to protect incumbent politicians by restricting political speech. I don't really blame members of Congress for approving the legislation. After all, it is understandable that they would want to undermine political challengers, and it especially made sense for Democrats to support the bill since it tilts the political playing field in their direction. I also don't blame newspaper editors for supporting the bill since it creates a competitive advantage over broadcasters. But I do blame the President for signing the bill -especially since he admitted that the legislation was unconstitutional. And I am horrified that five members of the Supreme Court decided to eviscerate the First Amendment by deciding that the legislation somehow was contitutional. George Will's column on the issue is must reading, and he pulls no punches when discussing the Administration's decision:
             Two years ago President Bush, who had called it unconstitutional, signed the
             McCain-Feingold bill -- furtively, at 8 a.m. in the Oval Office. The law expanded
             government restrictions on political speech, ostensibly to combat corruption or the
             "appearance" thereof. Bush probably signed it partly because the White House,
             thinking corruptly, or appearing to do so, saw re-election advantage in this fiddling
             with the First Amendment.
http://www.sacbee.com/content/opinion/national/will/story/8291865p-9222265c.html

Sunday, February 22, 2004 ~ 1:44 a.m., Dan Mitchell Wrote:
Worries about Iraq, Part II. Turning power over to the Iraqis supposedly is a major goal of the Bush Administration, yet people who know more than me about such issues say that it would be unwise to schedule elections until we can be sure that the result won't be an anti-US government and/or a civil war. These are both reasonable concerns, but wouldn't these fears be mitigated if the US created a Swiss-type government for Iraq, where most of the power resides in various provinces? Jonah Goldberg wrote about this idea last April. His arguments were compelling then, and they are still compelling today. I'm the first to admit that there may be good reasons why this wouldn't work. Indeed, I hope there are good reasons why decentralization is a bad idea, because I would hate to think that bad judgement is blocking a good idea.
http://www.nationalreview.com/goldberg/goldberg042303.asp

Saturday, February 21, 2004 ~ 11:01 p.m., Dan Mitchell Wrote:
Worries about Iraq, Part I. I know less about Iraq than John Kerry knows about economics, and that's a scary thought. I can't help but wonder, though, whether America has won the war and will lose the peace. I had lunch today with a European journalist who told me that bureaucratic controls are being imposed on numerous sectors of the Iraqi economy, especially agriculture and electricity. What are we trying to do, make Iraq like France? To be fair, the US-led administrators also have given Iraq a 15 percent flat tax, but why cancel the benefits of tax reform with central planning?
http://www.heritage.org/Press/Commentary/ed111003c.cfm

Saturday, February 21, 2004 ~ 7:42 p.m., Andrew Quinlan Wrote:
Is a smaller EU better than a large one? The Europress Review column at National Review Online is always worth reading, and the most recent edition is no exception. The most insightful quote:
             Brussels is the Skywalker Ranch of European politics, full of money and equipment,
             but empty of vision and imagination for more than a decade now. The grand plan at
             the moment is to make a bureaucratic Jabba the Hutt which will sit atop the
             continent issuing protocols until everyone in Europe is on the same e-mail routing
             telling you when to brush and when to turn out the lights. To those in government,
             the answer to rampant governmental mediocrity is always to promise reform by
             growing more government. Did it never occur to anyone in Europe that a smaller
             EU might do better than a large one?
http://www.nationalreview.com/europress/europress200402200925.asp

Saturday, February 21, 2004 ~ 6:18 p.m., Dan Mitchell Wrote:
Growth matters. Victor Canto explains that reducing the deficit is impossible without economic growth - which is why it is so important to make the Bush tax cuts permanent (and also why the Kerry plan to repeal key tax rate reductions would be a disaster). John F. Kennedy probably said it best back in 1962:
             Our true choice is not between tax reduction, on the one hand, and the avoidance
             of large Federal deficits on the other. It is increasingly clear that no matter what
             party is in power, so long as our national security needs keep rising, an economy
             hampered by restrictive tax rates will never produce enough revenues to balance our
             budget just as it will never produce enough jobs or enough profits In short, it is a
             paradoxical truth that tax rates are too high today and tax revenues are too low
             and the soundest way to raise the revenues in the long run is to cut the rates now.
Good tax policy, however, is only part of the equation. Spending restraint also is necessary. Indeed, controlling spending is the only legitimate measure of fiscal responsibility. Unfortunately, the Republicans are doing a bad job in that regard and the deficit is a symptom of that poor performance.
http://www.nationalreview.com/nrof_canto/canto200402200849.asp

Friday, February 20, 2004 ~ 11:33 a.m., Veronique de Rugy Wrote:
No wonder the left hates Berlusconi. The Bureau of National Affairs reports that:
             Italian Prime Minister Silvio Berlusconi Feb. 17 said that it was "morally
             acceptable" to evade paying taxes if the rates are too high, as he vowed to
             usher through a new round of tax cuts with the country's 2005 budget.
People can legitimately disagree about the point at which tax evasion becomes morally acceptable, but there should be universal agreement that lower tax rates are the best way to reduce evasion. As such, Berlusconi deserves high praise for using a pro-growth method of addressing the issue. The OECD and EU, by contrast, want to create what former House Majority Leader Dick Armey referred to as a "global network of tax police" in order to facilitate punitive double-taxation of savings and investment.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8c2f4j5   (subscription required)

Friday, February 20, 2004 ~ 10:02 a.m., Andrew Quinlan Wrote:
EU tries more blackmail against Switzerland. Upset that Switzerland wants some concessions before acquiescing to the savings tax cartel, the EU is imposing new taxes on Swiss exports. Compared to having your legs broken, this may not be a terrible form of extortion, but it is an unsavory combination of bad policies - protectionism and tax harmonization. Parents in the United States teach their children that "two wrongs don't make a right," but that lesson apparently is not learned in Brussels.
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=4728896

Friday, February 20, 2004 ~ 9:48 a.m., Dan Mitchell Wrote:
The non-existent level playing field. The OECD wants low-tax jurisdiction to emasculate their market-based policies and act as vassal tax collectors for high-tax welfare states, but it does not want to impose the same onerous restrictions on member nations such as the United States and Luxembourg. Maybe Holland also should be on this list of OECD tax havens. The New York Times reports that the competitive international tax laws in the Netherlands have attracted considerable business, including subsidiaries from scandal-plagued companies like Enron and Parmalat. While it is always nice to note the OECD's hypocrisy, the important point to understand is that the market-based tax policy in Holland (or in places like the United States and the Cayman Islands) shouldn't be blamed for corporate misbehavior any more than General Motors should be blamed if a bank robber uses a Buick as a getaway car. To the credit of the New York Times, the story actually allowed the Dutch offshore industry an opportunity to defend itself:
             "Where have the mistakes been made?" said Mr. Nagelmaker, whose [Association
             of International Management Services] represents 16 large trust offices, including
             the one that oversaw Parmalat's entities in the Netherlands. "Not at Dutch trust
             offices. Not at Dutch companies."
Mr. Nagelmaker is correct. Dutch trust offices and Dutch companies are not responsible for the fraudulent behavior by Parmalat executives in Italy, just as Delaware and Cayman subsidiaries are not responsible for bad behavior by Enron executives in Houston.
 http://www.nytimes.com/2004/02/19/business/worldbusiness/19dutch.html

Friday, February 20, 2004 ~ 8:59 a.m., Andrew Quinlan Wrote:
Is the White House making a fatal political mistake? Some Republican political operatives have a simplistic belief that moving to the center of the political spectrum is the best way for the President to win re-election. According to this theory, the President will maximize his votes with this approach since undecided moderate voters will be more likely to vote for Bush while unhappy conservative voters will have no place else to go. This is the political equivalent of "static revenue estimating" since it assumes that voter turnout is pre-determined. In reality, elections are won by aggressively highlighting differences between candidates (using so-called wedge issues) and thus maximizing the turnout of philosophically sympathetic voters. This is why Republicans won such big victories in 1980 and 1994. But in years when the GOP tried to appeal to moderates - such as 1992, they suffered at the polls since many conservative voters stayed home. The Washington Times has a story today explaining that the President is risking the support of both economic and social conservatives by expanding the size of government.
http://www.washtimes.com/national/20040219-115609-3712r.htm

Friday, February 20, 2004 ~ 8:21 a.m., Dan Mitchell Wrote:
The EU wants to subsidize corruption and economic decline in poor nations. Marian Tupy of the Cato Institute has an excellent article condemning the European Union for seeking additional foreign aid. Tupy explains that government-to-government handouts create perverse incentives to perpetuate the anti-market policies that have created so much hardship in the third world. Sadly, pro-foreign aid bureaucrats seemingly don't care that their policies hurt the intended beneficiaries. As Tupy explains:
             William Easterly, Ross Levine, and David Rodman of the National Bureau of
             Economic Research updated the World Bank data and found no positive correlation
             between foreign aid and economic growth. Harold Brumm of the United States
             General Accounting Office concluded that foreign aid retards growth even in
             countries that follow sensible policies. As Ian Vasquez of the Cato Institute explains,
             foreign aid can serve as a disincentive to continued economic reform even under
             the best of circumstances.
http://www.nationalreview.com/nrof_comment/tupy200402190845.asp

Friday, February 20, 2004 ~ 7:33 a.m., Dan Mitchell Wrote:
A misguided defense of pork-barrel spending. The Weekly Standard normally is a sensible publication, but the online version has an article asserting that the President should sign a fiscally irresponsible highway bill. The author makes a number of key mistakes. He argues that highways are necessary, but never explains why road building should be financed and decided at the federal level. He claims that the legislation will not be "reckless and profligate spending" if it is financed by a gas tax increase, but he never explains how pork barrel spending is magically transformed into good spending by altering the method used to raise the money. Ignoring the fact that government spending necessarily means fewer resources in the productive sector of the economy, he even regurgitates the Keynesian argument that public works are a magic elixir that creates jobs. What's next, will he argue that the government should build pyramids?
http://www.weeklystandard.com/Content/Public/Articles/000/000/003/753qcwun.asp

Friday, February 20, 2004 ~ 6:12 a.m., Dan Mitchell Wrote:
Does this mean the OECD will issue a "Sex Haven" blacklist? Today's International Herald Tribune writes that the German city of Cologne has proposed a pleasure tax on "brothels, massage parlors, table-dancing clubs and even street-corner prostitutes." But jurisdictional tax competition may limit government's ability to reach into people's pockets. The article quotes the owner of a massage parlor, who notes that some clients will travel to Dusseldorf or Bonn to escape the tax. Bureaucrats at the OECD and EU are probably planning "field research" to determine if this is a form of "harmful tax competition."
http://www.iht.com/articles/130436.html

February 19, 2004 ~ 5:53 p.m., Dan Mitchell Wrote:
A market-based solution for organ transplants. Because there are too few organ donors, more than 80,000 people are on waiting lists. Some of them die while waiting and many of them endure a diminished quality of life. Economists have suggested that this tragedy could be mitigated by paying organ donors and thus increasing the supply of available organs, but this upsets some people because the rich might out-bid the poor for hearts, lungs, and livers. Indeed, it is now against the law to receive a payment in exchange for organ donation (I guess politicians think it is better for everyone to suffer equally). But there is a solution to this bizarre form of class warfare. According to an Tech Central Station article, paying people to be organ donors (as opposed to paying for their organs) is a way of both solving the problem and obeying the law.
http://www.techcentralstation.com/021904D.html

February 19, 2004 ~ 4:23 p.m., Andrew Quinlan Wrote:
Will gullible Republicans help impose a huge tax hike in Virginia? The GOP has firm control over the state legislature in Virginia, largely because they told voters that the tax-and-spend Democrats couldn't be trusted. But now those same Republicans are helping a lame duck Democratic governor impose a record tax hike. The GOP Quislings assert that the tax increase is necessary to avert a fiscal crisis, but this is demonstrably untrue. The Wall Street Journal today explains that:
             ...the real problem is spending. [Gov.] Warner has proposed a $59 billion two-year
             budget that includes $2.4 billion in new spending over the current two-year budget.
             Averaged out annually, state spending is up a record $6 billion, or 30%, in the past
             five years and $2.5 billion since Mr. Warner took office in 2002. Those increases
             outpace inflation, population growth and any rise in average personal incomes....
             [E]ven without the proposed tax hikes the state could increase spending annually
             by 5.5% over the next two years.
Public Choice economists are right. Politicians often decide that they like big government when they have control over the budget. Has there ever been a stronger argument for term limits?
http://www.wsj.com/wsjgate?source=jopinaowsj&URI=/article/0,,SB107715241558433482,00.ht ml%3Fmod%3Dopinion   (subscription required).

February 19, 2004 ~ 2:59 p.m., Dan Mitchell Wrote:
Miracles do happen. Germany consistently has been on the wrong side of international tax issues in recent years, so it is a refreshing surprise to find that the socialist government in Berlin is opposing European-wide taxes imposed by Brussels. According the European Foundation Intelligence Digest:
             The German government has said that it does not support the attempt by the
             European Commission to introduce a European tax. ...The spokesman said that the
             EU's problems were not so much on the income, but on the expenditure side. In other
             words, it should cut spending rather than increase tax. The spokesman was speaking
             following the publication in the Handelsblatt of a report claiming that Brussels was
             to start a formal initiative in favour of a euro tax on 10th February, and that it would
             be proposed as a part of the new budget which must be voted for 2007-2013.
             The EU, according to the report, was going to appropriate to itself value added tax,
             energy tax or corporation tax. With these proposals, Brussels would receive for
             the first time its own right to raise taxes.
A journey of a thousand miles begins with the first step.
http://www.e-f.org.uk/pubs/id/Issue%20No%20185.pdf

February 19, 2004 ~ 12:17 p.m., Dan Mitchell Wrote:
Yes, the debate is becoming tedious, but these comments on outsourcing are too good to miss. The Republican Speaker of the House, Denny Hastert, criticized CEA Chairman Greg Mankiw for the alleged sin of defending free trade in services. This has earned Hastert a stinging rebuke from noted columnist George Will, who writes:
             Hastert's ideal economy, where jobs do not disappear, existed almost everywhere for
             almost everyone through almost all of human history. In, say, 12th-century France,
             the ox behind which a man plowed a field changed, but otherwise the plowman was
             doing what generations of his ancestors had done and what generations of his
             descendants would do. Those were the good old days, before economic growth. http://www.townhall.com/columnists/georgewill/gw20040219.shtml

February 19, 2004 ~ 10:52 a.m., Dan Mitchell Wrote:
The Economist also attacks protectionism. In the most recent issue, the magazine explains:
             Even at the best of times, the American economy has a tremendous rate of
             "churn"-over 2m jobs a month. In all, the process creates many more jobs than it
             destroys: 24m more during the 1990s. The process allocates resources-money and
             people-to where they can be most productive, helped by competition, including from
             outsourcing, that lowers prices. In the long run, higher productivity is the only way
             to create higher standards of living across an economy.
 http://www.economist.com/agenda/displayStory.cfm?story_id=2454530

February 19, 2004 ~ 5:29 a.m., Veronique de Rugy Wrote:
Enough economics, time for romance (or lack thereof). Anyone whos annoyed with the Valentine's day routine should get a kick out of those two articles. First, Jennifer Graham explains why this day is torture for married guys. Second, the Economist looks at new scientific evidence that ostensibly proves that love may be driven by genes and neurochemical pathways,  not poetry, flowers, candles and chocolate. According to the article: "It is fascinating to reflect that the face that launched a thousand ships should have done so through such a limited expanse of cortex."

February 18, 2004 ~ 5:14 p.m., Dan Mitchell Wrote:
Hypocrisy at the OECD. The Paris-based Organization for Economic Cooperation and Development has become infamous for its anti-tax competition initiative, a project concocted by the lawyers working at the OECD's Committee on Fiscal Affairs. But not everyone at the OECD believes in tax cartels and bigger government. The professional economists at the international bureaucracy seem much more sympathetic to free market policy and often privately express embarrassment that the Committee on Fiscal Affairs has harmed the OECD's reputation. The OECD's recent report on Sweden demonstrates that the professional economists have a much better grasp of economic policy. In a discussion of how to increase economic output and labor supply, the economists explain that it would be desirable:
             ...to moderate the tax burden on earned income. Once the last step of the current
             programme of cuts is implemented, future tax reforms could concentrate on
             producing stronger labour supply benefits by further lowering high effective
             marginal tax rates on earned income. In addition, reducing the state income tax
             would be justified in order to increase returns to education and promote growth
             in labour productivity. The revenue foregone could be financed by trimming
             public spending...
Isn't it a shame, though, that the OECD's Committee on Fiscal Affairs is undermining this sound analysis by pushing for tax harmonization policies that will hinder the shift to lower tax rates?
http://www.oecd.org/dataoecd/35/8/26004226.pdf

February 18, 2004 ~ 12:04 p.m., Andrew Quinlan Wrote:
There ain't no free lunch. One of the biggest obstacles to good economic policy is that politicians (and sometimes voters) only consider the putative benefits of a government program or regulation. Yet, as the eminent economist Walter Williams explains, good decision-making requires a comparison of costs and benefits. If Members of Congress and policy makers in the Administration read - and understood - this article, there wouldn't be any more farm bills, steel tariffs, or entitlement expansions.
http://www.townhall.com/columnists/walterwilliams/ww20040218.shtml

February 18, 2004 ~ 11:17 a.m., Dan Mitchell Wrote:
Two cheers for Switzerland and one cheer for stubborn EU politicians. In a perfect world, the Swiss would reject the EU savings tax cartel because it represents bad economic policy. But the world is not perfect, and Switzerland has indicated that it will agree to the proposal if the EU is willing to compromise in other areas. Fortunately, it appears that EU politicians are refusing to show any flexibility and the EU savings tax directive could fall apart. Let's all keep our fingers crossed that the EU negotiators remain stubborn and unwilling to negotiate.
http://www.swissinfo.org/sen/swissinfo.html?siteSect=105&sid=4724293

February 18, 2004 ~ 10:01 a.m., Dan Mitchell Wrote:
John Kerry, tax haven profiteer, Part II. Several days ago, we discussed John Kerry's hypocritical attacks against Bermuda - even though his plutocrat wife raked in more than $100,000 as a result of Ingersoll-Rand's corporate inversion. It turns out that Senator Kerry has some direct experience with tax havens, although he appears not to be as smart as his wife. The Caribbean Net News reports that Kerry  lost about $30,000 about 20 years ago while participating in a Cayman Islands tax shelter. Maybe this explains his vitriolic distaste for low-tax jurisdictions?
http://www.caribbeannetnews.com/2004/02/17/havens.htm

February 18, 2004 ~ 9:31 a.m., Dan Mitchell Wrote:
The GOP spending addiction. If President Bush wants to bring spending under control, vetoing the highway bill would be a good beginning. The problem, according to Pete DuPont, is that the White House lacks credibility on the issue because it has allowed spending to explode over the last three years. Indeed, the former Delaware Governor points out that the Administration's supposedly frugal highway bill represents a 21 percent spending increase. Whatever happened to the good old days - back when Republicans at least pretended that they wanted to devolve programs like transportation back to state and local governments? But a journey of a thousand miles begins with a first step, so we can only hope that the President holds firm and rejects any bill that increases highway spending by more than 21 percent.
http://www.opinionjournal.com/columnists/pdupont/?id=110004706

February 18, 2004 ~ 7:08 a.m., Andrew Quinlan Wrote:
More on outsourcing. In addition to the links Dan lists below, Jim Glassman's Tech Central Station article is a must read. Glassman correctly argues that outsourcing is a form of free trade, something even left-wing economists presumably support. Indeed, he points out that even the Washington Post has explained that outsourcing benefits the US economy.
www.techcentralstation.com/021704C.html

February 17, 2004 ~ 6:37 p.m., Dan Mitchell Wrote:
Nonsense about outsourcing. Left-wing demagogues are attacking the Bush Administration - particularly the Chairman of the Council of Economic Advisers, Greg Mankiw, for defending a form of trade known as "outsourcing." This practice occurs when firms purchase labor input from foreign countries. Luddites such as John Kerry want to impose protectionist restrictions on outsourcing, although his presidential campaign has been using foreign call centers. Fighting against the protectionists in both parties, I was interviewed by both FOX and ABC (I thought my FOX interview went particularly well - at least until my cell phone rang on live TV).
http://www.townhall.com/audio/CONTENT/on_tv/Dan_Mitchell_02_12_04.ram

February 17, 2004 ~ 4:03 p.m., Veronique de Rugy Wrote:
Physician, heal thyself. Steve Entin of the Institute for Research on the Economics of Taxation explains that the tax code - primarily worldwide taxation and a high corporate tax rate - undermines the competitiveness of U.S. multinationals. These anti-growth policies have perverse effects. As Entin explains:
             Firms are reluctant to bring home profits in excess of amounts protected by foreign
               tax credits. Those credits are getting  scarcer, because, over time, foreign countries
               have reduced their corporate tax rates. This is poor economic and tax policy,
               putting up barriers to the free flow of capital and discouraging investment in the
             United States.
The solution, of course, is to lower tax rates and shift to a territorial tax regime. These policies will help lure these profits back into the United States, which would actually increase government revenues.
http://www.heartland.org/Article.cfm?artId=14156

February 17, 2004 ~ 2:13 p.m., Dan Mitchell Wrote:
U.S. financial institutions attract record levels of foreign capital. The Treasury Department earlier today released December figures showing that American financial institutions have nearly $2.4 trillion of funds from overseas. Amazingly, more than $976 billion of that money comes from Caribbean banking centers, primarily the Cayman Islands. Remember that figure - and all the investment and jobs that are supported by that capital - next time somebody argues that the United States should acquiesce to European tax harmonization schemes such as information-sharing. We should also understand that European assaults against free-market jurisdictions like the Cayman Islands are - for all intents and purposes - really attacks against the US economy since the vast majority of the money in Caribbean banking centers winds up invested in the US economy.
http://www.treas.gov/tic/exhibitsa-d.pdf

February 17, 2004 ~ 12:14 p.m., Dan Mitchell Wrote:
John Kerry's potential suicide, part II. On February 15, Andy commented on the Lemming-like instinct among Democrats to support higher taxes and class-warfare economics. David Boaz of the Cato Institute has an excellent article today reaffirming that voters almost always reject tax increases when given an opportunity to cast a vote. David also cites polling data showing that people prefer smaller government.
http://www.cato.org/dailys/02-17-04.html

February 17, 2004 ~ 10:41 a.m., Dan Mitchell Wrote:
Administration caters to special interest greed. The White House was correctly chastised for the decision to impose steel tariffs, but apparently they didn't learn the right lesson. The Administration now insists on a special-interest carve-out for the sugar lobby in the Free Trade Agreement with Australia. The Wall Street Journal editorial page today hits the nail on the head:
           U.S. Trade Representative Robert Zoellick browbeat the Aussies into accepting an
             exemption for sugar imports as the price of a  deal. This is a terrible precedent for
               future trade-opening  negotiations, and it may even jeopardize the ratification of
             this one. It is also one more sign that the Bush Administration is giving up on its
             ambitions to liberalize world agricultural trade.
Shame. (No publicly available link to editorial)

February 17, 2004 ~ 10:11 a.m., Andrew Quinlan Wrote:
The left puts ideology above results. Tom Sowell's excellent article on equality raises an interesting thought. School choice - giving poor families vouchers so they can select a better education for their children - is probably the single best strategy to boost the prospects of the less fortunate in society. Yet the left stridently opposes this much-needed education reform. Part of the answer is that the left has entered into an unholy alliance with public employee unions, especially the National Education Association. But could it also be that the left has such a visceral anti-market bias that they would deny poor people opportunity in an effort to keep people from finding out that markets provide a better education than a government monopoly?
www.townhall.com/columnists/thomassowell/ts20040217.shtml

February 16, 2004 ~ 7:49 p.m., Dan Mitchell Wrote:
Patriot Act abuse? This Washington Times story indicates that the government may be acting in an inappropriate manner while conducting the war against terrorism. I don't pretend to have the knowledge or background to comment on the specific issues raised in the article, but this is an opportunity to make a general comment on the need for checks and balances. If law enforcement is given more power, it is especially important to ensure the integrity of the system - and this requires harsh punishment for politically ambitious prosecutors who decide to cut corners to get trophy convictions or crooked cops who concoct evidence to boost arrest records. Increased punishment can deter bad behavior by altering the cost-benefit ratio of potential perpetrators. This common-sense approach has helped reduce crime rates, but sauce for the goose should be sauce for the gander.
http://www.washtimes.com/national/20040216-121921-6396r.htm

February 16, 2004 ~ 11:33 a.m., Dan Mitchell Wrote:
The EU mindset: Appease Iraq, attack Switzerland. According to eupolitix.com, the European Commission is blackmailing Switzerland, threatening to cut off negotiations about extraneous matters in hopes of bullying the Swiss into accepting the savings tax directive. Hopefully, Switzerland will resist this bullying, though banks in Hong Kong, Singapore, Panama, the United States, and other non-participating jurisdictions are probably hoping that the Swiss will capitulate since approval of the EU tax cartel will drive huge amounts of capital out of Europe.
http://www.eupolitix.com/EN/News/200402/823b34ff-516d-4257-8b7e-8d201a6fe740.htm

February 15, 2004 ~ 4:09 p.m., Andrew Quinlan Wrote:
Will Kerry commit political suicide? According to Bruce Bartlett, Democrats have made a terrible mistake by deciding to run a class-warfare, "tax-the-rich" campaign this fall. As Bartlett explains, this is the strategy that resulted in Mondale losing badly to Ronald Reagan in 1984. Some people might argue that America has changed in the last 20 years, but recent state referenda indicate otherwise. Voters in Alabama overwhelmingly rejected a proposed tax increase late last year, while voters in supposedly left-wing Oregon decisively rejected a tax increase earlier this year. These ballot results are supported by recent polling data, which indicate that the American people want lower taxes, even if it means fewer handouts from government.
Bruce Bartlett's Article:
www.trendmacro.com/a/talkingpoints/2004_02_01_TParchives.asp#10768716

February 15, 2004 ~ 3:43 p.m., Dan Mitchell Wrote:
So-called tax havens are not responsible for Enron and Parmalat scandals. Left-wing politicians and international bureaucracies claim that "tax havens" facilitate coroporate scandals, and this simplistic thinking has even crept into the pages of Time magazine. In reality, the Enron and Parmalat fiascoes primarily demonstrate that dishonest individuals can wreak havoc - just as happened with WorldCom and other companies where there was no connection with low-tax jurisdictions. If policy makers really want to reduce malfeasance by high-ranking corporate officials, they should repeal laws that limit shareholder oversight (see CF&P Foundation paper, Markets, Morality, and Corporate Governance: A Look Behind the Scandals, for more information) and shift to a cash flow-based corporate tax system so that opportunities for fraud are severely curtailed (see Cato Institute paper, Replacing the Scandal-Plagued Corporate Income Tax with a Cash-Flow Tax, for more information).
Time Magazine Article:
http://www.time.com/time/europe/magazine/article/0,13005,901040216-588810,00.html

February 15, 2004 ~ 2:21 p.m., Dan Mitchell Wrote:
Government spending is the problem, not deficits. A reader asks whether the US budget deficit is an economic problem. Government budget deficits are not desirable, but they are merely a symptom of the real problem - too much spending. This Heritage Foundation paper, Spending Growth--Not Tax Cuts--Is the Reason for Fiscal Imbalance, explains that long-term deficits in the US are a result of spending increases rather than tax cuts and these two Heritage Foundation papers, Nine Simple Guidelines for Pro-Growth Tax Policy and Taxes, Deficits, and Economic Growth, explain why deficits do not have a significant adverse impact. Also, Alan Reynolds of the Cato Institute has a first-rate editorial about the subject in today's Washington Times. http://www.washingtontimes.com/commentary/20040214-112848-4331r.htm

February 14, 2004 ~ 5:03 p.m., Andrew Quinlan Wrote:
Taxes Yes, Accountability No. Critics frequently note that the European Commission is an inefficient, corruption-plagued institution. One might think this would lead the Commission's President, Romano Prodi, to propose reforms that would impose accountability, but one would be wrong. Instead, Tax-news.com is reporting that Prodi thinks that the EC should impose a European-wide tax because "every political institution needs to control its revenues as well as its expenditures." With backward thinking like this, is it any wonder that Europe is falling farther and farther behind the United States?
http://www.tax-news.com/asp/story/story.asp?storyname=15047

February 14, 2004 ~ 2:11 p.m., Dan Mitchell Wrote:
More evidence that tax competition promotes good policy. Tax-news.com reports that the German Federal Finance Office just issued a report noting that the nation's corporate tax rate is too high. The key passage in the story reads:
             The findings highlight the growing differential between German corporate income
             tax rates and those of the ten EU accession states, many of whom have begun to cut
             taxes quite aggressively in preparation for the single market. This is a point noted by
             the Finance Office report which acknowledges how tax competition "will become
             sharper with the accession of new member states."
German socialists may not appreciate this process, but almost every economist agrees that lower tax rates boost economic performance. This is one of the reasons why tax competition is so valuable - it promotes better tax law even if politicians do not understand how the world works.
http://www.tax-news.com/asp/story/story.asp?storyname=15055

February 13, 2004 ~ 6:18 p.m., Dan Mitchell Wrote:
Making government bigger is NOT a conservative goal. Notwithstanding positive changes in tax policy, many supporters of individual liberty are distressed that the Bush Administration has significantly expanded the size and power of the federal government, including huge increases in education spending, steel tariffs, expanded farm subsidies, and new entitlement programs. Daniel Casse has written an article arguing that these policies represent a new form of conservatism. This is nonsense. Conservatism (classical liberalism for our foreign friends) is based on free markets, and all of these policies hinder and thwart the operation of market forces. Casse and others may be right to assert that big government is popular (though I think the evidence is in the other direction), but they are engaging in linguistic gymnastics when they try to re-define conservatism in order to justify the White House's misguided policies.
http://www.whwg.com/thefirm/WritersSample.cfm?SampleId=124

February 13, 2004 ~ 9:48 a.m., Dan Mitchell Wrote:
Will the Swiss save Europe? According to a Tax-news.com story, "Switzerland is continuing to hold its ground on the issue of the Savings Tax Directive, insisting that certain compromise proposals are met before it signs up to the measure." This almost surely means the EU savings tax cartel is dead. The EU may be able to overlook non-participation by the US, but there is no way that EU ministers will approve the cartel if Switzerland is not a participant. Europe's taxpayers should keep their fingers crossed that Switzerland does not surrender. After all, Europe's statist politicians will only make long-overdue and necessary economic reforms if they know that capital has the ability to flee fiscal oppression.
http://www.tax-news.com/asp/story/story.asp?storyname=15056

February 13, 2004 ~ 8:51 a.m., Dan Mitchell Wrote:
Will facts trump emotion in the gun control issue? Michelle Malkin's commentary in the Washington Times condemns New York City's anti-gun zealotry. Academic research by scholars such as John Lott persuasively shows that gun control laws increase violent crime by unfavorably shifting the cost-benefit analysis of criminals. This is why nearly 40 states have passed laws permitting law-abiding residents the right to carry concealed weapons - much to the dismay of crimminals. Places like New York City, however, seem impervious to logic.
http://www.washingtontimes.com/commentary/20040212-081239-1455r.htm

February 12, 2004 ~ 1:21 p.m., Dan Mitchell Wrote:
Is Senator John Kerry a tax haven profiteer? The ultra-left wing Massachusetts Senator has been fanning the flames of class warfare on the campaign trail, denouncing "Benedict Arnold" firms that re-incorporate in jurisdictions with better tax law. Yet Kerry's own wife, the multi-millionaire ketchup heiress, Teresa Heinz, made a tidy profit of at least $100,000 when Ingersoll-Rand inverted to Bermuda. This demonstrates that corporate inversions make good business sense, and it also demonstrates that statist politicians are perfectly willing to undermine economic growth in pursuit of votes. Of course, to be fair, that is a fair description of 90 percent of the politicians in Washington.
http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20040210/BUSINESS/102100026

February 11, 2004 ~ 6:17 p.m., Dan Mitchell Wrote:
Fool me once, shame on you, fool me twice, shame on me. Fans of the Peanuts comic strip will recognize the annual episode where Lucy talks Charlie Brown into trying kick a football. Charlie Brown begins by saying no, recognizing that in past years Lucy has pulled the football away at the last minute and he has wound up kicking at air and falling on his rear end. But then Lucy somehow convinces him that this year will be different, only to pull the ball away at the last second once again, leaving poor Charlie Brown in the dust. The same thing happens in Washington. Democrats claim that they will support spending restraint if Republicans will support tax increases. In the past, Republicans repeatedly were seduced by this offer, raising taxes in the expectation that Democrats would lower spending. In the real world, of course, the higher taxes actually lead to higher spending (with 1982 and 1990 being perfect examples). The GOP seems to have learned its lesson, but the normally sensible folks at Reason are pre-emptively saying that they want to kick Lucy's football!
http://www.reason.com/links/links021104.shtml

February 11, 2004 ~ 5:34 p.m., Andrew Quinlan Wrote:
Don't trust big business...or Republicans. Earlier in the blog, Dan cited Bruce Bartlett's column as evidence that big business often is not an ally of individual freedom and free markets. Unfortunately, the same can be said about Republicans. They talk a good game about reducing state intervention, but Veronique de Rugy's and Marie Gryphon's column shows how the GOP has thrown in the towel on federal education spending. The party that once proudly - and correctly - called for the elimination of the Department of Education now brags about how they squander money even faster than Democrats.
http://www.nationalreview.com/comment/derugy_gryphon200402110914.asp

February 11, 2004 ~ 5:05 p.m., Dan Mitchell Wrote:
Pro-Free Market does not mean Pro-Big Business. Bruce Bartlett of the National Center for Policy Analysis has a top-notch article explaining the important distinction between favoring free markets and supporting big business. As Bruce notes, big businesses frequently are opposed to free markets because they want government subsidies and protection.
http://www.nationalreview.com/nrof_bartlett/bartlett200402111051.asp

February 11, 2004 ~ 12:24 p.m., Veronique de Rugy Wrote:
More good news on the EU savings tax cartel. "Switzerland has rejected an appeal from EU finance ministers to sign an accord aimed at combating tax evasion" according to a news report.  That's great news. The bad news, of course, is that this does not stop EU bureaucrats. The article notes that, "The EU is stepping up pressure on Switzerland to agree with new EU savings tax rules."  The EU has shown over and over again that it won't take no for an answer, but I think we have good reason to believe that France and Germany, the two main driving forces behind the EU savings tax directive, will fail in their efforts to harmonize taxes and to export their bad tax policies.
http://euobs.com/?aid=14434&rk=1

February 11, 2004 ~ 9:57 a.m., Dan Mitchell Wrote:
More bad news for the EU savings tax directive. Tax-news.com reports that European governments are unwilling to agree to the conditions that are needed to obtain Swiss approval of a withholding tax - thus imperiling (thank goodness) the proposed savings tax cartel. Interestingly, Europe's welfare states may not have much stomach for fighting brutal dictators, but they certainly have no hesitation when it comes to condemning free market democracies - at least when those nations don't acquiesce to tax harmonization schemes like the savings tax directive. One French official, Frances Mer, said it was time to "put the screws on Switzerland in the coming weeks."
http://www.tax-news.com/asp/story/story.asp?storyname=15042

February 10, 2004 ~ 6:32 p.m., Dan Mitchell Wrote:
Who are the Real Tax Havens? A new article ("US Multinationals Move More Profits to Tax Havens, " Tax Analysts) makes a "shocking" discovery that companies are more likely to earn money and report profits in jurisdictions with better tax law. Interestingly, six of the the top ten tax havens listed in the article are OECD member nations - led by the Netherlands and Ireland. Yet none of these nations were placed on the OECD blacklist in 2000. Hong Kong and Singapore also are among the top ten tax havens listed in Martin Sullivan's article, yet they conveniently did not get labeled as "tax havens" by the OECD either. According to the old saying, "sauce for the goose is sauce for the gander," but notions of fair play and equality apparently get overlooked when tax-free bureaucrats in Paris put together blacklists to help prop up high-tax welfare states. (no link available)

February 10, 2004 ~ 1:14 p.m., Andrew Quinlan Wrote:
Richard Rahn of the Discovery Institute has an excellent editorial in the Washington Times. He explains how low-tax jurisdictions benefit the global economy by ensuring the efficient allocation of capital. Equally important, he shows why so-called tax havens are among the world's leaders in fighting against dirty money.
http://www.washtimes.com/commentary/20040209-090310-4341r.htm

February 10, 2004 ~ 12:017 p.m., Dan Mitchell Wrote:
EU Savings Tax Directive Death Watch: Another news story, this one from the eupolitix.com news service, reveals that the proposed savings tax cartel is in deep trouble. The most interesting question, though, is whether EU ministers will ignore all these problems and pretend that the Directive's requirements have been met. We won't know until June, but I'm guessing that they will decide that the Directive can move forward. After all, who has an incentive to point out that the Emperor has no clothes?
http://www.eupolitix.com/EN/News/200402/875c969a-1812-46b6-a4f8-176cd498d3cf.htm

February 10, 2004 ~ 4:04 a.m., Dan Mitchell Wrote:
Can communists favor free market tax policy? Apparently. Tax-News.com is reporting that China is poised to embark on supply-side tax reforms. This shows that anything is possible when tax competition is allowed to flourish. As the following quote indicates, Chinese political leaders have a better understanding of economics than most politicians in the West:
             "We feel that only through simplifying things and lowering tax rates will revenue
             collection become more efficient. At the same time, we also want to give fuller play
             to companies," observed Deputy Finance Minister Lou Jiwei in an interview
             published in the Wall Street Journal last week. He also explained that the
             government wants to take more of a back seat role in fueling economic growth.
             "It's a lot like Reaganomics," the Deputy Finance Minister noted.
http://www.tax-news.com/asp/story/story.asp?storyname=15000

February 9, 2004 ~ 6:44 p.m., Dan Mitchell Wrote:
The Financial Times today had an article ("Stalemate in EU talks with tax havens") describing how the infamous savings tax directive is in trouble. The money quote:
             Frits Bolkestein, the EU's commissioner for the single market, is  expected to tell
             EU finance ministers on Tuesday that insufficient progress has been made in recent
             negotiations with Liechtenstein, Andorra, San Marino and Monaco to reach a
             deal on sharing information and introducing withholding taxes. "It's a case of
             nobody wanting to make the first move," an EU official said.
This is encouraging news, but it completely overlooks the fact that Bush Administation officials already have announced that the United States will not participate in the cartel. The EU pretends this problem doesn't exist by falsely claiming that the US already is in compliance (see http://www.freedomandprosperity.org/Papers/lpf/lpf.shtml for more information), but one wonders if the Europeans really intend to move forward with this cartel when it will lead to a massive outflow of capital from Europe to the United States and the Far East.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT& cid=1075982371869

February 9, 2004 ~ 5:59 p.m., Dan Mitchell Wrote:
The OECD and EU get most of the attention, but they are not the only international bureaucracies seeking to hinder tax competition. The UN's "Panel Discussion on International Cooperation in Tax Matters" issued a report late last year that is so radical that the OECD and EU almost seem reasonable by comparison. Here are the juicy quotes from the recommendations section:
             "The most appropriate forum for cooperation in international tax matters and
             exchange of tax information will be achieved through an United Nations
             intergovernmental commission or committee. As recommended by the
             Secretary-General..., the Ad Hoc Group of Experts on International Cooperation
             in Tax Matters should be strengthened through its conversion into such a body.
             ...A new UN Committee or Commission on International Cooperation on Tax Matters,
             assisted by a competent secretariat, should help ...monitor macroeconomic policies
             affecting tax policy and international taxation. It could also contribute to the
             restraining of tax competition to attract foreign direct investment, develop a
             mechanism for multilateral sharing of tax information with a view to curbing tax
             avoidance, tax evasion and capital flight, as well as engaging in tax arbitration
             procedures."
This may sound too aburd to ever happen, but high-tax welfare states and third world kleptocracies have a joint interest in tax harmonization. Sound like an unholy alliance.
http://www.un.org/esa/ffd/1003CRP_on_tax.pdf

February 9, 2004 ~ 5:15 p.m., Dan Mitchell Wrote:
The Economic Report of the President was released today and it contains the usual array of sound analysis, but supporters of tax competition will be especially pleased by Chapter 13 ("International Capital Flows"), which states that "Exposure to international capital markets and the resulting increased competition may induce governments and firms issuing assets to improve macroeconomic policy, management, and profitability." The chapter also notes that, "Countries with sound macroeconomic policies are in the best position to reap the benefits of capital flows and minimize the risks."
http://a257.g.akamaitech.net/7/257/2422/09feb20040900/www.gpoaccess.gov/
usbudget/fy05/pdf/2004_erp.pdf

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