The MARKET CENTER is a platform for periodic observations about economic policy, philsophy, government, and the political process. Some of the commentary will relate to tax competition issues, but this site is designed to allow a wide range of topics to be analyzed. Readers are invited to submit questions, though we cannot promise public responses to every query. Readers also have an opportunity to sign up to receive postings via email.

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 Cato Institute, respectively.

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The Market Center Blog

Observations and insights on the global fight
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CF&P's Market Center Blog Archives
March 2004


Wednesday, March 31, 2004 ~ 2:02 p.m., Dan Mitchell Wrote:
Will the Germans ever figure out that taxes are too high? Acting like a bunch of sniveling children, German politicians are complaining that tax competition with Eastern Europe is making it difficult for them to maintain oppressive tax rates. Not surprisingly, they want more tax harmonization. As this story indicates, both the socialists and the supposedly right-of-center Christian Democrats are afraid to compete:
             German Chancellor Gerhard Schröder said on Monday there needed to be a "critical
             debate" over how to avoid tax competition between the old and new EU members.
             He pointed to the fact that the average corporate tax level in the new member states
             was roughly 10 percent lower than in the old EU states.... Both Schröder's
             government and Germany's conservative opposition are worried once the EU
             expands, companies will be tempted to move production facilities to Eastern
             European countries.

Wednesday, March 31, 2004 ~ 1:16 p.m., Dan Mitchell Wrote:
European Commission launches Orwellian attack on Gibraltar tax system. Using Alice-in-Wonderland reasoning, the EC has ruled that Gibraltar isn't allowed to have lower taxes than the United Kingdom. The EC decision was based on the notion that Gibralter is part of the United Kingdom - even those the EC claims that Gibraltar does have fiscal autonomy. Maybe next week the EC will rule that red is yellow and down is up. It appears that any rationale for odd rulings is okay so long as low-tax jurisdictions are persecuted. Gibralter Today reports:
             The Commission decided that the planned reform of corporate taxation in Gibraltar
             "would give companies domiciled in Gibraltar an unfair tax advantage in the form
             of fiscal revenue that the UK would forego." By taking the view that the introduction
             by Gibraltar of a corporate tax lower than the one generally applicable in the UK
             constitutes state aid, the Commission says it does not put in question the autonomy
             of Gibraltar in fiscal matters.

Wednesday, March 31, 2004 ~ 11:33 a.m., Dan Mitchell Wrote:
European attack on Switzerland uses more Orwellian double-speak. The European Parliament (what a surprise!) is urging the European Commission to continue the persecution of Switzerland and other market-oriented jurisdictions. Amazingly, the politicians actually have the gall to claim that Switzerland is holding them hostage. In reality, Europe's high-tax welfare states are using threats and coercion in an attempt to coerce Switzerland into acting as a deputy tax collector. A story from today's Bureau of National Affairs also illustrates the hostility to financial privacy in Brussels:
             The European Parliament March 30 called on the European Commission to take
             a tough line in negotiations with Switzerland and offshore banking centers to secure
             agreement on the handling of earnings by EU citizens on nonresident savings
             accounts. "Pressure needs to be brought on these jurisdictions," a declaration
             adopted by the Parliament said. "The EU should not be held hostage to a prolonged
             negotiating ordeal and should use its political might to enforce a quick and fair
             outcome." ...Representing the Parliament's Economic and Monetary Affairs
             Committee (EMAC), Spanish lawmaker Jose Manuel Garcia-Margallo y Marfil
             said, "Conclusion of an agreement with Switzerland is now urgent, and should not
             be linked to ongoing negotiations with other third countries. These other
             negotiations need also to progress quickly, as the Jan. 1, 2005, deadline looms.
             "No further counter-requests from these countries should be accepted and the
             commission should strive to replicate the contents of the Switzerland agreement for
             the other countries," the lawmaker said. According to an EMAC report, progressive
             abolition of banking secrecy for fiscal purposes in the European Union --"and
             worldwide for that matter"-- will benefit fiscal transparency and the functioning
             of the EU single market.

Wednesday, March 31, 2004 ~ 10:38 a.m., Dan Mitchell Wrote:
Chamber of Commerce condemns Kerry's anti-competitive tax plan. Senator Kerry wants to impose a big tax increase on US companies competing in foreign markets. This bizarre form of fiscal protectionism would be bad for American workers, shareholders, and consumers. The US Chamber of Commerce correctly notes that Kerry's policy appears to be designed for political reasons rather than economic considerations:
             The US Chamber of Commerce has joined other business groups in America in
             condemning the tax policies advocated by the Democratic presidential candidate
             John Kerry, expressing concern that his proposals, designed to encourage domestic
             investment, will ultimately undermine economic growth and destroy job creation.
             "It's wrong to wave the 'white flag' for US companies that are competing in the
             world-wide marketplace," contended Bruce Josten, Chamber executive vice
             president, continuing: "Politically-motivated tax proposals based on fears of
             outsourcing will hurt US companies abroad, undermine competitiveness and cost
             US jobs."

Wednesday, March 31, 2004 ~ 6:19 a.m., Dan Mitchell Wrote:
Tax competition is promoting better tax policy in Italy. High tax rates have contributed to sluggish growth in Italy, but Prime Minister Berlusconi wants to fix the problem by significantly reducing the top tax rate. This is smart economic policy. Lower tax rates will increase incentives to work, save, and invest. Moreover, a less oppressive tax system should reduce tax evasion. But Italy better not stop at 33 percent. Slovakia's 19 percent tax and Serbia's 14 percent tax are just two of the nations that will continue to lure away economic activity:
             Speaking at an economic conference in Northern Italy last week, Italian Prime
             Minister Silvio Berlusconi reiterated a previous pledge to cut taxes, arguing that
             after poor economic growth last year, the domestic economy needed a "shock",
             despite fears such a move would erode the government's already fragile fiscal
               finances. The Prime Minister explained that the Economy Ministry is currently
             examining a proposal to cut the top rate of personal income tax from 46% to 33%,
             after the euro-zone's third-largest economy suffered its worst rate of economic
             growth in a decade: just 0.3% in 2003.

Wednesday, March 31, 2004 ~ 5:38 a.m., Andrew Quinlan Wrote:
Another nation opts for the flat tax. The Serbian flat tax is beginning to get some attention. Implemented more then one year ago, the new system has a 14 percent rate for personal and corporate income. Needless to say, tax competition is the driving force as nations in Eastern Europe implement pro-growth tax reforms. Alvin Rabushka's excellent website has the latest information:
             On January 1, 2003, the government of Serbia implemented a comprehensive 14%
             flat-tax reform. ...The new system imposes a flat rate of 14% on labor income, and
             income from agriculture, forestry, and self-employment, previously taxed at 20%.
             Withholding tax on salaries is set at 14%. The new law includes an allowance for
             adults and children, retirement contributions up to twice the average monthly salary
             paid per employee in Serbia, and redundancy payments determined by the labor law
             of the Republic of Serbia.... The new laws also reduced the corporate profit tax rate
             from 20% to 14%, giving Serbia the lowest corporate profit tax rate in Europe.

Tuesday, March 30, 2004 ~ 6:12 p.m., Dan Mitchell Wrote:
Even communists realize that there are too many government bureaucrats. The Chinese government has launched an effort to reduce the size of the bureaucracy. This is a smart move, and hopefully the Bush White House will take notice. The number of government bureaucrats has climbed by more than 100,000 since Bush took office - and that excludes the Department of Defense. It is rather frustrating that one of the world's few remaining nominally communist nations is more committed to small government than the Repbulican-led government in the US:
             Trying to rein in widespread bureaucracy and inefficiency, the Chinese government is
             planning on significantly reducing the number of employees in its public sector. Top
             officials from China's economic planning body--the National Development and
             Reform Commission (NDRC)--have said they plan to reform the country's public
             service institutions, which employ an estimated 29 million people....As a part of its
             overall capitalist reforms in recent years, Beijing has attempted to streamline its
             public sector to reduce costs and eliminate redundant workers at various government
             institutions that they deem inefficient. Those measures put the jobs of millions of state
             workers at risk. Many state employees have grown accustomed to living off the "iron
             rice bowl" the state provides, analysts have said.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8g9h3h5   (subscription required)

Tuesday, March 30, 2004 ~ 11:21 a.m., Dan Mitchell Wrote:
IMF buffoons continue to reward irresponsible governments. While this is hardly a surprise, the International Monetary Fund is making it easier for the politicians in Brazil and Argentina to continue spending too much money. The IMF has an amazing track record of incompetence. The overpaid bureaucrats (who don't even have to pay tax on their bloated salaries) routinely browbeat nations into raising taxes and debasing their currencies - policies that are sure to harm economic performance. Yet, as this Bureau of National Affairs story indicates, they aid and abet wasteful government spending:
             A senior World Bank official said the International Monetary Fund was about to
             approve Brazil's and Argentina's request to exclude infrastructure spending from the
             calculation of the primary fiscal surplus--a move that may mean more money for
             government spending and less for paying foreign creditors. "The IMF is the
             institution that is pushing this initiative," World Bank's Vice President for Latin
             America and the Caribbean David de Ferranti told the Buenos Aires daily La Nacion
             in an exclusive interview conducted on the sidelines of the annual Inter-American
             Development Bank meeting in Lima, Peru, and published March 29.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8g9r8m2   (subscription required)

Tuesday, March 30, 2004 ~ 10:17 a.m., Andrew Quinlan Wrote:
White House commitment to spending discipline was long-overdue, but at least it's working. After three years of record-breaking increases in federal spending, the Bush Administration has finally decided to put the interests of taxpayers ahead of the greed of special interests. This caused a lot of whining from the pork addicts on Capitol Hill, but this adult supervision already is having a positive effect. As the Wall Street Journal points out today, the House of Representatives has trimmed some of the fat from the bacon-filled highway bill and agreed to give up on a proposal for higher gas taxes:
             It's amazing what a little White House backbone on spending will do. President Bush
             has been sending signals that he's itching to veto this year's six-year highway
             authorization bill, and lo, Congress is suddenly deciding to spend less. We're still
             talking enormous, to be sure, but at least the House has backed down from the truly
             gargantuan. Last week, Don Young's House Transportation Committee passed a
             $275 billion package that is down a cool $100 billion from the wish list the
             Chairman had once said was his bottom line. This is still more than the $256 billion
             Mr. Bush proposed in his budget, which is a 17% increase over the last (and all-time
             record) six-year plan. But it's a lot better than the $318 billion the Senate passed last
             month when it still thought the President was kidding. The entire House is expected
             to take up the bill this week, and we hope Mr. Bush holds the line by telling
             House-Senate conferees they have to meet his number or else. His veto-rattling has
             already got Mr. Young to drop his plans to raise the federal gas tax by five cents and
             index it to inflation.

Tuesday, March 30, 2004 ~ 9:43 a.m., Dan Mitchell Wrote:
Tom Sowell for President! Hoover Institution economist and syndicated columnist Tom Sowell says he is not running for President, but he sure has an attractive platform. It is such a shame that Republicans are too afraid of special interests to offer this kind of pro-freedom platform to voters:
             Since politicians like to have campaign slogans, instead of "Bring it On!" my slogan
             might be "Get rid of it!" to describe all the laws, policies, and government agencies
             that I would abolish.... Cabinet-level departments, for example, would be reduced to
             just two -- the Defense Department and the State Department, with the latter purged
             of the weak-kneed internationalist crowd who have dominated it for so long.
             Departments of Agriculture, Commerce, Labor, etc., would all be abolished as just
             money-wasting bureaucracies serving outside special interests, instead of the people
             whose taxes support them.

Tuesday, March 30, 2004 ~ 9:14 a.m., Dan Mitchell Wrote:
Kerry's bait-and-switch tax plan. John Kerry wants to portray himself as a born-again supply-sider by proposing to reduce the corporate tax rate by 1.75 percentage points. If this was his entire platform, he would deserve credit for taking a small step in the right direction. But, as they say, the devil is in the details. Kerry's tax plan also contains a big tax expansion in the double-taxation of income that US companies earn in other nations, a proposal that is guaranteed to have a negative effect on American competitiveness. Writing in the Washington Times, Larry Kudlow asks the key question:
             As the profits of U.S. firms are taxed overseas as well as at home (when the income
             is transferred back to the U.S.), companies are unfairly double-taxed on their
             earnings. This is the big issue regarding the current corporate tax debate in
             Congress. Why should American companies be double-taxed on a worldwide basis
             when nearly all other foreign companies, including those in Europe, are only single

Tuesday, March 30, 2004 ~ 8:59 a.m., Andrew Quinlan Wrote:
"Never has there been a financial rip-off of the magnitude of the U.N. oil-for-food scandal." New York Times ace columnist William Safire led off his column yesterday with the previous sentence. I know that it is "shocking, just shocking" that there is corruption at the United Nations. Unfortunately, Iraqi children suffered from the greed of many French and German "humanitarians."
             Never has there been a financial rip-off of the magnitude of the U.N. oil-for-food
             scandal. ...At least $5 billion in kickbacks went from corrupt contractors — mainly
             French and Russian — into the pockets of Saddam and his thugs. Some went to pay
             off his protectors in foreign governments and media, and we may soon see how much
             stuck to the fingers of U.N. bureaucrats as well.  ...Responding to a harangue in this
             space on March 17, the spokesman for Kofi Annan confirmed that the secretary
             general's soft-spoken son, Kojo, was on the payroll of Cotecna Inspections of
             Switzerland until December 1998. In that very month, the U.N. awarded Cotecna
             the contract to monitor and authenticate the goods shipped to Iraq. ...Prices were
             inflated to allow for 10 percent kickbacks, and the goods were often shoddy and
             unusable. As the lax Cotecna made a lot of corporate friends, Iraqi children suffered
             from rotted food and diluted medicines.
http://www.nytimes.com/2004/03/29/opinion/29SAFI.html?n=Top%2fOpinion%2fEditorials%20a nd%20Op%2dEd%2fOp%2dEd%2fColumnists

Tuesday, March 30, 2004 ~ 7:32 a.m., Dan Mitchell Wrote:
President proposes unjustified boost for IRS budget... but the bureaucrats want more. The IRS already is spending more than $10 billion each year, a scandalous waste of money given the agency's poor performance and reckless disregard for human rights. Yet the IRS's lapdog oversight board is complaining that the Bush Administration's proposed budget increase - which should be condemned for increasing IRS spending as twice the rate of inflation - should be even higher! Maybe a good place to cut spending is to get rid of this useless oversight board. As the Heritage Foundation's Brian Riedl explains, it is acting as a lobbyist for the IRS:
             The president requested a 4.6 percent boost to the IRS's budget, but the [IRS
             oversight board] says much of that will be swallowed by pay increases and other
             costs unconnected to tax collection. The oversight board -- which includes seven
             presidential appointees as well as the Internal Revenue commissioner and Treasury
             secretary -- implores Congress to boost Bush's request by $530 million. ... it is not
             unusual for agency oversight boards to insist their agencies need more money, said
             Senate Finance Committee aides. The IRS, like the rest of the federal government, is
             going to have to find more efficient ways of doing its job in the face of record budget
             deficits. "That's what typically happens: These oversight boards become, in effect,
             lobbyists for their agencies," said Brian M. Riedl, a federal budget analyst at the
             Heritage Foundation.

Monday, March 29, 2004 ~ 3:19 p.m., Dan Mitchell Wrote:
Law of the Sea Treaty a threat to open markets and US interests. For inexplicable reasons, the Bush Administration has resuscitated a misguided pact that would give the United Nations power over maritime activities. Supporters arge that the current version of the treaty is not as bad as the one killed by Ronald Reagan more than 20 years ago, but that is hardly an argument for ratification. As the Wall Street Journal opines today, this idea should be allowed to die:
             ...the treaty's central flaw remains unfixable: It is not in the best interests of the U.S. to
             have its maritime activities -- military or economic -- subject to the control of a highly
             politicized U.N. bureaucracy. That was a bad idea in 1982 and it's even worse today,
             as we fight the war on terror. It's also a terrible precedent, especially as we do more
             in space. ... The solution that seems to be emerging is for Majority Leader Bill Frist to
             conclude that there's no room on the tight Senate calendar to bring up the treaty this
             year. If President Bush won't follow Mr. Reagan's example and sink the pact, we hope
             he'll at least let Mr. Frist maroon it.
http://online.wsj.com/article/0,,SB108052872422667594,00.html?mod=opinion (subscription required)

Monday, March 29, 2004 ~ 12:51 p.m., Dan Mitchell Wrote:
Kerry's industrial policy tax credit. Senator John Kerry's tax plan has one good idea (a tiny reduction in the corporate tax rate) and lots of bad ideas. There has been a lot of criticism of his proposals for higher tax rates on investment, entrepreneurship, and international competition, and this condemnation is well-deserved. But Kerry also has managed to developed a "tax cut" that is misguided. More specifically, the Massachusetts Senator is proposing a special tax credit for hiring workers, but only certain types of worker by certain types of companies. This is the kind of social engineering that has made the internal revenue code a nightmare. As the Wall Street Journal explains, this is a misguided proposal:
             His idea is that the government would pick the "losers" of globalization, those
             industries where outsourcing overseas is prevalent, and subsidize them. Washington
             would waive the payroll taxes for new hires in those industries, as well as
             manufacturers and small businesses. Apparently this is the best the Kerry braintrust
             could come up with as a way to fulfill his promise of 10 million new jobs by 2009.
             This transparent attempt at industrial policy would introduce distortions too
             numerous to list here. Most obviously, it would encourage companies that do not
             have a comparative advantage to add workers in the belief that government
             handouts will continue. Meanwhile, a company that was doing well and would have
             expanded anyway would get an additional advantage over another that is struggling
             to avoid layoffs. The Kerry plan undermines the principle of tax equity -- that is, that
             two companies earning the same profits and employing the same number of workers
             should be taxed the same.
http://online.wsj.com/article/0,,SB108052784574267578,00.html?mod=opinion (subscription required)

Monday, March 29, 2004 ~ 11:07 a.m., Dan Mitchell Wrote:
Is Germany finally coming to its senses? In a hopeful sign, the German government has chosen to support labor market flexibility. To be sure, they are supporting labor market flexibility in the United Kingdom rather than Germany, but this nonetheless is evidence that the socialists finally realize that labor market restrictions increase unemployment and lower job growth. The Financial Times reports:
             Germany is backing Britain in its fight to allow employees to work voluntarily more
             than 48 hours a week, signalling a growing alliance between the two governments to
             block initiatives they see as damaging to business interests. ... The deal is evidence
             that the Commission's efforts to create a "social Europe" as a counterweight to the
             EU's single market could be grinding to a halt, to the dismay of union leaders. John
             Monks, head of the European Trade Union Confederation, attacked the move, saying
             he was disappointed that Mr Blair and Mr Schröder should be opposing moves to
             improve conditions.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&ci d=1079419974956&p=1012571727166 (subscription required)

Monday, March 29, 2004 ~ 10:44 a.m., Dan Mitchell Wrote:
Tyco shareholders overwhelmingly choose to stay in Bermuda. In a vote that can be seen as a referendum on America's uncompetitive corporate tax system, Tyco shareholders rejected a silly proposal to re-charter the company in America. The landslide margin is a positive sign that shareholders understood the adverse economic consequences of surrendering to demagoguery from greedy US politicians:
             According to an announcement made by the company last week, 93% of the voting
             shares chose to reject a move to reincorporate in the United States, which was
             proposed in a bid to remove the "the negative stigma of being lumped in with tax
             avoiders". ... a move back to the United States would increase the company's tax rate
             from 28% to around 36%, an event which would hurt the firm's earnings and
             potentially wipe up to $5 billion from its value.

Monday, March 29, 2004 ~ 7:55 a.m., Dan Mitchell Wrote:
Economist magazine says proposed EU constitution is a terrible mess. Like Dracula, the EU constitution has risen from the grave. This is an unwelcome development - and not just because it creates a new opportunity for high-tax nations to push for tax harmonization. As the Economist explains, the entire project seems designed to undermine the original European vision for the free flow of jobs, capital, goods, and services:
               ...the draft constitution that EU leaders have been discussing, drawn up by a
             105-member European Convention, is a terrible mess. It is so hard to understand
             that even the convention's members struggle to explain it. Whereas it ought to have
             strengthened the principle of "subsidiarity" (devolving decision-making so it is as
             close to the people as possible), it does the opposite-making everything subordinate
             to the Union's objectives, which include various types of "cohesion" (read:
             Brussels-led harmonisation).

Monday, March 29, 2004 ~ 6:31 a.m., Andrew Quinlan Wrote:
Columnist accuses Republicans of behaving like Democrats. Paul Jacob of U.S. Term Limits has a scathing column criticizing politicians, but he reserves special scorn for Republicans. This could be a bad omen for Republican candidates. If other free-market supporters are similarly disappointed in GOP performance, it could lead many of them to sit at home on election day - much as happened in 1992. At the very least, Jacob's Townhall.com column certainly will cause unease among conservatives and libertarians:
             ...look at the record of the current Republican-controlled Congress and Executive
                   a.Special-interest pork (
termlimits.org/Press/Common_Sense/cs1031.html) is up to record-high levels.
                   b.President Bush proudly touts his whopping Medicare increases and the massive
                   educational centralization (
www.termlimits.org/Press/Common_Sense/cs1073.html) of "No Child Left
                   c.The rate of increase in government expenditures ballooned after Clinton
http://www.townhall.com/columnists/pauljacob/pj20040201.shtml) left office.
                   d.There seems to be no program not worth pumping money into--even the
                   Republicans' old whipping boy the National Endowment for the Arts has been
                   favored with a 17 percent increase!
             Look at the record, look at the obvious: If GOP politicians nurture small-government
             convictions, it's obvious they don't have the courage of those convictions. Or else
             they lack the smarts to see them through.

Sunday, March 28, 2004 ~ 3:24 p.m., Dan Mitchell Wrote:
Will Medicare turn America into France? The newly-released Trustees' Report from Social Security and Medicare contains some staggeringly bad news. Social Security's unfunded liability is a whopping $10.4 trillion, but this is pocket change compared to the giant shortfall in Medicare. Writing in the Washington Times, two economists report that the long-term financing gap for Medicare is more than $60 trillion - and last year's prescription drug entitlement added a $17 trillion to the total:
             The measures show very large financial imbalances. Social Security faces an
             imbalance of $10.4 trillion, while Medicare's imbalance is 6 times larger at
             $61.6 trillion for a combined shortfall of $72 trillion. These numbers confirm
             our own calculations for the president's 2004 budget widely reported in the
             news last year were, if anything, quite conservative. Indeed, the president later
             signed a prescription drug bill the trustees estimate will cost nearly another
             $17 trillion in present value.

Sunday, March 28, 2004 ~ 1:41 p.m., Dan Mitchell Wrote:
Another despicable lying politician. Governor Mark Warner of Virginia is trying to push through a record tax increase - and he is receiving help from Quisling Republicans in the State Senate. On previous occasions, this blog has condemned Republican lawmakers for even considering this betrayal of principles, but let's take a moment to review the reprehensible and dishonest behavior of Governor Warner. As this Washington Post column clearly demonstrates, Warner has no sense of honor:
             Flash back to the 2001 gubernatorial campaign, when Republican candidate Mark
             Earley warned that his opponent would raise taxes if elected. "The fact is that I will
             not raise taxes," Warner responded then. "My plan states it. I've said it throughout
             this campaign." Yet in this year's budget, Warner proposed the largest tax increase in
             Virginia's history. ... the House borrowed another idea Warner ran on: Let voters
             decide by referendum whether to raise their taxes. "Why don't you trust the people?"
             Warner asked during the campaign when Earley opposed the plan. "I would trust the
             voters of Northern Virginia to vote on a referendum to decide whether they wanted
             to increase the sales tax." Now Warner says a referendum would be "extremely
             irresponsible" and that he will veto such a provision if one passes.

Sunday, March 28, 2004 ~ 11:22 a.m., Dan Mitchell Wrote:
UN bureaucrats want to control the Internet. The Associated Press is reporting on a meeting at the United Nations last week to discuss whether the the international bureaucracy should grab control over the Internet. Currently, a US non-profit organization known as the Internet Corporation for Assigned Names and Numbers (ICANN) oversees domain names and other technical matters. This system probably is not perfect, but it would be a grave mistake to give a corruption-ridden body like the UN any power over cyberspace. Contrary to the ideological rantings of some people, the UN does not have legitimacy:
             Some countries and activists argue that ICANN is too close to the United States and
             want the United Nations to take a greater role in regulating the Internet. "The United
             Nations would be a good platform for that, because it has legitimacy. The countries
             are all represented," said Izzeldin Mohamed Osman, a computer science professor
             from the Sudan University of Science and Technology.
http://news.yahoo.com/news?tmpl=story&cid=519&u=/ap/20040327/ap_on_re_us/un_overseein g_the_net_1&printer=1

Sunday, March 28, 2004 ~ 8:13 a.m., Dan Mitchell Wrote:
Are unions paper tigers? A wire story from UPI discusses how more and more workers are deciding against union membership. Not only has the overall rate of union membership declined, a report from the Bureau of Labor Statistics (http://www.bls.gov/
) reveals that only 8.2 percent of private-sector workers belong to unions. That statistic, combined with the dismal performance of the two presidential candidates with the most union, suggests union power may be a thing of the past:
             According to the U.S. Bureau of Labor Statistics, 12.9 percent of the working
             population held union memberships in 2003, down from 13.3 percent in 2002 and
             20.1 percent in 1983. Those declining numbers have been accompanied by a loss of
             clout and significance in the political process, exacerbated by less-than-stellar
             results in the recent democratic primaries for union-backed candidates Rep. Dick
             Gephardt of Missouri and former Vermont Gov. Howard Dean.

Saturday, March 27, 2004 ~ 4:00 p.m., Dan Mitchell Wrote:
The empire strikes back. Defenders of the government school monopoly are upset that Florida children now have some ability to escape failing schools. The Wall Street Journal explains that opponents of school choice have mounted a major campaign to smother this outbreak of education freedom:
             In the past five years Florida has delivered real school choice to more American
             schoolchildren than anywhere else in the country. Which is no doubt why Jesse
             Jackson was down in Tallahassee earlier this month calling Governor Jeb Bush's
             policies "racist." He and his allies understand all too well that when poor
             African-American and Latino children start getting the same shot at a decent
             education that the children of our politicians do, the bankrupt public education
             empire starts looking like the Berlin Wall.

Saturday, March 27, 2004 ~ 2:26 p.m., Dan Mitchell Wrote:
The EU tramples freedom of the press in an effort to stifle dissent. In a chilling article, Hans-Martin Tillack of Stern magazine describes how Belgian police broke into his home and confiscated his belongings. Why? Because he has the audacity to shine the light of truth on the European Commission. Writing for the Wall Street Journal, Tillack explains that EU officials are upset with him for divulging massive corruption in the Brussels-based bureaucracy. But rather than congratulating him for identifying malfeasance, they make him the victim of a government attack:
             The story I wrote with the help of these files made headlines all around Europe.
             The files suggested that fraud in the European Commission was still rampant despite
             Commission President Romano Prodi's pledge of "zero tolerance' toward corruption
             after the previous commission had to resign in 1999 in a massive fraud scandal. My
             article also revealed that there were already several fraud investigations into
             Eurostat, the EU's statistical office -- this story later evolved into another major
             scandal. ... The policemen took my private computer, my address book, my bank
             statements and diary from 2002, all four of my mobile phones and even a copy of the
             book "Raumschiff Brussel" or "Spaceship Brussels" in English I had published with a
             colleague. They could have easily purchased it in a bookshop. The police didn't
             allow me to talk to a lawyer, or to make any phone call at all, not even to my wife
             Katja, who currently works in Estonia. When I complained, one police officer tried to
             comfort me by pointing out how "lucky" I was not to be in Burma. "There, journalists
             get treated much worse," he said with a straight face.
http://online.wsj.com/article/0,,SB108016967394264743,00.html?mod=opinion   (subscription required)

Friday, March 26, 2004 ~ 6:10 p.m., Dan Mitchell Wrote:
Belgium's Prime Minister calls for lower taxes... sort of. In an editorial in the Wall Street Journal Europe, the Prime Minister of Belgium correctly points out that high taxes on labor are discouraging job creation. But don't assume this means he wants a lower tax burden. In too many cases, "lower taxes on labor" is a code phrase for "higher taxes on capital." In other words, when European politicians endorse lower taxes on labor, they don't necessarily support a net tax cut for the overall economy - and a careful reading of the article indicates that the Prime Minister may be playing a shell game:
             ...we need less tax on production. It makes no sense for us to impose the highest taxes
             on our labor force. This makes it difficult to encourage companies to create new jobs.
             This particularly hurts semi-skilled and unskilled workers, in other words those who
             are at a disadvantage in our society. When government income and our ability to
             finance social security are so closely tied to how much we tax our workers, we
             quickly end up in a precarious situation where, owing to high labor costs, jobs
             are driven away to other growth areas and government revenue dries up.

Friday, March 26, 2004 ~ 1:43 p.m., Andrew Quinlan Wrote:
Opposition to IRS Interest Reporting Regulation Grows. Twenty-eight Members of Congress object to a proposed IRS regulation, which was initially proposed during the final days of the Clinton Administration. The IRS initiative has generated considerable opposition since many foreigners would withdraw their money from American banks, thus raising concerns that it would harm America's economy and undermine the competitiveness of U.S. financial institutions. Tax-News.com reports:
             The House members have won the support of many free market lobby groups such as
             the Center for Freedom and Prosperity …According to the Center for Freedom and
             Prosperity, one hundred lawmakers, including 18 Senators and 82 Congressmen from
             39 states, two federal agencies (FDIC and Office of Advocacy of the SBA), every major
             financial industry association, and 40 Public Policy organizations have all
             denounced the proposed IRS regulation.
Links to Tax-News.com article, Rep. Green's letter and complete opposition to IRS Reg.

Friday, March 26, 2004 ~ 12:10 p.m., Dan Mitchell Wrote:
The next Ronald Reagan? Of all the elections in America, George Will believes the South Carolina Senate race may be the most important. He writes that one of the Republican candidates, Congressman Jim DeMint, is one of the few elected officials to worry about the impact of big government on national character. Will's Townhall.com column lauds DeMint for addressing this key issue:
             America is in, he says, ``an eleventh-hour crisis'' of democracy because it recently
             reached a point where a majority are ``dependent on the federal government for their
             health care, education, income or retirement.'' Tax reforms, from Ronald Reagan to
             George W. Bush, have removed many Americans from the income tax rolls: ``Today,
             the majority of Americans can vote themselves more generous government benefits at
             little or no cost to themselves.'' DeMint asks: ``How can any free nation survive when
             a majority of its citizens, now dependent on government services, no longer have the
             incentive to restrain the growth of government?'' DeMint's fear, that dependency
             produces ``learned helplessness,'' echoes Tocqueville's warning about government
             keeping people ``fixed irrevocably in childhood,'' rendering ``the employment of free
             will less useful and more rare.''

Friday, March 26, 2004 ~ 10:11 a.m., Andrew Quinlan Wrote:
Kerry economic plan means higher taxes. A former Bush Administration official writes in today's Wall Street Journal that Senator Kerry's economic plan has a $1 trillion hole - a hole that will be filled with higher taxes. Given the Bush Administration's regrettable tendency to spend taxpayer money, this may be an example of people in glass houses throwing stones, but Kerry's Senate voting record does demonstrate a love affair with big government. Glenn Hubbard's article notes:
             Besides proposing $1.7 trillion in new spending, Sen. Kerry has pledged to cut the
             budget deficit in half in his first term. That means that all of his new spending
             programs must be offset by tax increases or spending cuts -- and he certainly hasn't
             proposed much in the way of cutting spending. Instead, he claims he can raise taxes
             on upper-income earners and small business owners to pay for all of his spending
             plans. But the numbers show otherwise. If you add up all of his proposed tax
             increases, the extra revenue would be at most $700 billion over 10 years. That
             leaves a hole of $1 trillion. Laws of math cannot be repealed -- one cannot increase
             federal spending by $1.7 trillion over 10 years, slash the deficit over four years, and
             raise taxes only on those earning $200,000-plus to pay for the rest. More Americans
             would pay higher taxes under John Kerry's administration than John Kerry is willing
             to let on. Fully funding his promises would require repealing the entire Bush tax cuts,
             implying large tax increases for lower- and middle-income workers.
http://online.wsj.com/article/0,,SB108026124710565991,00.html?mod=opinion   (subscription required)

Friday, March 26, 2004 ~ 9:44 a.m., Dan Mitchell Wrote:
A better idea for the EU Constitution. The election of a socialist government in Spain has rejuvenated prospects for the EU Constitution. This is worrisome to supporters of economic liberalization because of ongoing efforts by tax harmonizers to use this new document to strip away fiscal sovereignty of member nations. But this is just one of many problems in the draft Constitution. The Wall Street Journal has a better idea:
             What started three years ago as a bid to simplify and clarify the EU's governing
             structures turned into a 265-page Gallic monstrosity last year... If the EU must have
             a constitution, let it serve as a reminder of what's most important about the union.
             We'd suggest four articles two start. They would fit a on a business card, and would
             constitute a sort of European Bill of Rights worthy of the name:
                       Art. I: There shall be free movement of people.
                       Art. II: There shall be free movement of goods.
                       Art. III: There shall be free movement of capital.
                       Art. IV: There shall be free movement of services.

Friday, March 26, 2004 ~ 9:03 a.m., Dan Mitchell Wrote:
Money laundering laws undermine privacy for law-abiding, but don't stop terrorists. A new report from Transparency International confirms that new money laundering laws and regulation are the wrong way to fight terrorism. Simply stated, it is a misallocation of law enforcement resources to have them search for needles in a haystack of financial records. Far better to monitor and investigate (and then liquidate) the thugs that are scheming to murder innocent people. The Bureau of National Affairs reports today:
             Tougher laws against money laundering have done little to dent terrorist financing,
             Transparency International said March 25 in releasing its annual global corruption
             report. The group said that stopping the relatively small amounts of money required
             for terrorist operations is a much harder task than finding and seizing the large
             amounts of proceeds generated by organized criminals and narcotics traffickers.
             "The amount of money that has actually been seized in the fight against terrorism is
             less than a million dollars," said Jeremy Carver, a member of the executive committee
             of Transparency International U.K. "It's a very small amount. The amount that was
             involved in the financing of Sept. 11 was less than half of that. Sooner or later people
             will realize that these types of payments will slip through any money laundering
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8g7k3h8   (subscription required)

Friday, March 26, 2004 ~ 8:35 a.m., Andrew Quinlan Wrote:
Welfare reform works. A Rand Corporation study indicates that welfare reform is boosting living standards among the poor. Leftists harshly criticized the 1996 legislation because they felt it would lead to greater poverty, but welfare rolls have been reduced and poor people are becoming self-sustaining. It is the latter development - the creation of independent human beings with a sense of self-worth - that may be the law's greatest accomplishment. But since most people judge welfare reform by what happens to living standards, these Rand findings are encouraging:
             We found that individuals on aid averaged about $296 in earnings per month
             themselves and resided in households that earned $738 a month on average.
             After other, non-earnings sources of income are included, household income rises
             to $1,559 per month. We found that leavers earned $818 per month on average and
             reported household earnings of $1,660 a month. In addition, 72 percent of leavers'
             households also receive other government support, such as health insurance or Food
             Stamps, and average household income was $2,010 per month.

Thursday, March 25, 2004 ~ 1:15 p.m., Dan Mitchell Wrote:
More false demagoguery against tax havens by the left. The Boston Globe is a very left-wing paper, so it should come as no surprise that they have printed a biased and inaccurate column against low-tax jurisdictions. But shouldn't there be some minimum standard of accuracy? The columnist asserts that tax havens somehow are linked to terrorist financing - even though the 9-11 terrorists used banks in Middle Eastern and OECD nations. Moreover, researchers at FATF, IRS, CIA, and the State Department confirm that low-tax jurisdictions tend to have the strongest anti-money laundering laws. But facts don't matter to people who loathe freedom, as this column indicates:
             ...the growing concern about Al Qaeda required a crackdown on global money
             laundering. The US-European plan would have tightened reporting requirements on
             banks and corporations, dramatically reducing criminals' ability to channel profits
             into tax havens. But the Bush administration put the tax- avoidance interests of its
             corporate allies ahead not just of the solvency of the US Treasury but of the war
             against money laundering by terrorists.
http://www.boston.com/news/globe/editorial_opinion/oped/articles/2004/03/24/fix_economy_by _targeting_tax_cheats/

Thursday, March 25, 2004 ~ 10:34 a.m., Dan Mitchell Wrote:
Thomas Sowell's random thoughts are better than most other people's deep thoughts. In another must-read column, Tom Sowell makes a number of valuable observations about the lunacy of the left. He notes that statists seem to care more about Caribou than people and that they prefer to use poor people for props to advance their ideological agenda:
             Many people who are for stricter government-imposed "fuel efficiency" standards
             for cars are adamantly against drilling for oil in Alaska. This means that avoiding
             inconvenience to some caribou trumps the loss of human lives when people are forced
             to drive flimsier cars... The fraudulence of the left's concern about poverty is exposed
             by their utter lack of interest in ways of increasing the nation's wealth. Wealth is the
             only thing that can cure poverty. The reason there is less poverty today is not because
             the poor got a bigger slice of the pie but because the whole pie got a lot bigger -- no
             thanks to the left.

Thursday, March 25, 2004 ~ 8:27 a.m., Dan Mitchell Wrote:
European bureaucrats want to impose an indirect tax on American shareholders. The Cato Institute's Alan Reynolds has a strong critique of the European Union's effort to impose its foolish antitrust rules on an American company. In addition to his analysis of the software market, Reynolds correctly notes the EU fine on Microsoft is a tax on Microsoft's mostly American shareholders. According to Reynolds' Townhall.com article:
             As I feared last August, the European Union just shoved its grasping hand deep into
             the pockets of a leading American firm -- Microsoft -- while also attempting to dictate
             the features of Windows and expropriate intellectual property rights of its creators.
             Microsoft is to be fined about $600 million, which is essentially a foreign tax on the
             primarily American owners of Microsoft stock.... American outrage over this
             heavy-handed European meddling in American business affairs is emerging as I
             anticipated last August. Senate Majority Leader Bill Frist, R-Tenn., called the EU
             ruling "preposterous," adding that, "I now fear that the U.S. and the EU are heading
             toward a new trade war -- and that the commission's ruling against Microsoft is the
             first shot."

Wednesday, March 24, 2004 ~ 6:36 p.m., Dan Mitchell Wrote:
Speaking of nutty Europeans, Sweden goes overboard with political correctness. I would be extremely flattered if a Swedish gal complimented me on my looks, but she better be careful there are no PC-police lurking in the shadows. According to CNN, flirting can get you fired:
             A female receptionist in an office in south Sweden was sacked for sexual harassment
             when her employer heard she had complimented a male client of the company on his
             good looks, a Swedish newspaper reported Monday. "I joked with a client about how
             handsome he was," the receptionist told the daily Sydsvenska Dagbladet. The man
             said he had not been offended by the woman's remark.

Wednesday, March 24, 2004 ~ 4:58 p.m., Veronique de Rugy Wrote:
Why do "feminist" politicians want to discourage employers from hiring women? Senator Patty Murray of Washington wants to impose a new mandate on businesses, forcing them to grant up to 30 days leave to employees subject to abuse at home. This sounds "compassionate," but it will boost costs and discourage companies from hiring people - presumably victimized women - that would be most likely to utilize the new law. This is the kind of misguided labor mandate that has caused double-digit unemployment in Europe. Carrie Lukas of the Independent Women's Forum explains why this is not the policy America needs:
             The question before Congress is not whether businesses ought to provide latitude
             for those suffering, but whether the federal government should dictate how businesses
             handle these situations. By focusing only on the need for flexibility for employees,
             Congress fails to recognize that businesses need flexibility, too. Business owners are
             often caricatured as greedy misers, able but unwilling to provide greater
             compensation to employees. But most are good people struggling to turn a profit.
             Each year, more than a half million U.S. businesses open and just as many close
             down. New regulations like those Senator Murray proposes make it harder for
             businesses to survive and hire more workers.... It is easy to vote for "compassionate"
             regulation and issue a press release trumpeting concern for victims of domestic
             abuse. But members of Congress should take note: Spending taxpayer money and
             passing on costs to business is not an act of charity; it is an abuse of federal power.

Wednesday, March 24, 2004 ~ 3:16 p.m., Dan Mitchell Wrote:
British turn justice upside down, jail man for defending his home. Some stories seem too odd to be true, but The Scotsman is reporting that a man has been given an 8-year jail sentence for the "crime" of defending his home from armed robbers. This perversion of justice is on par with the human rights abuses of totalitarian regimes:
             A man who stabbed to death an armed intruder at his home was jailed for eight
               years today. Carl Lindsay, 25, answered a knock at his door in Salford, Greater
             Manchester, to find four men armed with a gun. When the gang tried to rob him he
             grabbed a samurai sword and stabbed one of them, 37-year-old Stephen Swindells,
             four times. Mr Swindells, of Salford, was later found collapsed in an alley and died in
             hospital. Lindsay, of Walkden, was found guilty of manslaughter following a
             three-week trial at Manchester Crown Court.

Wednesday, March 24, 2004 ~ 11:11 a.m., Dan Mitchell Wrote:
Courts rule that governments are not allowed to steal cars. In a welcome victory for the rule of law, courts have decided that New York City is not allowed to steal cars from people who are not convicted of a crime. The City's policy was part of a disturbing pattern of government "asset forfeiture" policies that do not require a finding of guilt before bureaucrats can seize property. Writing in the Washington Times, Steve Chapman explains why such policies are morally offensive:
             A few years ago, New York Mayor Rudolph Giuliani came up with a new weapon
             to combat drunk driving: confiscating cars. It may seem only fair and just to take
             away the wheels of someone convicted of driving while intoxicated. But Mr. Giuliani
             saw no reason to limit the punishment to those convicted of the crime. With majestic
             impartiality, the city took and kept the cars of both the guilty and the innocent....
             Courts... decided Mr. Giuliani was wrong and the civil libertarians were right.
             Today, after being found guilty of violating the rights of these owners, the city must
             give back 6,000 cars it improperly held. This is a small but important victory for the
             proposition that Americans should not be punished without a demonstration of guilt.
             It's also a blow to the government's habit of using law enforcement to snatch property
             for its own enrichment.

Wednesday, March 24, 2004 ~ 10:09 a.m., Dan Mitchell Wrote:
Virginia Republicans demonstrate economic ignorance...again. Republican lawmakers in Virginia seem determined to prove that they know nothing about economics. Republicans in the State Senate have been pushing for a giant tax increase, and now both chambers of the State Legislature have decided to impose Soveit-style price controls anytime a natural disaster like a hurricane strikes. These politicians apparently think it is "unfair" when prices rise in response to changes in market conditions. As Walter Williams explains, this government intervention guarantees that there will be shortages next time a disaster strikes:
             Imagine for a moment that prices aren't allowed to rise. Would it be reasonable for
             anyone to expect workmen to give up their nights and weekends and drive hundreds
             of miles to Virginia to remove trees from people's houses? Yes, there would be some
             motivated by charitable instincts, but I'd hate to count on charitable instincts as the
             major source of help. If, as the Virginia Senate has decreed, prices are not allowed to
             rise in the wake of a disaster, lest they risk being deemed unconscionable, pray tell
             me what will produce the incentive for people to travel long distances, work overtime
             and make other personal sacrifices to provide goods and services to Virginians?

Wednesday, March 24, 2004 ~ 8:44 a.m., Dan Mitchell Wrote:
Looking at the Medicare disaster, sometimes it's depressing to be right. A new report shows that Medicare spending is skyrocketing, in part because of the irresponsible new entitlement for prescription drugs. Much of the blame should be directed at Republicans. As the Wall Street Journal explains today, the GOP decided that vote-buying was more important than America's future:
             Beyond 2019 Medicare really gets into the soup, as more Baby Boomers retire and
             spending explodes. As a share of the economy, Medicare spending will more than
             double to 6% by 2026 from today's less than 3%. By mid-century, it will be 9% of
             GDP. That means that nearly one out of every 10 dollars of national income will go
             to finance health-care merely for retirees. Put another depressing way, Medicare will
             soak up half or more of all annual federal revenues, assuming current tax levels.
             ...The political tragedy here is that Republicans have probably squandered their big
             chance to reform Medicare anytime soon. The prescription drug benefit was the only
             political carrot they could offer in return for genuine policy reforms. They settled
             instead for speculative policy changes on a long time fuse that may be swamped by
             the runaway costs of their new drug entitlement before the reforms ever have a chance
             work. Was it Barry Goldwater, or perhaps Ronald Reagan, who first said that
             Republicans had become tax collectors for the welfare state?
http://online.wsj.com/article/0,,SB108009640437263823,00.html?mod=opinion   (subscription required)

Wednesday, March 24, 2004 ~ 8:11 a.m., Andrew Quinlan Wrote:
More Medicare fallout. In a column that will not win friends at the White House, Bruce Bartlett of the National Center for Policy Analysis criticizes the Bush Administration's Nixon-style tactics to expand the welfare state with a new prescription drug entitlement. Specifically, Bartlett notes that the Administration covered-up important information in an effort to win a political victory:
             ...in the case of the drug bill, it is becoming harder and harder to believe the
             administration was not knowingly engaged in deception. Increasingly, it appears
             the administration knew perfectly well the legislation would cost far more than $400
             billion over 10 years — the most Congress was allowed to spend under its rules
             — and took extraordinary measures to suppress this fact.

Wednesday, March 24, 2004 ~ 7:28 a.m., Dan Mitchell Wrote:
Brown-skinned people need not apply. Bowing to union power, Senator John Kerry opposes a free trade agreement with Central American nations (Cafta). This is rather ironic since Democrats claim that they want to help poor people, especially minorities. Yet when faced with a Cafta initiative that would improve economic growth in developing nations, Kerry decides that kowtowing to union bosses is the first priority. The Wall Street Journal condemns Kerry for abandoning one of the positive legacies of the Clinton Administration:
             ...heeding the AFL-CIO, Mr. Kerry has come out against Cafta on the grounds that
             it doesn't enforce standards on labor and the environment. This marks one more
             Kerry retreat from the Clinton legacy of free trade and economic optimism, and it
             presents President Bush with an opportunity. If he's also willing to make the case for
             trade and tout his FTA accomplishments, his attack on "economic isolationism"
             could yet turn into a winning political issue.
http://online.wsj.com/article/0,,SB108009685282163834,00.html?mod=opinion   (subscription required)

Tuesday, March 23, 2004 ~ 2:04 p.m., Dan Mitchell Wrote:
Low taxes help the US out-perform Europe. The Joint Economic Committee has just published an excellent paper comparing economic performance among developed nations. The paper notes that all major economies suffered an economic downturn in recent years, but it then shows that the US has had the strongest recovery with the best job market. The JEC article also notes that all nations experienced big shifts in fiscal balance, regardless of whether tax rates were reduced:
             Among the major developed economies, the United States has had the largest
             increase in its real GDP of 7.8 percent after its downturn had ended. The United
             States had the second smallest high-to-low contraction in industrial production
             amounting to 6.7 percent. Since its low, U.S. industrial production has climbed by
             5.0 percent. Although unemployment rates have increased in all major developed
             economies, the United States has had the largest post-recession decline in its
             unemployment rate of 0.8 percentage points. The most recent U.S. unemployment
             rate of 5.6 percent remains significantly below the most recent unemployment rates
             of 8.0 percent in the European Union or 7.4 percent in Canada. Moreover, the
             average duration of unemployment is much shorter for jobless workers in the United
             States than in either the European Union or Japan.... Two of the countries that did
             not significantly reduce their tax burdens - Germany and the United Kingdom
             - suffered two of the largest deteriorations in their government budget balances.

Tuesday, March 23, 2004 ~ 12:19 p.m., Dan Mitchell Wrote:
Are the Autralians becoming bigger wimps than the French? Some Australian states have banned laser-pointers and the government of Victoria now wants to ban swords. These nanny-state measures are based on the same flawed thinking that led Australia to impose onerous gun control measures in the 1990s. In an editorial published in the Australian, John Lott of the American Enterprise Institute mocks this political-correctness-run-amok attitude and notes that gun ownership is a proven way to reduce crime by increasing the cost of criminal activity. Indeed, he notes that violent crime has increased in Australia now that criminals know that victims have less ability to defend themselves:
             If dangerous weapons made citizens in other countries dangerous, no one would
             visit Switzerland. There, all able-bodied men between the ages of 20 and 42 are
             trusted to keep a machinegun in their homes as part of their military service. (Not
             the wimpy centre-fire semi-automatic rifles everyone is afraid to trust Australians
             with.) Yet the trust in the Swiss is well placed. Switzerland has one of the lowest
             murder rates in Europe. Letting law-abiding citizens in the US and Switzerland own
             guns lowers crime because would-be victims are able to deter criminals or, if
             confronted, protect themselves. Australians are clearly quite different. They
             understand the risks of letting Australians own guns. The International Crime
             Victimisation Survey shows that Australia's violent crime rate is already twice that
             of the US or Switzerland. Australia's violent crime rate is about as high as England's,
             a country that bans handguns.

Tuesday, March 23, 2004 ~ 11:34 a.m., Andrew Quinlan Wrote:
Former Congressman condemns German tactics, defends Swiss privacy protections. Robert Bauman of the Sovereign Society does not mince words in his analysis of the current dispute between Germany and Switzerland. The former Maryland Congressman notes that there is a certain irony in Germany's attack against Swiss bank privacy laws given that these laws were considerably strengthened in the 1930s to help protect Jews from German oppression. Bauman writes in today's A-Letter:
             The government in Bern is correct that the German moves are part of mounting
             pressure from the EU and they are right to reject surrender of banking secrecy.
             This will not happen. Not only have the Swiss people repeatedly voted to retain
             banking secrecy, they have also voted to stay out of the EU. And a few months ago
             conservatives won Swiss parliamentary elections with a decisive margin, taking a
             new seat in the cabinet. The Swiss Bank Secrecy Law of 1934 was enacted to protect
             Germans persecuted by the Nazis, especially the Jews, who wisely moved their assets
             out of Hitler's reach to a safer place. There's a certain irony now, 70 years later,
             seeing Switzerland being persecuted for standing by its historic beliefs, a principled
             stand German governments, then and now, seem unable to comprehend.

Tuesday, March 23, 2004 ~ 10:36 a.m., Dan Mitchell Wrote:
Spain was a victory for the socialists, but not for socialism. One of the many benefits of jurisdictional competition is that left-wing governments have very little maneuvering room to increase the burden of government because politicians increasingly understand that bad policies will drive jobs and capital to other jurisdictions. This will limit bad policies in Spain according to the Wall Street Journal's George Melloan. He writes that the new government in Spain will not seek to roll back the economic reforms of the previous government. He also explains that other putative left-wing governments have become more responsible:
             Mr. Zapatero ... seems to be aware of what will happen to the [socialist] party if
             they revert back to the stultifying policies of their previous long sojourn in power,
             before Mr. Aznar defeated them eight years ago. So they have signaled that a lot of
             his policies will remain in place. In other words, they will try to do what socialist
             parties and former socialists have been doing all over the world since the collapse
             of communism 15 years ago. Tony Blair became the new Margaret Thatcher. The
             Chinese communists embraced capitalism. Gerhard Schroeder in Germany has tried
             to overcome the resistance of SPD traditionalists to market-based reforms. Russia,
             once the power center of global socialism, now has a largely private economy and
             a flat income tax of 13%. Vladimir Putin hopes to use his strengthened grip on power
             to clear away all the bureaucratic underbrush left over from communism so that
             private businesses can grow and prosper. In short, the old-fashioned socialism of
             the command economy will remain as dead as it was before the Spanish election.
http://online.wsj.com/article/0,,SB108000262205562431,00.html?mod=opinion (subscription required)

Tuesday, March 23, 2004 ~ 9:14 a.m., Dan Mitchell Wrote:
Bolkestein continues his fight against competition and liberalization. The European Union's tax commissioner, Frits Bolkestein, is supposed to be an advocate of free markets, yet he is the bureaucrat who is pushing for the EU savings tax directive - a proposed cartel will drive capital out of Europe and further depress growth. Now he is advocating "enhanced cooperation," a code phrase for policies allowing a subset of EU nations to pursue further tax harmonization. To be fair, not everything Bolkestein proposes is bad, but if he is the EU's "free market" commissioner, you can imagine how bad the rest of them must be. Tax-news.com reports on Bolkestein's latest scheme:
             "Personally, as well as the college of Commissioners, I strongly believe that our
             proposed approach of a single EU-wide tax base is, in the long term, the best
             response to the current challenges in the corporate tax field in the EU," he observed...
             Condemning the strong opposition expressed by some member states to the possibility
             of an EU tax, Mr Bolkestein suggested to the Economic and Monetary Affairs
             Committee that there are other possible solutions to the problem, explaining that:
             "One would be the mechanism introduced by the Amsterdam Treaty and developed
             by the Nice Treaty to allow "enhanced co-operation" between smaller groups of
             countries. After all, it will be unfair if some Member States are allowed to stand in the
             way of the elimination of tax obstacles to cross-border business when this is crucial
             to the development of the EU Internal Market, economic growth and job creation."

Monday, March 22, 2004 ~ 8:23 p.m., Dan Mitchell Wrote:
Unions and leftists fight against interests of low-income shoppers. USA Today writes about the effort to ban super-stores like Wal-Mart from operating in California. Unions oppose these stores because employees choose not to squander their paychecks on union dues, while leftists oppose these stores because of a visceral hatred of capitalism. But since lower-income shoppers are the ones who most benefit from super-stores, this demonstrates that unions and leftists don't really care about the poor as much as they care about insulating themselves from the rigors of the marketplace. As USA today notes:
             Politically potent unions see jobs threatened by supercenters selling groceries and
             offering consumers low-priced, one-stop shopping for most of their needs.
             ...Supercenter prohibitions arguably penalize low-income consumers. A year ago,
             a Wal-Mart store became a long-sought anchor for a fading regional mall in a south
             Los Angeles community torn by 1992 riots. Residents no longer had to depend on
             mom-and-pops or long trips to find low prices, says John Mack, president of the Los
             Angeles Urban League. The store provided more than 300 badly needed jobs.

Monday, March 22, 2004 ~ 11:28 a.m., Dan Mitchell Wrote:
Nostalgia for Ronald Reagan. Although economic policy was far from perfect during the 1980s, President Ronald Reagan did restore America's economic vitality and reduce the burden of government. Unfortunately, many of those gains have evaporated . Writing in today's Washington Times about the need to shrink the federal government , Chris Edwards of the Cato Institute explains that federal grants to state and local governments have ballooned since Reagan left office:
             Between 1980 and 1985, Mr. Reagan cut real grant spending by 15 percent and the
             number of grant programs by 23 percent. Unfortunately, grant spending soared again
             after Mr. Reagan left office, and the number of federal grant programs rose from 463
             in 1990 to 716 by 2003. This year, grants to state governments for education,
             highways and other activities will cost federal taxpayers $418 billion and account
             for one-quarter of all federal domestic spending.

Monday, March 22, 2004 ~ 10:33 a.m., Andrew Quinlan Wrote:
Why does Kerry want to repeat the mistakes of the Great Depression? Former Delaware Governor Pete du Pont writes today for the Wall Street Journal about the dangers of protectionism. This is a great article, but it understates the degree to which Kerry's policies mimic those of Herbert Hoover and Franklin Roosevelt. Both Hoover and Roosevelt raised tax rates, and higher tax rates is an integral part of the Kerry platform. But this does not detract from the powerful message in Gov. du Pont's column:
             The cruelest economic tragedy of modern times was the Great Depression, a disaster
             deepened and accelerated by the Smoot-Hawley Tariffs of 1930. They raised import
             duties to the highest level in American history, igniting a global trade war. In three
             years U.S. exports to Europe declined to $784 million from $2.3 billion, and U.S.
             imports from Europe declined to $390 million from $1.3 billion. Global international
             trade fell by 66%.... President Bush's steel tariffs saved the jobs of 5000 U.S. steel
             workers, but caused higher steel prices that eliminated 23,000 jobs in
             steel-consuming industries. ...Horse-drawn carriages were replaced by cars,
             typewriters by computers, and E-ZPass has no doubt replaced some toll-taking
             highway jobs, all good things although a lot of jobs disappeared as new ones were
             created. The gales of creative destruction that shape market economies created 18
             million new jobs in America in the past 10 years. But the important thing to
             understand is how that total was reached: 339 million old jobs disappeared while an
             astounding 357 million new ones were created in their place.

Monday, March 22, 2004 ~ 8:40 a.m., Dan Mitchell Wrote:
EU antitrust lunacy. The Wall Street Journal opines today about the misguided EU persecution of Microsoft. Antitrust laws - even in the United States - have always been based on flawed economic analysis, but at least there was a pretense that they existed to protect consumers. But now both US and EU regulators attack companies like Microsoft for providing goods and services too cheaply! The Journal's editorial ponders where this kind of thinking may lead:
             This week, it is all but certain that the commission will declare Microsoft in violation
             of competition laws, fine the company and impose enormous restrictions on how
             Microsoft does business. At the heart of the ruling, the commission is essentially
             telling Microsoft that any further improvement of its flagship Windows operating
             system is illegal. Simply put, this ruling is bad for technology, bad for the competitive
             marketplace, bad for European-U.S. relations and bad for consumers. While there
             have been signs pointing to this impasse, the EU has now made it very clear that it
             will put the interests of Microsoft's competitors above the interests of consumers,
             competition and economic growth. Does this also mean that a major producer like
             Nokia cannot add new features to its cell phones if a competitor complains? Can we
             see our way out of this quagmire?
http://online.wsj.com/article/0,,SB107991554735261427,00.html?mod=opinion   (subscription required)

Monday, March 22, 2004 ~ 6:54 a.m., Dan Mitchell Wrote:
Germany reverts to form in bullying campaign against Switzerland. It appears the Germans want some Lebensraum for the welfare state, and they are willing to bully Switzerland in their endless search for more tax revenue. The specific goal is to force Swiss acceptance of the EU savings tax cartel, and the Germans are turning up the heat by deliberately creating long lines at border crossings:
             Thorsten Neuwirth of the Southern German Customs Office in Munich ... declined
             to say why checks were suddenly being stepped up now when the accord came into
             effect in 1995. Border officials in eastern Switzerland speculate that it may be a
             means of turning up the heat on the Swiss government, which is currently locked in
             a tug of war with Brussels over nine bilateral treaties. ... "I think it's a way of
             applying pressure on Switzerland," Jacques Strahm, head of the border authorities
             in French-speaking Switzerland, told swissinfo. ...On Tuesday EU finance ministers
             meeting in Brussels again urged Switzerland to stop dragging its feet and sign the
             savings tax agreement before the end of June. Hans Eichel, Germany's finance
             minister, stopped short of threatening sanctions but made it clear that time was
             running out for the Swiss. "I assume that no country in Europe wants to make its
             living in part by making itself into a hideout for tax-evaders from other countries,"
             he said. "I assume this also of Switzerland."
Eichel's hysterical rhetoric is especially amusing. The German economy and fiscal situation has deteriorated steadily on his watch, so he seeks scapegoats. One would have thought that the Germans might have learned that this is not appropriate behavior.

Monday, March 22, 2004 ~ 2:02 a.m., Dan Mitchell Wrote:
Authors should highlight link between tax havens and prosperity. Two Harvard economists have written a very interesting book examining the link between economic performance and country size. One of their key findings is that small nations tend to be among the world's wealthiest jurisdictions.
             Of the ten richest countries in the world in terms of GDP per head, only two have
             more than 5m people: the United States, with 260m, and Switzerland, with 7m. A
               further two have populations over 1m: Norway, with 4m and Singapore, with 3m.
             The remaining half-dozen have fewer than 1m people. What do such variations imply
             about the link between population size and prosperity?
Their analysis is insightful, but the authors should pay more attention to tax policy. Jurisdictions like Liechtenstein, Luxembourg, Bermuda, and the Cayman Islands are among the world's wealthiest places (see
for more information) in large part because they have attractive policies for flight capital.

Sunday, March 21, 2004 ~ 4:11 p.m., Dan Mitchell Wrote:
Water subsidies hurt consumers and the environment. Thomas Sowell has an another excellent article, this one on the government's inane policy of subsidizing water for western farmers. As usual, government intervention is causing resources to be misallocated. Sowell explains:
             Even in California's dry Central Valley, less than 10 percent of the water available
             from federal water projects is used by cities and industries. The vast majority of it is
             used by farmers, who pay a fraction of what urban users pay, thanks to federal price
             fixing. Like everything that is made artificially cheap, water is used lavishly,
             including the growing of crops like cotton that require huge amounts of water. It is
             one thing to grow cotton in Southern states with abundant rainfall. It is something
             else to grow it out in a California desert with water supplied largely at the taxpayers'

Saturday, March 20, 2004 ~ 1:56 p.m., Andrew Quinlan Wrote:
Why are protectionists endangering American jobs? Ted Balaker writes in Reason that the job market is efficient and is always changing.  As most economists know, a robust and growing economy will turn many of the displaced jobs into better paying jobs in the future.  Unfortunately, this is a hard sell during an election year.  According to Mr. Balaker:
             Still, can we connect the dots from efficiency gains to job growth? Some imagine that
             CEOs fire humans, hire machines, and then throw the extra cash on their money pile.
             This view may not be far off the mark in assuming ambition -- perhaps even
             greed -- motivates the CEO. However, the truly greedy won't simply stash the
             cash -- they will reinvest it and dream of an even bigger payday. Since reinvestment
             spurs job growth, in order to accept the efficiency gains-job growth link you simply
             have to assume that corporate greed is alive and well. For most of us, this isn't a huge
             leap.  …As the market evolves, we don't just exchange fewer jobs for more, we also
             trade up for better jobs. Since today's office mates squabble over a couple of clicks on
             the thermometer, it's a good thing few of them will have to find out how they'd survive
             in, say, a mineshaft. During the past 50 years we've lost over a quarter-million mining
             jobs, but we've gained 78 million service sector jobs. Today, 19 times as many
             Americans work in finance as in mining; 22 times more work in hospitality, and 54
             times more work in heath and education.

Saturday, March 20, 2004 ~ 11:12 a.m., Andrew Quinlan Wrote:
The Deficit Debate Is a Charade. When you hear a politician tell you that the deficit is out of control, be very afraid. Their answer is always to raise taxes, not cut spending. Dan Mitchell explains that cutting taxes and reducing spending is the answer.
             Deficits, however, are not the issue. The real problem is government spending, and
             we should view rising deficits as a symptom of Washington's profligacy. The spending
             crisis is both a short-term and a long-term problem. Federal spending has jumped
             dramatically in recent years, climbing from 18.4 percent of GDP in 2000 to more
             than 20 percent of GDP in 2004 (and less than half of that increase can be attributed
             to national defense or homeland security). …Bigger government, though, is
             economically harmful. When politicians spend money, regardless of whether they get
             it from taxes or through borrowing, they're taking it from the productive sector of the
             economy. This might not be so bad if lawmakers used strict cost-benefit analysis to
             determine if the money was being well-spent — particularly when compared with the
             efficiency of private-sector expenditures. Unfortunately, that rarely happens. Instead,
             politicians allocate funds on the basis of political rather than economic
             considerations. This inevitably weakens economic performance.

Friday, March 19, 2004 ~ 5:21 p.m., Andrew Quinlan Wrote:
Regulatory malpractice. Tracking down terrorists is important and worthwhile. Stopping their pipeline of funds is also paramount. Richard Rahn, however, points out that strict cost-benefit and civil liberties' tests must be applied to the laws and organizations set up to stop terrorist funding. Dr. Rahn explains:
             People around the globe are justifiably concerned about terrorism and ordinary
             criminality. A certain international political class has used this anxiety to argue
             that since criminals and terrorists use money, all monetary movements and holdings
             must be monitored. Yes, it is useful to be able to trace the money trail of al Qaeda
             operatives. But does that mean all citizens of every country should be subject to
             having all their financial privacy destroyed? Furthermore, is it cost-effective to
             monitor almost everyone, or would both public and private law enforcement dollars
             be more wisely spent monitoring the activities of those individuals or groups known
             or strongly suspected of engaging in terrorist or criminal activities? …The reason
             we should care is that all of these extra, and in many cases totally unnecessary, costs
             are passed along to consumers of financial services as higher fees and more expensive
             and fewer choices in financial products. This directly translates into job losses not
             only in financial industries but in all businesses that rely on some outside financing.
             …There is little evidence all the new rules and paperwork are having any
             appreciable effect on crime or terrorism, because there is an almost infinite number
             of ways to "launder" money, and organized terrorists and criminals can almost
             always find ways around the regulations. On the other hand, there is considerable
             evidence of damage to our pocketbooks and civil liberties from these regulations.

Friday, March 19, 2004 ~ 2:38 p.m., Andrew Quinlan Wrote:
Is big government behind high gas prices? Ben Lieberman of the Competitive Enterprise Institute has a very insightful article on high gasoline prices. It shouldn't be news to most readers of this blog, but state and federal regulations are a major cause for the price jump. According to Ben's techcentralstation.com article:
             Until the mid-1990s, the feds did not micromanage the recipe for gasoline, the only
             exception being the phaseout of lead in the 1970s. But that changed with the 1990
             amendments to the Clean Air Act, which began to take effect a few years later.
             …As a result of these provisions, we now have a bewildering variety of gasoline
             requirements. One third of the nation uses something called reformulated gasoline,
             designed -- very imperfectly as it turned out -- to deal with summer smog in the
             nation's most polluted metropolitan areas. We also have so-called oxygenated gas in
             several areas to combat high wintertime levels of carbon monoxide, a problem that
             was rapidly disappearing before the provisions even took effect. In addition,
             conventional gasoline is also subjected to a number of requirements, which can vary
             by geographic location and time of year. …Beyond the direct role of the federal
             government, several states have also come up with their own unique gasoline blends,
             often in order to obtain the required federal approval for their pollution-fighting
             plans. …Some of these measures have helped reduce vehicle emissions and improve
             air quality, while others have not. But all have succeeded in driving up the cost at
             the pump.

Thursday, March 18, 2004 ~ 1:47 p.m., Dan Mitchell Wrote:
Will socialists kill the Spanish Miracle? Today's Wall Street Journal points out that free market reforms helped catapult Spain's economy upwards, but it is uncertain whether the incoming socialist government will have the same wisdom. Let's hope so. According to the editorial, the rumored choice for Finance Minister understands that statism would be the wrong choice:
             So far, on the economy, the surprise victors of Sunday's election are keeping the
             same course. The probable finance minister, Miguel Sebastian, a former central bank
             economist liked by the markets, promises a simplification of Spain's tax system,
             including lower rates for corporations, further liberalization and a stable budget.
             Mr. Zapatero's likely coalition partners on the far-left won't easily go along with this
             break with past Socialist orthodoxy, raising the odds of clashes and backsliding in
             coming months.... The retiring Spanish leader [Aznar] showed that reforms pay off
             with higher growth and new jobs. Leaders elsewhere in Europe should take note. In
             his eight years in power, the economy expanded by 40% and disposable family
             income, 35%. Unemployment fell from 20% to 11%; 4.2 millions jobs were created,
             40% of the total in the EU, compared with a net zero jobs in Spain in 1976-1996.
             While tax rates fell, the tax take rose: New jobs and higher incomes widened the tax
             base. This in turn made it possible to cover Spain's pension obligations without
             running a deficit.

Thursday, March 18, 2004 ~ 12:58 p.m., Dan Mitchell Wrote:
More on Germany's malaise. An article in Techcentralstation.com explains that Germany's economy will not recover until and unless German politicians reduce the burden of government. Fortunately, Germany may be forced to reform because of competitive pressure from low-tax nations in Eastern Europe. The author explains, however, that this reform probably won't come from the existing political powers:
             In spite of the problems inherent in the German economic model, the labor market
             has become even more rigid since the beginning of Chancellor Gerhard Schröder's
             first term in office. Even the salient points of his Agenda 2010 will not obscure the
             fact that labor and economic policies are misdirected. Instead of solving the
             problems, Agenda 2010 only postpones them. ...The German labor market and the
             German economy are suffering from a structural "malaise" - and its effects have been
             showing especially in the past few years. Without an intellectual turnaround among
             the responsible parties and a return to basic liberal structures of the economic order
             as defined by Ludwig Erhard, we will not overcome, let alone rebound from the
             slump in the German labor market.

Thursday, March 18, 2004 ~ 12:14 p.m., Dan Mitchell Wrote:
Whatever happened to Germany and Japan? Fifteen years ago, protectionists fretted that Germany and Japan were economic powers that soon would overtake the United States. The lesson - so they claimed - was that the United States needed to have more of a planned economy with lots of bureaucratic control. Thankfully, the US did not travel down this path. Alan Reynolds has a column on Townhall.com explaining what has happened in Germany and Japan - and also puts to rest the fear that US jobs are going to China:
             From 1990 to 2000, industrial production increased by 49.5 percent in the United
             States, 13.4 percent in Germany and 1.5 percent in Japan. By 2003, Japan's
             industrial production index was still much lower than it was in 1990. Trade surpluses
             appeared in Japan and Germany only because their economies, and therefore their
             imports, grew slowly, not because exports grew rapidly. ...China still has a small
             trade surplus, but the notion that China has been stealing our manufacturing jobs
             faces a bigger problem. According to the Asian Development Bank (adb.org),
             China's industrial employment fell from 109.9 million in 1995 to 83.1 million in
             2002 -- a drop of 24 percent. Anyone who wonders where U.S. manufacturing jobs
             have gone need not bother looking for those jobs in China, Japan, Hong Kong or
             South Korea. All those countries suffered much larger percentage declines in
             manufacturing jobs than the United States has.


Thursday, March 18, 2004 ~ 11:17 a.m., Dan Mitchell Wrote:
Money laundering laws should target criminals and terrorists. Richard Rahn writes in today's Washington Times that the war against terrorism and crime is being hindered by the ineffective application of anti-money laundering laws. In short, law enforcement resources should be concentrated against known and suspected criminals and terrorists, but existing laws require financial institutions and governments to spy on everybody. Dr. Rahn explains:
             ...is useful to be able to trace the money trail of al Qaeda operatives. But does that
             mean all citizens of every country should be subject to having all their financial
             privacy destroyed? Furthermore, is it cost-effective to monitor almost everyone, or
             would both public and private law enforcement dollars be more wisely spent
             monitoring the activities of those individuals or groups known or strongly suspected
             of engaging in terrorist or criminal activities? ...There is little evidence all the new
             rules and paperwork are having any appreciable effect on crime or terrorism,
             because there is an almost infinite number of ways to "launder" money, and
             organized terrorists and criminals can almost always find ways around the
             regulations. On the other hand, there is considerable evidence of damage to our
             pocketbooks and civil liberties from these regulations.

Thursday, March 18, 2004 ~ 10:42 a.m., Dan Mitchell Wrote:
Good and bad news from Europe. Commissioner Frits Bolkestein announced that the EU may allow smaller companies to use the tax base of their home country to calculate their taxable income for all EU nations. This would be a step in the right direction since governments would face competitive pressure to improve their definitions of taxable income (i.e., the tax base). But this small bit of good news is offset by a new effort to permit tax harmonization ("enhanced co-operation" in the Orwellian world of Brussels) by a subset of EU nations. Bolkestein claims that harmonization will improve growth and job creation, but he fails to provide a single example in all of world history to support this preposterous claim:
             The Commission has consulted widely on ways to enable companies to use a single
             EU-wide tax base for their cross-border business. We plan to make a recommendation
             for a pilot scheme to allow Small and Medium Enterprises to use the tax rules of their
             home state for calculating their EU-wide taxable profits before the summer this year.
             ...we must explore other options. One would be the mechanism introduced by the
             Amsterdam Treaty and developed by the Nice Treaty to allow "enhanced
             co-operation" between smaller groups of countries. After all, it will be unfair if some
             Member States are allowed to stand in the way of the elimination of tax obstacles to
             cross-border business when this is crucial to the development of the EU Internal
             Market, economic growth and job creation.
http://europa.eu.int/rapid/start/cgi/guesten.ksh?p_action.gettxt=gt&doc=SPEECH/04/136|0|RAPI D&lg=EN&display=

Wednesday, March 17, 2004 ~ 4:02 p.m., Andrew Quinlan Wrote:
Are high taxes healthy? Robert Samuelson has an interesting article in today's Washington Post explaining that some of the "problems" plaguing America - such as obesity and a shortage of time - are actually a result of too much prosperity. More specifically, a free-market economy generates so much prosperity that people have lots of disposable income, and this can lead to over-indulgence. Nations like North Korea and Cuba, by contrast, don't have to worry about these problems. Don't be surprised if the left starts to argue that we should tax-and-spend ourselves into poverty to improve public health! But even if this prediction misses the mark, Samuelson's column is still worth reading:
             ... more and more of our social problems and complaints stem from our affluence, not
             our poverty. ... the larger and more boring truth is that food has gotten cheaper, and
             as a result, we consume more of it -- and more away from home. In 1950 Americans
             devoted a fifth of their disposable incomes to food (and less than a fifth of that to
             eating out). Now food's share is a tenth (and almost half is out).

Wednesday, March 17, 2004 ~ 3:23 p.m., Andrew Quinlan Wrote:
Federal Reserve Board Chairman Hubbard? Today, Larry Kudlow, co-host of CNBC's Kudlow & Cramer, revealed that some in Washington are speculating that Glenn Hubbard, former Chairman of the Council of Economic Advisors, is next in line to succeed 79-year-old Alan Greenspan as Chairman of the Board of Governors of the Federal Reserve System. Larry Kudlow writes:
             Conventional thinking has Greenspan departing in 2006 and Bush appointing
             Harvard economist Martin Feldstein as his successor. … But the recent Washington
             buzz is not about Feldstein — it concerns former Bush II economic adviser Glenn
             Hubbard. … Hubbard returned to his teaching post at Columbia University last year
             after authoring the best supply-side tax cut enacted in 20 years, one that
             dramatically reignited both the stock market and economic growth. While in
             Washington, the 45-year-old Hubbard showed himself to be an adept inside player.
             His tax-cutting views overwhelmed the hapless former Treasury man Paul O'Neill. He
             even outlasted Bush adviser Lawrence Lindsey in the dramatic shakeup that followed
             the 2002 midterm elections. Hubbard emerged as the principal Bush administration
             spokesperson and communicator. In numerous television appearances he proved
             himself to be an unyielding free-market advocate. In congressional hearings his
             political ear was uniquely sensitive. … Like Greenspan, Hubbard understands the
             crucial interaction between monetary and fiscal policy — an essential function for
             any Fed chair. Lower tax rates that spur economic growth require an accommodative
             Fed to create efficient liquidity that will fund new work and investment incentives.
             This is exactly what Greenspan did nearly a year ago when the Fed eased policy
             once the Bush tax cuts were signed into law. In private conversations Hubbard has
             indicated he would have done the same.

Wednesday, March 17, 2004 ~ 2:44 p.m., Dan Mitchell Wrote:
No, democracy "ain't grand" if individual rights are violated. Benjamin Franklin is said to have remarked that democracy is two wolves and a sheep voting what to have for lunch. This is why America's Founding Fathers wanted a republic, a form of government where individual freedoms are not subject to the tyranny of the majority. Unfortunately, that lesson seems to be lost on some people. In an article endorsing government restrictions on radio talk-show hosts, Kathleen Parker wants 51% of the people to have the power to determine what is allowed on the airwaves:
             In the free marketplace, you're welcome to say whatever you like, but if people don't
             want to buy whatever you're selling, no whines. As long as the airwaves remain in the
             public domain, the public has a right through its government to stifle the profane
             rants and juvenile outbursts of our lesser-evolved brethren. Ain't democracy grand?

Wednesday, March 17, 2004 ~ 12:09 p.m., Dan Mitchell Wrote:
Medicare fiasco shows that bad policy is bad politics. The Bush Administration thought it could buy its way to re-election by expanding the welfare state. The Administration even lied about the cost of the legislation to create a new entitlement for prescription drugs. But the hoped-for political benefits are not materializing. Instead, the White House is dealing with unhappy conservative voters and angry lawmakers:
             Michigan Representative Nick Smith cast one of the more courageous "nays" in
             Capitol history after the GOP leadership allegedly promised to destroy his son's
             chances of succeeding him when he retires this year. President Bush himself worked
             the phones in the wee hours of the morning, luring Congressmen Trent Franks and
             Butch Otter into the "yes" column with the argument that failure would only pave the
             way for an even more expensive Democratic bill. These are the folks who should
             really be furious about the new estimates. ...As with the steel tariffs, President Bush is
             paying a price for wandering from his principles. The Medicare bill was the first big
             test of whether "compassionate conservatism" would actually promote individual
             freedom and ownership or simply become the GOP's version of the old
             command-and-control welfare state. It ended up being mostly the latter, and it looks
             increasingly as if Republicans won't have even a short-term political gain to show for
             it. The next time the White House is tempted to threaten legislators in the middle of
             the night, we hope it's on something worth the effort and true to its convictions.
http://online.wsj.com/article/0,,SB107948600480457500,00.html?mod=opinion   (subscription required)

Tuesday, March 16, 2004 ~ 3:51 p.m., Dan Mitchell Wrote:
Spanish election could reinvigorate drive for EU constitution. In addition to rewarding terrorists, the Spanish election gives a boost to the nascent EU constitution, which had bogged down due to divisions over the voting rights of different nations. Spain's new socialist government is expected to acquiesce to the French and Germans, thus increasing the likelihood of a deal on this issue. Of far more importance, at least to supporters of tax competition, is the fact that a renewed effort for an EU constitution also means a renewed battle against tax harmonization proposals. Europe's welfare states would like a proposed constitution to eliminate the unanimity requirement for EU-wide tax measures, presumably by replacing the national veto with some form of majoritarianism. If successful, this would allow high-tax states to impose tax harmonization policies over the objections of nations like Ireland, Luxembourg, Estonia, Slovakia, and the United Kingdom. The Financial Times reports:
             Hopes are rising in European capitals that the change of government in Madrid
             could break the deadlock over a new constitution for the European Union. ...Mr
             Zapatero told Cadena Ser radio: "I believe that we will rapidly reach an agreement
             that will maintain a reasonable balance of power that will define the new Europe, an
             enlarged Europe." ...Although the question of voting weights remains the most
             divisive issue, [the President of the EU] also has to find agreement on the future size
             of the European Commission, and on the role of national vetos.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&ci d=1078381797104&p=1012571727166 (subscription required)

Tuesday, March 16, 2004 ~ 12:24 p.m., Andrew Quinlan Wrote:
Europeans interfere with US companies. Antitrust law is bad in theory, and even worse in practice. Real monopolies such as the Postal Service and government schools are left alone, yet bureaucrats molest companies in the private sector that have no monopoly power. It is irritating and counterproductive when zealots at the Federal Trade Commission and Justice Department harass American companies, but it is even more outrageous when European bureaucracies jump into the fray. The European Commission, for instance, has now joined with the Justice Department in persecuting Oracle - and both bureaucracies are using a bizarre theory that a "market" is defined by how many companies a customer looks at rather than the number of companies that actually exist. The Wall Street Journal comments on the European Commission's new assault:
             That decision makes a matching set with the U.S. Justice Department's announced
             lawsuit to block the merger. But unlike a Justice Department lawsuit, the
             commission's statements of objections are confidential, so we won't actually know
             why the commission objects to the merger, only that it does. Judging from past
             experience and from the rationale behind the U.S. suit, it seems likely that the big
             problem Brussels' regulators have is the supposed reduction of the market for
             enterprise software from three competitors to two. Of course, as we've observed, this
             market definition exists only in the eyes of the beholder. In many enterprise-software
             segments, there are any number of players catering to a specific industry, company or
             other niche market. But at least some customers say they've only ever really
             considered buying the software from Oracle, Peoplesoft or the industry leader,
             Germany's SAP. From this comes a "market" definition.
             (subscription required)
It is also worth noting that "protecting" consumers is nothing but a figleaf for antitrust bureaucracies. More often than not, antitrust investigations and prosecutions are driven by less efficient companies that want to use the power of government to hobble their competitors. Indeed, a
Washington Post story reveals that the attack against Microsoft has been driven by rival firms, not any indication that consumers were being harmed. The story notes:
             The Washington trade group has pushed antitrust authorities on three continents for
             a crackdown on what it considers unlawful monopoly conduct by Microsoft.

Tuesday, March 16, 2004 ~ 11:33 a.m., Dan Mitchell Wrote:
Class warfare tax policies penalize all Americans. The alternative minimum tax (AMT) is one of the worst features of the tax code. It forces millions of people to fill out two sets of tax returns - and then to pay the government whichever amount is higher. Ironically, only a handful of "rich" people were supposed to be hurt by this head-I-win, tails-you-lose monstrosity, but this Houston Chronicle story explains that tens of millions of taxpayers are going to be swept into this unfair new tax:
             Enacted by Congress in 1970 to corral 155 wealthy tax dodgers, the AMT evolved
             into a parallel structure that sets 26 percent and 28 percent tax rates that are pegged
             to income.... Since 2001, the number of taxpayers paying the AMT has more than
             doubled from 1.1 million to 2.4 million. It is projected to rise to 44 million over the
             next decade.

Tuesday, March 16, 2004 ~ 10:58 a.m., Dan Mitchell Wrote:
The UN wants to create a global tax police, but that is not the organization's only nutty idea. The United Nations is probably the world's most inefficient international bureaucracy. But this is a good thing. Unlike the International Monetary Fund, which exercises real power to spread poverty throughout the world with higher tax rates and currency devaluations, the UN generally sticks to inane rhetoric, wasteful spending, and low-level corruption. But this doesn't mean that the silly ideas at the UN should be ignored. George Melloan at the Wall Street Journal discusses the corrupt oil-for-food program and also points out other scandals at various UN bureaucracies:
             In the all-nation General Assembly, states governed by wily dictators sometimes
             gained ascendancy over democracies, as is manifested by the presence of Libya, Cuba
             and their ilk on the Human Rights Commission. The United Nations Education,
             Scientific and Cultural Organization (Unesco) in Paris became so corrupt that the
             U.S. and Britain pulled out of it in the mid-1980s, with the U.S. returning only
             recently. The Food and Agriculture Organization in Rome adopted voodoo science,
             condemning a modern technology, gene-splicing, that improves crop yields. The
             Environmental Program employed more voodoo to create the global warming scare,
             a scheme for taxing the industrial nations into poverty. A body supposedly designed
             to preserve world order has allowed several genocides -- in Cambodia and Rwanda,
             for example -- to go unpunished.
http://online.wsj.com/article/0,,SB107940240359656394,00.html?mod=opinion   (subscription required)

Tuesday, March 16, 2004 ~ 10:07 a.m., Dan Mitchell Wrote:
Rewarding terror and creating incentives for more attacks. Regardless of one's views on whether the US should have liberated Iraq, it is utterly foolish to believe that appeasing terrorists is a successful long-term strategy. This is why the Spanish election results will likely lead to more bombings and more destruction. Congressman Chris Cox, columnist Cal Thomas, and the Wall Street Journal all have valuable insights on the danger of appeasement:
             Congressman Chris CoxFor years, many European nations have honored a silent
             pact with Islamic militants, allowing them to move safely so long as those nations
             were not themselves attacked. This might now become Spain's new policy. If, as
             Edmund Burke famously said, the only thing necessary for the triumph of evil is for
             good men to do nothing, then Spain's Socialists surely will have the opportunity to
             hand al Qaeda a victory with enormous implications for America and our allies.
http://online.wsj.com/article/0,,SB107940068426456331,00.html?mod=opinion   (subscription required)
             Cal ThomasHaven't Europeans learned anything from history? Don't they recall the
             resignation of Austria's president in 1938 and the annexation of his country by
             Germany to "avoid war"? This merely increased Hitler's appetite, and he launched
             World War II by invading Czechoslovakia following British and French appeasement
             at Munich. Spain will make itself and the rest of the West less safe if Zapatero follows
             through on his promise of a troop withdrawal.
             The Wall Street Journal...the world's terrorists will take away a different, and more
             dangerous, lesson from the Spanish vote: That by murdering innocents they were able
             to topple one of the pillars of the Western anti-terror alliance. Prime Minister Jose
             Maria Aznar's Popular Party, which brought prosperity in eight years of rule and
             forged a strong bond with the U.S., had seemed headed for victory before Thursday's
             attacks. ... The illusion that it is possible to purchase peace with appeasement or
             neutrality is always powerful in any war. The burden of self-defense is expensive and
             painful. The British preferred Chamberlain to Churchill in the late 1930s, while
             millions marched in Europe in 1982 against Ronald Reagan's deployment of nuclear
             missiles to deter the Soviet Union.
http://www.opinionjournal.com/editorial/feature.html?id=110004825 (subscription required)

Tuesday, March 16, 2004 ~ 8:22 a.m., Veronique de Rugy Wrote:
How France and Germany destroy jobs by trying to help workers. Some politicians want to "protect" workers from having their jobs "outsourced," but this is the kind of "help" that we can do without. When politicians make it more costly to hire workers, business will employ fewer workers. This is one of the reasons why Europe's welfare states are so stagnant. As the Wall Street Journal writes today:
             Both [France and Germany] have plenty of other regulations and taxes intended to
             "protect jobs" but which do the opposite in practice. Both countries have
             unemployment rates of more than 9%, compared with the American rate of 5.6%. This
             differential persists regardless of the business cycle, showing that, even when they
             come with the best of intentions, measures that increase labor market rigidity
             translate into lost jobs. That's because companies hesitate to hire when the hidden
             costs of employing each worker goes up.
http://online.wsj.com/article/0,,SB107939734107156236,00.html?mod=opinion   (subscription required)

Tuesday, March 16, 2004 ~ 6:41 a.m., Dan Mitchell Wrote:
Protectionism halts progress and destroys jobs. Economists have long understood that trade barriers hurt economic performance, but they generally have a hard time using common-sense language to explain why protectionism is misguided. Fortunately, Tom Sowell of the Hoover Institution has come to the rescue. His Townhall.com column succinctly explains the adverse consequences of politicians telling us what we are allowed to buy:
             Back during the Great Depression of the 1930s, when unemployment in the United
             States hit a high of 25 percent, one of the many foolish things the government did was
             create international trade restrictions designed to save American jobs. Other
             countries around the world created similar restrictions to save their own workers'
             jobs. Net result: world trade in 1933 was one-third of what it had been in 1929,
             making everybody poorer and therefore less able to create jobs. Many economists
             have blamed these restrictions for making the depression worse and longer lasting....
             The government can always save 10,000 jobs -- at a cost of 50,000 other jobs. If the
             jobs that are saved are in one industry, represented by vocal spokesmen, and the
             50,000 lost jobs are spread thinly across the country in two's and three's here and
             there, then this is a good deal for the politician who becomes a hero to those 10,000
             voters whose jobs he saved. This is obviously not a good deal for those who lose their
             jobs but they may not even know why. Moreover, when they are not concentrated in
             one place or in one industry, they are unlikely to come to the attention of the media.
             So they don't count politically.... Anything that increases economic efficiency --
             whether by outsourcing or a hundred other things -- is likely to cost somebody's job.
             The automobile cost the jobs of people who took care of horses or made saddles,
             carriages, and horseshoes. Computers sent typewriter manufacturers into

Monday, March 15, 2004 ~ 3:47 p.m., Dan Mitchell Wrote:
Insourcing exceeds outsourcing by more than $50 billion. John Kerry would like Americans to believe that they are incapable of competing in the global economy, but government data clearly demonstrate that this defeatism is misplaced. The United States is the world's largest exporters of services. More specifically, America "insourced" more than $131 billion of services last year, $53 billion more than was "outsourced." The Wall Street Journal reports:
             Despite the political outcry over the outsourcing of white-collar jobs to such places
             as India and Ghana, the latest U.S. government data suggest that foreigners
             outsource far more office work to the U.S. than American companies send abroad.
             The value of U.S. exports of legal work, computer programming, telecommunications,
             banking, engineering, management consulting and other private services jumped to
             $131.01 billion in 2003, up $8.42 billion from the previous year, the Commerce
             Department reported Friday. Imports of such private services -- a category that
             encompasses U.S. outsourcing of call centers and data entry to developing nations,
             among other things -- hit $77.38 billion for the year, up $7.94 billion from 2002.
             Measuring imports against exports, the U.S. posted a $53.64 billion surplus last year
             in trade in private services with the rest of the world.
http://online.wsj.com/article/0,,SB107919804320754591,00.html   (subscription required)

Monday, March 15, 2004 ~ 1:55 p.m., Veronique de Rugy Wrote:
New York Times endorses smaller government ... but in Germany, not America. The New York Times' editorial page is not exactly a repository of free market thinking, so it is rather interesting to see that the paper is calling for smaller government. And even though it doesn't call for smaller government in the United States, the endorsement of market liberalization and smaller government in Germany is still a positive development:
             Germany is in the grip of a profound malaise. The economy contracted by 0.1 percent
             last year and is headed for growth of only 1.5 percent this year. Unemployment stands
             at 10.3 percent. Huge public deficits are running afoul of the pact that Germany itself
             forced on euro-zone members. Consumers and investors lack confidence. The reasons
             for the problems are no mystery: a lavish welfare system, which the state can no
             longer afford, and high labor costs, which send businesses elsewhere. ...The
             chancellor plans to make a major speech to the nation on March 25. It's a good
             opportunity for him to try to persuade his countrymen of the immediate and urgent
             need for a thorough overhaul of the entire economic apparatus, including the
             antiquated system of centralized wage-bargaining, the byzantine tax system and
             the bloated budget.
http://www.nytimes.com/2004/03/10/opinion/10WED5.html   (registration required)

Monday, March 15, 2004 ~ 11:39 a.m., Dan Mitchell Wrote:
Good news: European court strikes down French tax on emigrants. The right to flee fiscal oppression has been upheld by the European Court of Justice (ECJ) in a case involving France's exit tax. Exit taxes generally have been a tool of totalitarian governments such as Nazi Germany and the Soviet Union, especially since civilized nations generally recognize the right to emigrate. Sadly, government greed has led to the imposition of these taxes in a number of Western democracies (including, I am ashamed to admit, the United States). The ECJ decision is a significant victory for supporters of economic liberalization since high-tax nations presumably will have to lower tax rates to prevent talented and productive people from moving to jurisdictions with better tax law. But this silver cloud has a dark lining. As BNA reports, it may spur uncompetitive nations to intensify their efforts for tax harmonization:
             The ECJ ruling effectively will overturn the exit tax created in 1998 by France's
             previous, center-left government, which sought to stem the flow of businesses leaving
             for lower-tax  jurisdictions within the European Union by creating a new levy on
             latent, or unrealized, capital gains. ...France has won numerous allies among EU
             member states with similar exit tax rules, including Denmark, Germany, the
             Netherlands, and the United Kingdom, a circumstance that eventually could lead to
             greater efforts for pan-European tax harmonization in the coming years.  The ECJ
             ruling could push EU member states toward acceleration of harmonization measures
             in a number of areas, Ginter said, citing income tax regimes on individuals and
             businesses, regimes covering company headquarters, value-added tax assessment,
             and local taxes.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8e9j2r2   (subscription required)

Monday, March 15, 2004 ~ 10:32 a.m., Dan Mitchell Wrote:
More on John Kerry's political suicide. Earlier blog entries have commented on the Democratic Party's presumptive nominee, particularly his penchant for saying things that are not popular with voters. His most recent miscue was the comment that foreign leaders want him to win the election. Paul Greenberg asks:
             Just who are these people? John Kerry won't say, but his critics in the GOP are only
             too glad to speculate: North Korea's Kim Jong-Il? Iran's mullahs? Those guesses
             sound a little heavy-handed. I'd nominate the leaders of Old Europe. Like France's
             Jacques Chirac or Germany's Gerhard Schroeder. ... Of course it doesn't have to be
             a government leader who's been whispering into John Kerry's ear. How about an
             insufferably smug editor like Jean-Marie Colombani of Le Monde, France's snootiest
             journal? The French press really hasn't changed all that much since the capital of
             France was Vichy. And that country's leading newspaper still tends to favor
             appeasing the threat du jour.

Monday, March 15, 2004 ~ 9:29 a.m., Veronique de Rugy Wrote:
The problem is too much spending. Leftists fret about deficits, but only on a selective basis. Government borrowing is terrible if tax cuts are being discussed, but such concerns vanish if new spending is on the table. Republicans often adopt a similar strategy, using the deficit as an excuse to oppose new spending. But this fixation on the deficit is completely misplaced. As Dan Mitchell explains in today's Washington Times:
             Deficits, however, are not the issue. The real problem is government spending, and we
             should view rising deficits as a symptom of Washington's profligacy. The spending
             crisis is both a short-term and a long-term problem. Federal spending has jumped
             dramatically in recent years, climbing from 18.4 percent of GDP in 2000 to more than
             20 percent of GDP in 2004 (and less than half of that increase can be attributed to
             national defense or homeland security). But this short-term expansion of the federal
             government's burden is minor when compared to what will happen after the Baby
             Boom generation begins retiring. Without reform, huge unfunded promises for Social
             Security and Medicare benefits will cause federal spending to rise sharply. (And
             lawmakers last year made the problem worse by creating a new entitlement for
             prescription drugs under Medicare.)

Monday, March 15, 2004 ~ 8:11 a.m., Dan Mitchell Wrote:
Incentives matter, even for Al Qaeda. The despicable bombings in Spain almost surely tilted this past weekend's election results. Spanish voters decided that their nation should sit on the sidelines in the war against terror, especially if it means that Al Qaeda fanatics temporarily shift their focus elsewhere. Unfortunately, this appeasement mentality may encourage even more terrorist attacks, as Andrew Sullivan warns:
             ...in yesterday's election victory for the socialists, al Qaeda got even more than it
             could have dreamed of. It has removed a government intent on fighting terrorism and
             installed another intent on appeasing it. For good measure, they murdered a couple
             of hundred infidels. But the truly scary thought is the signal that this will send to
             other European governments. Britain is obviously next. The appeasement temptation
             has never been greater; and it looks more likely now that Europe - as so very often in
             the past - will take the path of least resistance - with far greater bloodshed as a
             result. I'd also say that it increases the likelihood of a major bloodbath in this
             country before the November elections. If it worked in Spain, al Qaeda might surmise,
             why not try it in the U.S.?

Monday, March 15, 2004 ~ 7:27 a.m., Andrew Quinlan Wrote:
Medicare propaganda adds insult to injury. Creating a new entitlement program for prescription drugs arguably has been the Bush Administration's biggest policy mistake. But now the Administration is compounding their transgression by squandering tens of millions of taxpayer dollars for government propaganda to promote the new law. The New York Times reports on the scandal:
             Federal investigators are scrutinizing television segments in which the Bush
             administration paid people to pose as journalists praising the benefits of the new
             Medicare law, which would be offered to help elderly Americans with the costs of
             their prescription medicines. ...Federal law prohibits the use of federal money for
             "publicity or propaganda purposes" not authorized by Congress. In the past, the
             General Accounting Office has found that federal agencies violated this restriction
             when they disseminated editorials and newspaper articles written by the government
             or its contractors without identifying the source. ... Other documents suggest the
             scope of the publicity campaign: $12.6 million for advertising this winter, $18.5
             million to publicize drug discount cards this spring, about $18.5 million this summer,
             $30 million for a year of beneficiary education starting this fall and $44 million
             starting in the fall of 2005.
http://www.nytimes.com/2004/03/15/politics/15VIDE.html?ei=5062&en=54335bbfb5679db0&ex=1 079931600&partner=GOOGLE&pagewanted=print&position=

Monday, March 15, 2004 ~ 6:55 a.m., Dan Mitchell Wrote:
Tax competition continues to promote good policy. Economists rarely agree on much, but there is a very broad consensus in the profession that lower tax rates generate more economic growth. And as this story from Tax-news.com indicates, tax competition continues to be a force for liberalization, encouraging governments to enact pro-growth tax rate reductions:
             After cutting corporate tax to 20% in the recent budget, Singapore's Deputy Prime
             Minister and Finance Minister Lee Hsien Loong said that he will not rule out
             cutting the tax further in future should the need arise. ... "While there are no plans
             to lower it further... neither is 20 per cent a sacred cow. Many countries are cutting
             their corporate income taxes. We have to continue to monitor our competitiveness,"
             he added.

Sunday, March 14, 2004 ~ 12:51 p.m., Dan Mitchell Wrote:
America wins with trade. Alan Reynolds of the Cato Institute correctly writes that the United States is the world's largest exporter of both goods and services. The so-called trade deficit exists because America is the world's most powerful economy, which means that we also can afford to buy lots of products from the rest of the world. This is a sign of US strength, not weakness. He also notes that there are two ways to reduce the trade deficit - stronger growth in other nations (so they can afford to buy more imports) or weaker growth in the US (so we can afford to buy less). The first option is largely outside our control, but Alan Reynolds explains John Kerry seems intent on pursuing the second option:
             And [John Kerry's] never-ending wisecracks about Herbert Hoover could backfire,
             too, because Hoover enacted the same policies key Democrats now recommend
             namely, higher tax rates and tariffs. ...the United States is by far the world's largest
             exporter of goods  China ranks fifth. U.S. merchandise exports rose 6 percent a year
             from 1990 to 2001, while exports from Europe grew only 4 percent a year and exports
             from Japan by 3 percent. The United States is the world's largest exporter of services
             by an even wider margin  India ranks 21st.

Sunday, March 14, 2004 ~ 11:44 p.m., Veronique de Rugy Wrote:
High-tax nations will suffer most if EU savings tax directive is approved. Writing for techcentralstation.com, Dan Mitchell of the Heritage Foundation notes that EU politicians should reject the savings tax directive (STD) this June. If it works (which is doubtful), the proposal will drive money out of Europe, reduce total savings, and undermine incentives for economic reform. As Dan explains:
             An old Chinese proverb states that you should be careful what you wish for, and the
             Europeans likewise should think twice about the supposed benefits of the STD
             So-called tax havens currently provide Europeans with a tax-efficient means of
             investing in their home countries. A German dentist, for instance, can use a
             Luxembourg account to invest money in German companies. This is good for the
             taxpayer and good for the German economy. But if the STD is approved, our
             hypothetical dentist may move his money to Singapore, where investment patterns
             are less likely to favor Europe, or he may decide that investing is now too
             troublesome. Why not buy a fancy BMW and a nice house in the Black Forest? In
             either case, the German economy has less capital formation and long-term growth
             suffers. The directive also might boomerang on Europe by creating bad incentives
             for politicians. The current environment pressures lawmakers to lower tax rates and
             implement tax reforms as part of an effort to attract investment and discourage
             capital flight. This process of tax competition has helped lower tax rates dramatically
             in the past two decades. But if taxpayers no longer have an escape hatch,
             governments will have much less reason to make needed fiscal reforms - and the
             absence of reform could have enormous negative effects, particularly in the long
             run. European leaders may want to reconsider how they vote this June. Approving
             the savings tax directive is a lose-lose proposition. If it doesn't work, the EU loses
             capital and growth suffers, and if it works, the EU loses capital and growth suffers.

Saturday, March 13, 2004 ~ 12:15 p.m., Dan Mitchell Wrote:
An unsavory combination of dishonesty and bad policy. The new drug entitlement for Medicare was bad policy, and the Bush Administration certainly deserves scorn for putting short-term politics above the nation's long-term interest. But they also deserve condemnation for deliberately hiding the cost of this new boondoggle. The Washington Post today reports that:
             The government's longtime chief analyst of Medicare costs said yesterday that Bush
             administration officials threatened to fire him last year if he disclosed to Congress
             that he believed the prescription drug legislation favored by the White House would
             prove far more expensive than lawmakers had been told. Richard S. Foster, a
             nonpartisan Department of Health and Human Services official who has been
             Medicare's chief actuary for nine years, said he nearly resigned in protest because
             he thought the top Medicare administrator, and perhaps White House officials,
             were acting against the public interest by withholding information about how much
             changes to the program would cost.
While the Administration deserves most of the blame, there are many other guilty parties. Members of Congress cannot plead ignorance since every free-market group in town was warning that the program would cost more than indicated by "official" estimates. Mr. Foster also deserves some criticism as well. He should have revealed the truth when it mattered, not months after the bill became law.

Saturday, March 13, 2004 ~ 11:19 a.m., Andrew Quinlan Wrote:
Competition is vital, but more regulation is not the answer. Rich Tucker of the Heritage Foundation correctly writes that market pressure is the best way of promoting responsible behavior by broadcasters. But he errs in believing that government regulation is necessary. According to Tucker:
             Once upon a time, federal regulations allowed a company to own only two radio
             stations, one AM and one FM, in each market. That made for plenty of competition
             Today, the regulations have been relaxed to the point that, in some markets, one
             company can own as many as eight stations, and can corner a local radio market.
             ...The government has always regulated station ownership. After all, there are only
             a limited number of frequencies. ... The FCC should limit the number of stations a
             company can own in a market.
This is misguided. By definition, market forces are weakened when government imposes rules on the ownership of radio stations. Bureaucrats and politicians should not be the one deciding how resources are allocated.

Friday, March 12, 2004 ~ 9:07 a.m., Andrew Quinlan Wrote:
"Oil-for-food" scandal shows UN corruption. Acting at the behest of corrupt third world governments and greedy European welfare states, the UN has been pushing to restrict tax competition (see www.heritage.org/Press/Commentary/ed121803b.cfm and www.freedomandprosperity.org/Papers/un-report/un-report.shtml for more information). But the UN should quit trying to undermine capitalism and instead do some much-needed internal house-cleaning. The international bureaucracy has long been a cesspool of waste, but there is growing evidence of immense corruption. Writing for National review, Claudia Rosett explains how the "oil-for-food" program operated as a slush fund - and how the UN is trying to cover-up its venal activities:
             It is plausible, perhaps, that no one at the U.N. knew of the links between Kofi
             Annan's son, Kojo, and the firm monitoring Iraq's U.N.-approved imports, Cotecna,
             and that these ties had no bearing on a massively corrupt program. It is possible that
             only after Saddam fell did anyone among the 1,000 or so U.N. international staff
             administering Oil-for-Food, or Sevan, or Kofi Annan, notice that they'd been
             approving Saddam's deals with suppliers that were, in various combinations, paying
             kickbacks, hard to contact, or even, as in the case of the Jordanian school-furniture
             contractor, nonexistent. But what has to be clear by now is that the U.N. itself was
             either corrupt, or so stunningly incompetent as to require total overhaul. There are
             by now enough questions, there has been enough secrecy, stonewalling, and rising
             evidence of graft all around the U.N. program in Iraq, so that it is surely worth an
             independent investigation into the U.N. itself - and Annan's role in supervising this
             program. If Kofi Annan will not exercise his authority to set a truly independent
             inquiry in motion, it is way past time for the U.S., whose taxpayers supply about a
             quarter of the U.N. budget, to call the U.N. itself to account for Oil-for-Food - in
             dollar terms the biggest relief operation it has ever run, and by many signs, one of
             the dirtiest.

Friday, March 12, 2004 ~ 8:39 a.m., Dan Mitchell Wrote:
Assault on free speech backfires. Congress approved legislation several years ago to limit the ability of citizens to participate in the political process. This misguided effort was driven by a naive desire to "drive money out of politics." Not surprisingly, this effort has failed, in large part because government is so big that interest groups (and those footing the bill for wasteful programs) have a powerful incentive to influence the process. The Wall Street Journal editorializes today:
             ...allow us to offer some free advice: Harold Ickes will always find a loophole, you
             can't stop water running downhill, and money can never be banished from politics
             short of throwing out the U.S. Constitution.
http://online.wsj.com/article/0,,SB107905114299553383,00.html?mod=opinion (subscription required)

Friday, March 12, 2004 ~ 8:22 a.m., Veronique de Rugy Wrote:
Competition makes America stronger. Alan Greenspan testified before a congressional committee yesterday in another futile attempt to explain the laws of economics to politicians. It is doubtful that this remedial audience understood Greenspan's message (or that they would care even if they did understand), but the Federal Reserve Board Chairman correctly praised the importance of competition. The Washington Times reports:
             Federal Reserve Chairman Alan Greenspan yesterday criticized the "alleged cures"
             that political candidates are proposing for joblessness — including limits on moving
             jobs offshore — saying they will erode America's living standards and do little to
             reduce unemployment. ...But erecting barriers to force employers to keep jobs in the
             United States would be counterproductive and could lead to the kind of trade war
             that turned a recession in the 1930s into the Great Depression, he said. "What has
             made the American economy great is that we allow ourselves to be exposed to more
             competition than virtually anyone else in the world," he said.

Friday, March 12, 2004 ~ 7:51 a.m., Dan Mitchell Wrote:
Fun French-bashing in the Washington Post. Charles Krauthammer has a column today that has nothing to do with economics, but anything that mocks the French deserves wide distribution. After all, French politicians are the biggest advocates of tax harmonization:
             I know it is shooting French in a barrel. But when yet another insufferable
             penseur -- first Chirac, then de Villepin, now the editor of Le Monde -- starts
             lecturing Americans on how they ought to conduct themselves in the world, the rules
             of decorum are suspended.... The French arrived in Mazar-e Sharif after it fell, or as
             military analyst Jay Leno put it, "to serve as advisers to the Taliban on how to
             surrender properly." ...It is touching to hear such legalistic objections to deposing a
             man who has killed more Muslims than any person on Earth -- particularly when the
             objection is offered from a pose of superior international morality from a country
             whose commandos once blew up a Greenpeace ship monitoring French nuclear tests
             in the South Pacific.

Friday, March 12, 2004 ~ 7:13 a.m., Andrew Quinlan Wrote:
Will legal vultures make back-door attack on food industry? Jacob Sullum of Reason has an editorial condemning lawyers who sue fast-food restaurants on behalf of chubby clients, but he notes that the battle will not be over even if Congress approves legislation barring these ridiculous suits. There is another group of greedy individuals who have a similar interest in undermining personal responsibility and the rule of law:
             ...a greater danger to the industry is that at some point state attorneys general will
             start filing lawsuits demanding compensation for Medicaid expenses, as they did
             with tobacco. And herein lies the strongest rationale for congressional intervention,
             even if it means telling state courts which lawsuits they may hear -- a prospect that
             should make federalists uncomfortable. The agreement that settled the state tobacco
             lawsuits in effect imposed a nationwide tax and nationwide regulations, including
             advertising restrictions that would have been unconstitutional if imposed by statute,
             without approval from Congress or any state legislature.

Thursday, March 11, 2004 ~ 7:37 p.m., Veronique de Rugy Wrote:
John Kerry: Offshore investor and outsourcing plutocrat. The Market Center has discussed Senator Kerry's interesting forays into the world of offshore investing. But, as Techcentralstation.com reports, the multi-millionaire Massachusetts lawmaker also has significant ties to the practice of outsourcing. Kerry and his left-wing colleagues presumably understand that free trade is good for America, but they choose to lie in an effort to score political points:
             ... look at H.J. Heinz & Co., the family business of Kerry and his wife Teresa. Of the
             79 factories that the food-processor owns, 57 (a felicitous number!) are overseas.
             According to its website, Heinz is making ketchup, pizza crust, baby cereal and other
             edibles in such countries as Poland, Venezuela, Botswana, China, Thailand and
             India. Put hypocrisy aside. The traitors to American interests aren't CEOs seeking
             to boost profits that ultimately lead to more hiring at home. The real Benedict
             Arnolds are Kerry and his colleagues in Congress, like Sens. Hillary Clinton (D-NY)
             and Jon Corzine (D-NJ), who understand enough economics to know that
             outsourcing is trade and that trade -- as David Ricardo figured out 200 years ago
             and as Hillary's husband articulated in the 1990s -- benefits both parties.

Thursday, March 11, 2004 ~ 5:43 p.m., Dan Mitchell Wrote:
Savings tax directive death watch continues... Switzerland is refusing to become an EU colony. To appease Europe's high-tax welfare states, Switzerland tentatively agreed to impose a withholding tax on certain nonresidents as part of a deal with the EU that would protect Swiss financial privacy laws. But in a remarkable display of bad faith, the EU is trying to renege on its part of the deal. More specifically, the EU wants to use certain provisions in another pending pact - the Schengen Agreement - to launch a new assault on the confidentiality rights of Swiss bank customers. Needless to say, Switzerland has no desire to be double-crossed by the dishonest bureaucrats in Brussels. Swiss officials have announced that the savings tax directive agreement is dead unless the EU agrees to abide by its commitment to cease its attacks against Switzerland's privacy laws. This requires the EU to explicitly agree that the Schengen Agreement does not require the emasculation of Switzerland's bank secrecy laws. The failure to make this commitment is clear evidence that the EU is negotiating in bad faith. Three cheers for Switzerland:
             ...Swiss Foreign Minister Micheline Calmy-Rey revealed that Switzerland will be
             standing by the linking of the Savings Tax Directive with the signing of various other
             accords. "In this way, banking secrecy shall be maintained as part of a balanced
             outcome which also takes into account Swiss interests," she explained.

Thursday, March 11, 2004 ~ 11:34 a.m., Veronique de Rugy Wrote:
Left-wingers oppose choice and diversity. There are various strategies to improve performance in failing government schools, including the idea of creating an option for single-sex education. The left stridently opposes these reforms because they threaten the stranglehold of the government school monopoly. As Carrie Lukas of the Independent Women's Forum explains, ideology triumphs over rhetoric - even for self-stylized "pro-choice" feminists:
             The National Organization for Women (NOW) claims to champion "choice." But
             when it comes to giving parents choice about where to send their children to school,
             NOW firmly opposes providing additional options. ...Initial research indicates that
             children in single-sex education prosper academically. This is, however, beside the
             point. Higher test scores and graduation rates are wonderful, but the principle at
             stake is who should decide what kind of education a child receives. Time and again,
             NOW has opposed policies that would give parents greater control and options for
             the education their children receive.

Thursday, March 11, 2004 ~ 10:13 a.m., Dan Mitchell Wrote:
The French-ification of Japan. High tax rates are partially responsible for Japan's long economic slump. Indeed, Japan is the only developed nation to have a corporate tax rate higher than America. But instead of cutting tax rates to restore growth, some greedy Japanese politicians want to increase taxes and make the economy even weaker. The Wall Street Journal Asia explains why this is such a bad idea:
             The inevitable result would be a depressed economy, leading to depressed tax
             revenues in the long term, and ever greater demands on the government to keep the
             economy afloat via public-works outlays, unemployment insurance, bank
             recapitalizations and greater government payouts for public pensions. If Japan is
             going to push payroll and consumption taxes up to Europe-like levels, it had better
             be ready for Europe-like results -- chronic economic stagnation, endless deficits and
             permanent double-digit unemployment rates. The way to create abundant tax
             revenues in the long term is to create the sort of tax system that least impedes
             economic growth. In practice, this means low tax rates, like Russia's 13% flat tax or
             Estonia's 0% corporate tax. These systems have been so successful that they are now
             being imitated throughout both eastern and western Europe.
http://online.wsj.com/article/0,,SB107896188492851930,00.html?mod=opinion   (subscription required)

Thursday, March 11, 2004 ~ 9:22 a.m., Dan Mitchell Wrote:
The IMF encourages fiscal irresponsibility and promotes poverty. The latest bailout of Argentina demonstrates that the International Monetary Fund has learned nothing. The international bureaucrats at the IMF continue to subsidize bad government policies and reward incompetent politicians. This is bad news for taxpayers around the world, since they will have to pay the cost of new bailouts. This is also bad news for economic growth, since the IMF is causing capital to be misallocated. And it also is bad news for poor people in developing nations since the IMF is aiding and abetting anti-market policies. The Wall Street Journal noted today that:
             During the 1997-98 Asian financial crisis, the IMF was deservedly criticized for
             organizing bailouts that meant Western banks that had lent money imprudently got
             their money back, thus increasing moral hazard in the world's capital markets. The
             defaults in Russia and Argentina restored some accountability to the market. But now
             the IMF seems to have created a different problem by continuing to lend to Argentina
             even as the country proves it is not credit-worthy.
http://online.wsj.com/article/0,,SB107896693712552148,00.html?mod=opinion   (subscription required)

Thursday, March 11, 2004 ~ 8:41 a.m., Andrew Quinlan Wrote:
Good news for personal responsibility, bad news for lawyers. The U.S. House of Representatives voted by a nearly two-to-one margin yesterday to prohibit fat people from suing fast-food restaurants. More specifically, people would retain their right to hold fast food restaurants legally responsible for genuine misdeeds, but restaurants no longer could be sued for contributing to obesity. It is unclear whether the U.S. Senate will enact similar legislation, but this is a positive development for those who believe that individuals should be responsible for their own choices. The Washington Times reports:
             ...the measure does not protect the $1 trillion food industry from deceptive
             advertising or faulty manufacturing suits. That means a fast-food restaurant can be
             sued for selling tainted french fries. But consumers cannot hold the restaurant liable
             for their weight gain from eating too many fries.

Thursday, March 11, 2004 ~ 12:17 a.m., Andrew Quinlan Wrote:
Want fewer fat-cat lobbyists? Reduce the size of government. Senators Kerry and Edwards both attacked special-interests lobbyists as part of their presidential campaigns. Dan Mitchell wrote in January  that the Senators should have proposed to reduce the size of government if they really wanted to make life harder for lobbyists. As Dan noted:
             Sens. Kerry and Edwards are trying to treat the symptoms while ignoring the
             underlying disease. The real problem is that government is too big and has too much
             power -- and this attracts lobbyists for the same reason that rotten meat attracts flies.
The same logic applies to political campaigns. Many people believe that money has a corrupting influence on the electoral process. There may be some truth to this assertion, but it puts the cart before the horse. People donate to politicians because government has power. If the goal is to reduce the amount of money being spent on elections, then the answer is to shrink the size of government, as
John Lott of the American Enterprise Institute cogently explains in a Yale Law & Economics research paper:
             The public policy debate presumes that all the supposed evils of campaign finance
             would be simply solved by putting limits on donations or on the total amount that
             candidates can spend. Yet, as with other types of controls, one risks merely changing
             the form of payments rather than really restricting the level of payments. The debate
             unfortunately focuses on the symptoms and not the root causes of the ever higher
             expenditures. This paper suggests that if one really wants to reduce the resources
             society spends on campaigns, the solution is to make the government smaller.

Wednesday, March 10, 2004 ~ 3:50 p.m., Dan Mitchell Wrote:
Chairman Bill Thomas points out that bad policy is undermining US competitiveness. Writing in USA Today, the Chairman of the House Ways & Means Committee explains that US companies are being hurt by misguided policies. But these are not the misguided policies of other governments; these are the bad policies of the US government! This is why politicians who want to demonize foreign countries and "greedy corporations" for things like outsourcing should instead try to reduce the burden of government in America. As Chairman Thomas states:
             The United States imposes on its businesses and workers one of the highest corporate
             tax rates in the industrialized world. In addition to this high tax rate, rising health
             care costs, virtually unlimited liability exposure and the outdated manner in which
             U.S. businesses are taxed on their worldwide income have combined to put
             American companies and American workers in a dangerously uncompetitive position.

Wednesday, March 10, 2004 ~ 2:44 p.m., Veronique de Rugy Wrote:
Europeans monkeying around with banana market. Politicians have an amazing ability to cause economic damage, even for products that come from different continents. The European Union is worrying about a banana shortage, but the shortage only exists because of misguided government intervention. The Wall Street Journal Europe explains the problem, and applies the lesson to the labor market:
             But consider, first, the following: Why is there a looming banana shortage? Because
             the EU creates artificial scarcity through a combination of import quotas and tariffs.
             It does this on purpose, believe it or not; it's a kind of social-welfare program for
             banana growers in favored countries (mostly former colonies of one member state
             or another -- especially if that member state happens to be France). You could end
             the "shortage" by eliminating the quotas and tariffs, but then the groups the EU is
             trying to protect would be opened up to competition from other banana growers, so
             instead, the EU will rejigger the quotas enough to keep prices high and maintain
             preferential access for the chosen few. ...None of this will change the fact that if you
             tax something, you get less of it. The solution to the banana shortage is, lift the
             tariffs and quotas. The solution to the job shortage is the same -- lower the taxes
             (direct and indirect) on labor. Until that's accepted, the Lisbon goals will remain
http://online.wsj.com/article/0,,SB107886843335550547,00.html?mod=opinion   (subscription required)

Wednesday, March 10, 2004 ~ 1:07 p.m., Dan Mitchell Wrote:
A tribute to Hayek. More than 60 years ago, Friedrich von Hayek wrote a best-seller entitled "The Road to Serfdom." Hayek warned in his book that bigger government necessarily restricted individual freedom John Blundell of the London-based Institute for Economic Affairs has a tribute to Hayek in today's Wall Street Journal Europe, and he warns that Hayek's lessons have implications for the bureaucratic super-state being formed in Brussels:
             The most telling compliment I can offer Hayek's text is that it is as important today
             as it was 60 years ago. Written for a Europe crumbling into debris, "Serfdom" is still
             relevant as we face the leviathan growing in Brussels. His insights applied
             immediately to the post-Hitler world but they are also true across time and space.
             However benevolent the purpose, the state, in accruing ever more power, crushes
             liberty and takes us on a path towards serfdom.
http://online.wsj.com/article/0,,SB107887128355450628,00.html?mod=opinion   (subscription required)

Wednesday, March 10, 2004 ~ 12:27 p.m., Dan Mitchell Wrote:
Don't send your kids to government schools. Walter Williams has a devastating article today about the degradation of standards in the monopoly school systems run by the government. Because market incentives do not exist, kids get a sub-standard education and the capable teachers are driven away:
             The success of some students has made other students feel badly about themselves.
             What're the schools' responses? Public schools in Nashville have stopped posting
             honor rolls. Some are considering a ban on posting exemplary schoolwork on
             bulletin boards. Others have canceled academic pep rallies, while others might
             eliminate spelling bees. Nashville's Julia Green Elementary School principal, Steven
             Baum, agrees, thinking that spelling bees and publicly graded events are leftovers
             from the days of ranking and sorting students. He says: "I discourage competitive
             games at school. They just don't fit my worldview of what a school should be." This
             is a vision all too common among today's educationists, but there's a good reason for
             it: too large a percentage of teachers represent the very bottom of the academic
             achievement barrel and as such fall easy prey to mindless and destructive fads....
             One of the very best things that can be done for education is to eliminate schools of
             education. There's little in the curriculum that contributes directly to the
             development of the mind. Simanek says that "most teachers have learned 'methods
             and skills' of teaching, but don't have a solid understanding of the subject they teach.
             So they end up 'teaching' trivia, misinformation and intellectual garbage, but doing
             it with 'professional' polish. Most do not display love of learning, nor the ability to
             do intense intellectual activity of any kind. Lacking these qualities, they cannot
             possibly inspire and nourish these qualities in their students."

Wednesday, March 10, 2004 ~ 11:56 a.m., Andrew Quinlan Wrote:
German government uses Gestapo-type tactics to threaten Switzerland on savings tax cartel. Some World War II movies contain scenes of secret police officials threatening resistance fighters with torture, usually accompanied by the line: "We have ways of making you talk." Apparently, the same bullying mentality still exists. In a thinly veiled blackmail attempt, the German Finance Minister threatened Switzerland for refusing to knuckle under on the savings tax directive:
             German Finance Minister Hans Eichel said Switzerland's obligations to the EU to
             honour the previously agreed accord were clear.... "I believe one can reach a mutual
             agreement on this between civilized countries... so I refrain from any kind of threats.
             But the expectation is clear," Eichel added.
Instead of engaging in bullying tactics that validate some of the worst stereotypes about Germans, maybe Eichel instead should make his nation a more hospitable environment for private-sector wealth creation. But apparently he would rather find scapegoats for his own failure.

Wednesday, March 10, 2004 ~ 11:23 a.m., Dan Mitchell Wrote:
Money laundering laws should fight terrorism, not commerce. Law enforcement experts complain that the fight against crime is hindered when resources are misallocated, and money laundering laws certainly are a good example. These laws generate millions of reports on the financial transactions of law-abiding people, making it difficult to investigate and prosecute genuine criminals. The new anti-terrorism money laundering laws appear to be similarly counter-productive, according to a new article in Forbes:
             U.S. banks struggling with tough new laws to spot terrorist financing say they will
             be groping around in the dark until government officials provide more intelligence to
             narrow the search. Bankers, experts and industry advocates say that unlike money
             laundering -- which dominated dirty money searches before the Sept. 11 attacks --
             terrorist cash flow has no unique characteristics that would help banks spot, track or
             avoid it. ...One government official said on condition of anonymity: "You're looking
             for a needle in a haystack. Unless you already know who the terrorists are, it's hard
             to figure out what would be a distinguishing birthmark. There aren't any."

Wednesday, March 10, 2004 ~ 9:45 a.m., Dan Mitchell Wrote:
John Kerry suicide watch, Part III. An earlier blog entry noted that John Kerry might repeat Walter Mondale's mistake and try to become President by promising to raise taxes. He may have an even dumber idea for getting votes: He's telling Americans that foreign leaders want him to be President! Tony Blankley discusses the politics of this odd tactic:
             The American public rarely has put a particularly high value on the opinion of
             foreign leaders. Mostly, we ignore them or assume they are up to little or no good.
             ...[Kerry] is right that they would much prefer to do business with a notional
             President Kerry. Doubtlessly, Soviet leader Leonid Brezhnev enjoyed dealing with
             President Carter more than with President Reagan. Weak American presidents who
             feel the need to apologize for America protecting its interests in the world are
             invariably favored by both our enemies and our competitive friends. The French
             couldn't stand our last cowboy president, Ronald Reagan.

Wednesday, March 10, 2004 ~ 8:11 a.m., Veronique de Rugy Wrote:
San Marino and Liechtenstein join Swiss in resisting savings tax cartel. The Bureau of National Affairs notes that Switzerland is not the only jurisdiction resisting the EU savings tax directive. The most amusing part of the story is that Luxembourg and Austria think they will protect their banking industries by getting other European financial centers to join the cartel. Don't they realize that money will flow out of Europe to places like Hong Kong, Singapore, Panama, the Bahamas, and the United States if the directive is ever implemented? In reality, the leaders of Luxembourg and Austria must be secretly hoping that the Swiss save them from this terrible proposal:
             San Marino, the small independent territory on the central Italian Adriatic coast, has
             joined Switzerland and Liechtenstein on the list of holdouts to the European Union
             savings tax directive, EU Taxation Commissioner Frits Bolkestein told EU finance
             ministers March 9. With a June 30 deadline looming on the EU savings tax directive,
             Bolkestein and the EU finance ministers also reiterated their refusal to acquiesce to
             Swiss demands to link to other ongoing negotiations the signing of a bilateral
             agreement reached in 2003 to impose a withholding tax on EU citizens with money in
             Swiss bank accounts. The rejection of Swiss demands by EU finance ministers is the
             second in the past two months. If the EU savings tax directive is to take effect as of
             Jan. 1, 2005, as planned, the EU must sign equivalent agreements with third
             countries such as Switzerland as well as the independent territories of San Marino,
             Liechtenstein, and Andorra, all of which have thriving offshore banking centers.
             Luxembourg and Austria, which have bank secrecy laws, insist that, before they
             give the final go-ahead to the EU savings tax directive, Switzerland and the small
             independent territories must make commitments similar to ones they did by signing
             off on the EU savings tax directive. Otherwise, Luxembourg and Austria argue, their
             banking industries will be at a competitive disadvantage.

Tuesday, March 9, 2004 ~ 6:02 p.m., Andrew Quinlan Wrote:
More on how big government destroys jobs. The Hoover Institution's Jennifer Roback Morse has a very good analysis of how well-intentioned government programs hurt those they are designed to help. Interestingly, John Kerry wants to expand these types of programs. Yet Morse's article points out that bad government policies hurt the most vulnerable:
             It sounds good to require employers to pay a "living wage" and provide health,
             parental leave, and many other benefits. But some workers are not economically
             productive enough to make those high-minded requirements cost-effective for
             the employer. Mandated benefits make the young, the low-skilled, and the poorly
             educated legally unemployable. Their jobs have been made illegal.

Tuesday, March 9, 2004 ~ 5:20 p.m., Veronique de Rugy Wrote:
Don't cry for me, Argentina. As expected, Argentina has been given another bailout by the international bureaucrats. This is hardly a cause for celebration. In the absence of free market policy, nations like Argentina will never prosper - regardless of how many handouts they receive. Indeed, foreign aid actually undermines growth by bailing out politicians who impoverish their own nations and enabling them to postpone needed reforms. Peter Roff of UPI has an excellent summary, and he notes that bailouts have adverse consequences:
             The narrowly averted crisis has not gone unnoticed by IMF critics. Dan Mitchell,
             the McKenna senior fellow in political economy at the Heritage Foundation think
             tank said, "I almost wish they would default. It would finally show the IMF and
             other western lenders that subsidizing bad government policy in developing nations
             is misguided."

Tuesday, March 9, 2004 ~ 5:13 p.m., Dan Mitchell Wrote:
Blame politicians for outsourcing, not companies. Radley Balko of the Cato Institute has an article in National Review discussing how states with bad policy are losing jobs. States with good policy, by contrast, benefit from jurisdictional competition. But if the federal government imposes bad policy nationwide, then jobs are driven overseas:
             ...states with business-friendly public policies attract and retain jobs. States with
             policies hostile to business tend to lose them. ...For all the talk of off-shoring, the
             cost of packing up a domestic plant and moving it overseas is significant. Even
             outsourcing tech support and programming doesn't always make economic sense.
             American workers are still far more productive than, for example, Indian workers -
             even when you factor in the lower wages. It's only when the onus of complying with
             federal, state, and local tax laws and regulations becomes overly burdensome that
             it makes economic sense for a corporation to shop jurisdictions for a better deal.

Tuesday, March 9, 2004 ~ 4:09 p.m., Dan Mitchell Wrote:
The IRS is trying to make US companies less competitive. Conspiracy theorists might want to investigate whether the IRS is in cahoots with the Kerry campaign. Not only is the IRS pushing a regulation (http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml) that threatens to drive capital from the US economy (see http://www.treasury.gov/tic/exhibitsa-d.pdf for a measure of how much money foreigners have invested in America), they also are seeking to impose de facto tax increases on companies that do business in America. Even more troubling, these de facto tax increases would be the result of unilateral IRS action involving a technical part of the tax code known as "transfer pricing." CFO magazine has an article explaining the potential consequences:
             The current IRS rules are similar to those in the 29 other members of the
             Organization for Economic Cooperation and Development (OECD). And that
             means that, should the new IRS rules be ratified, one or more of those foreign tax
             authorities could add insult to injury. If another OECD member disagrees with the
             IRS interpretation of proper transfer pricing, the parent or subsidiary in that country
             would still owe tax on the portion of profit subject to tax in the United
             States-subjecting that amount to double taxation. The United States and other
             OECD members agree that double taxation is unfair, but the process for seeking relief
             can take up to five years even under current regulations. And because of the
             additional complications of the proposed rules, says Cognizant's Silvestri, "you're
             going to add to that [period] by several years."

Tuesday, March 9, 2004 ~ 2:38 p.m., Veronique de Rugy Wrote:
Less government equals more jobs. Richard Rahn has a Washington Times editorial explaining that more government spending means fewer resources for the productive sector of the economy - and this means fewer jobs. Politicians also should remember that businesses only create jobs when they think an extra worker will increase profits. This is why the anti-profit ideology of the left is so destructive to employment growth. As Richard writes, it would be a mistake to make America more like France:
             One reason for the slow employment growth has been the rapid growth in
             government spending. Some people think government spending creates jobs (the
             old Keynesian myth) but, in fact, government spending reduces more jobs in the
             private sector than it can create in the government sector. The reason is private
             sector jobs tend to be more productive than government jobs, and there is a
             considerable cost (i.e., dead weight loss) when government extracts monies from
             the private sector by taxing or borrowing to pay for the government jobs. Therefore,
             countries with large government sectors, like France and Germany, tend to have
             much higher unemployment rates than countries with smaller government sectors.

Tuesday, March 9, 2004 ~ 12:14 p.m., Dan Mitchell Wrote:
Europeans don't understand causes of economic growth. The European Union has a self-announced goal of becoming the world's most competitive economy by 2010. Yet because most governments in "old Europe" refuse to reduce their oppressive tax rates and bloated welfare systems, Europe continues to fall farther and farther behind the United States. Some European leaders talk about the need to boost consumer spending, but this is a misguided notion. People can't spend money unless they first earn money, and that is why EU economies will not have strong growth until and unless government becomes smaller. A UK-based think tank just released a report on Europe's dismal outlook, as the Bureau of National Affairs reports:
             With questions marks hovering over the euro zone economy and whether or not
             growth will accelerate in the coming year, the United Kingdom-based Center for
             European Reform released a scathing report stating that the goal set in 2000 in
             Lisbon for the EU to become the most competitive knowledge-based economy in
             the world by 2010 was a long way off. "Even the most enthusiastic proponent of the
             Lisbon agenda can only describe the EU's performance over the last 12 months as
             mediocre," the report states. "After a second consecutive year of disappointing
             economic growth, it is already apparent that the EU will miss some of its key targets."
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8e4v9w0   (subscription required)

Tuesday, March 9, 2004 ~ 10:56 a.m., Dan Mitchell Wrote:
The EU savings tax directive death watch continues. The Financial Times today reports that European finance ministers are in a snit because the Swiss refuse to hand the European Union a blank check. At issue is a side agreement regarding the Schengen treaty. As the passage below indicates, the Swiss understand that the ambiguity in the Schengen treaty will be used to further attack financial privacy laws, and they want the EU to clearly state that the treaty does not obligate Switzerland to violate the rights of bank customers. The very fact that the EU does not want to make this side agreement is ample proof that the Schengen treaty would be mis-used.
             European Union finance ministers will on Tuesday express growing anger at the
             failure of Switzerland to conclude a deal paving the way for a new EU savings tax.
             At the monthly Ecofin council meeting in Brussels, ministers will be told that Swiss
             authorities are still blocking a deal, in the hope they can extract concessions from
             the EU on other issues. ...The dispute with Switzerland turns on the detailed
             interpretation of the first clause of Article 51 of the Schengen treaty - the legislation
             allowing the elimination of border controls between participating EU countries.
             But Schengen also covers much more, notably co-operation between justice
             departments and police forces in signatory countries. The relevant section of
             Clause 51 concerns the conditions that have to apply for automatic reciprocal
             information rights between the authorities in two participating countries. The
             wording is ambiguous, with two, apparently contradictory, conditions defined.
             While the first presents no problem for the Swiss, the second is a potential threat
             to the hallowed principle of bank secrecy.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&ci d=1078381606738 (subscription required) 

Tuesday, March 9, 2004 ~ 9:37 a.m., Andrew Quinlan Wrote:
Some Republicans think pork is more important than pro-growth tax cuts. A handful of weak-kneed Republicans are undermining the President's tax cut agenda. They claim to be worried about the deficit, but these are the same members who voted for the big spending increases, including the irresponsible Medicare expansion (a fiscal catastrophe for which the White House deserves most of the blame, by the way). The Wall Street Journal correctly opines today that the real problem is government spending:
             It's certainly true that the deficit shouldn't be allowed to run out of control. But if
             these Members really want to rein in the deficit they can always lead the fight
             to reduce the growth of federal spending. Instead, what we mainly hear from Capitol
             Hill is whining that Mr. Bush may have the nerve to veto their pork-laden new
             highway bill. Republicans need to take control of the deficit debate by shifting the
             focus back onto spending, where it belongs, and pointing to the rebounding economy
             despite large external shocks as the true legacy of the Bush tax cuts.
http://online.wsj.com/article/0,,SB107879392911549902,00.html?mod=opinion   (subscription required) 

Tuesday, March 9, 2004 ~ 8:22 a.m., Veronique de Rugy Wrote:
Today Canada, tomorrow the world. The co-director of the Economics and Liberty Research Group at the University of Québec opined in Canada's Financial post that his nation's federal budget easily could be reduced by more than 10 percent - and that wouldn't even require any changes to welfare state programs. The author, Pierre Lemieux, also notes that limiting revenue is the best long-run way to control spending:
             ...we have isolated some $20 billion ($15 billion in transfers and $7 billion in goods
             and services) of expenditures that could be eliminated. Federal expenditures could
             be cut more than 10%, again without even challenging the official welfare state. Of
             course, we would expect lots of protest from the privileged beneficiaries of the
             taxpayers' coerced largesse, including from the bureaucrats who would lose paper,
             pencils, furniture, outside consultants, travel expenses and other perks (more than
             $2 billion is spent annually on travel and propaganda). ...A new "public choice"
             approach argues that Leviathan works the other way around: It maximizes taxes,
             i.e., grabs what it can get away with, and then spends the money on its pet projects.
             In this perspective, the more revenues on which the state can put its hands, the more
             it will spend. The only way to control the state's expenditures becomes to dry up its
             revenue sources. If it is serious, the upcoming budget would cut taxes globally by
             at least 10%.

Tuesday, March 9, 2004 ~ 12:17 a.m., Dan Mitchell Wrote:
State legal climate rankings show importance of jurisdictional competition. Delaware is one of the world's best tax havens, but that is not the state's only selling point. Delaware also has America's best legal climate according to a recent study. This type of information, just like similar rankings of state tax policy, helps entrepreneurs and investors allocate resources to jurisdictions that welcome job creation and economic growth. This chart (http://www.legalreformnow.org/pdfs/2004%20Harris%20Ranking%20Chart.pdf) compares all 50 states and shows that Governor Schwarzenegger has many challenges to overcome.

Monday, March 8, 2004 ~ 10:45 p.m., Dan Mitchell Wrote:
An amusing analysis of the federal budget. Dave Barry is one of America's funniest writers, and his most recent column on big-spending politicians is hilarious... at least until you realize that your tax dollars are paying for all the pork:
               ...Congress is as trustworthy with money as a crack addict who is experimenting
             with heroin. It's not just the Iowa rainforest: This year Congress has voted to spend
             more than $10 billion on pork projects, including (these are all real expenditures)
             $200,000 for the Rock and Roll Hall of Fame, $2 million for a youth golf program,
             and $90,000 to study olive fruit flies in France.

Monday, March 8, 2004 ~ 10:25 a.m., Dan Mitchell Wrote:
Outsourcing creates jobs...for Americans. Politicians readily identify workers who lose jobs when a company outsources, but they never bother to see what companies do with the money they save - or what would have happened if outsourcing was not an option. It turns out that outsourcing sometimes is the only way for a company to stay in business, thus meaning that the practice protects against additional job losses. More frequently, outsourcing is a way for companies to re-allocate resources to areas that result in better-paying jobs in America. Bruce  Bartlett explains:
             ...ValiCert only ventured into outsourcing because it had no choice. The company
             was on the brink of bankruptcy.  All of its jobs would have been lost if it hadn't been
             able to cut development costs. Although some American jobs were lost in the process,
             the company was able to remain in business, eventually leading to rising employment
             in the U.S. in higher-level positions. Unfortunately, in such cases, people tend to see
             only the jobs that were lost initially from outsourcing and ignore the jobs that were
             saved or later gained because of it. General Electric makes this point in its latest
             proxy statement, in response to criticism from a union pension fund shareholder. Its
             overseas expansion "has helped keep GE competitive and growing and, in many
             cases, helped to create and preserve jobs in the United States," the company argues.

Monday, March 8, 2004 ~ 9:58 a.m., Andrew Quinlan Wrote:
Tax havens help American companies compete. According to the General Accounting Office, most US companies that do business with the federal government have subsidiaries in so-called tax havens. This is good news for American taxpayers since the companies presumably are reducing their tax bills and thereby in a position to pass on some of the savings when bidding for government contracts. Unfortunately, some companies are so afraid of government that they actually brag that they pay too much in taxes:
             Fifty-nine of the top 100 publicly traded federal contractors have set up subsidiaries
             in offshore tax havens, according to a report by congressional auditors released on
             Thursday. ...Altogether the 100 federal contractors had a total of 464 tax haven
             subsidiaries, the report said, citing information it gleaned from Securities and
             Exchange Commission filings. ..."Unlike a number of our competitors who operate in
             the U.S. but have moved their domicile to tax haven countries, Halliburton proudly
             remains a U.S. company and has a higher effective tax rate as a result," said
             spokeswoman Wendy Hall.

Monday, March 8, 2004 ~ 8:11 a.m., Dan Mitchell Wrote:
Don't blame McDonald's if you eat too much. Fast food restaurants are being blamed for growing waistlines, and there certainly  are plenty of chubby Americans. But who is to blame if someone eats too much? Trial lawyers want to sue the restaurants, yet this assumes we are all sheep - or that someone has a gun to our heads when we "supersize" our orders. Interestingly, the Wall Street Journal today reports that snacking between meals is the real culprit, not fast food:
             ...there's no evidence that fast food has caused America's girth. Americans increased
             their overall daily diet by an average of 200 calories from the 1970s to 1990s. But
             while the daily intake of fast food grew by about 140 calories for men and 65 calories
             for women, home mealtime consumption went down by more than that -- offsetting
             fast-food calories. So where do the extra 200 calories come from? According to the
             Department of Agriculture survey that tracks food intake, the cause is more snacking
             (though not on fast-food products). A more-sedentary America doesn't work off those
http://online.wsj.com/article/0,,SB107870256519648685,00.html?mod=opinion (subscription required)

Sunday, March 7, 2004 ~ 2:52 p.m., Dan Mitchell Wrote:
Keep tax rates low to collect more revenue. Alan Reynolds writes about Social Security reform in today's Washington Times and his comments about modernizing the entitlement system certainly are worth reading. But his comments about tax rates and tax revenue deserve special attention. Reynolds notes that tax rate increases in 1990 and 1993 did not increase tax revenues when measured as a share of national economic output:
             Total receipts from the individual income tax averaged 8.2 percent of GDP from
             1988 to 1990, when the top tax rate was 28 percent, then dropped to 7.8 percent in
             1991-92 after the Bush tax increase. We would normally have expected a cyclical
             upturn in revenues by 1993-94, regardless of the 35 percent and 39.6 percent tax
             brackets added that year and the increased taxation of Social Security benefits. Yet
             revenues from the individual income tax were only 7.7 percent of GDP in 1993, 7.8
             percent in 1994 and 8.1 percent in 1995 — still lower than in 1989 (8.3 percent)
             before the two "tax increases." The economic recovery was also unusually feeble,
             with a 3.3 percent growth rate in 1992 and 3.1 percent from 1993 to 1995.

Sunday, March 7, 2004 ~ 1:23 p.m., Dan Mitchell Wrote:
Freedom and innovation keep America on top. Thomas Friedman of the New York Times has an editorial explaining some of the reasons why the United States has the world's most powerful economy. He should have acknowledged the role of low tax rates (at least when compared to most nations), but it is nonetheless refreshing to have a New York Times columnist pay tribute to capitalism. It is equally noteworthy that 400,000 talented European high-tech workers have emigrated to America, choosing opportunity and freedom over high taxes and over-regulation: 
             America is the greatest engine of innovation that has ever existed, and it can't be
             duplicated anytime soon, because it is the product of a multitude of factors: extreme
             freedom of thought, an emphasis on independent thinking, a steady immigration of
             new minds, a risk-taking culture with no stigma attached to trying and failing, a
             noncorrupt bureaucracy, and financial markets and a venture capital system that
             are unrivaled at taking new ideas and turning them into global products. "You have
             this whole ecosystem [that constitutes] a unique crucible for innovation," said
             Nandan Nilekani, the C.E.O. of Infosys, India's I.B.M. "I was in Europe the other day
             and they were commiserating about the 400,000 [European] knowledge workers
             who have gone to live in the U.S. because of the innovative environment there. The
             whole process where people get an idea and put together a team, raise the capital,
             create a product and mainstream it — that can only be done in the U.S...."

Saturday, March 6, 2004 ~ 6:06 p.m., Dan Mitchell Wrote:
France's corrupt political culture. National Review's Europress column provides useful insight into the French-speaking world, noting that corruption is endemic in both France and Belgium. Many citizens register a silent protest by hiding as much money as possible from tax collectors, a practice which seems universally accepted in the French-speaking world:
             In both [France and Belgium], ruling elites occupy seats of power heavily
             upholstered with a soft cushion of fat, expensive bureaucracy. In both countries,
             the state is by far the largest employers of heavily unionized workers. When France
             recently made it illegal for most people to work more than 35 hours a week, those
             with an entrepreneurial spirit may have suffered. But government workers didn't
             complain. the people running France are hopelessly corrupt. The "hopeless" part
             matters, because the average French Jo assumes the worst from his leaders, anyway.
             Besides, most French citizens collude in the corruption forced on them. Not just
             small jobs and minor repairs are conducted under the table, hidden from the taxman's
             spiraling eye; entire houses are built in France on the black, with everybody, from
             the surveyor to the carpet-layer paid in cash.

Saturday, March 6, 2004 ~ 11:17 p.m., Dan Mitchell Wrote:
Incentives matter, even for murderers. Economists explain that criminals respond to incentives, meaning that they generally commit crimes when the potential "cost" of criminal activity does not exceed the expected "benefit." This is why low-lifes are less likely to commit crimes if they know that penalties are more severe or they are more likely to be caught (this also explains why statistical evidence shows that gun control laws increase crime - getting shot by a potential victim is a "cost" that criminals must consider). The biggest cost to a criminal, not surprisingly, is execution, and two economists have a study in the Journal of Law and Economics showing that the death penalty is a deterrent:
             Controlling for a variety of state characteristics, the paper investigates the impact
             of the execution rate, commutation and removal rates, homicide arrest rate,
             sentencing rate, imprisonment rate, and prison death rate on the rate of homicide.
             The results show that each additional execution decreases homicides by about five,
             and each additional commutation increases homicides by the same amount...
This is not necessarily an unrestricted endorsement of more capital punishment.
As has been discussed previously, there are flaws in the criminal justice system that must be addressed - especially politically ambitious prosecutors that care more about conviction rates than justice. But this does mean that the death penalty saves the lives of innocent people.

Friday, March 5, 2004 ~ 6:15 p.m., Dan Mitchell Wrote:
Bad news for Europe's tax-aholics: Swiss people support privacy for law-abiding investors. Bureaucrats at the OECD and EU dream of someday destroying privacy in every corner of the world so that governments no longer will face competitive pressure to lower tax rates. Fortunately, the Swiss have a greater appreciation for individual rights, as Tax-news.com reports:
             The 2004 survey once again clearly shows that the Swiss attach great importance to
             the protection of their financial data. An overwhelming majority of 88% believe that
             protecting the confidentiality of financial data vis-a-vis third parties is correct.
             Specifically asked about bank client confidentiality, 76% say they are in favour
             of maintaining it.

Friday, March 5, 2004 ~ 5:35 p.m., Andrew Quinlan Wrote:
Vietnam tax hikes undermine shift to market economy. Many nations around the world are lowering tax rates, but some governments are moving in the wrong direction. Vietnam, for instance, is raising tax rates on international business, which leads the Wall Street Journal to observe that:
             ...the process of introducing Vietnam into global competition is far from completed,
             which again raises the question of why would Vietnam try to stop it now. The
             government may have instituted these new tax rates in an attempt to boost
             Vietnamese companies and make them more internationally competitive. But these
             higher taxes will discourage new market entrants to Vietnam, and thus make it
             harder for domestic companies to evolve into world-class competitors.
http://online.wsj.com/article/0,,SB107844371487047085,00.html?mod=opinion (subscription required)

Friday, March 5, 2004 ~ 4:52 p.m., Veronique de Rugy Wrote:
Protectionist restrictions on outsourcing are bad for US competitiveness. The Financial Times reports on a US Senate vote to impose restrictions on government contracts for companies that "outsource." This protectionist policy will harm American companies by driving up costs, which, ultimately, will hinder job creation. That's the bad news. The good news is that some companies are waking up to the danger, and are urging Congress to fix some of the bad policies that make America less competitive:
             GE is not the only multinational company to mention protectionist sentiment in
             recent days. Gillette, the consumer products group, warns in its 10k report that
             "trade protection measures" could hit its manufacturing facilities and suppliers
             outside the US.... GE supports efforts to form a coalition among business lobbyists
             to shift the debate about jobs towards ways of making US business more competitive
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&ci d=1078381542349&p=1012571727085   (subscription required)

Friday, March 5, 2004 ~ 2:32 p.m., Dan Mitchell Wrote:
State tax cartel seeks to export bad tax law. States with high sales taxes are upset that consumers have the unmitigated gall to purchase products from other states, and they are pushing a privacy-invading scheme to force out-of-state businesses to act as deputy tax collectors (see www.heritage.org/Research/Taxes/EM778.cfm and www.cato.org/pubs/pas/pa-494es.html for more information). This issue is very analogous to the international tax competition fight, and a Democratic state lawmaker explains why giving government extra-territorial tax power is a bad idea:
             "We're going to make tax evaders out of law-abiding citizens and policemen out of
             tax preparers and accountants," said Assemblyman Ronald Tocci, a Democrat in the
             chamber's majority. Who, he asked, "keeps tabs of what they buy on vacation in the
             Bahamas or Canada? Or anyplace? It's crazy. It's insane."
http://news.yahoo.com/news?tmpl=story2&cid=528&u=/ap/20040304/ap_on_hi_te/internet_sale s_tax_7&printer=1

Friday, March 5, 2004 ~ 12:18 p.m., Dan Mitchell Wrote:
European stagnation shows that big government is a failure. The Bureau of National Affairs reports today that European Union nations grew only 0.7 percent last year, and that follows the weak 1.0 percent growth rate in 2002. Interestingly, growth is especially weak in the nations that adopted the Euro currency, as BNA writes:
             Overall in 2003 euro zone growth expanded at a rate of 0.4 percent of GDP, Eurostat
             said. In the EU 15 the 2003 economic growth rate was slightly better and registered
             at a 0.7 percent of GDP pace of growth. In 2002, GDP growth in the euro zone was
             0.9 percent of GDP and 1 percent in the EU 15.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8e2m2j6 (subscription required) 

Friday, March 5, 2004 ~ 10:57 a.m., Dan Mitchell Wrote:
Wasteful spending is the problem, not deficits. Financial journalists wring their hands about the deficit, but they usually fail to grasp the underlying problem - which is a government that is too big and growing too fast. Focusing on the deficit while ignoring bloated government is analogous to worrying about a hole in your pants after you've been shot in the leg. Jonah Goldberg writes:
             What drives me nuts about all of the talk about deficits is how it makes the deficit
             seem like the disease rather than the symptom. The disease is a metastasizing
             federal government, the deficit is little more than a fever. When I listen to liberals
             and journalists complain about Bush's truly outrageous runaway spending, they
             make it sound as if runaway spending would be fine if we had a balanced budget.
             I don't want a huge federal government because I don't want a huge federal
             government, not because we're borrowing too much money. ...There's a long list
             of reasons why big government is wrong: a big government is inefficient; it saps
             individual initiative; it imposes Washington's values on a vast nation of free people;
             it makes us all employees of the state and so on.

Friday, March 5, 2004 ~ 9:49 a.m., Andrew Quinlan Wrote:
Republican Medicare expansion continues to backfire. The GOP thought it was buying votes by creating a new entitlement for prescription drugs, but trying to out-Democrat the Democrats has been a failure. Voters who want to feed at the federal trough almost always will reject Republicans because they know Democrats are willing to spend even more. But this is not just a political issue. As Bruce Bartlett explains, the long-term consquences of bad policy are significant:
             The federal government's total indebtedness, including the future cost of entitlement
             programs, rose from $31.1 trillion at the end of fiscal year 2002 to $34.8 trillion at
             the end of last year. Almost all of the increase was due to rising costs for Medicare.
             Yet economist Joseph Antos of the American Enterprise Institute estimates that the
             new drug bill will add $13 trillion to this figure. David Walker, comptroller general
             of the United States, thinks the number may be as high as $8 trillion.

Friday, March 5, 2004 ~ 9:16 a.m., Veronique de Rugy Wrote:
Is the Patriot Act unpatriotic? There are a number of provisions in the Patriot Act that make sense, such as allowing the government to wiretap an individual instead of a specific phone. This makes it easier to monitor suspected criminals and terrorists. But there also are provisions that are silly and misguided, such as the expansion of money laundering reporting requirements. Trying to find criminals by sifting through millions of reports is like trying to find a needle in a haystack - and the Patriot Act makes the haystack bigger. And there are provisions which undermine our Constitutional freedoms, as retired Judge Andrew Napolitano explains:
             If the government can get evidence against you from your financial institution under
             the guise of national security -- i.e., without a showing of probable cause -- but use it
             in a criminal case against you, then the Constitution's guarantees have been
             shredded.... the Justice Department can learn where you traveled, what you spent,
             what you ate, what you paid to finance your car and your house, what you confided
             to your lawyer and insurance and real estate agents, and what periodicals you read
             without having to demonstrate any evidence or even suspicion of criminal activity on
             your part. ...Most Americans don't want the government to know of their personal
             behavior, not because we have anything to hide, but because without probable
             cause, without some demonstrable evidence of some personal criminal behavior,
             the Constitution declares that our personal lives are none of the federal government's
http://online.wsj.com/article/0,,SB107845454390447406,00.html?mod=opinion   (subscription required)

Friday, March 5, 2004 ~ 8:27 a.m., Dan Mitchell Wrote:
America's worldwide tax system undermines US competitiveness and job creation. Congress currently is trying to figure out what to do with the extra revenue they will get by repealing the FSC/ETI law, a step required by World Trade Organization rulings. While lawmakers are trending in the wrong direction - replacing the special export preference in FSC/ETI with a special manufacturing preference (see http://www.heritage.org/Research/Taxes/wm437.cfm for more information), there is strong support for a provision that will temporarily ease the burden of worldwide taxation. The San Jose Mercury news explains why this is good for America:
             Under current law, profits from overseas operations are subject to a 35 percent
             tax when they are repatriated. The Ensign/Boxer amendment would cut the
             repatriation tax rate to 5.25 percent for one year. ..And as long as those profits
             remain overseas, they are more likely to be invested overseas -- think jobs in India
             and China -- instead of here.

Friday, March 5, 2004 ~ 1:02 a.m., Dan Mitchell Wrote:
I'm ashamed that Americans can be this stupid. A school in Indiana has kicked out a student for bringing sewing scissors to school. Why? Because the scissors could be used as a weapon (gasp!). This is a bizarre combination of risk aversion and political correctness - and it shows the preposterous nature of "zero tolerance" policies. Here's a radical idea: Instead of treating all kids like potential criminals, schools should punish students that actually misbehave!
             Jacob Finklea, 12, was expelled for bringing scissors to his sewing class at Lincoln
             Middle School in Pike Township. "I put them on the desk because she said, 'Get all
             your supplies ready to make the pillows,' and I put the scissors on the desk and she
             just freaked out," Jacob said.

Friday, March 5, 2004 ~ 12:13 a.m., Dan Mitchell Wrote:
Markets should determine gas mileage, not politicians. The government currently forces auto companies to produce vehicles that meet certain fuel economy standards. Some politicians want to increase those "CAFE" standards, both because they are hostile to private automobile ownership and because they think that energy scarcity necessitate government intervention. This is bad ideology, and it also is terrible economics. All resources are scarce (otherwise they would be free), and markets exist in order to allocate those resources in the most productive manner. Indeed, an unfettered price system is the best way of ensuring that resources will be wisely untilized over time. Unfortunately, as discussed at Tech Central Station, some politicians rely on emotion rather than analysis:
             Pols like Kerry choose to ignore these realities, implying instead that the tycoons
             in the auto industry churlishly keep fuel mileage low due to sloth, greed, and
             long-term conspiracies with the oil barons. This of course is idiocy. If a light truck,
             family sedan or SUV could be designed that offered 35-40 miles to the gallon with
             comparable performance and safety, Honda and Toyota -- who lead in such
             technology -- would have it on the market in a heartbeat.

Thursday, March 4, 2004 ~ 2:03 p.m., Dan Mitchell Wrote:
Why does the left defend an education system that defrauds minorities? New federal research further confirms that poor children get a sub-standard education. The government education monopoly claims that more money is needed, yet per-pupil spending for inner-city school districts already is far above the national average. But don't hold your breath waiting for John Kerry to support school choice. Political support from teacher unions apparently is more important than the education of the less fortunate.
             ...the first-ever reports of comparable data on reading and mathematics achievement
             in 10 of the nation's largest urban school districts reveal the staggering extent of the
             failure of the American public school system to deliver any reasonable measure of
             education to most of the children in those districts, particularly to children from
             minority and low-income families.

Thursday, March 4, 2004 ~ 1:32 p.m., Dan Mitchell Wrote:
New York Times recognizes that government mandates hurt workers! In addition to other problems, California is wrestling with an out-of-control workers' compensation system. Not surprisingly, trial lawyers are part of the  problem. But the real breakthrough in the article is the admission that workers are the ones who suffer when government imposes costs on business. The article notes:
             Total costs for California employers increased to $29 billion in 2003 - eight times
             the gross domestic product of Haiti - from $11 billion in 1998. By one estimate, the
             average employer in California pays 5.2 percent of payroll for workers'
             compensation insurance, more than twice the average of other states. ... Research
             has found that most workers' compensation costs are shifted to workers in the form
             of lower wages over time

Thursday, March 4, 2004 ~ 11:46 a.m., Veronique de Rugy Wrote:
British business community urges more competitive tax policy. The United Kingdom traditionally has had an economic advantage over its neighbors, but corporate rate reductions in Europe - combined with Chancellor of the Exchequer Gordon Brown's tax-everything-
that-moves attitude - have eroded the position of the private sector. The
Confederation of British Industry has gone on the offensive, issuing a list of:
             ...recommendations on how the government can use the tax system to arrest the
             decline in the UK as a place to do business. ...the government should roll back the
             business tax burden, stressing the need for simple across-the-board cuts rather than
             complex targeted tax breaks. This implies either a cut in employers' national
             insurance (NI) or corporation tax...
http://www.cbi.org.uk/ndbs/press.nsf/0363c1f07c6ca12a8025671c00381cc7/a654820be15912c6802 56e47004ab1ff?OpenDocument

Thursday, March 4, 2004 ~ 11:01 a.m., Dan Mitchell Wrote:
Canadian study shows importance of lower taxes on capital. The C.D. Howe Institute has an interesting study on the competitiveness of US and Canadian tax systems. It makes several good points, including an explanation that the tax base is as important as the tax rate. It also notes that high taxes on capital reduce investment, which is the key to long run growth and higher living standards. Wouldn't it be great if the tax-harmonizing bureaucrats at the European Union and Organization for Economic Cooperation and Development understood this basic economic concept? Perhaps they would cease their efforts to promote the double-taxation of capital (hey, it's okay to dream).
             Taxes levied on capital investments - corporate income, capital and sales taxes on
             capital purchases - significantly affect investment. Several studies, after taking into
             account the size of the market, interest rates, labour costs and infrastructure,
             generally find that a one-percentage point drop in the corporate tax rate increases
             a country's capital stock by between a half percent and two percentage points. A
             recent study showed that a one-percentage point reduction in the effective tax rate
             on capital would increase foreign direct investment by 3.3 percent.

Thursday, March 4, 2004 ~ 10:21 a.m., Dan Mitchell Wrote:
Social Security truth, Part II. Jim Glassman of Tech Central Station also comments on the entitlement crisis. He praises Greenspan for understanding that higher taxes would be the wrong approach and emphasizes that demographic trends make reform a necessity:
             The Bush tax cuts, which helped stimulate the economy at a critical time, aren't the
             culprit. To raise taxes would pose "significant risks to economic growth and the
             revenue base," Mr. Greenspan said. The trouble is demographic. Social Security was
             established at a time when average life expectancy at birth was 62 and benefits
             began at 65. Now, life expectancy is 77, and you can begin drawing checks at 62.
             It's a double whammy because, as the population ages, there are fewer workers
             to provide them with benefits.

Thursday, March 4, 2004 ~ 9:47 a.m., Andrew Quinlan Wrote:
Why don't liberals like to be called liberal? A reporter recently asked Senator Kerry whether he was liberal, leading the Massachusetts solon to dodge the question. Could it be that Kerry understands that the American people don't like left-wing, class-warfare politics? We don't know Kerry's motives, but Larry Elder explains that he may be dodging this question all the way to November:
             The Americans for Democratic Action gives Kerry an even higher lifetime liberal
             rating than senior Democratic Massachusetts Sen. Ted Kennedy. As mentioned, the
             National Journal rates Kerry as the chamber's most liberal member. Still, just don't
             call a "liberal" a "liberal." Leftist Democratic Whip Nancy Pelosi of California also
             treats the "L" word as if it were toxic. She calls herself a "progressive."

Thursday, March 4, 2004 ~ 7:55 a.m., Dan Mitchell Wrote:
Social Security truth, Part I. Democrats (and quite a few Republicans) are bashing Fed Chairman Alan Greenspan for telling the truth about Social Security and other entitlement programs. George Will explains that demography is destiny, and he castigates politicians who are willing to sacrifice America's long term prosperity for short term political gain:
             Today life expectancy at birth is 76, which is troublesome enough, but additional
             expectancy at 65 is 17 years -- and growing. For about 150 years the longest life
             expectancies have advanced about 2.5 years per decade. Most people start collecting
             Social Security at 62, so the year 2019 will be especially challenging because more
             American babies were born in 1957 -- 4.3 million in a population of 172 million --
             than in any year in American history.

Wednesday, March 3, 2004 ~ 5:18 p.m., Andrew Quinlan Wrote:
Will the real John Kerry please stand up. Some people say John Kerry is a typical ultra-left Massachusetts Democrat. For evidence, they can point to his National Journal vote rating, which ranks Kerry as the most liberal member of the Senate...more to the left than Ted Kennedy and more to the left than Hillary Clinton. But on the other hand, Kerry has developed quite a reputation for speaking out of both sides of his mouth, as this satirical piece from scrappleface.com illustrates:
             ...the contest for the Democrat nomination narrows to two men - Sen. John Forbes
             Kerry, D-MA, and Sen. John Forbes Kerry, D-MA. "I think we're going to see them go
             at it hammer and tong until the convention," said Terry McAuliffe, chairman of the
             Democrat National Committee. "We couldn't hope for two men who offer more
             contrast; the war hero vs. the peace protestor, the wealthy husband of an heiress vs.
             the assailant of the privileged class. One backed the attack on Iraq, the other
             opposed it. One voted for the USA Patriot Act, the other denounces it. One
             supported the president's 'No Child Left Behind' education plan, the other is harshly
             critical of it."

Wednesday, March 3, 2004 ~ 1:03 p.m., Dan Mitchell Wrote:
California taxpayers overwhelmingly reject effort to weaken tax-increase supermajority requirement. By a landslide margin or more than 30 percentage points, 66% - 34%,California voters yesterday voted against a union-backed scheme to water down the supermajority that is needed to approve tax increases. Nearly two-thirds of voters (see http://vote2004.ss.ca.gov/
) recognized that it would be a mistake to reduce the supermajority requirement from 67 percent to 55 percent. Indeed, with the exception of the lunatics in San Francisco, the entire state rejected the Trojan Horse tax hike (see http://vote2004.ss.ca.gov/
for a map of county-by-county results). According to the LA Times:
             Proposition 56, in contrast, was fiercely contested over the airwaves - and was
             headed to defeat, early returns showed. With the jobs of teachers, nurses and other
             union members at stake in extremely lean budgets, the measure was labor's response
             to the refusal of the Legislature's Republican minority to agree to higher taxes that
             Democrats proposed to avert spending cuts. ...California Chamber of Commerce
             President Allan Zaremberg hailed the measure's apparent defeat. "Despite the
             deceptive tactics used by the measure's proponents, voters clearly saw this measure
             for what it is: a ploy to raise taxes," he said.
This landslide is just the latest in a series of votes that demonstrate the unpopularity of high taxes. Alabama voters have spoken. Oregon voters have spoken. And new California voters have spoken. But will the politicians listen?
http://www.latimes.com/news/local/politics/cal/la-me-calelect3mar03,1,2113534.story?coll=la-hom e-headlines   (registration required)

Wednesday, March 3, 2004 ~ 12:11 p.m., Dan Mitchell Wrote:
Senator Grassley has a great day (Part II). Senator Grassley also commented yesterday on America's tax dispute with the European Union, involving a World Trade Organization decision requiring the repeal of a tax preference for export-related income. Some businesses have suggested that the US should keep the law and instead pay compensation to the EU, but, as the Bureau of National Affairs noted, Grassley was not very receptive. And even though Grassley's proposal is not the best option (see www.heritage.org/Research/Taxes/wm437.cfm for more information), anyone who bashes the French deserves high praise:
             He added that compensation in lieu of retaliation is only a viable option if the
             prevailing party agrees, something he said the EU is not inclined to do. "Even if
             they were, I am certainly not going to be the one who suggests on the Senate floor
             that we start annually sending taxpayer money to France," Grassley said.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8d8h0e0 (subscription required)

Wednesday, March 3, 2004 ~ 11:54 a.m., Dan Mitchell Wrote:
Senator Grassley has a great day (Part I). Advocates of supply-side tax policy and tax competition sometimes have not been big fans of the Chairman of the Senate Finance Committee Chairman, but Senator Grassley of Iowa certainly bolstered his reputation yesterday. The Senator called on the White House to move aggressively on Social Security privatization. According to the Bureau of National Affairs:
             "My plan is to encourage the president to make personal accounts an issue in the
             campaign. ... Then there is a mandate from the electorate to do something," Grassley
             told a breakfast meeting of the National Association of Manufacturers. "Because I
             don't think you can move this process along just by Sen. Grassley or Congressman
             Thomas wanting to do something."
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8d5z7a3   (subscription required)

Wednesday, March 3, 2004 ~ 11:34 a.m., Veronique de Rugy Wrote:
Turn off your radio if you don't like Howard Stern. One of the repercussions of the famous Janet Jackson Super Bowl "boob" incident is a renewed assault on radio "shock jocks." But there is a big difference between the two events. People who listen to Howard Stern know exactly what to expect, and parents already have the ability to make sure that their children are not exposed to Stern's program. Janet Jackson's pathetic publicity stunt, however, was a complete surprise and parents had no advance warning. Unfortunately, some people think the best response is to let politicians and bureaucrats determine what we should be allowed to hear. Private companies obviously should have the right to drop programming - but those decisions should be voluntary, not a result of government coercion. As Rush Limbaugh warned (http://www.drudgereportarchives.com/data/2004/02/26/20040226_211603_flash6rl.htm), "It's one thing for a company to determine if they are going to be party to it. It's another thing for the government to do it." But not all conservatives understand this danger. Linda Chavez writes today that:
             So much of what comes over the public airwaves these days is unsuitable for children
             that it is simply dangerous to give a child his or her own radio or television. Tune
             in to Howard Stern by accident and you'll hear every manner of sexual perversion
             discussed. ...Last week, Clear Channel, the nation's largest radio network, suspended
             Howard Stern's show just in time for its CEO to testify before Congress about the
             company's new zero tolerance policy on indecency. Perhaps these companies are
             finally getting the message. ...With all the various methods of delivering images and
             sounds, why use the public airwaves to present the likes of Howard Stern?

Wednesday, March 3, 2004 ~ 11:20 a.m., Dan Mitchell Wrote:
Default by Argentina could provide useful lessons. The reckless government of Argentina is threatening to default on its debt. This is an unpleasant situation, but it could have positive consequences. Perhaps the time has come for private individuals and institutions, as well as international bureaucracies like the IMF, to recognize that subsidizing corrupt and profligate governments is not necessarily a profitable activity. It also would be nice if the world learned that the IMF's agenda of higher taxes and currency devaluation is a recipe for poverty rather than growth. The Wall Street Journal explains the issue:
             In the polite world of international finance, the protocol is never to call anyone a
             deadbeat. So it came as a pleasant surprise last month when the G-7 finance ministers
             finally called Argentina on the global carpet. We will soon find out how much they
             meant it. ...Argentina's public threat presents the G-7 with both a problem and
             opportunity. If it stands up to this Argentine blackmail, it can send a message to other
             potential deadbeat nations as well as promote reform at the IMF.
http://online.wsj.com/article/0,,SB107827531702844906,00.html?mod=opinion (subscription required)

Wednesday, March 3, 2004 ~ 10:26 a.m., Andrew Quinlan Wrote:
More offshore investing by the Kerry family. How's this for a conspiracy theory? John Kerry is really the stealth candidate of the offshore world! Sounds implausible, to be sure, but he and his wife certainly seem to have plenty of connections to the world of tax-efficent international investment. The Bermuda Royal Gazette reports that the Heinz company (from which Teresa Heinz Kerry's fortune is derived) has a captive insurance company in the offshore jurisdiction of Vermont:
             Presidential hopeful John Kerry, has been caught on the back foot again when it
             comes to his Bermuda-bashing tactics - this time through a captive formed in
             Vermont. Democrat Kerry, of Massachusetts, criticised the former governor of
             Vermont, Howard Dean, for trying to turn the state into "a snowy Bermuda" by
             promoting captive development there. But it has emerged that Vermont regulators
             issued licence No. 657 to Heinz-Noble Inc., a captive formed by HJ Heinz Co.

Wednesday, March 3, 2004 ~ 8:29 a.m., Dan Mitchell Wrote:
Corporate fraud is a problem for the "onshore" world. Either because of laziness or ideological bias, journalists have been blaming the "offshore" world for corporate scandals. In each and every case, however, the fraudulent behavior has taken place in "onshore" jurisdictions. Leftist politicians point out that crooked corporate officers occasionally used financial services from low-tax jurisdictions, but this doesn't mean that so-called tax havens are responsible. Indeed, it is akin to blaming Toyota if a Camry is used as a getaway vehicle after a bank robbery. Tax-news.com reports:
             The financial community in the Cayman Islands has been shocked to find the Islands
             featured in banner headlines across the world as a result of the Parmalat affair
             ...According to Eric Crutchley, Director of [the Cayman Island Financial Services
             Association], "The alleged Parmalat fraud appears to have taken place in Italy, just
             as the Enron fraud occurred in the US, and BCCI in the UK. No regulatory Authority
             can control how legitimate services are used for illegitimate means if the intent to
             defraud is present, and we can only empathize with the other well- regulated
             jurisdictions who have become embroiled in this debacle."

Wednesday, March 3, 2004 ~ 7:46 a.m., Dan Mitchell Wrote:
European effort to boost entrepreneurship ignores problem of bloated government. European Business News Online has an article about an effort by the European Commission to boost entrepreneurship. Some of the goals are reasonable, but the effort will not succeed unless there is a reduction in the burden of government. Unfortunately, it appears that this new EC campaign is deliberately side-stepping the crucial issues. It talks about reducing tax complexity, for instance, but does not focus on the need to reduce the tax burden. Tax simplification certainly is desirable, but it may be akin to re-arranging the deck chairs on the Titanic unless accompanied by tax reduction. As this excerpt indicates, the EC effort also is misguided in that it seeks to subsidize entrepreneurship among certain populations:
             Key objectives are the fostering of a more entrepreneurial mindset among young
             people, reducing the stigma of failure, providing support for women and ethnic
             minorities, reducing the complexity of complying with tax laws and making it easier
             to transfer a business to new owners.... The Commission promises to work with
             Member States to ...provide support for women and ethnic minorities.

Wednesday, March 3, 2004 ~ 1:09 a.m., Dan Mitchell Wrote:
Great defense of the CIA, but shouldn't at least one person been fired after 9/11? The former head of the Romanian secret police and the highest ranking intelligence officer to ever defect from the Soviet Bloc has a persuasive article in National Review explaining the need to stay away from CIA-bashing. The most powerful passage discusses what happened after the left demonized the CIA in the 1970s:
             Then, in 1975, the Rockefeller Commission report describing the CIA as a rogue
             organization was released. The Senate's Church Commission published 14 more
             reports in 1976 calling the CIA  in the trendy, overheated left-wing rhetoric of the
             time a criminal organization. Over in the Soviet bloc, we regarded it as a triumph.
             KGB chief Yuri Andropov exclaimed to Bucharest: "The CIA's tyranny is over."
             Romanian dictator Nicolae Ceausescu popped a bottle of champagne. A couple of
             months later I had dinner with Janos Kadar, the ruler of Hungary and the first chief
             of its Communist espionage service; he raised his vodka glass with a toast: "To
             the CIA's funeral!"
This is rather sobering. Nonetheless, certainly there must be a way of penalizing failure without undermining the core mission of intelligence agencies. Hopefully, it is happening behind the scenes.

Wednesday, March 3, 2004 ~ 12:17 a.m., Andrew Quinlan Wrote:
The good old days...when Republicans opposed big government. The Cato Institute's Veronique de Rugy presents a damning indictment against big-spending Republicans. Don't read this article unless you want to get depressed. Veronique concludes by noting
             As was the case in the Reagan years, the culture of spending in Washington has
             prevailed over the Republican promises to cut the budget and become fiscally
             responsible. In fact, it is now difficult to find any commitment to smaller government.
             Both parties have joined hands in the big spending orgy. As Dick Armey used to say,
             "Three groups spend other people's money: children, thieves, politicians. All three
             need supervision."

Tuesday, March 2, 2004 ~ 5:35 p.m., Dan Mitchell Wrote:
Killington seeks to escape Vermont's Iron Curtain. The over-taxed residents of Killington aren't kidding. They want to secede from the People's Republic of Vermont and join low-tax New Hampshire. WMUR reports on the latest developments:
             Voting with a thunderous "aye," Killington residents endorsed a plan Tuesday for the
             ski resort town to secede from Vermont. The overwhelming voice vote inside the
             elementary school opened the next chapter in what could be a long and costly push
             to join New Hampshire, a state 25 miles to the east. ... Having won the endorsement
             of their constituents, town officials will now begin drafting a petition to present to
             New Hampshire Gov. Craig Benson and the state's Legislature.

Tuesday, March 2, 2004 ~ 10:04 a.m., Andrew Quinlan Wrote:
Former Governors demand fiscal responsibility in Virginia. Taxpayers in Virginia could be hit with a giant tax increase thanks to an unholy alliance between Virginia's Democratic governor, Mark Warner, and big-spending Republicans in the state legislature. But the battle is not over. The Washington Times reports today that:
             Former Govs. L. Douglas Wilder and George Allen yesterday railed on lawmakers for
             proposing "billions" in taxes that could cripple the economy and hurt Virginians.
             ...The two former governors from opposing parties have never campaigned together...
             Mr. Wilder also accused Mr. Warner of breaking campaign promises not to raise
             taxes, and said he now regrets endorsing him for governor. "Had I had any idea he
             would be embarking upon raising of taxes of Virginians past anything we had
             promised during that course, I would not have been there with him," Mr. Wilder said.

Tuesday, March 2, 2004 ~ 9:19 a.m., Dan Mitchell Wrote:
Singapore cuts tax rates, prepares for windfall if EU savings tax cartel is approved. Faithful readers of this page understand that tax competition promotes better tax policy, and Singapore provides additional evidence for this proposition. A government official just announced:
             ...a number of tax cuts that he claimed will support creativity and enterprise, and
             attract talent and investments to Singapore as part of a "best for business" package
             of measures. As a result, the Government is to lower the corporate tax rate to 20%...
The article also notes that Singapore is taking steps to "boost private wealth management activities." The financial services industry clearly is salivating at the prospect of huge capital inflows if the Europeans are foolish enough to impose the
so-called savings tax directive.

Tuesday, March 2, 2004 ~ 7:51 a.m., Dan Mitchell Wrote:
Will California voters give green light to future tax hikes? Today is "Super Tuesday," with primary elections in 10 states. Supporters of good tax policy probably don't care much about the race between John Kerry and John Edwards, but there is a very important referendum in California. Currently, California has a supermajority requirement to raise taxes - meaning that a tax increase cannot be approved unless two-thirds of state lawmakers support the measure. This procedural hurdle obviously hasn't prevented politicians from making California one of America's high-tax states, but presumably it has kept the situation from becoming even worse. And the supermajority requirement clearly rankles the state's pro-spending lobbies, which have placed a referendum on the ballot that - if approved - will lower the supermajority requirement from two-thirds of the state legislature to just 55 percent of the state legislature. This would not be good for California's fiscal future, as the Wall Street Journal explains:
             ...dropping the super-majority rule for tax hikes, in place since 1933, is a bad trade.
             An easier tax-hike threshold combined with a balanced budget requirement will
             make it easy for the Legislature to raise taxes come the next revenue crunch.
http://online.wsj.com/article/0,,SB107818680548143606,00.html?mod=opinion (subscription required)

Monday, March 1, 2004 ~ 5:01 p.m., Dan Mitchell Wrote:
Compassionate unemployment. Government-mandated minimum wages are an easy way to create more unemployed people - assuming, of course, that the minimum wage is set above the entry-level wage determined by market forces. Unions enthusiastically support minimum wage increases for the obvious reason that they want to drive up the cost of competing non-union labor. And if this means higher unemployment, tough luck. It is less clear why well-meaning leftists support minimum wage increases. They presumably would oppose a minimum wage of $100-per hour because it would cause mass unemployment, so why do they support minimum wages at lower levels. Is there an intermediate level of job loss that they are willing to accept in exchange for enacting feel-good laws? Not surprisingly, San Francisco is leading the way in causing joblessness, as Reason explains:
             The City by the Bay recently upped its minimum wage to $8.50 an hour, a hike that
             includes waitresses' and waiters' pay. Restaurateurs, who have until February to
             comply with the new law, are already discussing plans to cut back benefits and
             freeze hiring to offset the new expense.

Monday, March 1, 2004 ~ 3:17 p.m., Veronique de Rugy Wrote:
I'll drink to that! Taxes on booze in Finland have been among the highest in the world, but taxpayers have some ability to escape these punitive taxes by buying alcohol in nearby Estonia. The barriers to cross-border purchases will be even lower when Estonia joins the European Union May 1, so the Finnish government concluded that taxes on alcohol had to be reduced by nearly 40 percent to keep the population from doing all their shopping in Estonia. As the Associated Press reported:
             Steep taxes have meant high prices, and only the 315 stores run by the state
             monopoly, Alko, are allowed to sell anything stronger than mild beers and cider.
             ...In Finland, officials chose to reduce taxes now because they fear what will happen
             after May 1 when Estonia joins the EU and Finns are expected to swarm to their
             southern neighbor to buy cheap drink in bulk for personal consumption.
http://story.news.yahoo.com/news?tmpl=story&cid=816&ncid=816&e=7&u=/ap/20040228/ap_o n_re_eu/finland_cheaper_alcohol

Monday, March 1, 2004 ~ 11:23 a.m., Andrew Quinlan Wrote:
Will EU expansion promote statism or liberalization? On May 1, the European will get 10 new member nations. This is causing some degree of consternation. The International Herald Tribune today notes that, "Many Westerners worry that opening the door will siphon off wealth and jobs, exacerbating their own economic doldrums, tensions over immigration and pressure from rightist parties." Dan Mitchell says Western Europeans should be concerned, but for a different reason:
             ...free-market tax reforms -- not the possibility of handouts and migration -- are the
             real reason why enlargement is a "threat" to Western Europe. Simply stated,
             market-oriented East European countries are going to impose enormous competitive
             pressure on high-tax welfare states. Beginning on May 1, walls come tumbling down
             and companies can shift economic activity to countries like Poland, Slovakia, and
             Estonia. Why pay the enormous costs of producing in France and Germany, after all,
             when you can move a few hundred miles, dramatically reduce the burden of
             government, and still be inside the EU customs union?

Monday, March 1, 2004 ~ 10:39 a.m., Dan Mitchell Wrote:
Kerry tax plan would hurt economy. The junior Senator from Massachusetts wants to repeal the pro-growth elements of the Bush tax cuts, which is a backwards way of saying that he wants to impose a big tax increase. Writing in National Review Online, Michael Darda explains the real-world impact of Senator Kerry's proposed tax increase:
             If the Bush tax cuts are deep-sixed, investors would only keep 60.4 cents on the
             dividend dollar, down from 85 cents today, a drop of 29 percent. Capital-gains
             investors would keep 80 cents on the dollar instead of 85, a decline of nearly 6
             percent. After-tax rates of return on labor would fall by more than 7 percent for
             top-rate payers. The combined result would be a 32 percent reduction in the
             after-tax rates of return to working and investing.
Somebody should ask Sen. Kerry why he thinks the economy will grow faster if he makes America more like France.

Monday, March 1, 2004 ~ 8:57 a.m., Dan Mitchell Wrote:
Senator Edwards uses loophole to save big bucks, but wants ordinary Americans to pay more tax. From previous postings on the Market Center Blog, we know that Senator Kerry and his wife use offshore vehicles to protect their income from punitive taxation. Well, Senator Edwards is even smarter. He found an onshore vehicle - the "Personal Association" - to give himself a giant tax cut. As Robert Novak explains:
             Edwards put his own little corporation to good use in his last two years as a personal
             accident lawyer before becoming a full-time politician. He paid himself salaries of
             $600,000 in 1996 and $540,000 in 1997, on which he paid Medicare taxes. As the
             sole stockholder, Edwards received dividends of $5 million for each of those years --
             all of it free from Medicare taxes. That saved the future senator around $290,000....
             The government's position is that dummy corporations such as John R. Edwards,
             P.A., must pay its sole employee a ''reasonable'' salary. Tax practitioners told me
             that paying a $1.1 million salary out of $11.1 million net income may not pass the
             ''reasonable'' test.
Both Kerry and Edwards, incidentally, have every right to use legal methods to reduce their tax burdens. What makes their behavior reprehensible, however, is that they want to deprive the rest of us of the right to keep the fruits of our labor.

Monday, March 1, 2004 ~ 7:25 a.m., Dan Mitchell Wrote:
The sky didn't fall after all. Tax increase proponents in Virginia are warning of dire consquences, inclucing a lower bond ratings and deep budget cuts, if voters don't cough up more money. If this Chicken Little rhetoric sounds familiar, you're right. This is the same rhetoric that tax hike advocates in Alabama used. Yet when Alabama voters rejected the tax hike by a 2-1 margin, nothing bad happened. Conservatives in the Virginia state legislature are making good use of this nugget, as the Wall Street Journal reports:
             Tax opponents are also circulating a statement from Marty Connors, chairman of
             the Alabama Republican Party, who said warnings of doom and gloom stampeded
             his state's Legislature into passing a massive tax increase last year with the support
             of Gov. Bob Riley, a Republican. But the tax increase went to a vote of the people,
             who rejected it by a 2-to-1 margin. "Alabama government is having to tighten its
             belt, but none of the disasters that were predicted have come to pass," says
             Mr. Connors.

Monday, March 1, 2004 ~ 2:05 a.m., Dan Mitchell Wrote:
Brits choose paper-pushing over crime-fighting. If you are in a hole, the first thing you should do is stop digging. This common-sense lesson is not being learned in London. According to the Financial Times, "...last year a government-commissioned review revealed [the National Criminal Intelligence Service] was swamped by rising numbers of reports from banks and other regulated financial institutions. The review criticised NCIS, found a backlog of 58,000 reports and warned that the system was falling short of its aims to deter laundering and help deprive criminals of their gains." So how did the British react? Did they reduce reporting requirements so that law enforcement could target likely criminals and terrorists instead of accumulating useless reports? Don't be silly. The urge to over-regulate and misallocate law enforcement resources triumphed over logic. The Financial Times reports:
             Britain's National Criminal Intelligence Service is braced to receive twice as many
             reports of suspected money laundering this year because of new rules extending
             disclosure obligations to accountants and lawyers. The law enforcement agency
             expects the number of suspicious activity reports from regulated business to increase
             from almost 95,000 in 2003 to as many as 200,000 this year.
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&ci d=1077690778770&p=1012571727088





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