Monday, May 31, 2004 ~ 12:30 p.m., Dan Mitchell Wrote:
EU savings directive is a "tax only for dummies." The bureaucrats in Brussels will not enjoy reading this article from the Neue Zuricher Zeitung.
The story outlines the myriad ways of avoiding the EU's savings tax directive:
Tax experts say banks and financial advisors have for months been looking for ways to circumvent tax obligations in the recently-concluded bilateral agreements with the EU.
"There are a lot of loopholes in the EU's taxation directive, which underpins the agreement between the EU and Switzerland," Thomas Jaussi, a Basel-based tax specialist with accounting firm KPMG told
swissinfo. ...The bilateral accords, agreed after Switzerland received guarantees that the deal would not compromise banking secrecy, include the introduction of a withholding tax on interest earned by EU
residents with savings in Switzerland. The levy ranges from 15 to 35 per cent. Of that, three quarters will be sent to EU tax authorities, with Switzerland keeping the rest to cover costs. However, it will not
apply to income from dividends, share funds, insurance policies, derivatives and gold. ...Government bonds issued before March 2002 are also exempt, providing a loophole that at least one bank has openly sought
to exploit. ...A second source of weakness – according to tax experts - is the fact that the EU levy is not "withheld" at the source, but by the "paying agent". "Normally, this will be a bank," said Jaussi.
But if the paying agent is outside Switzerland or the EU, the tax will not be levied. ...Some analysts predict that only those who are not wealthy enough to afford good advice or set up a foundation will be hit
with the new levy. ...The Zurich-based "Tages-Anzeiger" newspaper this week described the new system as a "tax only for dummies".
Monday, May 31, 2004 ~ 10:34 a.m., Dan Mitchell Wrote:
Hayek gets well-deserved tribute. Friedrich Hayek was one of the world's
greatest economists. Not only did this Nobel Laureate produce an amazing volume of influential work, but he also is largely responsible for the destruction of socialism. Arnold Beichman writes in the Washington Times:
This is the 60th anniversary of the publication of "Road to Serfdom," by Friedrich Hayek. It is one of the most important books of the 20th
century, as important as the publication of "Das Kapital" was, in its malign way, in the 19th. ...For Hayek, competition was the surest way
for an economic system to work and competition could exist only under a free market system. In other words, as economist John Cassidy put it,
"By allowing millions of decision-makers to respond individually to freely determined prices, it allocated resources, labor, capital, and human ingenuity — in a manner that can't be mimicked by a central
plan, however brilliant the central planner.... The view of capitalism as a spontaneous processing machine — 'telecommunications system' was
how Hayek referred to it — was one of the real insights of the century." Mr. Cassidy suggested, "It is hardly an exaggeration to refer to the 20th century as the Hayek century."
Monday, May 31, 2004 ~ 4:45 a.m., Dan Mitchell Wrote:
Canada politician has secret plan to benefit the United States. The leader of the New Democratic Party has proposed a wide-ranging series of destructive tax
increases to finance bigger government. If these misguided proposals are enacted after the next election, more of Canada's productive people will fell to the United
States and other lower-tax jurisdictions. Combined with the story this blog covered yesterday, it appears that Canadian leftists are unwilling to compete in the global economy:
Setting out its election platform this week, Canada's New Democratic Party, a possible ally of the ruling Liberal Party should they fail to win
enough votes to form the next government, has committed itself to raising taxes in order to pay for ambitious public spending plans. ...Under a package of "fair tax measures" intended to net the
government an estimated $9.5 billion, the NDP is proposing a surtax on bank earnings, a new top tier of income tax, an inheritance tax and the "rolling back" of corporate tax cuts.
Sunday, May 30, 2004 ~ 2:33 a.m., Dan Mitchell Wrote:
Banking secrecy does not hinder war against terrorism. John Carlos Zarate, deputy assistant secretary for terrorist financing and financial crime at the US
Treasury Department, was recently interviewed by a Swiss news service. Zarate was specifically asked whether Swiss privacy laws interfered with the fight against
Al-Qaeda. His answer to that question - and his other comments - demonstrate the dishonest nature of OECD demagoguery against tax havens. Zarate said:
We have not seen banking secrecy as a hindrance. If there is a suspicion of terrorist links, the Swiss government and even the private sector is
more than willing and able to track the flow of money. The prosecutor's office has done a very good job of accessing accounts and information that is relevant to their and our own investigations.... What we have
done - largely thanks to the cooperation of countries like Switzerland - is debilitate al-Qaeda to the extent that we think they are having great
trouble raising money and moving it around the world. The less money they have now, the less able they are to recruit and train for future activities. ...The Swiss government has done a very good job of
respecting the principles that they consider to be important while still remaining nimble with respect to accessing and sharing information and taking action to dismantle terrorist support networks.
Saturday, May 29, 2004 ~ 1:43 a.m., Dan Mitchell Wrote:
Slovak leader slams tax harmonization. Ivan Miklos has done a remarkable job as Slovakia's Finance Minister, pushing through reforms in tax policy, pension policy,
and welfare policy. These policies have helped Slovakia's economy begin to prosper. Needless to say, he does not want his nation's future prosperity jeopardized
by French and German tax harmonization schemes, as indicated by the report from Tax-news.com:
"Harmonisation means higher tax levels. That's not bringing Europe forwards," Slovak finance minister Ivan Miklos told Handelsblatt. "That
is totally unacceptable for us," he added. "We simply dismiss any efforts leading to harmonization in the area of taxes." In a bid to stimulate
investment at home and from abroad, Slovakia has recently introduced a 19% flat rate tax, which includes personal and corporate income tax, a level which compares sharply with Germany's 38.8% company tax rate.
Other new EU entrants have chosen a similar low tax path with business taxes.
Friday, May 28, 2004 ~ 10:44 a.m., Dan Mitchell Wrote:
Savings tax cartel facing new obstacles. The bureaucrats in Brussels have been forced to water-down their cherished savings tax cartel, and now Tax-news.com is reporting that it won't go into effect in 2005. This is good news. Even though the
proposal has been emasculated, it still represents a step in the wrong direction:
Despite having reached a hard fought deal with Switzerland concerning the adoption of the Savings Tax Directive, the European Union has
warned that a lack of an agreement with other third countries may prevent the directive being implemented on time next year. ...However, EU finance ministers are set to decide whether appropriate equivalent
measures are in place in other third countries, namely Liechtenstein, Monaco and Andorra, and reports indicate that the prognosis is unlikely
to be optimistic. Meanwhile, a deal presented by San Marino was said to be "good, but not perfect."
Friday, May 28, 2004 ~ 9:18 a.m., Dan Mitchell Wrote:
Higher gas taxes only help politicians.
Some leftists say that higher taxes on gasoline will help protect America from gyrating energy prices. But as Bruce Bartlett
explains for Townhall.com, this is an absurd notion:
The idea that a higher gasoline tax will help our energy situation is ludicrous. All European countries have far higher gasoline taxes, and
they are just as vulnerable to increases in the price of oil as we are. If a higher oil price translates into a 50-cent per gallon increase in gasoline
prices (net of tax), then the Europeans and we are both going to pay 50 cents more per gallon.
Friday, May 28, 2004 ~ 12:19 a.m., Dan Mitchell Wrote:
More evidence of European uncompetitiveness. The EU Observer reports on a
new survey showing that the 25 countries of the European Union produce only 29 of the world's top 100 companies. The United States, by contrast, is home to more
than half of these companies. This is a very damning indictment of European competitiveness since American companies are hindered by a high corporate tax rate
and a terrible worldwide tax system. But even though US policy leaves much to be desired, America is a free market Mecca compared to welfare states of Europe:
A "league table" of the most valuable companies in the world - drawn up by the Financial Times Deutschland - has shown that EU companies
have a long way to go to be genuine world beaters. ...Overall, the 25 member states of the EU could muster only 29 companies in the top 100, compared to 55 from the US. The top EU performer was the UK, with
nine companies in the top ten. France and Germany follow with six and five respectively.
Thursday, May 27, 2004 ~ 4:11 p.m., Dan Mitchell Wrote:
More tax harmonization from Brussels.
If nothing else, the European Commission deserves credit for consistency. It seems that they want to tax every possible aspect of human activity, and they seem to believe that all taxes need to be
harmonized so that the "internal market" can function. The latest example of this perverse thinking is a call for harmonized alcohol taxes. The bureaucrats complain
that differential tax rates lead some consumers to escape high taxes in their home countries, but it never occurs to them that those countries should lower tax rates. The Bureau of National Affairs reports:
The European Union should harmonize taxation rates on alcohol sales in order to remove the considerable distortions to the single market that
currently exist because of the huge range in excise duties on various beverages, the European Commission said May 26. Despite huge tax discrepancies--in the case of spirits, taxes range from $2 to $15--the
commission said it was holding off on a legislative proposal until EU member states can find a consensus on a unified approach to the issue, especially since any new law must get the unanimous support of all 25
EU member states. "Although most member states agree that the proper functioning of the single market requires further approximation there is
not agreement on how this should be achieved," the commission said in a statement. ...Apart from distorting the single market, the wide range in
excise duties on alcohol sales is perpetuating fraud, the commission said. "It is clear to all that the widely divergent levels of alcohol taxation in
member states ... facilitate fraud and smuggling, but without the agreement of all member states nothing can change," said Taxation
Commissioner Frits Bolkestein in a statement. "A full debate is needed to establish whether there is now any consensus for improvements to the present situation."
Thursday, May 27, 2004 ~ 12:49 p.m., Dan Mitchell Wrote:
More evidence of tax competition, more bad news for Germany and France. No wonder the French and Germans are sounding more hysterical with each passing
day. It seems that there is a new announcement of major tax cuts every week, and Serbia is the latest example. Serbia still has lots of problems, to be sure, so it is
unlikely that this move will have a big impact. Nonetheless, this Tax-news.com story
about a 10 percent corporate tax rate must cause heartburn in Paris, Berlin, and Brussels:
The Serbian government intends to cut the country's corporate taxes to the lowest level in Europe, Finance Minister Mladjan Dinkic announced
on Tuesday....the government hopes that a reduction of the corporate tax rate from the current 14% to 10% will attract foreign investment, cut corporate tax evasion, and boost economic growth. ...This follows a
recent spate of tax cutting activity in central and eastern Europe and the Balkans, a trend which has angered relatively high-taxing EU members such as France and Germany...
Thursday, May 27, 2004 ~ 12:30 p.m., Dan Mitchell Wrote:
The Mouse that Roared. In 1959, Peter Sellers starred in a comedy about a tiny
nation that believes it can get rich from foreign aid by losing a war to the United States. The twist to the movie ("The Mouse that Roared") is that the tiny invading
army accidentally gets possession of a "Doomsday Bomb" and the US has to surrender - thus ruining the plan. Today, there is a new mouse roaring. Liechtenstein
is refusing to surrender to the European Union, creating the possibility that the proposed savings tax cartel will collapse. The EUPolitix story also notes that the EU is excusing the US from any obligation to participate and that the bureaucrats are
willing to move forward on the assumption that Switzerland will eventually comply with the misguided agreement:
An EU law cracking down on untaxed expat savings is being held up by other countries refusing to come on board, an EU official has told
EUPolitix.com. ...it can only come into force if five other territories, Switzerland, San Marino, Lichtenstein, Andorra and Monaco, agree to
similar rules by the end of June. An official present at a closed meeting of EU ambassadors on Wednesday told this website that Lichtenstein is
now refusing to co-operate. "There are no real signs for optimism", he said. ...On the positive side, fears that the law could be held up by
Switzerland's slow legal procedure may have been unfounded. But EU ministers are likely to accept a "letter of confirmation" that the law will
be ratified to get around the problem, the official said, although if the issue goes to a referendum it may not be possible to guarantee a positive outcome in Switzerland.
Thursday, May 27, 2004 ~ 10:59 a.m., Dan Mitchell Wrote:
Europe's excessive benefits subsidize unemployment. The National Center for Policy Analysis has a new publication comparing unemployment in the United States
and Europe. The most amazing number is that Europe's lowest unemployment rate in the last dozen years is higher than America's highest unemployment rate over the
same period. There are many reasons for Europe's stagnation, including a tax system that penalizes productive behavior and a benefit system that undermines incentive:
Over the last 12 years, America's worst unemployment rate was better than Europe's best unemployment rate. ...In the recent economic
downturn, Americans have been concerned with the length of time it takes unemployed people to find new work. Although our own performance is less than we could - and should - strive for, it is better
than Europe's by a country kilometer. ... Europeans dislike layoffs, and they make it very costly for companies to dismiss workers. The result is
actually harmful to the unemployed. Because it is so expensive for a company to terminate an employee, firms are very hesitant to hire workers in the first place. ...Economist Stephen Nickell surveyed the
research on European unemployment. He concluded that the greatest effects on unemployment come from "...generous unemployment benefits that are allowed to run on indefinitely, combined with little or no
pressure on the unemployed to obtain work..."
Thursday, May 27, 2004 ~ 9:45 a.m., Dan Mitchell Wrote:
Taxpayers benefit when government workers have to compete. The Bush Administration has a program requiring competitive bidding to carry out certain government activities. The good news, according to the Washington Post, is that this procedure is expected to save taxpayers more than $1 billion over the next five years:
An OMB report released yesterday found that such competitions, the cornerstone of President Bush's "competitive sourcing" initiative, cost
federal agencies $88 million in fiscal 2003. But they are projected to bring savings of $1.1 billion in reduced personnel costs and overhead
during the next five years, the report said. ...Stan Z. Soloway, president of the Professional Services Council, said savings would be even greater
with "real competition." ... "In the private sector there is tremendous concern about the credibility of the process and the program, since very
little real competition seems to be taking place." Chris Jahn, president of Contract Services Association of America, said, "The deck is being stacked against private companies."
The bad news, however, is that the figure should be much higher - a sentiment expressed by some of the people quoted in the Washington Post. A 2002 Cato Institute report revealed that the federal government does a very bad job weeding
out unfit workers. Combined with pay and benefit packages that greatly exceed private sector compensation levels, the federal workforce is very uncompetitive:
...just 434 civilian federal workers were fired for poor performance in 2001. Just 210 nondefense workers, or 0.02 percent (1 in 5,000), were
fired for poor performance. Firing rates were similarly low in prior years, and are low across all agencies. ...the rate of "involuntary
separations" is only about one-fourth as high in the federal government as in the private sector. ...Surveys find that most federal workers do not
believe that the best qualified people are the ones receiving promotions. A study by the OPM concluded that "the federal white-collar pay system
sends and reinforces the message that performance does not matter." Thus, federal workers put in time, automatically move up the pay scales,
and are nearly immune from dismissal. ...it can often take 18 months or longer to fire employees, thus requiring a major commitment of time and
effort from managers. ...There is an ingrained federal culture to score virtually all workers highly-the Merit Systems Protection Board has
found that just 1 percent of federal workers are rated below "fully successful" in annual reviews. False high scores create a hurdle for new
managers trying to prove that worker performance has actually been poor.
Thursday, May 27, 2004 ~ 8:17 a.m., Dan Mitchell Wrote:
Canada surrenders. Canada already suffers a brain drain of talented people who
prefer the lower tax burden in the US. To a logical person, this suggests that Canada should lower tax rates. Unfortunately, the current Prime Minister and Liberal Party
leader (in the socialist definition of the word, not the European tradition of classical liberalism) just announced that he has no intention of trying to remain competitive. Tax-news.com has the story:
As the Canadian general election campaign starts in earnest, Prime Minster Paul Martin poured cold water on the prospect of future big tax
cuts under his stewardship, stating at the weekend that the country can no longer afford to compete with the United States on tax. In a commercial that began airing on Sunday night, Martin declared a wish
to govern a Canada that is "prosperous yet generous of spirit. You can't have a country like Canada with the taxation levels of the United States..."
Wednesday, May 26, 2004 ~ 1:22 p.m., Dan Mitchell Wrote:
Victims of communism may finally get a memorial. By any standard, communism has been a horrific experiment. As many as 100 million people may have
perished thanks to dictatorial brutality in Marxist nations, and many more have suffered economic and political deprivation. Along with fascism and socialism,
communism is one of the tragic mistakes of the 20th century. Thanks to longtime conservative activist (and my Heritage Foundation colleague) Lee Edwards, the
victims of communism may soon be recognized by a memorial. A column in the Wall Street Journal tells the story of this much-overdue development:
...there soon may rise a memorial that marks the price of tyranny--specifically, the 100 million people said to have died during the
Cold War. If a federal planning board approves the site in July, the Victims of Communism Memorial finally may have a home ...The memorial will now consist of a replica of the Goddess of Liberty erected
by the martyred Chinese students of Tiananmen Square. Theirs was white, and this version will be built of bronze but covered with a white
patina so that it doesn't turn green over time. An eternal flame will burn in front. On either side, bronze tablets will display quotations from the
likes of Presidents Truman, Kennedy and Reagan, as well as Pope John Paul II, Vaclav Havel and Lech Walesa. Sculptor Thomas Marsh has offered to work for free. The total cost will be about a half million
dollars. Private sources will supply the cash...
Wednesday, May 26, 2004 ~ 12:29 p.m., Dan Mitchell Wrote:
The French continue to push for centralization and bureaucracy. In an article in the EU Observer, the French Foreign Minister warns that France will not accept a
Constitution that fails to grant enough new powers to the unelected bureaucrats in Brussels. Not surprisingly, he also criticizes the British for refusing to surrender their fiscal sovereignty:
French foreign minister Michel Barnier expects a successful outcome to the negotiations on the Constitution but has warned that France will not
accept a text 'on the cheap'. [Barnier] described the British demand for unanimity in tax matters as "unfortunate".
Wednesday, May 26, 2004 ~ 10:12 a.m., Dan Mitchell Wrote:
Even the business community in Europe is brain-dead. In yet another article about Europe's failure to compete with the United States, EU bureaucrats state that
Europe's economic problems can only be solved if government gets even bigger. This is akin to arguing that you should try to lose weight by gorging on donuts and
cheeseburgers all day. But what is really amazing about this story in the EU Observer
is that a representative of the business community also claimed that more spending was needed to boost growth! These people must be smoking crack:
Commission President Romano Prodi on Tuesday (25 May) called for a "radical change" in EU economic policy if it is to succeed in its
ambitious goal to overhaul the US and become the "most competitive economy in the world by 2010" - its so-called Lisbon strategy. ...Echoing
his sentiments, competition commissioner Mario Monti asked, "how can we seriously try to become the most competitive economy in the world if
we do not put our money where our mouths are"? ...Giacomo Regaldo, representing businesses and employers, said that "the budgeters do not
have the confidence of the business world or of consumers". He called into question the spending proposed by the European Commission for
the EU budgetary period 2007-2013, asking whether it was sufficient to boost slow growth in Europe....The beleaguered Lisbon strategy was established in 2000 - at the height of the dot-com boom - but by common
consent among politicians, economists, business leaders and trades unions, has been little short of a total failure. Growth rates in the US have consistently outstripped those in Europe and the EU falls behind
America on almost every measure of competitiveness.
Wednesday, May 26, 2004 ~ 9:42 a.m., Dan Mitchell Wrote:
New movie definitely belongs in the fiction category. The left is hoping that a new movie, The Day After Tomorrow, will build support for radical moves to fight
the alleged problem of global warming. But this is like hoping that Independence Day would build support for new weapons to fight space aliens - allowing the world of make-believe to triumph over reality. A Cato Institute expert dissects the absurd premise of this new movie in USA Today:
Global warming causes the Gulf Stream to shut down. This current normally brings tropical warmth northward and makes Europe much
more comfortable than it should be at its northerly latitude. The heat stays stuck in the tropics, the polar regions get colder, and the atmosphere suddenly flips over in a ''superstorm.'' The frigid
stratosphere trades places with our habitable troposphere, and in a matter of days, an ice age ensues. Temperatures drop 100 degrees an hour in Canada. Hurricanes ravage Belfast. Folks in Japan are
clobbered by bowling-ball-size hailstones. If we had only listened to concerned scientists and stopped global warming when we could. Each one of these phenomena is physically impossible. Start with the Gulf
Stream. Carl Wunsch, a professor of physical oceanography at Massachusetts Institute of Technology, knows more about ocean currents than most anyone. He thinks the nonsense in The Day After
Tomorrow detracts from the seriousness of the global-warming issue. So he recently wrote in the prestigious science journal Nature that the
scenario depicted in the movie requires one to ''turn off the wind system, or to stop the Earth's rotation, or both.'' The stratosphere will become
the troposphere when all three laws of thermodynamics are repealed. Hailstones can't reach bowling-ball size because their growth is limited
by gravity. Hurricanes can't hit Belfast because the intervening island of Ireland would destroy them.
Wednesday, May 26, 2004 ~ 8:14 a.m., Andrew Quinlan Wrote:
The hyper-sensitive French whine about a few jokes. The French are willing to engage in sordid under-the-table deals with brutal dictators like Saddam Hussein,
but they reach for the smelling salts when confronted with a few jokes by Colorado Governor Bill Owens. The Denver Post reports on the gall of these Gauls:
France's U.S. Embassy blasted Gov. Bill Owens on Monday for "unfortunate and ill-informed" jokes about the French. Keynoting
Saturday at the Michigan Republican Party Convention, Owens quipped, "You know why they planted those big trees along the boulevard in Paris? So the invading armies could march in the shade." And, he
continued, "You know why the new French navy has glass-bottom boats? So it can see the old French navy." ...Nathalie Loiseau of the French Embassy in Washington... admonished Colorado's two-term
governor for "uselessly practicing French bashing for the purpose of playing politics." Owens delivered his riffs to a crowd of 2,000 Michigan
Republicans after contrasting President Bush's leadership with that of likely Democratic presidential nominee John Kerry. Kerry, he said,
"would wait for a permission slip to be filled out by the United Nations and initialed by France" before rebuilding Iraq. ...Communications
director Sean Duffy said [c]oncerns about Owens' jokes are "kind of bewildering," Duffy added, "because he had a standing ovation in the hall."
Tuesday, May 25, 2004 ~ 5:03 p.m., Dan Mitchell Wrote:
New York is near the top of the list, but not in a good way. Ever wonder why so many entrepreneurs and investors flee New York and move to places like
Florida? The answer is that New York punishes productive behavior with confiscatory taxes. Tax-news.com reports on a new survey showing that only
Wisconsin and Rhode Island have worse policies that New York:
The state of New York has gained the dubious distinction of being one of the most 'wealth-hostile' states in the US, according to the findings of a
recent survey. he poll, conducted by Bloomberg's Wealth Management magazine, found that the state ranked 49th in a league table measuring
the tax burden in each state, with only Wisconsin and "tax hell" Rhode Island producing worse results. By using an identical set of six tax
parameters, the survey found that the most wealth-friendly state was Wyoming, where these parameters produced a tax bill of $7,259. By comparison, the same tax calculations resulted in a bill of $56,419 in
Tuesday, May 25, 2004 ~ 4:33 p.m., Dan Mitchell Wrote:
Cosby condemned for supporting individual responsibility. Bill Cosby is one of America's most well-known and well-liked entertainers, and he has invested much of
his own time and money to improve educational opportunities for other African-Americans. Yet this track record was not enough to protect him from
criticism when he pointed out that some of the problems in the black community are caused by self-destructive choices. The Wall Street Journal, Tom Sowell, and Clarence Page make similar - and correct - observations:
Mr. Cosby had issued a statement pointing out that most of the news accounts dropped the context within which his remarks were delivered:
a 50% high school dropout rate for inner-city African-American males that he rightly characterized as an "epidemic." In other words, Mr. Cosby's argument is that 1) a 50% black dropout rate ought to be
regarded as a national scandal in a post-Brown America; and 2) dysfunctional behavior is dysfunctional whatever one's skin color. Surely it says something about Mr. Cosby's critics that they are more disturbed
by his speaking out than they are about the underlying crisis he's trying to address.
Bill Cosby has provided a lot of laughs for millions of Americans over the years but black "leaders" were not laughing after he lashed out at
those black parents who buy their children expensive sneakers instead of something educational. He also denounced both those children and those
adults in the black community who refuse to speak the king's English. ...Bill Cosby and the black "leadership" represent two long-standing
differences about how to deal with the problems of the black community. The "leaders" are concerned with protecting the image of blacks, while
Cosby is trying to protect the future of blacks, especially those of the younger generation.
Mr. Cosby violated what I call "BPC," black political correctness. We should not hang our dirty laundry out in public, according to BPC,
especially in front of white folks - as if white folks didn't already know when our clothes are not clean. Instead of candidness in our public
self-appraisals, BPC tells us to sound like President Bush does on Iraq: If we've made any mistakes, we can't remember what they are.
Tuesday, May 25, 2004 ~ 3:15 p.m., Dan Mitchell Wrote:
Gordon Brown's socialist crusade hurts England. Chancellor of the Exchequer Gordon Brown sometimes uses the right rhetoric, but he apparently does not
understand that bad policies have real consequences. His latest tax increase is driving lots of money from London to Jersey. The Financial Times reports on the adverse impact of Brown's most recent mistake:
Property funds are shifting billions of pounds from the UK to Jersey to avoid new tax rules that come into force within weeks. The rules, part of
a government crackdown on tax avoidance, will require limited partnerships to pay 4 per cent stamp duty on transactions. An estimated £17bn ($30bn) of UK property is owned by limited partnerships; vehicles
used by the industry in part because they have not had to pay stamp duty. ...Among the groups making the move to Jersey is Morley Fund Management. It is set to move the ownership of five of its 10 property
limited partnerships, controlling more than £2.5bn, offshore in the next few weeks. Four are partnership funds with listed companies; two with
Capital and Regional and one each with Ashtenne and Quintain. Legal & General, the life assurer, is also looking at moving offshore some of its seven property limited partnerships, which have £2bn under
management. Aberdeen Property Investors, being bought by Arlington, is doing likewise with four partnerships controlling £700m of property, part of its £4.2bn under management. Lend Lease, the Australian
company which co-owns and manages Bluewater, one of Britain's biggest shopping centres, confirmed that it was setting up an offshore scheme.
Tuesday, May 25, 2004 ~ 11:22 a.m., Dan Mitchell Wrote:
Schroeder's economic illiteracy. Kevin Hassett of the American Enterprise Institute pulls no punches, stating that German Chancellor Gerhard Schroeder is
"economically illiterate" for supporting tax harmonization. Hassett correctly notes that harmonization might stop jobs and capital from leaving Germany for places like
Estonia and Slovakia, but it would accelerate the shift of money to non-EU jurisdictions - much as will happen if the EU's infamous savings tax directive is ever implemented:
German Chancellor Gerhard Schröder's bid to stop new member states charging attractively low rates of corporate tax could damage the EU's
wealth, a leading American tax expert has warned. Kevin Hassett, the director of economic policy of the American Enterprise Institute, a Washington think-tank, said the US "envies" the EU system which
currently allows countries to compete for investment by setting their own corporate tax levels. But he told European Voice that listening to
Schröder and getting rid of tax competition in the Union would wipe out one of its advantages at a stroke - and would rob new member states of any chance of competing by attracting capital away from the EU's
economic powerhouses. At the same time, it would help to drive capital away from the continent, towards more receptive regions such as Malaysia, Singapore, Taiwan or China. "Schröder's idea is about as bad
as any other idea I have seen from that government," said the former Federal Reserve Bank economist. "It is economically illiterate.
Tuesday, May 25, 2004 ~ 10:34 a.m., Andrew Quinlan Wrote:
As if the UN's oil-for-food scandal wasn't bad enough. The UK's Independent is reporting on widespread sexual abuse by UN "peacekeepers." Helping Saddam
loot billions of dollars from Iraq was a low point for the United Nations, but the bureaucracy is showing that it is capable of even worse behavior:
Teenage rape victims fleeing war in the Democratic Republic of Congo are being sexually exploited by the United Nations peace-keeping troops
sent to the stop their suffering. The Independent has found that mothers as young as 13 - the victims of multiple rape by militiamen - can only secure enough food to survive in the sprawling refugee camp by
routinely sleeping with UN peace-keepers.
Tuesday, May 25, 2004 ~ 9:12 a.m., Dan Mitchell Wrote:
Has Russia surrendered to EU extortion?
Environmental fundamentalists are pushing the Kyoto treaty on global warming, even though there is no scientific consensus that global warming exists. And even if there is some warming, it is unclear
if it is caused by human activity or that it would have adverse consequences. Equally important, even Kyoto advocates admit that it won't have much impact on so-called
greenhouse emissions. These are some of the reasons why Russia has rejected the treaty. But now it appears that Russia is willing to compromise its own future in order
and support the scheme in order to buy EU support for WTO membership. The Wall Street Journal bemoans this development:
The Kyoto treaty on global warming lurched back to life Friday after Vladimir Putin performed the Heimlich maneuver. The Russian President
announced that in return for European help in getting Russia into the World Trade Organization, he looked forward to speeding his country's ratification of the Kyoto pact. ...Until now, Russia has been smart,
looking beyond potential short-term gains from trading emission rights to the long-term costs of the treaty. Those add up to hundreds of billions of dollars per year across the world economy, in addition to the
opportunities forgone for real economic development. All this, dreamed up in the United Nations hothouse, would be in hope of slowing climate change by a smidgen, if at all. But now Mr. Putin has had a change of
heart. "The EU has met us halfway in talks over the WTO, and that cannot but affect positively our position on the Kyoto Protocol," he said,
promising to "speed up" Russia's ratification process. And while he didn't set a date, he went further than ever before toward a commitment to ratification.
Tuesday, May 25, 2004 ~ 8:05 a.m., Dan Mitchell Wrote:
Tax competition between states leads to significant national migration. The Arizona-based Goldwater Institute has released a comprehensive study showing that
over one million Americans have left high-tax states and moved to low-tax states. This process rewards states with lower tax burdens and imposes much-needed discipline on fiscally profligate states:
For Americas Founders, a federalist system was paramount to protecting and enhancing the exercise of personal liberty. By making the
jurisdictions to which people are subject smaller, federalism opens the door to numerous freedoms. Theoretically, someone who has grown frustrated with the actions of their state government may choose to
relocate to a state whose policies they prefer. ...Strong evidence suggests that people exercise their options by moving into states with low tax
burdens and favorable business climates, and exiting states with high tax burdens, poor business climates... Over the years examined, the 10 states
with the lowest overall tax burdens (Alaska, New Hampshire, Delaware, Tennessee, Alabama, Texas, Florida, South Dakota, Nevada, and Colorado, respectively) enjoyed a total net gain of more than 1,300,000
residents resulting from across-state migration. The nine states and the District of Columbia with the highest total tax burdens suffered a total
net loss of more than 1,700,000 residents as a result of migration. ...states contemplating increasing their tax burdens should not ignore the
fact that higher taxes will drive a portion of their citizens to live, work, and do business elsewhere, to the peril of the states long-term fiscal
health. States such as Florida and Nevada have profited enormously as havens for tax refugees from other states. States like California and New York have created an exodus of their businesses and citizens to
other parts of the country.
Tuesday, May 25, 2004 ~ 7:26 a.m., Dan Mitchell Wrote:
Americans put freedom first. One of yesterday's blog entries mentioned the Pew
report and how it confirms left-wing press bias, but there is some good news in the survey. A strong majority of Americans - as well as a similar majority of local
journalists - stated that individual freedom is more important than a government safety net. Even national journalists, who generally are very left wing in their political
outlook, are more likely to pick individual freedom over government paternalism. This report is yet another sign that the political spectrum in America is more
favorable to liberty than it is in Europe. Indeed, it would not be surprising to find out that "right-wing" Germans and French would score to the left of "left-wing" US national journalists.
There is more common ground between news professionals and the public in attitudes toward individual freedom and government assistance
for needy people. Identical majorities of local journalists (58%) and the public (58%) say it is more important that Americans be free to pursue their goals without government interference, than that government
guarantee that no one is in need. National journalists are divided over this question 49% place higher priority on freedom from government
interference while 42% say it is more important that the government play an active role to guarantee aid to the needy. Opinion among Internet journalists divides along similar lines: 51% believe freedom
from government interference is more important; 43% say a government guarantee of aid for the needy is more important.
Monday, May 24, 2004 ~ 8:55 p.m., Dan Mitchell Wrote:
Criminals love gun control. John Lott of the American Enterprise Institute has a column discussing the left's retreat from the gun control issue. There are two possible
reasons. First, leftists may have figured out that attacking 2nd amendment rights is not politically popular. The second possibility is that they are getting discouraged by
the big increases in crime in places where gun control is implemented. The numbers are amazing, as Lott explains:
Crime did not fall in England after handguns were banned in January 1997. Quite the contrary, crime rose sharply. Yet, serious violent crime
rates from 1997 to 2002 averaged 29 percent higher than 1996; robbery was 24 percent higher; murders 27 percent higher. Before the law, armed robberies had fallen by 50 percent from 1993 to 1997, but as soon
as handguns were banned, the robbery rate shot back up, almost back to their 1993 levels. Australia has also seen its violent crime rates soar
after its Port Arthur gun control measures in late 1996. Violent crime rates averaged 32 per cent higher in the six years after the law was passed (from 1997 to 2002) than they did the year before the law in
1996. The same comparisons for armed robbery rates showed increases of 45 percent. The 2000 International Crime Victimization Survey, the most recent survey done, shows that the violent crime rate in England
and Australia was twice the rate in the US.
Monday, May 24, 2004 ~ 4:18 p.m., Dan Mitchell Wrote:
Voters choose anti-tax candidates. Citizens for a Sound Economy reports that the recent Oregon primary resulted in several victories for supporters of limited
government and individual freedom. Even powerful incumbents were defeated once CSE explained that they were on the wrong side:
Oregon CSE PAC targeted and won 6 state house races. All were clear-cut examples of "tax fighters" verses "tax increasers." The
highest profile of these was the Kim Thatcher vs. Vic Backlund race. ...As Chair of the House Education committee [Backlund] has attempted to dismantle Oregon's charter school law and was the deciding vote on
the largest tax increase in Oregon history (Measure 30). Kim Thatcher on the other hand, is a long time CSE member and loyal supporter. And while it was believed by the lobby and political elite in Oregon that
Backlund was untouchable, thanks in large part to the efforts of CSE, Thatcher beat Vic Backlund 60.28%-39.72% even though she was outspent 2 to 1.
Monday, May 24, 2004 ~ 10:15 a.m., Dan Mitchell Wrote:
The EU's corrupt Parliament. The International Herald Tribune has a lengthy story about the lavish perks and benefits provided to member of the European Parliament.
Some of the freebies should be criminal offenses, including the ability to get travel reimbursements that are 10 times higher than actual costs. The EP may be even
worse than the US Congress, and members of both institutions are so pampered that they almost always lose touch with the concerns of average people:
...the legislature's well-oiled system of perks and privileges, which might make a corporate president smile in recognition: chauffeured cars; daily
and monthly stipends that can add tens of thousands of euros to basic salaries; jobs for relatives paid out of a E150,000 (about $180,000) a year secretarial allowance; free health care; pensions that, as one
legislator put it, can put "gin on the terrace"; and, most stunningly, a travel expense procedure that reimburses legislators for as much as 10
times the amount of their airfare ticket prices. According to payroll and expense records obtained by the International Herald Tribune and The New York Times, a legislator can add well over E100,000 to a base
salary when all the tax-free benefits are calculated.
Monday, May 24, 2004 ~ 9:29 a.m., Dan Mitchell Wrote:
The high cost of government regulation.
Responding to a handful of corporate scandals a couple of years ago, politicians thought they could improve corporate governance by imposing new regulations. But it turns out the costs of the
Sarbanes-Oxley Act are much greater than the ostensible benefits. Bruce Bartlett writes in today's Washington Times about the high costs of the legislation and the
perverse consequences on job creation and entrepreneurship:
[Financial Executives Institute] admits the compliance cost jumped sharply between its 2003 and 2004 surveys, as companies became more
aware of what they had to do. On May 19, Maurice Greenberg, chairman of AIG, the world's largest insurance company, told shareholders Sarbanes-Oxley was costing them $300 million yearly.
General Electric recently said it was paying $30 million per year in compliance costs. According to a new study by the law firm Foley & Lardner, the average cost for being a public company with sales of less
than $1 billion increased $1.6 million last year due to Sarbanes-Oxley. There was also an unquantifiable loss of productivity because senior
executives must spend so much time dealing with the law's requirements. Scott McNealy, Sun Microsystems' chief executive officer, calls
Sarbanes-Oxley "buckets of sand in the gears of the market economy." The Foley study found 20 percent of companies surveyed were considering going private, eliminating public shareholders, to avoid
Sarbanes-Oxley costs. Ed Nusbaum, CEO of accountants Grant Thornton, explains: "By going private, companies can greatly reduce their level of risk associated with shareholder litigation, while cutting
costs and regaining a sense of control and confidentiality."
Monday, May 24, 2004 ~ 8:14 a.m., Dan Mitchell Wrote:
First Howard Stern, next Rush Limbaugh.
Some conservatives want the Federal Communications Commission to go after "shock-jock" Howard Stern for his racy
program. This is a rather inconsistent attitude since most conservatives correctly highlight the importance of individual responsibility. If people don't want to listen to
Stern, they can turn the radio dial. And if they are worried about their kids listening, they should be more attentive parents. At the very least, they should understand that
once the government gets the power to block programming, that power will be used to persecute conservatives. John Fund discusses the issue in today's Wall Street
Sean Hannity, the talk-show host who is second only to Rush Limbaugh in popularity, warns that conservatives who applaud crackdowns on
indecency should beware that liberals will also try to use a revitalized FCC to bring back restrictions on political speech. "I predict a backlash
by liberals against free speech that will lead to calls for a new Fairness Doctrine mandating equal time, all in an effort to silence their critics,"
he told the New Media Seminar. "The solution to indecency," Mr. Hannity says, "is technology and choice." ...Regardless of what direction
the indecency debate takes, many people believe there will be a growing fuss over the political speech that everyone used to agree was at the core
of the First Amendment. "We have a Supreme Court that's upheld the McCain-Feingold restrictions on political ads 30 or 60 days before an
election, so other political speech may be up for grabs," says Mr. Medved. "The struggle talk radio hosts should be warning people about is the effort to stifle political speech."
Monday, May 24, 2004 ~ 7:42 a.m., Dan Mitchell Wrote:
Is anyone surprised to find out that the press tilts left? The establishment media is extremely biased, as any patron of the Media Research Center's good work
already knows. What is interesting, however, is that journalists at national media outlets are willing to admit their bias. A recent Pew Research Center study shows a left-wing bias of nearly 5-1 according to Editor and Publisher:
Those convinced that liberals make up a disproportionate share of newsroom workers have long relied on Pew Research Center surveys to
confirm this view, and they will not be disappointed by the results of Pew's latest study released today. ...At national organizations (which includes print, TV and radio), the numbers break down like this: 34%
liberal, 7% conservative.
Sunday, May 23, 2004 ~ 4:21 p.m., Dan Mitchell Wrote:
Gibraltar already has lost much of its sovereignty. The leader of the Tory Party in England recently visited the "Rock" and pledged that Gibraltar would never be
turned over the Spain if Conservatives govern the United Kingdom. These certainly are strong words, but they may not mean much since Gordon Brown and EU
bureaucrats already have done a good job undermining Gibraltar sovereignty:
As Gibraltarians prepare to cast their first votes in the upcoming European Parliamentary elections, the leader of Britain's Conservative
Party, Michael Howard, has pledged that a Tory government would "never surrender" Gibraltar's sovereignty. "There are those who would wish to overturn 300 years of history and separate Gibraltar from the
United Kingdom. The Conservatives will not let Gibraltar down," stated Mr Howard during his one day visit to the Rock earlier this week. He
added: "My pledge to you today is a simple one. The Conservatives will never surrender Gibraltar's sovereignty without the specific mandate of the people of Gibraltar."
Sunday, May 23, 2004 ~ 10:45 a.m., Dan Mitchell Wrote:
Canadian politicians avoid government-run health system. This is probably not an admirable trait, but leftists have a remarkable ability to be hypocritical. They
support high tax rates, but they are very aggressive users of special tax preferences to protect their own income and wealth. They support gun control, but they tend to
live in gated communities or high-rises with private security. And, as this Wall Street Journal column reveals, they like imposing government-run health care on ordinary
citizens, yet they conveniently make sure they have access to high-quality care from the private market:
If this sounds like a two-tier health-care system, with some folks going to clinics that take Medicare and others going to private clinics where they
pay their own way, that's because it is. ...A case in point is Canadian Prime Minister Paul Martin, Canada's most powerful and hard-line advocate of a monopoly government system and also a patient at
Medisys. If the prime minister were living by the one-size-fits-all system he swears by, he, of course, could not go to Medisys since his Medicare
card wouldn't cover his visit. The prime minister's office insists that he never pays his own medical bills -- this being something to brag about in
Canada. For "anything not insured under Medicare he relies on his medical benefit provided to him as an employee of the government of
Canada," his office told me. Yet this hardly absolves Mr. Martin from the charge that he is a consumer operating on a different tier than most
of the rest of Canada. After all, it is government privilege that lets him into Medisys. Ordinary Canadians would either need to carry private
insurance -- only allowed for nonessential services -- or pay out of their own pockets. As it turns out, even in egalitarian Canada, some are more equal than others.
http://online.wsj.com/article/0,,SB108509308825117436,00.html?mod=opini on (subscription required)
Saturday, May 22, 2004 ~ 9:15 a.m., Dan Mitchell Wrote:
White House caves in to Democrats...again. With a few exceptions, the Bush Administration has a disturbing track record of capitulating to the left. Judicial
nominations are the latest example. The President received almost nothing in exchange for surrendering his power to make appointments when Congress is in recess. The Wall Street Journal expresses its disappointment:
Senate Democrats are crowing that their deal this week with the White House on judicial nominations is a victory, and well they should. ...Mr.
Bush has agreed not to make any more judicial recess appointments for the duration of his term, and in return the Senate minority will deign to
allow votes on 25 of the non-controversial Presidential nominees they've blocked for months. However, the minority will continue its filibusters --
unprecedented in U.S. history on non-Supreme Court judicial nominees -- blocking several of the best Bush appointees from getting votes on the
Senate floor. All of these nominees have 50 votes of support, including some from Democrats, but are being blocked from traditional Senate advice and consent by 41 liberals. A Senate minority has in effect made
itself a judicial co-nominator with a nationally elected President.
on (subscription required)
Friday, May 21, 2004 ~ 1:47 p.m., Dan Mitchell Wrote:
Bush economist highlights importance of lower tax rates. Many people now understand that lower tax rates help the economy by boosting incentives to engage in
productive behavior, but they also have other beneficial effects. Lower tax rates implicitly reduce the value of special tax breaks, thus minimizing the distortionary
effect of these policies on economic decision making. Lower tax rates also reduce incentives to avoid and evade taxes, an elementary insight that seems beyond the grasp of bureaucrats in Paris and Brussels. The Bureau of National Affairs reports on recent comment by Professor Harvey Rosen of the Council of Economic Advisers:
Reductions in marginal tax rates enacted in 2001 and 2003 enhance economic growth, reduce excess burden on taxpayers, and remove some
of the incentive to pursue tax avoidance schemes, and therefore legislation should be enacted to make them permanent, Harvey Rosen, a member of the of the White House Council of Economic Advisers, said
May 20. Speaking to the National Tax Association Spring Symposium, Rosen said taxes not only impose a cost to taxpayers in the amount paid to the government but, by distorting their behavior, influence such
decisions as the amount of labor supplied and the amount to save. Business owners make decisions in part based on tax considerations, and the degree to which those considerations stunt wealth and welfare
outside of amounts paid to the government is commonly referred to as the excess burden, which depends on the marginal tax rate levied on an activity and is a pure waste to the economy, Rosen said. Tax cuts have
significantly reduced the amounts that must be paid to the government, and losses of income due to tax-induced behavior, though hidden, are real and large, he said. ...He also drew a correlation between higher
marginal tax rates and increased tax avoidance and tax evasion, saying that balancing the costs and benefits of partaking in such activities is
fundamental in a taxpayer's reaching such a decision. The greater the marginal tax rate, the greater the benefit, he said.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8t7w0k3 (subscription required)
Friday, May 21, 2004 ~ 10:40 a.m., Dan Mitchell Wrote:
Sovereignty promotes peace and competition. Jerermy Rabkin of Cornell University has a new book, The Case for Sovereignty: Why the World Should Welcome American Independence (http://www.aei.org/publications/bookID.769/
book_detail.asp), explaining why national sovereignty is desirable. The American Enterprise newsletter discusses the new book and notes that international
bureaucracies are inherently anti-market institutions that are incapable of fighting tyranny:
Rabkin contends that state sovereignty, contrary to prevailing opinion in many European capitals, strengthens rather than jeopardizes world
peace. Governments that seek to live in peace respect the sovereignty of their neighbors. Sovereign states have the right to respond to acts of
external aggression; international bodies cannot provide a substitute for sovereignty precisely because they do not have forces of their own to combat aggression. Achieving peace requires focusing on states and
methods that directly threaten peace, whether through nations supporting international terrorism or organizations like al Qaeda trying to acquire weapons of mass destruction. In Rabkin's view, state
sovereignty ensures global competition rather than domination.
Friday, May 21, 2004 ~ 9:16 a.m., Dan Mitchell Wrote:
A defeat for the Constitution. America's Founding Fathers wanted to protect
people from government abuses, which is one of the reasons why law enforcement authorities are required to present evidence and get a warrant from a judge before
violating someone's privacy. Unfortunately, this cherished right is being undermined by Bush Administration tax officials. The IRS has won the "right" to obtain
confidential records without any evidence of wrongdoing. Commentators correctly would scream if law enforcement sought warrants to harrass minorities because they
may have committed an unknown crime, yet almost nobody is objecting to this erosion of Constitutional rights:
Jenkens & Gilchrist, a Dallas-based law firm, surrendered the names of its tax shelter customers to the Internal Revenue Service yesterday under
a federal court order, the agency's third legal victory of its kind in a month. ..."This is yet another in a string of victories in the tax shelter
battle," the I.R.S. commissioner, Mark W. Everson, said. The I.R.S. has won rulings ordering the law firm of Sidley Austin Brown & Wood and
the accounting firm KPMG to disclose names of tax shelter clients.
Thursday, May 20, 2004 ~ 6:25 p.m., Dan Mitchell Wrote:
The reward for endless inaccuracy. Environmental groups are infamous for their
Chicken-Little, sky-is-falling rhetoric, but there never seem to be any adverse consequences because journalists rarely bother to review the historical record. Ronald Bailey of Reason magazine writes in the Wall Street Journal about the
laughably inaccurate record of Paul Ehrlich:
Environmentalist Paul Ehrlich has proved himself to be a stupendously bad prophet. In 1968 he declared: "The battle to feed all of humanity is
over. In the 1970s, the world will undergo famines--hundreds of millions of people are going to starve to death." They didn't. Indeed, a "green
revolution" nearly tripled the world's food supply. In 1975, he predicted that, by the mid-1980s, "mankind will enter a genuine age of scarcity,"
in which "accessible supplies of many key minerals will be facing depletion." Far from it. Between 1975 and 2000 the World Bank's commodity price index for minerals and metals fell by nearly 50%. In
other words, we abound in "key minerals." Naturally, Mr. Ehrlich has won a MacArthur Foundation genius award--and a Heinz Award for the
environment. (Yes, that Heinz: Teresa Heinz Kerry is chairman of the award's sponsoring philanthropy.) ...In 1971, Mr. Ehrlich told Look
magazine: "When you reach a point where you realize further efforts will be futile, you may as well look after yourself and your friends and enjoy
what little time you have left. That point for me is 1972." What is Greek for "this is ridiculous"?
Thursday, May 20, 2004 ~ 3:50 p.m., Dan Mitchell Wrote:
Bureaucratic Hell in Belgium. The Wall Street Journal reports on the smothering level of red tape in Europe. Belgium probably has the most inane regulations, which
may explain why it was selected as the home of the European Commission:
Bureaucracy is a chronic European disease, visible in countless ways from the three months it takes to start a business in Italy to the
half-dozen forms needed to change an address in France. Simplifying procedures and getting rid of redundant laws could increase productivity and thus boost overall gross domestic product in the European Union by
7%, according to calculations by Ireland's Ministry of Finance. ...Belgium has perhaps the continent's worst case of bureaucratitis. A multiethnic nation of 10 million, this 174-year-old country's solution to
its diversity has been a complex and often-confusing division of power for different areas of life among 589 communes, some 50 cabinet-level ministers and seven separate governments that represent the national
government; the French, Dutch and German language groups; and the Brussels, Flemish and Walloon regions.... For two centuries, even before the Belgian state was born, official documents submitted to a local
authority had to be accompanied by a conform copy -- another document stamped and approved by an individual's home commune, or local district. In 2003, communes issued 700,000 conform copies. "That's
a lot of time taken off work" by Belgians who needed to visit commune offices to request and pick up extra paperwork... Belgium residents are
required to pay administrative fees -- for a new passport, for example, or a change of address -- with fiscal stamps. The stamps are purchased at
any post office and used to pay fees at local government offices, which in turn submit them to the federal government for cash. Napoleon wrote
the rule because he didn't trust local administrations to handle money. Two centuries later, it still exists. Belgians buy EUR125 million ($148.2 million) of fiscal stamps every year.
http://online.wsj.com/article/0,,SB108474055398512664,00.html (subscription required)
Thursday, May 20, 2004 ~ 2:58 p.m., Dan Mitchell Wrote:
Irish reject tax harmonization. Not surprisingly, the Irish government is telling
Germany and France that it has no interest in surrendering its competitive advantage by acquiescing to tax harmonization. Ireland used to be the "Sick man of Europe,"
but now is known as the "Celtic Tiger" thanks to dramatic tax rate reductions. Unemployment has dropped from 15 percent to 5 percent, and Ireland is now the second richest nation in the European Union. Tax-news.com reports:
As certain EU member states seek to check tax competition in an expanded EU, Ireland's Prime Minister Bertie Ahern last week rejected
calls for corporate taxes to be harmonised. "Tax harmonisation in my view, and tax issues, are a matter of competence of member states and
should remain so," commented the Taoiseach, after talks in Lisbon with Prime Minister Jose Manuel Durao Barroso. Ahern's remarks were made
shortly before France and Germany announced proposals to introduce a uniform system for calculating a company's tax base within the EU, and to establish a 'tax corridor' within which corporate tax rates in the
Union should be set.
Thursday, May 20, 2004 ~ 1:45 p.m., Dan Mitchell Wrote:
French think tank explains that lower tax rates are key to successful amnesty program. France wants to lure flight capital back to the country, but the
politicians are so greedy that they won't fix the problems - oppressive taxes - that created the problem. As a result, France's Enterprise Institute warns that a tax amnesty program won't work:
France should repeal the wealth tax assessed annually on its richest citizens before going forward with a proposed tax amnesty on the
repatriation of foreign capital, according to a new report issued May 18 by a pro-business think tank. ...The new report from the Enterprise
Institute, an influential think tank funded by France's leading companies, suggests that the amnesty plan is doomed for failure unless the government radically reforms the various taxes on wealth. The
Enterprise Institute suggested that wealthy taxpayers will ignore any amnesty plan if the government fails to address the tax issues that provoked capital flight in the first place.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8t5a2x4 (subscription required)
Thursday, May 20, 2004 ~ 11:19 a.m., Dan Mitchell Wrote:
More bad news for the EU savings tax cartel. It appears that the European Union's loophole-ridden savings tax directive won't go into effect for at least one more year. Bloomberg and the Bureau of National Affairs are reporting that the
January 1, 2005, deadline is unrealistic:
Switzerland won't meet the European Union's Jan. 1 deadline for imposing a tax on foreign bank accounts, raising the risk of a further
delay to the EU's crackdown on tax evasion. ``It won't be possible to be ready definitively on Jan. 1, but we think it will be possible to find arrangements that enable the European Union to respect these
timetables,'' Swiss President Joseph Deiss said at a Brussels press conference with European Commission President Romano Prodi.
Swiss President Joseph Deiss said that, while Switzerland has no intention of becoming an EU member in the near future, it "very much
supports" the major European project. He said the Swiss government would do everything in its power to make sure the agreements are ratified by the end of May, so that they can be presented to the Swiss
Parliament by year's end. Deiss said he was encouraged by banks' positive response so far to the tax accord but noted that a referendum, which is out of the government's hands, could stall final ratification.
Even if Switzerland is unable to ratify the deal by January, Deiss said he remains optimistic it will still be possible for the European Union to tax EU savings abroad starting then.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8t4d9m2 (subscription required)
Thursday, May 20, 2004 ~ 9:42 a.m., Dan Mitchell Wrote:
Low-tax jurisdiction continue to attract financial services. Tax-news.com reports on the growth of the hedge fund industry and notes that a recent survey finds
that the overwhelming majority of these institutions are chartered in so-called tax havens. The left has always argued that lower tax rates have no impact on economic
activity, but this head-in-the-sand attitude must be increasingly difficult to justify:
...total assets under administration in hedge funds broke through the $1 trillion mark this month, Alternative Fund Services Review has reported.
...The survey's analysis of the geographical spread of hedge funds in terms of domicile shows that the industry continues to favour offshore
jurisdictions, with the Cayman Islands the clear leader at 42%, followed by Bermuda with 11%, Luxembourg with 10% and the British Virgin Islands with 6%.
Thursday, May 20, 2004 ~ 8:27 a.m., Dan Mitchell Wrote:
The tax competition bandwagon is picking up speed. It seems that hardly a week goes by without additional evidence coming to light about the liberalizing
impact of tax competition. The Czech Republic has been a bit slow in the shift to lower tax rates and tax reform, but now their corporate tax rates may fall to 22
percent. Not surprisingly, German politicians are upset, as Tax-news.com reports:
In a move likely to aggravate neighbouring Germany, the Czech Finance Minister Stanislav Springl indicated last Friday that corporate taxes may
be cut to 22% after the year 2006. Currently standing at a rate of 28%, Czech corporate taxes are due to be cut to 24% by 2006, but Springl announced whilst speaking at a conference of Czech and Slovak
entrepreneurs last week that the government may cut the levy further beyond 2006 by one or two percentage points.
Thursday, May 20, 2004 ~ 7:59 a.m., Dan Mitchell Wrote:
French politicians thinks Europe needs more government. Most people know that if you are in a hole, the first thing to do is stop digging. French politicians
apparently cannot grasp this simple concept. Europe's economy is lagging because government is big a bloated, yet the former French Finance Minister want to increase the EU budget by more than 50 percent. The EU Observer reports on this plan for accelerated suicide:
Europe is undergoing a "triple crisis" and that to improve the situation will cost twice as much as some member states - notably the "big three"
- are prepared to pay. The document - which was presented to Commission President Romano Prodi today - is the result of a "round table" of experts led by former French finance minister Dominique
Strauss-Kahn and consists of "50 proposals for tomorrow's Europe". ...He advocates in the report: "The budget of the union should move
progressively from now on to two percent of GDP to allow all of the propositions presented in this report to come into operation". The budget of the union is currently capped at 1.24 percent of GDP - a
ceiling that Mr Strauss-Kahn would like to see scrapped.
Thursday, May 20, 2004 ~ 7:18 a.m., Dan Mitchell Wrote:
Washington Post unknowingly makes a good point. Multinational corporations do substantial business in low-tax jurisdictions according to a recent Washington Post report. The left-leaning column asserts that this must be evidence of clever tax
planning by big business. But the data in the story simply confirm that low-tax regimes generate more economic activity and create more opportunities to make money:
...subsidiaries of U.S. corporations operating in the top four tax havens (the Netherlands, Ireland, Bermuda and Luxembourg) had 46.3 percent
of their profits in those countries in 2001, but only 9 percent of their employees and 12.6 percent of their plant and equipment.
Wednesday, May 19, 2004 ~ 11:43 p.m., Dan Mitchell Wrote:
Advertisement for the Libertarian Party. USA Today has a damning article
showing that Republicans are becoming the tax-n-spend party on the state level. This blog has remarked on Quisling Republicans in Virginia and Ohio, but that may be just the tip of the iceberg:
The Republican Party, long the champion of less government and low taxes, has backed large boosts in spending and taxes in many states
where the GOP controls the legislature, the governor's mansion or both. On average, the largest spending increases from 1997 through 2002 occurred in states where Republicans controlled both branches,
according to a 2003 analysis
Wednesday, May 19, 2004 ~ 9:23 p.m., Dan Mitchell Wrote:
European Commission continues push for corporate tax harmonization. A Brussels bureaucrat recently argued that the EU needs a harmonized tax base. This is
not a completely nutty idea, but the EU wants the wrong approach. Companies presumably would like to use one definition of taxable income, rather than the 25
rules that theoretically might be required today. But the way to achieve this goal is to permit countries to use the tax base of their home country. This achieves all the
simplicity the European Commission purports to favor, yet avoids the risk that a European-wide tax base would become a vehicle for higher tax burdens. The Bureau
of National Affairs discusses the issue:
A single European Union-wide company tax base is the best means of eliminating the tax obstacles that could prevent businesses from reaping
the full benefits from the enlarged internal market, Robert Verrue, director-general of taxation and customs union at the European Commission, told a tax symposium May 18. Speaking at the event,
sponsored by the Institute of Chartered Accountants in England and Wales, Verrue said a single EU-wide company tax base would help to eliminate problems such as double taxation and extra compliance costs.
"We in the European Commission strongly believe that our proposed approach of a single, EU-wide company tax base is, in the long term, the
best response to the current challenges in the corporate tax field in the EU," he said. ...The commission has acknowledged that this is a highly
political issue but insists that its suggested approach will not infringe on the sovereign right of member states to establish corporate tax rates.
While elaborating upon the commission's plans, Verrue also clarified that "the commission proposal for the harmonization of member states' tax
bases does not in any way imply the harmonization of their tax rates." In the commission's proposal, he stressed, "member states would continue
to have full independence in setting their tax rates."
Wednesday, May 19, 2004 ~ 7:09 p.m., Andrew Quinlan Wrote:
Quality students avoid studying to be part of a government monopoly. Walter Williams of George Mason University points out that qualified students do not want
to become teachers. Left-wing education departments attract some of the worst students, with test scores far below national averages. What isn't known, though, is
whether less competent students are attracted to the teaching because politicians and unions protect incompetence, or whether high-quality students avoid teaching
because government and unions have made the profession so unattractive to capable people. Both answers are probably right, and students are the losers:
Philadelphia schools are typical of poor-quality big-city schools. Susan Snyder, Philadelphia Inquirer staff writer, in her article "District to Help
Teachers Pass Test" (March 24, 2004) reported "that half of the district's 690 middle school teachers who took exams in math, English, social studies and science in September and November failed."
...Students who select education as their major have the lowest SAT scores of any major (964). Math majors have the highest (1174). It's the same story when education majors finish college and take tests for
admission to graduate schools. In the case of the Graduate Record Examination (GRE), education majors have an average score that's the lowest (467) of all majors except for sociology majors (434). Putting this
in perspective, math majors score the highest (720), followed closely by economics in third place (625).
Wednesday, May 19, 2004 ~ 5:32 p.m., Dan Mitchell Wrote:
A useful role for the European Commission. The Wall Street Journal discusses
the disturbing rise in subsidies and special favors that governments provide to domestic-based companies. This is the interventionist activity that supposedly was
going to stop following the creation of the European Union. Sadly, the bureaucrats in Brussels seem more interested in persecuting tax competition than they are in fighting special interests:
Internal tariffs in the EU were eliminated long ago. But subsidies and other more-subtle forms of preferential treatment have proved harder to
stamp out. But that's where the European Commission comes in; it is supposed to serve as the check against member-state governments' worst instincts. If anything, the changing economic landscape within
Europe as a result of EU enlargement May 1 makes it all the more vital that the European Union fulfill its role in policing national governments
who would prop up ailing firms at the expense of both taxpayers and would-be competitors who don't or can't benefit from the same largesse.
http://online.wsj.com/article/0,,SB108491983273715074,00.html?mod=opini on (subscription required)
Wednesday, May 19, 2004 ~ 1:26 p.m., Dan Mitchell Wrote:
India takes a step in the wrong direction. Even though India was enjoying impressive growth, voters threw out the ruling party and elected a government that is
perceived as more hostile to individual liberty and free markets. Bruce Bartlett comments on how this will likely defuse the "outsourcing" issue in the United States:
The great outsourcing controversy is now over. All you information technology workers who like to suggest that my job should be
outsourced whenever I write on this topic can now put away your poison pens. In elections last week, the voters of India fixed the problem by turning their country away from liberalism and back toward statism.
Should India's new leaders follow through on their campaign promises, there will be a lot fewer businesses there doing outsourcing or anything else.
Wednesday, May 19, 2004 ~ 10:30 a.m., Dan Mitchell Wrote:
More lunacy from the French. It is reprehensible that the French want to export
their bad tax system to other nations by harmonizing tax rates upwards. But it is even more disturbing that the French want to give the United Nations to impose global
taxes. Fortunately, even bureaucrats at the US Treasury (who often are tempted to put the interests of foreign tax collectors above the interests of America) recognize
this is a bad idea. The White House, needless to say, will ensure that this bad idea is quickly defeated:
French President Jacques Chirac on Friday repeated his call for an international tax to fight world poverty, saying he intends to raise the
idea at next month's G8 summit. Chirac recently appointed a panel of experts including economists, business leaders, government officials and
activist groups to examine the possibility of placing taxes on certain international industries such as shipping or arms sales, or imposing extra
carbon emissions taxes. After receiving a briefing from the panel, which is due to publish a full report in July, Chirac commented that awareness
of the issue is rising and claimed that the OECD has recently begun to see the "potential" of such a levy.
Tuesday, May 18, 2004 ~ 4:45 p.m., Dan Mitchell Wrote:
Glassman defends tax competition. Jim Glassman of techcentralstation.com recently spoke to a European audience. Not surprisingly, some participants objected
to his calls for economic liberalization. But this is precisely why jurisdictional competition is desirable. As Glassman explains, competition demonstrates that
nations with low tax burdens out-perform nations with high tax burdens:
The bone of contention is "tax competition" - the big buzz-phrase here in Brussels. The line among EU officials is that it is fine for the newcomers
to have low taxes, but competition has to be fair - whatever that means. On Friday, German Chancellor Gerhard Schroder, whose country has a larger population than the 10 accession nations combined, warned the
newcomers not to engage in tax "dumping." Otherwise, they can forget about the future financial generosity of Germany and other rich EU
countries. Germany is no model. Its high taxes and rigid labor laws contribute to an unemployment rate over 10 percent. The ideal for the newcomers, instead, is Ireland, whose corporate tax rate, at 13 percent,
is the lowest in the EU. A poster boy for the Laffer Curve, Ireland's low tax rates have brought in more tax revenues as the economy has boomed. In a decade, income in Ireland has gone from 50 percent below
the EU average to 20 percent above it. But Schroder said last week that one Ireland was enough. Harmonize your taxes at the high EU levels, or else, he told the accession nations.
Tuesday, May 18, 2004 ~ 4:00 p.m., Dan Mitchell Wrote:
Waste and corruption at the World Bank.
In recent testimony to the Senate Foreign Relations Committee, Dr. Jeffrey Winters of Northwestern University
delivered a devastating indictment of the World Bank. Professor Winters outlined the massive fraud levels, primarily caused by looting of funds in recipient nations:
Since its founding, the World Bank has participated mostly passively in the corruption of roughly $100 billion of its loan funds intended for
development. If we include the corruption of loan funds from the other Multilateral Development Banks (MDBs) over the same period, the figure roughly doubles to $200 billion. ...The vast majority of criminal
debt arises in the relationship between the MDBs and borrowing governments. And yet this is the nexus where the least effort has been made to stem losses from theft. While it is admirable that the World
Bank now investigates its own employees (and has caught a few red-handed), corruption among these individuals is minimal. Similarly, the blacklisting of international firms engaged in corrupt practices is a
positive move. But the scale of losses through corrupt firms is also minimal. The lion's share of the theft of development funds occurs in the implementation of projects and the use of loan funds by client
Tuesday, May 18, 2004 ~ 1:05 p.m., Dan Mitchell Wrote:
Empirical evidence that tax competition promotes good tax policy. The Bureau of National Affairs reports that Austria dramatically lowered it corporate tax
rate in response to competitive pressure. Not only does this demonstrate the liberalizing impact of tax competition, it also should serve as an example to Germany
and France. Instead of whining about low tax rates in places like Slovakia, these welfare states should cut tax rates and reduce bloated government budgets:
The Austrian National Assembly May 6 passed tax reform legislation that will lower the country's corporation tax rate to 25 percent from 34
percent--a response to stiff tax competition from new European Union members in Central and Eastern Europe. ...The Assembly's legislative approval comes less than a week after the May 1 accession date for 10
new European Union member states, an event which has fueled fears in Austria and elsewhere in Western Europe that companies will relocate eastward in order to take advantage of lower taxes and less expensive
labor and nonlabor costs. The new EU members are Poland, Hungary, the Czech Republic, Slovakia, Slovenia, the Baltic states--Estonia, Latvia, and Lithuania--and Cyprus and Malta. In adjacent Slovakia,
with its capital Bratislava not far from Vienna, the corporation tax rate is now set at 19 percent. ...The tax reform initiative is already showing
results, according to ministry figures. Since January 2004--the cabinet presented the draft legislation Jan. 9--the number of foreign companies' inquiries regarding moving operations to Austria has increased 77
percent compared to the previous year, while the number of German firms making such inquiries has jumped 147 percent compared to the same period in 2003.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8r5t6b7 (subscription required)
Tuesday, May 18, 2004 ~ 11:55 a.m., Dan Mitchell Wrote:
More productivity equals more jobs.
There is a strange new argument coming from the left that higher productivity is bad for job creation. According to this
simplistic analysis, employers will hire fewer workers if productivity rises. But this overlooks the fact that businesses will want more workers if each worker creates
more profits. This doesn't mean that every productivity increase automatically creates more jobs in every industry, but it does explain why job creation and productivity are correlated. The Dallas Federal Reserve Bank has just published an excellent report:
Over the grand sweep of history, the cumulative effects of productivity on living standards have been astounding. Per capita output has grown
25-fold since 1776. In just the past two generations, average real income in the United States has more than doubled, thanks largely to increased
output per hour. Productivity has also allowed Americans to reduce the average workweek from 76 hours in 1830 to 60 in 1890, 39 in 1950 and just 34 today. All told, productivity provides something close to
economic alchemy: more for less. We get more of the goods and services we want for less time at work. ...Except for brief recessions and their
aftermath, the economy creates enough new opportunities for both those who've lost jobs and new entrants to the labor force, increasing total employment and lowering the unemployment rate. This reorganization,
combined with efficiency gains in the workplace, forges a more productive economy with more jobs. Output per hour rose 67 percent in the past quarter century. At the same time, the United States added
almost 40 million workers to the employment rolls.
Tuesday, May 18, 2004 ~ 8:23 a.m., Dan Mitchell Wrote:
More education spending is not the answer. Teacher unions argue that more money should be spent on education, but empirical evidence finds no relationship
between spending and performance, and federal government spending is particularly counter-productive. The real problem is that existing funds are being used in an
inefficient manner, which is exactly what one would expect from a government monopoly. The Institute for Policy Innovation has published a comprehensive study
on the link between education inputs and academic performance:
Armies of scholars have tried to cut through the thicket of influencing factors to find the link between spending (and other education inputs)
and student achievement. The past three decades have seen nearly 400 studies trying to pinpoint the effects of, for example, spending, class size
and teachers' salaries. Hanushek (1997) tabulated the results...: of 377 studies tabulated, 277 have attempted to estimate the effect of teacher-pupil ratios on student performance. Of these, 15 percent found
that fewer pupils per teacher have a statistically positive effect on student achievement, 13 percent found a negative effect and 72 percent found no statistically significant effect. Many people will find the
information ...startling. The standard prescriptions for fixing what is wrong with America's schools - spending more, lowering class sizes, raising teachers' salaries, building nicer schools - have very mixed
evidence to support their effectiveness. Some studies do find these measures improve student achievement, others find an adverse effect and the majority find no impact whatsoever.
Monday, May 17, 2004 ~ 10:30 p.m., Dan Mitchell Wrote:
Voting patterns, not polls, are the best measure of voter preferences. Establishment media sources frequently report that people support higher taxes based on polling data. The Institute for Policy Innovation reports, however, that polls
are frequently skewed for ideological reasons. Elections are the best measure of voter sentiment, and voters overwhelmingly choose less government and lower taxes when given a choice:
A recent AP poll is being touted as proof that Americans want deficit reduction over tax cuts. Of course, to liberals "deficit reduction" is just
a euphemism for increasing taxes. But polls are notoriously open to respondee manipulation, depending on who, what, when, where and how the question is asked. The more important indicator of public opinion is
how people voted. In 2002, for example, voters in 41 states decided the fate of 201 initiatives or amendments to state constitutions, according to
the Council on State Governments. In 21 of these, voters rejected higher taxes, and approved them in 10. If a 2-to-1 margin isn't convincing
enough, consider that of the 10 "pro-tax" votes, six involved giving tax breaks to narrow interest groups, such as oil rigs in Louisiana, racing
vehicles in Nebraska, wildlife groups with land in North Dakota and commercial fisherman in Georgia.
Monday, May 17, 2004 ~ 9:49 p.m., Dan Mitchell Wrote:
Gun prosecution is perversion of justice. In most American towns, a homeowner who shoots a burglar receives a commendation and a congratulatory
slap-on-the-back from the local police. But in Wilmette, Illinois, common sense has been replaced by political correctness and a local resident is being persecuted by
local authorities for defending his family. Fortunately, at least one lawmaker is seeking to protect the right of self-defense:
Cook County prosecutors on Friday dropped a charge of failing to renew his Firearm Owners Identification card against Hale DeMar of
Wilmette, but the Village of Wilmette is going forward with its prosecution of DeMar for violating a local handgun ban. DeMar's predicament has received national attention. On Dec. 28 someone broke
into DeMar's house and stole his house and car keys and a vehicle. Less than 24 hours later -- and fifteen minutes after DeMar had tucked his
children into bed -- the burglar again broke into DeMar's house. DeMar grabbed a pistol and shot and wounded him. Police arrived at the house thirteen minutes after the burglar alarm first sounded, after DeMar
called 911 and after the shooting was over. ...Wilmette, though, has decided to proceed with its prosecution of DeMar for violating the village handgun ban, even though the suspect, Morio Billings of
Chicago, has a lengthy criminal record. ...The village's prosecution has outraged many people, including Sen. Edward Petka (R-Plainfield), deputy minority leader of the Illinois Senate. Petka has introduced
Senate Bill 2165, which provides an affirmative defense to a violation of a municipal ordinance that prohibits, regulates, or restricts the private
ownership of firearms if the charged individual used the firearm in self-defense or to defend another person. ... Petka said he objects to Wilmette's handgun ban and prosecution of DeMar because he believes
self-defense is both "an inalienable right" and a "law of nature."
Monday, May 17, 2004 ~ 8:13 p.m., Dan Mitchell Wrote:
New survey confirms France is the most over-taxed nation. Forbes magazine has issued its annual "Tax Misery and Reform Index" (available at www.forbes.com/home/global/2004/0524/074chart1.html). Not surprisingly, France
has the worst ranking, beating out Belgium and Sweden by a wide margin. On a positive note, the Index reveals that many nations (including France and Germany!)
have been reducing tax rates because of tax competition. The accompanying story discusses this welcome development:
Although "Old Europe" continues to impose many of the heaviest loads on top producers, the FORBES GLOBAL Tax Misery & Reform Index
shows many of those same nations to be making some of the biggest strides toward tax reduction. This may hold out hope for an economic stirring in a region that lately has lagged the world.
Monday, May 17, 2004 ~ 7:53 p.m., Dan Mitchell Wrote:
Bolkestein should look in the mirror when assigning blame. In a startling display of chutzpah, Frits Bolkestein of the European Commission now says taxes in
Europe are "too high." This is rather ironic since he has spent the last few years of his life trying to get the EU savings tax directive implemented - a policy that will
undermine tax competition and enable welfare states to raise taxes even further:
...speaking at a press conference in Prague, Bolkestein reiterated the Commission's dismissive stance on corporate tax harmonisation, and
suggested that in general, Europe's taxes are "too high." "High taxes are a brake on economic growth and also on creation of jobs. I am in
favour of a reasonable degree of fiscal competition," he added, observing that Slovakia's 19% flat rate of tax now contrasts markedly with Germany's 40% corporate tax rate. "Perhaps the example of
Slovakia or other countries with a low corporate profit tax rate will be instrumental in stimulating the French and German government to also lower their tax rates," he suggested.
Monday, May 17, 2004 ~ 4:30 p.m., Dan Mitchell Wrote:
The coming collapse of the EU. Not only does the EU have no chance of catching
the US economy, it faces the possibility of an economic collapse. That is the conclusion of Milton Friedman, one of the great economists of the post-World War II era. Friedman tells the EU Observer that bloated government is crippling the
European Union, and the Euro is creating added problems:
Milton Friedman, the Nobel-Prize winning US economist and one of the most influential economists of the 20th Century believes there is a
"strong possibility" that the 12 member euro zone could collapse "in the next few years". ...Professor Friedman, who played a pivotal role in
shaping the US economy in the latter half of the 20th century, is not optimistic about the EU's chances of fulfilling its self-imposed economic
goals known as the Lisbon Agenda. He said, "No I do not think that the EU can catch up with the US by 2010. It is a nice dream, a good hope
and I wish them well, the world would benefit". ...But the Professor, who was awarded the Nobel Memorial Prize for economic science in 1976,
has plenty of advice for the EU. "There is no doubt what the EU should do. Abolish your rules and regulations. Abolish your [high level of] spending. The European economy is too burdened with rules and
Monday, May 17, 2004 ~ 2:04 p.m., Dan Mitchell Wrote:
Savings tax directive is a farce. Politicians in France and Germany hope that the
proposed savings tax cartel will generate more money to redistribute to special interests, but they may be disappointed. As the Financial Times reports, the scheme
is riddled with loopholes. Moreover, the article does not consider the impact of capital flight to non-participating jurisdictions like Panama, Hong Kong, the United
States, and Singapore. To paraphrase Winston Churchill, "Never have so many bureaucrats labored so long and produced so little." As this blog has explained, the
proposed EU savings tax cartel is a step in the wrong direction, but it is comforting to know that greedy politician will have very little - if any - new money to waste:
...the savings tax directive may turn out to be a damp squib - and bank secrecy may again become an issue in the EU. While hard-pressed EU
finance ministers have been hoping for a windfall from previously undeclared savings, the signs are that revenues may be negligible. Robert Waldburger, Switzerland's chief international tax negotiator,
declines to estimate how much the new levy, ascending in three steps from 15 per cent to 35 per cent, may raise. ...Mr Waldburger stresses that the decision to exclude any types of savings instruments reflected
the wishes of member states during the EU's long internal negotiations. But the result has been to create a measure full of loopholes. ...Tax
lawyers and trustees have little doubt that any account holder, aided by astute bankers, will be able to get round the levy. For a start, only
interest payments will be taxed. Income from share dividends, unit trusts or insurance policies will be excluded. Even interest payments from the
bonds of Swiss-based issuers will be left out, as these are already taxed at source. The deal also only covers certain categories of account
holders. The status of trusts and foundations, for example, is unclear. While minnows may find their accounts too small to warrant their bankers' attention, those with large numbers to their names will have a
variety of means to circumvent the levy.
Monday, May 17, 2004 ~ 1:36 p.m., Dan Mitchell Wrote:
The real civil rights battle is school choice. On the 50th anniversary of a famous Supreme Court decision, the Wall Street Journal explains that desegregation has not
been a panacea for minority children. Instead, the real answer is school choice. This will require overcoming intransigent teacher unions, as well as hypocritical
left-wingers who don't want poor families to have equal rights:
On this day in 1954, the Supreme Court gave America the dream of equal education for all when it rejected the doctrine of "separate but
equal." ...Fifty years on, it's increasingly clear that the dream offered in Brown v. Board of Education will never be realized without an injection
of Milton Friedman's ideas about school choice. Most of us know the bad news: how urban public schools have largely resegregated themselves as whites fled to the suburbs. Others point to national test scores and
graduation rates that starkly lay out the widening "race gap" between blacks and Latinos on the one hand and whites and Asians on the other.
...The bitter opposition that even modest choice initiatives provoke from teachers unions and their allies in the bureaucracy and legislatures
indicates they understand the dynamic here: Once parents get a taste of choice, they want more. And it says something that the opponents of equal educational opportunity are largely affluent white pols such as
Arlen Specter or Teddy Kennedy or Mary Landrieu who would never dream of letting their own children set foot in schools they deem good enough for black and Latino children.
Monday, May 17, 2004 ~ 12:19 p.m., Dan Mitchell Wrote:
Why EU waste is sometimes a good thing.
The Wall Street Journal explains that
there is a silver lining to the dark cloud of bureaucratic waste and political correctness in Brussels. Simply stated, the difficulty of translating EU regulations into
20 languages is making it difficult for the bureaucracy to issue new rules and regulations:
Government can't grow too slowly, if you ask us. So imagine our delight with the European Union's latest dilemma. Thanks to the EU's
enlargement on May 1, new rules are being held up because of translation delays. The EU makes its proceedings available in the native tongue of participants -- and today the EU has 20 official languages. At
first this may sound like exactly the kind of government waste that should be discouraged -- and that's true, up to a point. But why begrudge
the €1 billion annual investment in translation (with 80 translators per language per day and more than two million pages to be translated this
year) when the policy acts as a welcome brake that slows rulemaking and bureaucratic creep? ...In the meantime, other constituencies are
lobbying to have their languages made official EU tongues. In the past we've expressed skepticism about these special pleadings, but given the monkey wrench it appears to have thrown into the regulatory works in
Brussels, we're inclined to say the more the merrier -- and the more obscure, the better. Why not have Cornish, Welsh, even Esperanto available? After all, too much hot air beats too much red tape!
Monday, May 17, 2004 ~ 11:49 a.m., Dan Mitchell Wrote:
Overpaid bureaucrats give each other big bonuses. The Washington Post unearths a genuine scandal, revealing that a significant majority of government
workers are given big bonuses in spite of substandard performance. Studies demonstrate that most government workers are extremely unproductive (though that
is sometimes a good thing), and they are grossly overpaid compared to people with real jobs in the private sector. This is further evidence that Republicans have allowed the federal budget to grow much too fast:
Almost two-thirds of 1.6 million civilian full-time federal employees received merit bonuses or special time-off awards in fiscal 2002,
according to a comprehensive examination of federal records obtained by The Washington Post. Of the 62 percent who got awards, half received $811 or more. The typical bonus amounted to 1.6 percent of
salary. The awards ranged from less than $100 to more than $25,000. At some agencies, more than 90 percent of General Schedule workers collected a bonus. Government-wide, about 2,900 employees received
cash bonuses totaling more than $10,000 each. ...Some civil service specialists said the proliferation of bonuses reinforces a common belief
that many federal workers are rewarded for little more than showing up. ...Paul Light, a professor of government at New York University, said he
doubts the public will swallow the notion that merit was the driving force behind the awards. "I don't think Americans think that 60 percent
of federal employees could possibly be so well above average that they would earn a bonus," Light said in an interview. "This is just going to
further confirm what many Americans believe, that the federal government is somehow an island unto itself."
Monday, May 17, 2004 ~ 10:32 a.m., Andrew Quinlan Wrote:
The future German Finance Minister?
Most people assume that German politicians support tax harmonization for reasons of narrow, self-interest. In other words, the attack on low-tax jurisdictions is a clever ploy to prop up the German
welfare state. But perhaps there is another explanation. A recent story indicates that maybe Germans just aren't very bright:
A German couple who went to a fertility clinic after eight years of marriage have found out why they are still childless - they weren't
having sex. ...Doctors subjected them to a series of examinations and found they were both apparently fertile, and should have had no trouble
conceiving. A clinic spokesman said: "When we asked them how often they had had sex, they looked blank, and said: "What do you mean?".
Sunday, May 16, 2004 ~ 1:13 p.m., Dan Mitchell Wrote:
More details on the Franco-Prussian tax axis. France and Germany not only want to harmonize corporate tax rates, they also want to harmonize the definition of
corporate taxable income. This is an equally misguided idea, one that would enable politicians to conspire to over-tax by preventing companies from recognizing certain
costs and forcing firms to over-state revenues. The European Commission pretends it is for tax competition, but it supports this second from of harmonization, as the Bureau of National Affairs reports:
Germany and France are pushing for closer harmonization of corporate taxation within the European Union with a minimum rate to avoid
harmful "tax dumping," which is seen as a threat from the new Eastern European EU member states. ...The Franco-German initiative first would have the EU adopt a uniform system for calculating the
company's tax base. Later, member states would establish ceilings and floors for the taxation level. ...Todd said the commission agrees with the
first step toward a common tax base and will produce a proposal before the end of October, when its mandate expires. "It's good to have increased transparency, leading to increased competition between tax
rates. Fair tax competition is beneficial. And alleviating the tax burden, especially for small companies, would be a good thing," he said.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8r9f0f3 (subscription required)
Saturday, May 15, 2004 ~ 9:05 a.m., Dan Mitchell Wrote:
Another well-deserved tribute for Margaret Thatcher. Bruce Bartlett of the National Center for Policy Analysis explains how the former British Prime Minister
rescued the United Kingdom from a terrible economic decline. Along with Ronald Reagan, Margaret Thatcher deserves credit for rescuing the developed world from socialist stagnation. Townhall.com has Bruce's article:
...establishment of a far-reaching welfare state in Britain that included nationalization of much of its industry. Taxes were raised to confiscatory
levels, and the British pound was devalued to pay for all the benefits. The British Empire came to an end. These socialist policies sapped the
economy's strength. Although incomes continued to rise, they rose much more slowly in Britain than in the rest of Europe. By 1978, Britain was
among the poorer countries... In 1979, the basic tax rate was 33 percent, and the top rate went as high as 98 percent ...On May 4, 1979, Conservatives won control of Parliament, making Thatcher prime
minister. She quickly set about implementing her agenda. Just one month later, the basic rate of taxation was cut from 33 percent to 30 percent,
and the top rate on wages went down from 83 percent to 60 percent. In subsequent years, the basic rate was reduced to 25 percent and the top
rate lowered to 40 percent. Britain's nationalized industries were sold off to the general public, making many of them shareholders for the first
time. Its extensive public housing was sold to tenants, making many of them homeowners for the first time. After a series of bitter encounters, the unions were finally tamed. The result was a rejuvenation of the
economy, the restoration of an enterprise culture and the end of talk about British decline.
Friday, May 14, 2004 ~ 2:00 p.m., Dan Mitchell Wrote:
Victory - and defeat - on the EU savings tax cartel. The high-tax nations have completely capitulated to Switzerland and Luxembourg. The EU savings tax directive
presumably will now be approved, albeit in an emasculated form. Compared to what high-tax nations originally were demanding, this is a great victory for tax competition.
Moreover, the agreement is so riddled with loopholes that only the most incompetent French or German taxpayer will be caught. But it is still bad news, both because it
does hinder good tax policy and especially since the ink won't even be dry on this agreement before the European Commission seeks to expand the reach of this measure to facilitate double-taxation. The Bureau of National Affairs and EU Observer both have useful reports:
...all 25 member states agreed to guarantee Luxembourg's banking secrecy as long as Switzerland retains its secrecy. Luxembourg, a tiny
tax haven within the EU, had threatened to veto the final green light for the EU savings tax law unless it received the same conditions as its rival Switzerland outside the EU.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8r8z0d4 (subscription required)
The European Union on Thursday (13 May) finally overcame internal differences to clear the way for Bern and Brussels to sign a set of nine
bilateral treaties. These will give Switzerland membership of the Schengen agreement - which would allow it free movement of people across the EU borders - but with an opt-out on sharing information
about tax evasion.
Friday, May 14, 2004 ~ 12:39 p.m., Dan Mitchell Wrote:
The Franco-Prussian axis issues hollow threat against England. Politicians in France and Germany are upset that UK voters will likely reject the statist EU
Constitution, and they think those voters will capitulate if threatened with the loss of EU membership. This hardly seems to be a viable threat, particularly since many
British citizens increasingly understand that the EU is a net liability to their country. The Financial Times reports on the controversy:
France and Germany will on Thursday raise the threat of marginalisation or even possible expulsion for Britain from the EU if it
fails to ratify the new constitutional treaty within two years. A joint declaration by Paris and Berlin will on Thursday revive the idea that the
constitution could be adopted if 20 out of the EU's 25 members agree, leaving others facing a legal limbo or possible expulsion. The proposal was on Wednesday night immediately denounced as unworkable by
Britain, and deemed unhelpful by the EU's Irish presidency, which is working to finalise the treaty in time for next month's summit in Brussels.... Under EU law, new treaties have to be agreed unanimously
by all member states and then ratified by all, either through parliamentary votes or through national referendums.
ry&c=StoryFT&cid=1083180458898 (subscription required)
Friday, May 14, 2004 ~ 9:15 a.m., Dan Mitchell Wrote:
The Franco-Prusssian alliance for higher taxes. The EU Observer reports on a
plot between France and Germany to force other EU nations to increase corporate tax rates. Fortunately, this scheme faces an uphill battle. The new member countries
certainly won't approve such a proposal, and Ireland and England presumably would use their vetoes as well:
France and Germany will soon propose that company tax rates in the EU be harmonised more closely, according to media reports. Officials in
Berlin are said to be working on plans to establish maximum and minimum bands for corporate tax within the EU. The proposals are set to be tabled officially at a forthcoming meeting of ministers from Paris
and Berlin. ...And leaders in Germany and France are worried that investment will drift towards these new countries if some form of harmonisation does not take place. ...Changes to EU tax policy must be
Friday, May 14, 2004 ~ 2:05 a.m., Dan Mitchell Wrote:
Bush's bold agenda. The Economist writes this week about President Bush's
second-term agenda. It sounds great - lots of market-based reforms. But much of this will not be possible if the Administration doesn't rein in wasteful government
spending. Sadly, it appears the White House is under-estimating the American voter and is thus unwilling to argue for less government and more freedom:
It centres on equipping Americans to compete in the global economy by reducing tax, trade, legal and regulatory burdens as well as revamping
education and training. The goal is not simply lower taxes, but the eventual elimination of all taxes on investment income. Republicans will use a second term to push an "ownership society" in which people can
prepare for their health-care and retirement costs with individual, portable accounts.
Friday, May 14, 2004 ~ 12:21 a.m., Dan Mitchell Wrote:
London infighting as Foreign Office objects to assault on UK territories. Tony Blair's government has been sacrificing the interests of the territories (and his
own nation) in an effort to curry favor with Brussels. The assault against the so-called tax havens is driven by the socialist Chancellor of the Exchequer, Gordon Brown.
Belatedly, the Foreign Office is objecting to the deliberate destruction of successful, market-based colonies, as Accountancy Age reports:
The Foreign Office has launched an unprecedented, thinly-veiled attack on the Treasury over its agreement to a European Union-led crackdown
on offshore tax havens in what is left of the former British Empire. The FO's annual report makes clear the frustration of officials responsible for the UK overseas territories, who are being compelled to force
Caribbean offshore island groups and other territories to accept the provisions of the EU directive on taxation of savings, which the territories 'believe could adversely affect their economies'.
Thursday, May 13, 2004 ~ 4:33 p.m., Dan Mitchell Wrote:
The savings tax cartel death watch, ad nauseum. The EU's infamous scheme to double-tax savings is clinging to life, but it looks like doctors will soon remove the feeding tubes. Both Tax-news.com and the Financial Times have the cheerful news:
Objections expressed by the government of Luxembourg have threatened to derail a possible deal between the European Union and
Switzerland concerning the latter's adoption of the Savings Tax Directive. ...Prime Minister of Luxembourg, Mr Jean-Claude Juncker, is worried that a separate deal could create an unlevel playing field in the
banking industry, and told EU ministers on Tuesday that his government could not accept an agreement that treated a third country differently. Juncker declared that there must be a "strict parallel" between the
treatment of the Swiss and EU member states.
The European Union's attempts to crack down on tax evasion suffered a setback on Tuesday, when Luxembourg rejected Swiss demands aimed
at protecting its banking secrecy. The Swiss - who are outside the EU - want guarantees that EU arrangements on border controls would never force Switzerland to violate banking secrecy over cases of tax evasion,
which is not a crime there. ...Jean-Claude Juncker, Luxembourg's prime minister, said on Tuesday his government would not accept any deal that treated EU member states and third countries differently.
ry&c=StoryFT&cid=1083180430750 (subscription required)
Thursday, May 13, 2004 ~ 4:17 p.m., Dan Mitchell Wrote:
Wall Street Journal comments on European stagnation, compliments OECD for finally realizing that lower tax rates are good. The OECD recently published
their Economic Outlook, which was noteworthy in that it actually endorsed lower tax rates in Eastern Europe. The Wall Street Journal applauds this new-found
commitment to free market economics at the OECD and notes that Old Europe is still stuck in socialist stagnation:
The deceleration that began in Europe at the end of 2000 has continued largely unabated since. The U.S. economy had a brief recession in 2001
and has been accelerating back up to ramming speed. In the spirit of what in 2001 we called Schadenfreude economics, it's no wonder that Europe wants to talk about America's "twin budgetary and trade
deficits"; anything to avoid discussing Europe's economic anemia.... Of course, there's always next year; the European economy is perpetually
projected to be on the cusp of an acceleration -- and you know what they say about stopped clocks. Unlike Continental politicians, however, the
Paris-based OECD does not appear to be under any illusions that robust economic expansion will be slipped under European pillows by a growth fairy. The report calls for increased labor-market flexibility, among
other measures, to improve resource allocation in continental Europe's stagnant economies. The other interesting tidbit out of the OECD's 189-page report is its call for lower taxes and less labor-market
regulation in the EU's four biggest new members. The OECD, which has led the charge against "unfair" tax competition in recent years, seems to have found a new tune.
http://online.wsj.com/article/0,,SB108440392876810136,00.html?mod=opini on (subscription required)
Thursday, May 13, 2004 ~ 3:59 p.m., Dan Mitchell Wrote:
Kerry's wife scams the tax code. We have reported on the Kerry family's use of
tax havens. It appears they do a very good job of avoiding tax. The New York Post today reports that Teresa Heinz Kerry managed to pay only 11.5 percent federal tax
on her $5 million income. Too bad her husband is against the flat tax, which would simultaneously lower tax rates to promote growth and eliminate special interest provisions that favor the rich:
Democrat John Kerry's wife, Teresa - one of America's richest women - had over $5 million in income last year, but paid a lower tax rate than
an ordinary person earning $50,000, according to a campaign statement released yesterday. The campaign said Mrs. Kerry, who files her returns separately from her husband, had $5.1 million in income and paid at
least $587,000 in federal taxes - a rate of 11.5 percent.
Thursday, May 13, 2004 ~ 3:50 p.m., Andrew Quinlan Wrote:
Another example of how left-wing policies promote poverty. The Democratic State Comptroller in Maryland was attacked for commenting that immigrants should
learn to speak English, and the Republican Governor is now being condemned because he came to the Comptroller's defense. Both of these elected officials should
explain that there is very strong evidence showing that quick mastery of the English language is critical to economic success. This is the main reason why
"multiculturalism" is misguided, as one Latin immigrant noted on talk radio yesterday. While attacking bilingual education programs (which inhibit the learning of English),
he remarked, "They teach my children Spanish so they can be janitors. I teach my children English so they can become doctors." The Washington Post reports on the controversy:
Gov. Robert L. Ehrlich Jr.'s remarks last week dismissing multiculturalism as "crap" and "bunk" echoed across the state
yesterday, as Democratic and Latino leaders demanded an apology and Ehrlich defended his comments as "utter common sense." ...Ehrlich said
his views are "very similar to the comptroller's" and added, "I reject the idea of multiculturalism. Once you get into this multicultural crap, this
bunk, you run into a problem. With respect to this culture, English is the language." ...Ehrlich said that the issue has "been hijacked by a politically correct crowd"
Thursday, May 13, 2004 ~ 9:35 a.m., Dan Mitchell Wrote:
OECD economists call for lower tax rates and labor market deregulation. The lawyers working for the Fiscal Affairs Committee want tax harmonization, but
the economists at the Paris-based bureaucracy have a more sensible attitude. In a recently released report, the OECD stated that nations in Eastern Europe should cut
tax rates even further (particularly since payroll tax rates remain very high). The Wall Street Journal reports that the OECD even cited Ireland as a role model:
The Organization for Economic Cooperation and Development, funded by 30 governments around the world, said the four largest new EU
economies -- the Czech Republic, Hungary, Poland and Slovakia -- need to cut labor taxes and do everything possible to encourage foreign investors if they are to follow Ireland's example and catch up with
existing EU members in terms of per-capita wealth. The OECD also said in its twice-annual world economic outlook released yesterday that the growth gap between the U.S. and the euro zone will widen this year as
the world economy experiences a "strong and sustainable" recovery. ...taxes on labor are relatively high. In Poland, for example, taxes on
labor make up 42.9% of total labor costs, including wages, for a single worker without children. That is less than Germany (52%), but a lot more than Ireland (24.5%). The report also attacks rigid labor
regulations in the four countries that make it difficult to fire staff and therefore make companies reluctant to hire. These rules and tax burdens
may not be much different from those in many established EU countries, the report said, but with an unemployment rate of 19.6% in 2003, Poland, for example, cannot afford them.
http://online.wsj.com/article/0,,SB108427574370407954-search,00.html?coll ection=autowire% (subscription required)
Wednesday, May 12, 2004 ~ 4:23 p.m., Dan Mitchell Wrote:
Washington Post columnist blasts tax code complexity. Robert Samuelson explains today how social engineering and special interest politics have created a
convoluted tax system. The answer, of course, is a simple and fair flat tax. Unfortunately, both Democrats and Republicans use the tax code to reward friends
and punish enemies - which is a strong argument for tax competition. Nations that make bad decisions should suffer the consequences:
In theory, it's easy to imagine a simple tax system with low rates... But in practice it has been elusive. Democrats and Republicans alike are too
eager to use tax breaks to advance various social, economic and political agendas. The resulting tax code is so confusing, complex and contradictory that it costs taxpayers (in accounting fees and the value of
their time) about $100 billion annually to complete their returns... One reason Americans are building ever-larger homes for ever-smaller
families is that housing is subsidized through the tax code. Similarly, the tax code subsidizes health insurance and, by shielding covered patients from many routine costs, promotes higher health spending.
Wednesday, May 12, 2004 ~ 3:00 p.m., Dan Mitchell Wrote:
French tax amnesty destined to fail.
The government of France is considering an amnesty if tax evaders repatriate their funds. Yet this proposal is likely to be a failure
since it is based on the German scheme - which taxes the money when it returns and then continues to double-tax it in all future years. Tax-news.com explains why the
initiative will fail:
Rafarrin indicated that the government has been considering using revenues derived from a possible investment amnesty to plough into a
social cohesion fund. However, Raffarin's proposal has come under fire from many sides. Many economists believe that an amnesty would be largely ineffectual, and if the poor results of the German amnesty so far
are anything to go by, they could well be proved right. The German Finance Ministry had high hopes for the amnesty introduced in January 2004, which 'rewards' investors with a 25% tax on the amount of
repatriated funds. However, its target of achieving EUR5 billion in revenues in its first year looks likely to be massively undershot, and it was reported in the German media last month that only EUR76.9 million
was taken by the government in the first quarter. Critics of Raffarin's proposal contend that France would be better off overhauling its punitive tax system to encourage wealth to remain in the country in the
first place. In particular, they point to the annual wealth tax, known as the ISF, levied on capital over EUR720,000 (starting at a rate of 0.5%
and rising to 1.2%) as the main culprit in causing capital to flee the country.
Wednesday, May 12, 2004 ~ 2:23 p.m., Dan Mitchell Wrote:
Even the "conservative" German opposition is economically illiterate. The EU Observer writes about Germany's growing budget deficit. This blog has
explained why it is silly to focus on government borrowing when the real problem is government spending and high taxes. It is not surprising that Germany's socialist
government doesn't understand these basic economic principles, but it is tragic that the opposition parties are equally clueless. An official for the Christian Social Union,
for instance, said budget deficits will undermine the Euro, even though government borrowing only affects monetary stability in jurisdictions (primarily in the developing
world) where deficits are financed by printing money. This is not a threat, however, since the European Central Bank is unlikely to debase the Euro to bail out profligate German politicians:
As Germany is set to break the EU's budget rules for a fourth year in a row, the leader of the governing social democrats Franz Müntefering
has now suggested the country might ignore these rules altogether. ...Conservative German opposition leaders reacted furiously to Mr Müntefering's comments. The secretary general of the Bavarian CSU
said that Mr Müntefering was the "gravedigger of a stable euro".
Wednesday, May 12, 2004 ~ 1:05 p.m., Dan Mitchell Wrote:
More good news on the savings tax cartel. The EU's proposed scheme to mandate the double-taxation of savings faces more trouble. Luxembourg is only
willing to go along with the directive is Switzerland is equally disadvantaged. Ideally, both Switzerland and Luxembourg would both summarily reject this ill-advised
scheme, but it is nonetheless enjoyable to watch the proposal self-destruct. The Financial Times has a report:
The European Union's attempts to crack down on tax evasion suffered a setback on Tuesday, when Luxembourg rejected Swiss demands aimed
at protecting its banking secrecy. The Swiss - who are outside the EU - want guarantees that EU arrangements on border controls would never force Switzerland to violate banking secrecy over cases of tax evasion,
which is not a crime there. The EU agreed last year to exchange banking information, or in some cases raise the amount levied on bank savings, from January next year, but the deal depends on accords with third
countries such as Switzerland. Jean-Claude Juncker, Luxembourg's prime minister, said on Tuesday his government would not accept any deal that treated EU member states and third countries differently.
ry&c=StoryFT&cid=1083180430750&p=1012571727179 (subscription required)
Wednesday, May 12, 2004 ~ 12:39 p.m., Dan Mitchell Wrote:
Added evidence of "onshore" money laundering. The left frequently implies that low-tax jurisdiction are havens for money laundering, but numerous sources -
including government bureaucracies - confirm that dirty money is more likely obtained and laundered in high-tax nations. Canada is high on this list, according to an official from the government. The Globe and Mail reports:
Canada is a haven for money launderers and there are more active terrorist groups operating in the country than anywhere else in the
world, a Toronto conference was told yesterday. Money launderers are attracted to Canada because of the country's lenient prison terms for criminals... "They know it's very easy to get away with crime in
Canada," Ms. Brown [a senior officer at the Financial Transactions and Reports Analysis Centre] said at a conference sponsored by the Investment Funds Institute of Canada, a trade group for the mutual fund
industry. "They know sentences are not stiff."
Wednesday, May 12, 2004 ~ 11:41 a.m., Dan Mitchell Wrote:
Competition boosts public school performance. Two experts from the NY-based Manhattan Institute have just released an important new study showing
that the Florida school choice program has spurred significant improvements in the public school system. Summarizing the issue in National Review Online, the authors
note that competition has always led to better performance:
Few question whether vouchers are beneficial for the students who use them to leave failing public schools. Rather, the debate is now focused
on the effect vouchers have on public schools. ...We found that public schools whose students were eligible for vouchers made significantly
larger test-score gains than other public schools in the state. Even public schools with only one failing grade, facing only the prospect of vouchers
if they failed again, made exceptional improvements. Meanwhile, similarly low-scoring schools that did not face the threat of voucher competition did not make similar gains. The same issue of Education
Next also contains an independent analysis by Cornell researcher Rajashri Chanrararti confirming these findings. Her analysis also shows that low-performing public schools in Florida have responded positively
to voucher competition. ...These results in Florida echo those of other researchers, including an analysis of the voucher program in Milwaukee
by Harvard's Caroline Hoxby, showing that competition improves public schools. In fact, no study of which we are aware has ever shown that vouchers harm public-school student achievement.
Wednesday, May 12, 2004 ~ 10:13 a.m., Dan Mitchell Wrote:
Cato Institute experts slams Hillary's latest health care gambit. Senator Hillary Clinton is trying to revive her status as a health care reformer. This is good
news for Republicans. They captured the House and Senate in 1994 largely because voters rebelled against Hillary's proposal to have bureaucrats and politicians control
the health care system. But this assumes Republicans still believe in free markets, a sentiment that was noticeably absent when the GOP created a new prescription drug entitlement. Nonetheless, Michael Cannon explains in National Review Online why Senator Clinton's thinking is so misguided:
Except for a few 21st-century garnishes, Clinton's article relies on decade-old misconceptions and contradictions. She argues the U.S.
ranks 42nd among nations in infant mortality, even though many nations underreport infant deaths and when measured by birth weight, infants do better in the U.S. than in nations with supposedly lower mortality
rates. She claims there are 43 million uninsured Americans despite authoritative scholarship showing the number is closer to half that figure. At the same time she decries the lack of treatments for rare
diseases, she praises the same Food and Drug Administration that makes such treatments unprofitable. "Individuals should understand that they
put their lives at risk with unhealthy behavior," she says, but risk-based insurance pricing is cruel. Emergency-room overcrowding is not a consequence of socialization, but evidence of the need for greater
Wednesday, May 12, 2004 ~ 8:58 a.m., Dan Mitchell Wrote:
Will the EU move in the right direction? Veronique de Rugy of the American Enterprise Institute contemplates whether the European Union can be saved by
competition from the new low-tax members from Eastern Europe. The unpalatable alternative, of course, is that the bureaucrats in Brussels will undermine free-market
policies and turn "New Europe" into "Old Europe." Techcentralstation.com has the article:
The interesting question is whether these new EU nations will be allowed to keep their free-market policies. The EU is at a crossroads. The
bureaucrats in Brussels who run the EU can decide to welcome the competition from these lower tax jurisdictions and urge the nations of
"Old Europe" to reform their tax systems and cut tax rates. In other words, the EU could decide to respond to tax competition with tax
competition. The EU's second option is to undermine tax competition by bullying the newcomers into increasing their rates. The underlying assumption is that differences in tax rates create "unfair" tax
competition. To stop money, businesses and jobs from escaping Europe's high-tax economies in order to flee to Eastern European countries, they want tax rates to be harmonized.
Wednesday, May 12, 2004 ~ 7:15 a.m., Dan Mitchell Wrote:
Gun control is a political dud. America's 2nd Amendment freedoms are probably
safe, at least if the latest "Million Mom March" is any indication. These left-wing activists had a hard time attracting any attendance at their recent "rally." They
certainly must be disappointed, but they probably aren't nearly as disappointed as criminals - all of whom would feel safer if law-abiding citizens were disarmed. The Wall Street Journal opines on the issue:
Here's more evidence that a million ain't what it used to be. On Sunday the Million Mom March ended up attracting between 2,000 and 3,000
women to the West Lawn of the Capitol. Though organizers tried to put a brave face on the paltry turnout, it was quite a comedown from Mother's Day four years ago, when the same event attracted hundreds of
thousands and was cheered on from the Clinton White House. ...The founder of the Million Mom March is Donna Dees-Thomases. Back when she first dreamed up the event, she liked to pass herself off as an
ordinary New Jersey housewife appalled by the gun violence she saw on TV. Later it emerged that Ms. Dees-Thomases just happened to be the sister-in-law of longtime Friend of Hillary Clinton, Susan Thomases. It
tells you something about where this issue is heading politically that now-Senator Clinton didn't bother showing up this year. We can appreciate that she must have had better things to do on Mother's Day.
Tuesday, May 11, 2004 ~ 4:49 p.m., Dan Mitchell Wrote:
EU savings tax directive death watch.
EU Business reports on the latest negotiations between the European Union and Switzerland regarding the savings tax cartel. Proponents of tax competition are conflicted on the issue. Is it better to have a
watered-down directive go in effect, knowing that capital can escape to Hong Kong, Panama, Singapore, and the United States? Or, is it better to kill the scheme
outright? The latter outcome is probably preferable, especially since the high-tax nations will surely try to expand the directive once it is implemented:
The EU could finally conclude a long-sought deal with Switzerland to clamp down on offshore tax fraud later this month, and has pencilled in
a bilateral summit do so, diplomats said Monday. "A summit is scheduled for May 19 if a positive result can be hoped for," said one
diplomat, adding that the gathering would also discuss Swiss relations with Europe's Schengen grouping of border-free countries. ...EU internal
market commissioner Frits Bolkestein will brief EU finance ministers meeting in Brussels Tuesday on the latest state of negotiations with his Swiss counterparts. Pressure is growing as a June deadline approaches
for a deal to be struck to allow for a harmonized "directive" -- or EU law -- on taxation of savings to come into force on January 1 next year.
Tuesday, May 11, 2004 ~ 4:19 p.m., Dan Mitchell Wrote:
French intransigence threatens trade liberalization. The European Commission deserves praise for a proposal to reduce agricultural subsidies. Shifting to
market-based agriculture would save a lot of money for European and American taxpayers, and it would be a big boost for third world farmers that are priced out of
world markets. Not surprisingly, the French are the biggest obstacle, as the International Herald Tribune writes:
The United States and several major European countries on Monday backed a European Commission initiative to drop billions of dollars
worth of subsidies on farm exports, saying they were optimistic that the ambitious offer would help restart stalled global trade negotiations. The
move was hailed by Ireland, Germany and the Netherlands. But France, the largest beneficiary of farm aid from the European Union, raised the
prospect that it might try to block the measure, calling it ''dangerous''...
Tuesday, May 11, 2004 ~ 3:05 p.m., Dan Mitchell Wrote:
The EU wants to treat the symptom rather than the disease. The European Commission is upset because Italy (like France and Germany) has a budget deficit of
more than 3 percent of gross domestic product, but this ire is misplaced. The problem through much of Europe is that government is too big. In theory, budget
deficits could be "solved" by higher taxes, but this is akin to jumping out of the frying pan and into the fire. If policy makers want to restore economic growth in Europe,
they need to put aside their myopic fixation with deficits and instead focus on reducing the burden of government. The EU Observer has the story:
Finance ministers from the 12 countries that share the euro last night (10 May) decided to postpone a warning to Italy over its breach of the
rules that underpin the euro. ...Under EU rules, a country is not allowed to run a budget deficit above three percent of gross domestic product
(GDP). But Rome has a deficit of 3.2 percent... This is the second time that the individual EU member states have effectively ignored the Commission's recommendations over economic policy. In November,
member states voted to suspend disciplinary measures against France and Germany for breaking the rules, leading to an as yet undecided court case.
Tuesday, May 11, 2004 ~ 8:08 a.m., Dan Mitchell Wrote:
The US isn't always right and the EU isn't always wrong. This blog frequently condemns the interventionist mindset in Brussels, but sometimes the bureaucrats are
on the right side. Aviation deregulation is one such example. Loyola de Palacio, the EU Transportation Commissioner, writes in the Wall Street Journal about the
benefits of open markets and competition - something that is being hindered by protectionist US measures prohibiting non-US firms from serving the US market:
Today, only four British and American airlines can fly to and from the U.S. to London's Heathrow Airport, the EU's most valuable gateway.
U.S. negotiators' zest for prizing open this and other restricted markets is understandably strong. But the zest disappears when it comes to
delivering on their side of the bargain by opening up the U.S. domestic market to foreign airlines. While a U.S. airline can carry passengers and
cargo from any major EU capital to another, this right is denied to EU carriers between major cities in the U.S. "That's off limits," we are
told.... What is the U.S. afraid of? The time has surely come to do away with the sclerotic trappings of a bygone protectionist age and unleash
the full potential of this most globalized and globalizing of industries. Let's let airlines fly where they want, when they want.
http://online.wsj.com/article/0,,SB108414095166406181,00.html?mod=opini on (subscription required)
Tuesday, May 11, 2004 ~ 7:17 a.m., Dan Mitchell Wrote:
More economic stupidity from Germany.
It is difficult to decide which nation has the most economically illiterate politicians, but Germany would give France a good
contest. Chancellor Schroeder must think a day is wasted if he doesn't do something to undermine job creation and economic growth. The Wall Street Journal opines on his latest hare-brained scheme:
The only new initiative the government has come up with in recent months is a major step backward for economic freedom in Germany. To
reassure the party's traditional base, the coalition pushed through last Friday a law to fine those companies that don't offer enough training
programs for young job seekers. The law will create yet another layer of bureaucracy and huge costs both to taxpayers and companies. It is a blunt instrument that will punish even those firms that would like to
offer training jobs but can't find any applicants. And it will make life even harder for those firms that simply can't afford to fill the quota. The
new European Union members from the East, with their low taxes and cheap work force, will look even more attractive to German industry once this law is implemented.
http://online.wsj.com/article/0,,SB108413721050806094,00.html?mod=opini on (subscription required)
Monday, May 10, 2004 ~ 12:10 p.m., Dan Mitchell Wrote:
The continuing slow death of the EU savings tax directive. The savings tax cartel of the European Union may have a pulse, but it certainly seems on the verge of
death. The proposal is designed to double-tax savings and investment, and would require nations either to impose a withholding tax on nonresident savings or to
divulge confidential financial data to tax police in other nations. Fortunately, the EU Business reports that the scheme is in trouble because nations like Switzerland and
the United States are refusing to undermine their economies just to help enforce the bad tax laws of other nations:
On Tuesday EU tax commissioner Frits Bolkestein will brief the 25 ministers on his negotiations with third countries, particularly
Switzerland, on the EU's new savings tax regime. Progress has stalled over the EU's refusal to bow to Swiss demands for concessions over border controls in return for agreement to provide details of EU
residents' savings stashed away in Switzerland. Pressure is growing as a June deadline approaches for a deal to be struck to allow for a
harmonized "directive" -- or EU law -- on taxation of savings to come into force on January 1 next year. Aside from Switzerland, the EU is also
bogged down in talks with tax havens such as Andorra, Liechtenstein, Monaco and San Marino. "Part of the problem here is that nobody
wants to be first," a spokesman for Bolkestein, Jonathan Todd, said. But he added: "We have made very substantial progress. We are working
diligently towards ensuring that the decision can be made before the end of June."
Monday, May 10, 2004 ~ 11:32 a.m., Dan Mitchell Wrote:
Tony Blair does the right thing, though perhaps for the wrong reason. The UK government is adamantly demanding that the EU constitution be modified to
protect national sovereignty in important issues such as tax. This is a welcome development, even if Prime Minister Tony Blair and Chancellor of the Exchequer
Gordon Brown are merely trying to placate voters prior to a referendum. The Daily Telegraph reports:
There will be no European constitution unless other EU countries agree to insert specific amendments into the draft text to protect Britain's "red
lines" on tax, Tony Blair will warn today. ...As part of a carefully-timed double act, Mr Blair will be backed up by Gordon Brown in Brussels
tomorrow, when the Chancellor will tell his fellow finance ministers that they must do more to protect national independence on fiscal matters.
...[Blair] will say there is no question of agreement on the constitution unless it incorporates wording that respects Britain's "red lines" - areas
such as tax, where the Government will not surrender its veto.
Monday, May 10, 2004 ~ 10:17 a.m., Dan Mitchell Wrote:
More progress from Italy. Cutting tax rates is good. Reducing spending (or at
least slowing its growth is good). Combining the two is the best of all worlds, and the Italian government is moving in this direction. Prime Minister Berlusconi wants to
lower the top income tax rate from 45 percent to 33 percent, a step that dramatically will boost Italian competitiveness. To facilitate this much-needed tax reform,
Berlusconi wants to reduced government spending by one percentage point of GDP. Tax-news.com has the story:
Italian Prime Minister Silvio Berlusconi has announced his desire to see around EUR12 billion worth of reductions in government spending in
order to push through his prized programme of tax cuts. In a bid to kick-start Italy's ailing economy, Berlusconi is proposing around EUR6 billion worth of tax cuts, which will reduce the country's current five
income tax brackets to two, and reduce the top rate of tax from 45% to 33%. ...Berlusconi has estimated that the spending cuts would be the equivilant of around 1% of gross domestic product, although the Prime
Minister has not given any indication of where the savings will be made to make room for the tax cuts.
Monday, May 10, 2004 ~ 5:05 a.m., Dan Mitchell Wrote:
How the US economy was rescued from "Soft America." George Will reports on a fascinating new book by Michael Barone, analyzing the conflict between the
soft world of bureaucracy and the hard world of competition. The battle is far from won, of course, but leaders like Ronald Reagan rescued America and put the nation on the right path of competitive markets. Will's column makes for good reading:
Michael Barone, America's foremost political analyst, wonders why America produces so many incompetent 18-year-olds but remarkably
competent 30-year-olds. ...schools became emblematic of Soft America, suffused with ``progressive'' values -- banning dodge ball and other games deemed too competitive, attempting personality adjustment,
promoting self-esteem and almost anyone with a pulse. In contrast, Barone says, ``Hard America plays for keeps: The private sector fires people when profits fall and the military trains under live fire.'' Soft
America depends on the productivity, creativity and competence of Hard America, which protects the country and pays its bills. For a while, Soft
America, consisting of those sectors where there is little competition and accountability, threatened to extinguish Hard America. By 1950, America had what Barone calls a Big Unit economy -- big business and
big labor, with big government often mediating between them. This economy was, Barone says, ``inherently soft.'' ...Then came a hardening. Deregulation ended soft niches (e.g., airlines, trucking) protected by
government-sponsored cartelization. The Interstate Commerce Commission, which encouraged cartelization, was abolished. New financial instruments (e.g., junk bonds) fueled hostile takeovers. Capital
gains taxes were cut, stimulating entrepreneurship. Between 1970 and 1990, the rate at which companies fell from the Fortune 500 quadrupled. The portion of the gross national product accounted for by the 100
largest industrial corporations fell from 36 percent in 1974 to 17 percent in 1998. ...In the Soft America of 1970, the tapestry of welfare benefits
had a cash value greater than a minimum wage job. In the Harder America of 1996, welfare reform repealed Aid to Families with Dependent Children, a lifetime entitlement to welfare. And in the 1990s,
welfare dependency -- and crime -- were cut in half. A harder, self-disciplined America is a safer America. What institution is consistently rated most trustworthy by Americans? The institution that
ended its reliance on conscription, that has no racial preferences and has rigorous life-and-death rules and standards: the military.
Sunday, May 9, 2004 ~ 11:39 a.m., Dan Mitchell Wrote:
Low-tax jurisdictions must resist OECD bullying. Julian Francis of the Bahamas Central Bank correctly argues that low-tax jurisdictions must band together and fight
tax harmonization schemes being pushed by international bureaucracies such as the Organization for Economic Cooperation and Development. Tax-news.com reports:
The Governor of the Central Bank of the Bahamas, Julian Francis, has urged small states to cooperate more closely with one another to ensure
that their presence is felt by the OECD and onshore jurisdictions when new tax initiatives are being discussed. "The OECD have sought to isolate small states by accusing them of engaging in harmful tax
practices... By working more closely, small states would be better positioned to present a unified strategy and oppose those initiatives which may be harmful to the interests of many less powerful nations, Mr
Francis pointed out. He also suggested that the offshore world should establish bodies of intellectual opinion and formulate its own initiatives
to challenge the prevailing opinions of the onshore nations. "Although we may be competitors, our survival and consequently our viability, depend to a great degree on our success in developing this level of
cooperation," argued the Central Bank governor.
Sunday, May 9, 2004 ~ 10:45 a.m., Dan Mitchell Wrote:
Europe's tradition: Feudalism/socialism.
Robin Shepherd writes in the Washington Post about strained US/European relations. Although the article largely
focuses on foreign policy issues, Shepherd makes an interesting observation on the differences between "New Europe" and Old Europe" and speculates on the cultural and historic reasons for the divide:
Further driving Old Europe's anti-Americanism is that second motivator -- politics. America was established in opposition to the feudal and
subsequently socialist traditions of Europe. The European Commission's self-consciously non-American vision of a "Social Europe," repeated ad
infinitum by officials across the continent, is but the latest version of Europe's traditional opposition to the American dream of laissez-faire capitalism, boundless opportunity and pioneering individualism.
Saturday, May 8, 2004 ~ 9:00 a.m., Dan Mitchell Wrote:
State sales tax cartel will hurt small business and create red tape. The President of eBay is warning that a plan to give state and local governments
extra-territorial taxing powers will wreak havoc. The so-called Streamlined Sales Tax Project is an effort by profligate state governments to gain the right to tax sales
that take place outside their borders, thus making it more difficult for their citizens to shop where taxes are lower. This anti-tax competition scheme has both negative
economic effects and negative constitutional effects. The Bureau of National Affairs reports:
The Internet is helping to level the playing field for small businesses, but efforts to tax online transactions could jeopardize this trend, according
to Meg Whitman, president of eBay Inc. She said a proposal by the Streamlined Sales Tax Project would, for the first time, force businesses that operate over the Internet to collect and remit sales taxes in
thousands of cities and counties across the country in which they lack any physical presence. ..."It would mandate onerous monthly or
quarterly, state-by-state filing requirements," Whitman said May 6, at a National Press Club event. "The red-tape would be enormous."
Friday, May 7, 2004 ~ 3:00 p.m., Dan Mitchell Wrote:
Led by the US, low-tax nations rank as most competitive. The United States is the world's most competitive economy, as it has been all five years that IMD, a
Swiss-based education center, has been issuing its survey. Germany and France, meanwhile, have both fallen by eight places over the same time span according to the historical rankings (http://www01.imd.ch/documents/wcy/content/
pastranking.pdf). Other top-ten low-tax and/or tax haven jurisdictions include
Singapore, Hong Kong, Australia, and Iceland. Taxes, to be sure, are just one component of economic policy. All other things being equal, however, low tax rates are associated with better economic performance. The IMD survey, incidentally, predicts things will get worse in "Old Europe":
Economic growth in Europe has been weak throughout 20 03, on average 0.9 % , with some countries such as Germany or the
Netherlands sinking into recession. Only Britain and Spain have performed relatively well. A weak economy means that corporate taxes and indirect taxes (such as VAT) bring less money to the State. ...The
cause of Europe's budget deficits is more structural than in the US.
Friday, May 7, 2004 ~ 11:22 a.m., Dan Mitchell Wrote:
Bermuda should be emulated rather than castigated. Mary O'Grady of the Wall Street Journal recently met with a delegation from Bermuda, leading her to
comment on the absurdity of US politicians. As she points out, Bermuda is a success story. Yet greedy lawmakers like Senators John Kerry and Charles Grassley
condemn the island jurisdiction when businesses understandably seek to escape America's oppressive tax structure:
...thanks to sound institutions, a rule of law and a capital-friendly environment, Bermuda, according to the World Bank data from 2002, is
the world's richest jurisdiction, followed by Luxembourg and Switzerland. Sound like a model for development that ought to be praised? Undoubtedly. But the trouble for Bermuda is that in competing
for international capital it has exposed a major flaw in the U.S. tax code. So instead of earning accolades, Bermuda is now fighting to avoid
pariah status.... some multinational corporations, finding the U.S. tax code's global reach burdensome, have taken to "inverting" to Bermuda.
This is a legal transaction that moves the corporate domicile out of the U.S. so that taxes to Uncle Sam are only paid on U.S. earned income, not on income earned in other jurisdictions. This makes sense but
Bermuda is taking a beating for it. Earth to Washington: Competition is not only good for Microsoft. It's good too to constrain politicians from taxing producers into the ground.
Friday, May 7, 2004 ~ 10:38 a.m., Dan Mitchell Wrote:
Low tax rates boost European growth, not EU transfers. Marian Tupy of the Cato Institute has an excellent oped in today's Wall Street Journal Europe. He discusses how politicians in places like Germany are attacking new EU members for
having low tax rates. This is a familiar story to readers of this blog, but Marian also makes a great point about the ineffectiveness of intra-Europe income transfers:
...there is an inadvertent virtue contained in the chancellor's outburst. Putting a spotlight on intra-European financial transfers allows
economists to dispel some of the myths surrounding aid as a feature of development policy....aid cannot be the determinant of economic growth
in Europe. If that were true, Greece and Portugal, which received some of the largest amounts of aid, but pursued socialist economic policies, would be Europe's economic superpowers. Instead, they are among the
poorest pre-enlargement members of the EU. Thus, the proponents of aid look to Ireland as a supposed success story. But the lessons derived
from the experiences of the Celtic Tiger are quite different. When Ireland joined the European Economic Community in 1973, it was one of Europe's poorest nations. By 2002, Ireland could boast a GNI per capita
of $23,030 -- higher than Germany's $22,740 and France's $22,240. What happened? The EU aid could not have been a major cause of Ireland's economic growth. As Benjamin Powell shows in a Cato
Institute study, Ireland's economic growth rates increased at a time when European aid was declining as a percentage of the Irish GDP. What Ireland did to increase its growth was reduce its top marginal tax rate
from 80% in 1975 to 44% in 2001, and cut the standard income tax from 35% in 1989 to 22% in 2001. The Irish cut their corporate tax rate from
40% in 1996 to 12.5% in 2003. All in all, Ireland's tax revenue in 1999 was 31% of the GDP. A comparable figure in the rest of the EU averaged 46%. As a result of those and other reforms, the Irish economy
grew at an average annual rate of 7.65% between 1992 and 2001.
Friday, May 7, 2004 ~ 9:27 a.m., Dan Mitchell Wrote:
European elites content with stagnation.
Roger Bate of the American Enterprise Institute writes in National Review on the dangers of global governance. Tax
harmonization is an example of this phenomenon, but so are proposals such as the Kyoto Protocol. Bate explains that European elites are willing to accept the harsh
economic consequences of these proposals because they already live comfortable lives and don't really care if the global economy grinds to a halt:
The European elite wants harmonization across the rich world. They argue that with out it, countries will continue to adopt diverse tax and
regulatory structures, and the media (even if through glasses tinted with the soft red of mild socialism) will see the success of the lower-taxed,
lower-regulated economies - Iceland, Ireland, Luxembourg, Switzerland, Hong Kong, and Singapore - as demonstrating that one doesn't need to
be an economic giant to be economically successful. ...If we don't combat these messages more seriously, the world will be pushed by vested interests - primarily in Europe - toward a harmonized, homogenized
global-governance structure that will slow world growth to European proportions - something that aspiring nations can't afford and we shouldn't want. Unfortunately, Europe is no longer an aspiring region.
The usual distinction made is between the developing and the developed world, but this is misleading. The U.S. is the richest country in the world
and is still aspiring, like most of those normally called developing. Europe is not; it is developed but not aspiring. It has become inward-looking and above all happy with stasis. There are exceptions, of
course, but the elite in Europe is generally happy with its lot and wants to keep it, and even export its own brand of fairness.
Friday, May 7, 2004 ~ 8:15 a.m., Andrew Quinlan Wrote:
Does the flat tax cause prisoner abuse?
The left is definitely running out of arguments. Doctrinaire leftist Paul Krugman used his New York Times column to
attack Dan Mitchell for promoting the new Iraqi flat tax. But rather than focus on whether the new system is working or whether the Iraqi economy is growing,
Krugman complains that Iraq is still a mess and prisoners have been abused. These certainly are valid concerns, but they have nothing to do with the flat tax. Here is Krugman's opening paragraph:
Friday, May 7, 2004 ~ 12:45 a.m., Dan Mitchell Wrote:
Economists can learn! The Journal of Economic Education has a heartening article showing that economists are able to learn from real-world events. The authors use
survey data to determine how economists view public policy issues, and they find that there is even stronger support today for low tax rates and a growing disdain for
the Keynesian notion that government can steer economic growth with fiscal policy manipulation:
...we found evidence of a shift toward more agreement with monetarist and new classical or supply-side-based propositions. That is, our survey
found more agreement with the propositions of the long-run invariance of GDP (Gross Domestic Product) to changes in aggregate demand (10) and of inflation as primarily a monetary phenomenon (19). There was
less agreement with propositions of a short-run Phillips curve effect (12) and of the stimulative impact of fiscal policy on an underemployed economy (15). We found more agreement with the proposition that lower
marginal tax rates increased work effort...
Thursday, May 6, 2004 ~ 11:08 p.m., Dan Mitchell Wrote:
The unintended - and seemingly always negative - consequences of federal education subsidies. A university professor has an insightful article in National
Review Online, where he correctly explains that federal subsidies for college expenses inevitably drive up tuition costs. This is the similar to what has happened in
health care. Anytime the government tries to make something more affordable, they wind up making it more expensive by undermining market forces:
Why is college so expensive? Why does federal aid never really succeed in making college more affordable? These shouldn't be deep mysteries.
For over a decade I participated in university meetings aimed at determining my university's annual tuition increases. The only real question was, "How much can we get away with?" And the only real
worry was that, if we overreached, we might move to the dreaded top of the list for largest increases. Most years, it fell to me to draft a letter to
parents from the Chairman of the Board explaining that the tuition increase reflected this or that combination of new construction projects
and programs. Title IV funds and other federal financial aid are seen by colleges and universities as money that is there for the taking. Tuition is
set high enough to capture those funds and whatever else we think can be extracted from parents. Perhaps there are college administrators who
don't see federal student aid in quite this way, but I haven't met them.
Thursday, May 6, 2004 ~ 4:19 p.m., Dan Mitchell Wrote:
Germany's self-imposed economic problems. Readers of this blog are familiar with the suicidal economic policies of European welfare states. Carl Mortishead of the UK Times has a good article explaining why Chancellor Schroeder is throwing a temper tantrum:
Germany has a problem with tax, its own rates are too high and Germans vote with their feet, or, to be precise with their BMWs, rolling
down the highway to make cash deposits in Zurich. After years of struggle, the Chancellor late last year finally press-ganged the 15 EU states plus Switzerland into agreeing an unworkable directive to clamp
down on personal tax havens, such as Jersey, Luxembourg and the Swiss private banks. ...The Germans blame the Irish Republic for setting a bad
example, accusing the Celtic tiger of funding its 12.5 per cent business tax rate with generous EU subsidies. But the Irish model of high economic growth, inward investment and low taxes looks attractive to
East Europeans seeking to emulate the Republic's transformation from rustic Celtic backwater into dynamic high-tech economy. ...We Europeans know about dumping. We dump farm produce, sugar in
particular, subsidised to several times the world market price, because we cannot compete with overseas producers. Is it unfair if Slovakia sets
its business tax rate at half the German level? ...Germany is at risk from its high business tax regime, threatened only last year when Infineon,
one of its high-tech giants, threatened to shift its headquarters to lower-tax Switzerland.
Thursday, May 6, 2004 ~ 3:19 p.m., Dan Mitchell Wrote:
Turning New Jersey into France. The left-wing governor of New Jersey wants to
impose a big tax increase on his state's most productive people. This class-warfare tax policy is exactly what destroyed California, and is a particularly stupid approach
since it is even easier for taxpayers to flee to neighboring states that have less oppressive policies. As the Wall Street Journal points out, sometimes the goose that
lays the golden eggs is smart enough to fly away:
...if you make $500,000 you qualify for the new "millionaire's tax" Mr. McGreevey is betting the Democratic-controlled legislature will approve.
...The McGreevey proposal would raise the top marginal income tax rate to 8.97% from 6.37%, and he defends it by claiming it would apply only to 28,000 people, or 1% of all Jersey taxpayers. But people who earn
that much tend to be highly mobile and can leave the state for lower tax climes. When they do, revenue comes in lower than expected, so the higher rates are gradually applied to more people as incomes rise
("bracket creep") or as "millionaire" is defined ever lower.
on (subscription required)
Thursday, May 6, 2004 ~ 1:41 p.m., Dan Mitchell Wrote:
Happy Anniversary to the woman who saved Britain. The Wall Street Journal pays tribute to the Margaret Thatcher, 25 years after she became Prime Minister.
Like Ronald Reagan, Margaret Thatcher deserves credit for single-handedly turning around a nation. Sadly, many of today's Republicans and Tories are only pale imitations of these great leaders:
Inheriting a Britain with high unemployment, militant unions and rampant inflation, Lady Thatcher abandoned the socialism of past
governments -- asserting that "to cure the British disease with socialism was like trying to cure leukemia with leeches." She instead introduced
free market reforms -- cutting taxes, privatizing state-owned enterprises and defeating overly powerful labor unions. Famously euroskeptic -- a stance linked to her abhorrence of socialism and bureaucracy -- she
warned, "We have not successfully rolled back the frontiers of the state in Britain only to see them reimposed at a European level, with a
European superstate exercising a new dominance." ...Finally, to politicians who base policy on public opinion rather than principle: "If
you just set out to be liked, you would be prepared to compromise on anything at any time, and you would achieve nothing." But perhaps her best-remembered phrase was her challenge to critics at a party
conference, who wondered whether she should back off from her aggressive economic-policy proposals: "You turn if you want to. The lady's not for turning." Consensus politicians, take note.
http://online.wsj.com/article/0,,SB108379393841503137,00.html?mod=opini on (subscription required)
Thursday, May 6, 2004 ~ 11:21 a.m., Dan Mitchell Wrote:
Misguided worldwide tax system hurts competitiveness ... and reduces tax revenue. The Joint Committee on Taxation estimates that the federal government
actually loses money by trying to tax profits that corporations earn in other countries. The revenue-estimators probably made some assumptions that are at odds with a
well-designed territorial system, so this finding should be treated with a grain of salt. But it is still remarkable that the current system is so poorly designed that it manages
to simultaneously undermine US companies and lose money for the government. The Wall Street Journal has an excellent summary:
The U.S. system for taxing overseas profits of American companies is so riddled with loopholes and credits that the government would collect $6
billion more each year if it stopped trying to tax those profits altogether, according to a new estimate by congressional tax experts. ...France,
Germany and some other countries use more of a "territorial" approach that taxes companies only on profits made within that country. In that
system, there aren't any taxes on profits from overseas operations -- and thus no need for the deductions and credits that U.S. firms exploit so
successfully to lower their overall burden. Beyond the lost revenue, critics of the existing U.S. tax code say its loopholes, credits and deductions create incentives for companies to move operations overseas.
A move toward a territorial system would remove that tilt, they say.
ys_us_page_one (subscription required)
Thursday, May 6, 2004 ~ 11:10 a.m., Dan Mitchell Wrote:
Do you believe in miracles? Forget Mideast peace and a cure for cancer. We
have an even more amazing development. The European Commission has rejected harmonization of corporate tax rates. To be sure, the EU spokesman only defended
"fair tax competition," which leaves a lot of wiggle room for destructive policy. And the statement is probably more a sign that the EU wants to make a virtue out of
necessity. Nonetheless, the fact that the EU has been forced to make a positive statement about tax competition is a sign that the global campaign for economic liberalization is having an effect. Tax-news.com has the story:
...the EU rejected a call from German Chancellor Gerhard Schroeder for member states to adopt measures aimed at preventing 'tax
dumping'. Addressing a press conference in Brussels, EU spokesman Jonathan Todd argued that fair tax competition will be beneficial for the enlarged EU, and suggested that the German leadership was "barking
up the wrong tree" with its claims that the lowering of tax rates in certain member states amounted to "tax dumping". ...[Todd said] the Commission has "no intention absolutely whatsoever to harmonize tax
rates." The EU was reacting to Mr Schroeder's suggestion that it establish a "tax corridor", setting minimum and maximum levels at which member states could levy corporate taxes. Todd brushed aside the
proposal, stating that the setting of company taxes was a matter for "national sovereignty".
Thursday, May 6, 2004 ~ 10:55 a.m., Andrew Quinlan Wrote:
Left-wing rants about tax havens.
The Sovereign Society's daily A-Letter is a must read because it often has links to interesting articles that otherwise would pass without notice. Today's A-Letter has a link to an article that effectively captures the
looney and conspiratorial thinking of our friends on the left. I am not familiar with the author or the publication, but it makes for amusing reading:
Despite the fact that both the OECD demands and the contemplated countermeasures were weak, they were too much for the Bush
administration, who, in 2001, gave the activities in tax havens another free pass, declaring that the OECD demands were "not in line with this
Administration's priorities." ...The OECD initiative had brought the market extremists behind the Bush administration out on the war path,
with Tom DeLay leading the charge. According to him, tax "planning," as everything else, should be left to free, unregulated market forces. Let
the chips fall where they may. That we are talking of forces exhibiting asymmetries of almost incomparable proportions doesn't matter. Forget
about the fact that a large, developed country burdened with upholding a sophisticated socio-technical infrastructure must raise taxes to pay for
it. ...On the other hand, a tax haven like the Cayman Islands (with barely 40,000 inhabitants, many of them expatriates connected to tax haven
activities) has as its main responsibility keeping the golf courses green, burdening it with no serious need for levying taxes. It is not hard to
figure out where the "market" choice for having their taxable income show up is for everybody with a billion dollars in income and no concept of social responsibility.
Thursday, May 6, 2004 ~ 10:37 a.m., Dan Mitchell Wrote:
Senate fiddles while Rome burns. Thanks to a World Trade Organization ruling,
the European Union is now imposing additional taxes on American products. These new tariffs can be wiped out if Congress agrees to repeal a special tax break for
exports and uses the money to improve international tax rules - as proposed by House Ways & Means Committee Chairman Bill Thomas. Sadly, the Senate is
engaged in an orgy of social engineering and back-door industrial policy. The Wall Street Journal explains how current US tax law is undermining US competitiveness
and bemoans the Senate's pork-barrel approach:
...The chairman of the Senate Finance Committee, Iowa's Charles Grassley, is more or less open about his tax-break sale, including a $482
million sop to the insurance industry, $189 million in "transitional assistance" for Oldsmobile dealers, and an $8 million tax break for
makers of children's bows and arrows. There's even part of a $94 million tax credit for the Warrior Hotel in Sioux City, Iowa... In a better world,
Congress would adopt House Ways and Means Chairman Bill Thomas's proposal, which lowers the corporate tax rate to 32% from 35% for a broad range of companies and improves the treatment of depreciation
and application of the Alternative Minimum Tax. ...The effective U.S. 40% rate -- higher even than Sweden's -- is a combination of the federal 35% rate and assorted state and local rates.... No wonder so many
companies are moving their headquarters abroad to avoid U.S. rates, or are being taken over by foreign multinationals. Keeping American corporations competitive in the world market creates jobs at home, even
if some operations will inevitably move abroad. At 32% corporate tax rates would still be too high, but it's a start.
on (subscription required)
Thursday, May 6, 2004 ~ 9:22 a.m., Dan Mitchell Wrote:
Swedish government resists democracy.
The statist European Constitution is facing more trouble. A recent poll finds a majority of Swedes favor the right to vote
on the proposed document - a dramatic shift in less than one year. Not surprisingly, the Swedish political elite oppose democracy. The EU Observer reports:
A majority of Swedes would like to have a say on the EU Constitution which is expected to be adopted by EU leaders in June. ...Support for a
referendum to decide this matter has grown dramatically over the past half year. In the autumn, a similar poll showed that only 27 per cent wanted a referendum, while 64 per cent said the MPs in the Parliament
should make the decision. This is bad news for Prime Minister Persson and the majority in the Parliament which refused to hold a referendum on the future EU Constitution. Only the Swedish Green Party and the
Left Party want to consult the people on the issue.
Thursday, May 6, 2004 ~ 1:44 a.m., Dan Mitchell Wrote:
More common sense from Tom Sowell. One of America's top economists and
social philosophers has one of his "random thoughts" columns. His comments on left-wing hypocrisy are particularly entertaining. Sowell notes that bureaucrats with
first-hand knowledge frequently take steps to protect themselves from government. Sowell also notes that opponents of the death penalty would rather spare murderers than save victims:
Just as members of American teachers' unions often send their own children to private schools, so unionized workers at government-run
hospitals in Britain have insurance that allows them to go to private hospitals. In both cases, those on the inside realize how bad these institutions are, regardless of what they say to those on the outside.
...People who oppose the death penalty like to flatter themselves that they are taking a moral stance. But, since empirical studies show that
executions do deter murders, contrary to liberal dogma, there is nothing moral about sacrificing the lives of more murder victims because of your own squeamishness.
Thursday, May 6, 2004 ~ 1:02 a.m., Dan Mitchell Wrote:
More economic illiteracy from the French. This blog has explained that tax cuts only help the economy if they lower the "price" that taxes impose on productive
behavior - thus creating incentives to produce more and earn more income. This is in contrast to the discredited Keynesian notion, which assumes tax cuts help the
economy by boosting consumption spending (conveniently ignoring the fact that this consumer spending binge comes at the expense of investment spending). Not
surprisingly, the French have decided to cancel pro-growth tax rate reductions and instead are trying to jump-start their moribund economy with the wrong kind of tax cuts:
Topping the list of fiscal measures aimed at boosting household consumption is a plan to allow parents and grandparents to make
tax-free gifts to adult children, over the age of 18, for a limited time period. ...A second measure designed to convince French residents to save less and spend more will offer income tax deductions for the
coming two years on interest paid on short-term consumer credit. ...Sarkozy posed a series of conditions on any future income tax cuts, noting that France's sagging state finances do not offer much room for
maneuver. ...Sarkozy's announcement confirmed the government's decision to back away from President Jacques Chirac's 2002 campaign promise to cut income taxes by 30 percent by 2007.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8q1t4h8 (subscription required)
Thursday, May 6, 2004 ~ 12:10 a.m., Dan Mitchell Wrote:
Bush White House gets appropriate reward - a slap in the face - for supporting left-wing Republican in Pennsylvania primary. The Administration
just suffered a defeat in the Senate, thus imperiling a good Administration proposal to allow more workplace flexibility. Not surprisingly, Senator Arlen Specter of
Pennsylvania defected and sided with advocates of regulation and intervention, even though the White House just invested enormous political capital to help Specter
survive a challenge from Congressman Pat Toomey, a Republican who actually supports Republican values. The Wall Street Journal speculates whether the White
House will learn the right lesson:
The Senate rolled over the Bush Administration's new overtime rules yesterday, but don't think this had anything to do with labor law. The
vote is better described as another political triumph for the tort bar. Beneath all the rhetoric about workers' rights, the Department of Labor's new overtime regulations are really about regulatory tort
reform. The overtime system had become so antiquated that companies no longer knew how to classify workers. Lawyers had exploited this
confusion by filing suits on behalf of "miscategorized" laborers, turning overtime cases into one of the more lucrative areas of labor law. The
real benefit of the new regulations is that they clarify the definitions and rules, blocking off avenues for litigation. ...Senate Republicans, who've
been blocked by 60-vote filibusters from passing any legal reform, proved unable to keep even their own members from defecting on this 50-vote referendum. Among the five GOP defectors was none other than
Arlen Specter, who thus repaid the White House for its recent support in his cliffhanger Pennsylvania primary. Karl Rove can't say he wasn't warned.
http://online.wsj.com/article/0,,SB108371174050502095,00.html?mod=opini on (subscription required)
Wednesday, May 5, 2004 ~ 4:50 p.m., Dan Mitchell Wrote:
Reduction in double-tax on dividends yields big benefits. The National Center for Policy Analysis summarizes a new paper on dividend taxation published by the National Bureau of Economic Research (http://papers.nber.org/papers/W10321).
The NBER paper, entitled, "Taxation and corporate payout policy," reviews the changes made in 2003 and estimates that the lower tax rate of 15 percent will boost
dividends and increase the value of financial assets. This is exactly what advocates predicted. Double-taxing corporate income reduces after-tax income to investors,
thus lowering the price they are willing to pay for financial assets. Needless to say, a reduction in the level of double-taxation has the opposite effect. As the NCPA summary notes:
Over the long run, the level of dividends paid out by corporations will surge by 24 percent, amounting to an $86 billion increase from 2002
levels. The reduction of taxes on future dividends will increase the value of the stock market by $690 billion, a 6 percent increase in the market's value in March 2003.
Wednesday, May 5, 2004 ~ 9:50 a.m., Dan Mitchell Wrote:
Bureaucrats in Brussels undermine EU's original mission. Marian Tupy of the Cato Institute explains how the early European vision of free trade and competitive
markets has degenerated. Instead, the EU has now become a force for bureaucracy and centralization. The new members of the EU have a greater appreciation of
capitalism, but it is unclear whether competition from low-tax nations in Eastern Europe will force Western Europe to reform or whether Western Europe will force Eastern Europe to become a bunch of welfare states:
In the past, Europe benefited from considerable economic liberalization brought about by the Treaty of Rome and the Single European Act. In
those days, European integration consisted of breaking down barriers to movement of goods, services, capital and labor. Over the past decade, however, that approach was superseded by increasing centralization of
economic decision-making in Brussels and top-down harmonization of rules of production, delivery and sale. ...EU subsidies encourage overproduction. Therefore, a harmful system of production quotas has
been put in place, leading to continued bickering among the member states. Slovakia, to give an example, asked to produce 1.2 billion liters
of milk per year, but the EU agreed to only 950 million liters per year. Slovakia wished to raise 400,000 sheep, but the EU agreed to only 218,000 sheep. Farmers in the region can be excused for complaining
that this type of economic planning is eerily reminiscent of Soviet-era production quotas.
Wednesday, May 5, 2004 ~ 9:16 a.m., Andrew Quinlan Wrote:
Law of the Sea Treaty: Bad for sovereignty, bad for US competitiveness. More than 20 years ago, President Reagan deep-sixed the Law of the Sea Treaty
because it was an assault of free markets and national sovereignty. Unfortunately, this misguided proposal has been given a bit of cosmetic surgery and some politicians
now want the United States Senate to ratify the misguided pact. Frank Gaffney of the Center for Security Policy explains why this is a bad idea in today's Washington Times:
...for the first time since the U.N. was founded, a multilateral agency, the International Seabed Authority (ISA), would have the power to raise
revenues from U.S. taxpayers if American companies wish to exploit the seabeds' resources. In addition, the ISA would have its own money-making venture, an ocean-mining organization with the
Orwellian name "the Enterprise." Its work effectively will be subsidized by exploration, technology and financial resources euchred from states
parties' pursuing deep-sea mining. In addition, the Law of the Sea Treaty has its own judiciary - the International Tribunal - that can issue edicts
and render advisory opinions certain to reflect the hostility its majority will harbor toward the United States. In due course, the Tribunal could
conceivably also obtain the means to enforce its rulings. (In the mid-1990s, the Navy's Center for Naval Analysis actually proposed making some U.S. warships and crews available for this purpose -
so-called "blue hulls" to go with the U.N.'s "blue helmets.")
Tuesday, May 4, 2004 ~ 10:26 p.m., Dan Mitchell Wrote:
Wall Street Journal says national ID cards won't stop terrorism. The Labor government is using the war on terror as an excuse to push apartheid-style national
ID cards for UK citizens. This government power-grab will diminish liberty without providing any offsetting benefits:
Most importantly, ID cards would not protect against terrorists. To argue that a small plastic card would present an obstacle to a suicidal
fundamentalist terrorist is preposterous.... But better protection against false identities wouldn't have prevented the 9/11 attacks, where individuals -- most with clean records and bona fide papers -- entered
the U.S., in some cases years before the attacks. Unlike economic migrants, terrorists have the wherewithal to get their papers in order. Al Qaeda terrorists are far too sophisticated to get tripped up by a
regulation requiring IDs. The attempt to harness the anxiety from the Madrid bombings and channel it to provide momentum for his bill is intellectually dishonest. Mr. Blunkett at least owes an undisguised debate
about ID cards.
http://online.wsj.com/article/0,,SB108362504078100827,00.html?mod=opini on (subscription required)
Tuesday, May 4, 2004 ~ 9:09 p.m., Dan Mitchell Wrote:
More Republican big government appeasement. The GOP establishment in Ohio has presided over massive increases in bureaucracy and wasteful spending.
Fortunately, one Republican official, Secretary of State Ken Blackwell, still believes in free market principles. Blackwell is leading an effort to repeal a "temporary" sales
tax increase. Sadly, most of the GOP establishment is fighting to protect bloated government - even though this could undermine President Bush's re-election bid, as the Wall Street Journal explains:
President Bush is scheduled to campaign in Ohio today, where he'll talk to families and small business owners who are benefiting from federal
tax relief. Maybe some of what Mr. Bush says will rub off on the state's GOP establishment, which has lost its fiscal bearings of late. Start with Governor Bob Taft, a Republican who is now making common cause
with public employee unions in an attempt to block the repeal of his tax increases. Last summer the Governor and Republican-controlled Legislature broke repeated pledges not to raise taxes without permission
from voters. ...The state's GOP establishment says it's focused on helping President Bush carry Ohio and win a second term. Yet Republican Party
Chairman Bob Bennett has opposed Mr. Blackwell's [sales tax repeal] efforts. He clearly doesn't appreciate that the best way for state Republicans to turn out their base and help the President is to put a tax
repeal measure on the ballot. If Mr. Bush loses the linchpin state, the Taft-Bennett-Householder wing of the Ohio GOP will be one of the reasons.
http://online.wsj.com/article/0,,SB108362594692300859,00.html?mod=opini on (subscription required)
Tuesday, May 4, 2004 ~ 4:22 p.m., Andrew Quinlan Wrote:
Oracle and consumers under attack from the Justice Department. Dan Mitchell's recent commentary on PBS's Nightly Business Report points out that taxpayers and consumers lose whenever the government picks winners and losers (video):
…Unfortunately, the United States is not immune from misguided government intervention, and the Justice Department's opposition to the
Oracle (ORCL)-PeopleSoft (PSFT) merger is a good example. Bureaucrats at Justice want to block the deal, based on a bizarre new theory that there are too few firms and that a merger will create
monopoly power if any potential customer, just one person, feels that it will result in fewer suppliers in any given market for any particular
good. Ironically, those same bureaucrats must not be familiar with the Justice Department's software purchases. Even though the government's case is predicated on the notion that there are only three companies
providing the relevant software, the Department of Justice just purchased $24 million of software from another company, one of many niche firms that make the market so dynamic. Expansions, contraction,
mergers, divestitures and bankruptcies are all part of the free market system. That growth-creating process will be seriously damaged if Justice Department bureaucrats are allowed to second guess real world
business decisions. We don't want America to become more like France. President Bush and Attorney General John Ashcroft should rein in the bureaucrats at justice, or better yet, have them chase after real
monopolies, inefficient monstrosities like the post office..
Tuesday, May 4, 2004 ~ 3:57 p.m., Dan Mitchell Wrote:
Tom Sowell identifies the real health care problem. The biggest problem with health care is that there are virtually no market forces. Costs are paid by either
taxpayers or insurance companies, meaning that the direct price to consumers is artificially too low. This "third party payment" is the cause of most health care
problems today, though neither Republicans nor Democrats want to address the issue. Sowell's article is a must read:
The difference between prices and costs is not just a fine distinction made by economists. Prices are what pay for costs -- and if they do not
pay enough to cover the costs, then centuries of history in countries around the world show that the supply is going to decline in quantity or
quality, or both. In the case of medical care, the supply is a matter of life and death. ...For political purposes, what "bringing down the cost of
medical care" means is some quick fix that will win votes at the next election, regardless of what the repercussions are thereafter.
Tuesday, May 4, 2004 ~ 3:38 p.m., Andrew Quinlan Wrote:
Independent study says IRS regulation will drive $87 billion out of U.S. banks. It has been more than three years since the Clinton Administration proposed
an IRS regulation requiring US banks to report the interest income paid to nonresident foreigners. The Bush White House has blocked the regulation from
being implemented, but victory will only be achieved when the regulation is withdrawn. Fortunately, there has been progress. Just two weeks ago, Tom DeLay
and other House leaders asked Treasury to immediately withdraw the rule and more than 100 Members of Congress have weighed in against the regulation. A recent study on the effects of the proposed regulation on the economy estimated a massive outflow of deposits from the United States. Jay Cochran of George Mason
University's Mercatus Center wrote in Cato's current Regulation magazine:
Based on reasonable estimates . . . my study estimates that the rule may induce a deposit outflow from the United States of at least $88 billion as
affected European depositors seek deposit venues more in line with their preferences for yields, privacy, and security. …When our federal government spends sums measured in the trillions of dollars, an $88
billion effect may not sound particularly large, but that perception is misguided. First, consider that an $88 billion deposit outflow is more
than twice the size of the reserves position of the entire U.S. banking industry. This is not meant to suggest that the reserves of our banking system would evaporate, but that such large deposit outflows would
require banks to make some potentially painful balance sheet readjustments at the margin. Second, because the rule-induced changes occur at the margin, they indicate an important change in depositor
perceptions — a change, moreover, that could easily spill over to other foreign depositors not yet covered by the rule. Lastly, other things equal,
the natural market check on deposit outflows typically comes from an offsetting rise in U.S. deposit interest rates. By implication, an increase in banks' costs of funds obtained through deposits means the rates
charged for credit can also be expected to increase.
Tuesday, May 4, 2004 ~ 2:44 p.m., Dan Mitchell Wrote:
Deficits are a symptom, spending is the disease. The European Commission is threatening six new EU member nations if they don't reduce their deficits. They
should be focusing on government spending, which more accurately measures the damage to the economy. A myopic fixation on deficits could lead politicians to jump
out of the frying pan (debt-financed government spending) and into the fire (tax-financed government spending). The EU Observer reports:
Six of the ten countries who joined the European Union last week are to be warned that their budget deficits are too high, according to Spanish
press reports. The warnings mark the first step in a disciplinary procedure designed to limit budget deficits - or surpluses - to less than three percent of GDP.
Tuesday, May 4, 2004 ~ 1:54 p.m., Dan Mitchell Wrote:
Irish leader defends tax competition, stiff-arms France and Germany. Prime Minister Bertie Ahern of Ireland rejects calls for tax harmonization and sides with the
EU's new member nations in the fight for pro-growth tax policy. Interestingly, even a hard core leftist like Romano Prodi of the European Commission came to defense of low-tax countries like Slovaki and Estonia. The Bureau of National Affairs reports:
"Low corporate tax rates are a fair and fundamental way to promote a vibrant, growing, and competitive economy," Ahern said at a news
conference broadcast back to the EU institutions in Brussels. "They have been a key tool in Ireland's ability to attract the foreign investment that
has helped us raise our standard of living over the past 10 years. So I do not think criticizing the new member states, where standards of living
are much lower than in the EU 15, for low levels of corporate taxation is a legitimate argument," [Irish Prime Minister] Ahern said. European
Commissioner Romano Prodi also defended the new EU member states. "The decision about corporate taxation is in the hands of the individual
member states," Prodi said. "There is no law establishing harmonized tax rates in the EU. We do have a code of conduct that outlaws unfair
tax competition. The new EU member states have agreed to this code of conduct. ... But Schroeder and French President Jacques Chirac both made it clear that if companies begin to move en masse to the new EU
member states in order to take advantage of low corporate tax rates and low labor costs, it would be politically unacceptable. Both France and Germany have consistently but unsuccessfully pushed for harmonized
corporate tax rates in the EU, including submission of a proposal to the EU Convention for the Future Europe, which drafted the new EU Constitution up for approval in June.
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a8q0g2k5 (subscription required)
Tuesday, May 4, 2004 ~ 11:05 a.m., Dan Mitchell Wrote:
More news about America's leading offshore profiteer. Rich Lowry of National Review writes in a Pennsylvania newspaper about how John Kerry benefits
from the world of offshore finance. Interestingly, he notes that Kerry's tax plan indirectly admits that taxpayers respond to incentives - though Kerry prefers to rely on demagoguery rather than truth:
Kerry wants to repeal a provision that allows companies to defer paying taxes on profits from overseas operations and — in order to keep
corporations from getting too hard hit by a more onerous tax burden — also to cut the corporate tax rate. Imagine that — lower taxes for the treasonous! Kerry thus makes a huge intellectual concession: that
businesses respond to incentives, that taxes and regulations affect their behavior and that tax-cutting Reaganites have always had a point. In fact, a reason U.S. corporations do business overseas is that U.S.
corporate taxes are so high compared with other countries. They operate overseas for other perfectly benign reasons: to be closer to foreign customers and to achieve efficiencies that make them more productive.
Why this is considered a bad thing is not clear — except that it makes for an easy pander to economically illiterate voters. Companies with thriving overseas operations create management jobs back here in the
Tuesday, May 4, 2004 ~ 10:15 a.m., Dan Mitchell Wrote:
Swiss wisely reject joining EU's socialist super-state. While some of the political elite in Switzerland cravenly seek the approval of Brussels bureaucrats, the
people of Switzerland understand that membership in the European Union would be a net liability. Joining the EU would undermine Switzerland's competitive advantage and compromise Swiss democracy. EU Business reports:
Sixty-three percent of younger Swiss would reject EU membership, according to an opinion poll for Swiss television (TSR) released as 10
new eastern and southern members joined the Union on May 1. ..."Switzerland is a success story, I believe because the Swiss realised that it is a small country, that we are not powerful," SVP
parliamentarian Hans Fehr told AFP. "We have always said yes to the opening of the world, but no to integration into structures run by foreign
powers, such as the EU," said Fehr, who also heads a lobby group that defends Swiss neutrality, AUNS. Opponents argue that EU membership would erode Switzerland's unique democracy -- where citizens vote at
least three or four times a year in referendums on individual legislation, on top of elections -- and hand power to Brussels.
Tuesday, May 4, 2004 ~ 9:28 a.m., Dan Mitchell Wrote:
Germans want to ignore democratic process. Unchecked majoritarianism can be a threat to liberty. Benjamin Franklin, for instance, purportedly noted that
"Democracy is two wolves and a sheep voting what to have for lunch." But there are many things worse than majoritarianism, and the effort in Europe to impose a statist
constitution - over the objections of voters - certainly would be on the list:
...EU leaders will have to look at the question of what will happen if a member state fails to approve the Constitution. Germany, which itself is
not having a referendum on the treaty, indicated recently that it would like to look at the possibilities of the EU taking on the constitution even if some countries have not already ratified it.
Monday, May 3, 2004 ~ 9:25 p.m., Dan Mitchell Wrote:
Former Estonian Prime Minister rejects German/Swedish fiscal imperialism. Mart Laar writes in today's European Wall Street Journal about the amazing level of
economic reform in Eastern Europe - but he also notes that Western Europe's welfare states don't want competition and are complaining about free market reforms in nations like Estonia and Slovakia:
...if "old Europe" is to compete effectively with "new Europe," it will have to lower taxes and rethink the social-welfare systems that high
taxation supports. Ten years ago Estonia became the first country in Europe to introduce flat rate proportional personal income tax, a policy designed to energize our people and stimulate growth. It was a huge
success. Latvia and Lithuania followed, then Russia, Ukraine and now Slovakia. We can only sit back and wait for the next dominoes to fall. It looks quite possible that within five years the whole of Central and
Eastern Europe will move to flat-rate income taxes. Such developments put pressure on old Europe, pushing down taxes in countries neighboring new member states, and so creating more room for investment and
development. But this has also made old Europe nervous. Enthusiasts of social welfare see enlargement as a serious threat to European civilization, akin to the barbarian invasions at the end of the Roman
Empire. The welfare state is considered a core part of European identity, despite its negative impact on European competitiveness, and its long-term unsustainability. Swedish Prime Minister Goran Persson and
German Chancellor Gerhard Schroeder have complained that the rich are not taxed heavily enough in new member states and are seeking to extend the EU's power into areas of taxation and take away the national
veto in a number of areas of regulation.
Monday, May 3, 2004 ~ 4:35 p.m., Dan Mitchell Wrote:
More saber-rattling against democracy in Europe. The Germans are not the only opponents of democracy. Romano Prodi, the President of the corrupt European
Commission, is warning the British that there will be "heavy" consequences if they have the gall to vote against Europe's statist draft constitution. Ironically, Prodi even
said that exercise in democracy would be "undemocratic." The EU Observer reports:
Commission President Romano Prodi warned over the weekend that the consequences of the UK voting 'no' to the Constitution would be
"heavy". Speaking to the BBC, Mr Prodi said, "I think the political consequences would be heavy. I don't know now what 'heavy' will mean
in legal terms". ...In a separate interview with the BBC, Mr Prodi said that the possibility of one country holding the others up was "undemocratic".
Monday, May 3, 2004 ~ 9:05 a.m., Dan Mitchell Wrote:
Supply-side tax cuts work, Keynesian handouts bomb. This blog has commented before on the fact that not all tax cuts are created equal. Lower tax rates
help the economy, whereas tax rebates have no positive effect. Moreover, tax cuts in the future - even the right kind - do not help the economy today. Bruce Bartlett has an excellent explanation of this principle in his Townhall.com column:
Said Laffer, "Common sense tells us that people don't shop at a store the week before the store has a widely advertised discount sale. Prospects
of lower tax rates in future years created incentives for individuals and businesses to reduce their income during 1981 and 1982 when tax rates
were high, in order to realize that income in 1983 and 1984 when tax rates would be lower." Sure enough, there was a huge increase in growth in 1983. Real GDP jumped from minus 1.9 percent in 1982 to
plus 4.5 percent in 1983 and 7.2 percent in 1984. While other factors obviously played a role, the phasing-in of the Reagan tax cut undoubtedly delayed its impact. Putting these factors together, we see
that the 2001 tax cut was poorly designed to stimulate growth in the short run. Average tax rates were reduced by increasing the child credit and sending out tax rebates, while marginal rates were largely
unchanged. The main marginal rate reductions were phased-in, with many still not having taken effect. Economic theory says that this should cause growth to fall. A new study from economists Christopher
House and Matthew Shapiro, both of the University of Michigan, confirms this theoretical prediction. "The immediate effect of the 2001
phased-in tax cuts," they found, "was to reduce output and employment." GDP in 2002 was 0.4 percent less than what could have
been achieved with a smaller but more immediate tax cut. Messrs. House and Shapiro also look at the 2003 tax cut and find that it was much more effective precisely because more of it took effect immediately.
"Just as the phased-in nature of the 2001 tax law may have delayed production and employment, the immediate tax relief included in the 2003 law may have contributed towards the increased pace of economic
activity in the second half of 2003," they conclude.
Monday, May 3, 2004 ~ 8:39 a.m., Dan Mitchell Wrote:
USA Today editorializes for free market aviation. In a strongly worded editorial, USA Today correctly explains that market forces should govern the airline
industry. Some airlines want special handouts, and some consumers (primarily those who don't pay for their own tickets) want to go back to the "good old days" when
air travel was too expensive for average people. There are still problems with air travel today, but they primarly are associated with the government-controlled airports and air-traffic control system:
...Congress ...deregulated the industry 26 years ago to let customer demand, not federal bureaucrats, determine flights and prices. The new
mandates serve as a form of back-door reregulation that risks undoing the consumer gains that come when airlines are free to compete for fliers
through convenient schedules and low fares. Until 1978, when Congress scaled back regulation of the industry, a federal board had the final say
over where airlines could fly, when they could fly and how much they could charge. Though the government continues to regulate airline safety, security and air traffic, deregulation unleashed fierce competition
that led to sharply lower fares....micromanaging the marketplace props up airlines that might otherwise fail and open the way for more competition. Since 1978, such competition has benefited consumers. A
Transportation Department analysis in 2000 noted that since deregulation, fares were down and travelers enjoyed additional service to more places.
Sunday, May 2, 2004 ~ 2:30 p.m., Dan Mitchell Wrote:
Europe's slow death. Many European governments are trapped by demographics.
Birthrates are so low that populations will dramatically shrink over the next fifty years. Yet aging populations will expect lavish government benefits. Terry Eastland explains in the Weekly Standard that:
...the lavish, cradle-to-grave welfare states found throughout the continent will want for new workers and the taxes they would
pay--unless immigration soars. But immigration brings its own problems, not least (in a post-September 11 world) terrorism and the cells that
support it. Of course, welfare benefits could be cut. In Italy, for example, the retirement age would have to be raised from a mere 55. But trimming the welfare state requires political will...
And Jim Hoagland of the Washington Post opines that:
But it is vital to recognize that much of Europe is turning into a continent of geezers, however much it hates, just hates, talking about it.
And countries such as France and Germany hate even more making the changes geezerhood requires -- the most important being whether the welfare state will cut its generous benefits, raise its exorbitant taxes to
meet tomorrow's rising health costs or make people work longer before retiring. ...Across Western Europe, the median age of the workforce and
the population at large is steadily rising, as life expectancy increases and fertility rates drop below the 2.1 children per couple needed to ensure
population growth. The birthrate is now 1.4 in Germany, and even lower in Italy and Spain. Consider this: Half of all union members in Italy are retired and drawing pensions. ...
Sunday, May 2, 2004 ~ 12:42 p.m., Dan Mitchell Wrote:
The case for supply-side tax cuts. Not all tax cuts are created equal. As the Wall Street Journal explains, tax cuts that reduce marginal tax rates on productive
behavior boost economic performance, while tax cuts that simply give people checks from the government have no impact on long-term growth. This is why the 2003
Bush tax cuts were much better designed than the 2001 tax cuts:
One important policy lesson is that both the kind and pace of tax cuts matter a great deal. Recall that in order to get his first round of tax cuts
through the Senate in 2001, Mr. Bush accepted New Jersey Democrat Jon Corzine's proposal to put money in consumers' hands more quickly --
in short, the tax "rebate." The theory was that poor and middle-class people spend money, while rich folks save it, so cut taxes for them but
not for the rich. He and his fellow Democrats resisted Mr. Bush's plan to cut marginal income tax rates and demanded that those cuts be phased in over five years. So in the case of the 2001 tax cuts, only small
reductions were immediately implemented, with the rest coming in 2002, 2004 and 2006. We now know that the "stimulus" from those tax
rebates was indeed ephemeral. They gave a short-term lift to demand, as Keynesian theory posits, but once the money was spent, the impact faded. ...Meanwhile, a new paper from the National Bureau of Economic
Research confirms that the initial reaction to the phased-in marginal rate cuts of 2001 was also muted, or may even have been negative over the
short term. The second round of Bush tax cuts were by contrast effective immediately. The 2003 cut accelerated the marginal rate cuts first passed in 2001, and the additional cuts in dividend rates (to 15% from
regular income rates) provided another incentive boost. Only since this tax cut passed -- over the heated resistance of Mr. Corzine and his former Goldman Sachs partner Robert Rubin -- has the economy begun
to gain genuine momentum. Had Mr. Bush ignored their advice earlier, the expansion might well have accelerated sooner.
on (subscription required)
Sunday, May 2, 2004 ~ 10:55 a.m., Dan Mitchell Wrote:
German Chancellor whines about tax competition. Chancellor Schroeder of Germany apparently wants his nation to surpass France as home to the world's most
pathetic politician. He has been crying about "unfair tax competition" for years, but his whining has reached new heights since many German businesses are fleeing to
pro-growth places like Slovakia and Estonia. The Wall Street Journal reports on the Chancellor's temper tantrum:
During their years under Soviet rule, most of the EU newcomers envied Germany and saw its postwar economic miracle as an unimaginable
dream. Yet as they enter the EU now, many of them are instead turning to smaller countries such as Ireland for economic lessons, inspired by
rapid growth, low taxes and high foreign investment. ...German officials have taken to calling the Irish tax policy, and the efforts of others to mimic it, as "tax dumping."
Saturday, May 1, 2004 ~ 12:59 p.m., Dan Mitchell Wrote:
The left-wing assault on black America. What do left-wingers have in common with the ku klux klan? They both want blacks to fail. Perhaps that is an exaggeration,
but the opposition to school choice on the left condemns African-Americans to a failed government school monopoly that consistently delivers miserable outcomes.
Politicians like John Kerry and Ted Kennedy send their kids to private schools, but they deny low-income parents the same opportunity because they want continued
support from teacher unions. As Walter Williams explains, this is a shameful situation:
The grossly poor 12 years of primary and secondary education that black students receive is not likely to be made up in four or five years of
college, if ever. Therefore, no one should be surprised by poor black performance on graduate admissions tests such as LSAT, GRE and MCAT. What makes the catch-up even more unlikely is the soft bigotry
of low expectations and affirmative-action grading by white liberal professors and the selection by black students of touchy-feely curricula
such as black studies, women's studies, multicultural studies, education, and other curricula of little academic content and challenge. ...The irony
and tragedy of this story is that the primary victims of fraudulent education give their allegiance to politicians and civil rights organizations who've become handmaidens of the education
establishment and fight against any measure that threatens accountability, competition and alternatives to government schools.
Saturday, May 1, 2004 ~ 9:03 a.m., Dan Mitchell Wrote:
Big government and big business try to steal private property in Florida. Statists sometimes assert that free market economics gives too much power to big
business, but this is misguided. A business can only get big and prosper in the marketplace if it offers something of value to consumers. But big business can exploit
people when it teams up with big government. In many states, businesses are getting politicians to abuse the power of "eminent domain" to seize private property. Neal
Boortz reports on a recent victory in Florida:
Developers ...dont like paying some private land owner a million dollars for a piece of property he bought ten years ago for one-tenth that
amount. This eminent domain law in Florida would have changed all that. Instead of going to the individual property owners to negotiate a
price, developers would simply have identified the property they want to their local politicians. The politicians, with visions of more tax revenue
rattling in their political skulls, would begin the condemnation process while the developer counts the money he saved by circumventing the free
market. Well It didnt work. Tuesday morning Florida residents were flooding legislative offices with emails and telephone calls. By Tuesday
afternoon some legislative sponsors of the bill were withdrawing their support. By Wednesday evening the bill was dead, with all mentions of
eminent domain removed. In Florida, at least for the time being, private developers will still have to negotiate with property owners to purchase property.