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

The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The Heritage Foundation, respectively.

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The Market Center Blog

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

CF&P's Market Center Blog Archives
December 2004

 

Friday, December 31, 2004 ~ 8:12 p.m., Dan Mitchell Wrote:
A victory for free trade and poor people. A worldwide regime restricting textile trade will come to an end this weekend. This quasi-cartel was bad for American consumer and the global economy, but the main victims were poor people around the world:

    One of the things to celebrate when the clock strikes midnight Friday is the end of the global system of textile quotas. As the deadline approaches, it has been accompanied by world-wide panic over who will "lose out" to textile behemoth China. But the alarmists fail to recognize that many new winners will be created -- not the least of which will be the American consumer, who finally will be allowed to pay a better price for clothing. ...It's not just U.S. shoppers who stand to benefit. The chief victims of the quota system have been the world's poor, who were denied the opportunity to use the textile industry as the first step on the path to industrialization. Income gains for developing countries are estimated at $24 billion a year, a report by the United Nations Conference on Trade and Development calculates, while their export revenue gains could reach $40 billion.
    http://online.wsj.com/article/0,,SB110428229212811671,00.html?mod=opini on&ojcontent=otep   (subscription required)

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Friday, December 31, 2004 ~ 7:00 a.m., Dan Mitchell Wrote:
America's "sluggish" economy outperforms the rest of the world. The Wall Street Journal explains that US growth levels and unemployment rates are the envy of the world. The moral of the story, not surprisingly, is that nations will lower taxes and smaller government do better than oppressive welfare states:

    According to the November forecast of the Organization for Economic Cooperation and Development, gross domestic product in the U.S. is expected to increase by 4.4% in 2004. Elsewhere, the OECD predicts growth of 4% for Japan, 2.7% for the U.K., 2.1% for France and 1.2% for Germany. For the 12-country euro zone, the figure is 1.8%. To put matters in historical perspective, the last time Japan, Britain, France and Germany had growth rates at or in excess of 4.4%, the years were 1990, 1994, 1989 and 1991, respectively. ...Overall, the U.S. economy has added 2.3 million jobs since the third quarter of 2003, bringing the unemployment rate down to 5.4% from 6% in October 2003. In Germany, the unemployment rate is 10%; in France it's 9.5%. For the 27 countries of the OECD, the average unemployment rate is 6.8%. Only Britain and Japan, among the major economies, have unemployment rates lower than the U.S. ...To look closely at international economic data is to be reminded that countries with comparatively low tax rates and regulatory burdens consistently outperform countries with high ones. Of course it's nice to know that America's "sluggish" economy remains a world-beater. It's even better to know why.
    http://www.opinionjournal.com/editorial/feature.html?id=110006087

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Friday, December 31, 2004 ~ 6:45 a.m., Andrew Quinlan Wrote:
The oil-for-food scandal is just the tip of the iceberg. The Wall Street Journal continues its excellent coverage of the myriad scandals at the United Nations. Even without these scandals, the U.N. needs a major overhaul to weed out waste and fraud in the budget:

    To this scene in recent months we may add the reports of rape and child molestation committed by U.N. peacekeepers in Africa, allegations of sexual harassment involving the heads of both the U.N. refugee agency and the internal audit division, a revolt against "senior management" by the U.N. staff union, the findings of an internal U.N. integrity survey that a lot of U.N. employees fear retaliation if they speak out, and the statements of a few brave whistle-blowers, fighting for their jobs, to precisely that effect. Plus, if you like, there's the expanding saga of how the secretary-general until confronted by the press allegedly failed to notice that his son had allegedly been doing lucrative business deals with a major U.N. contractor under the Oil for Food program. All of which has been subject to the marvelously circular argument that the press should shut up until the U.N., in between firing off hush letters to its contractors and employing Mr. Annan's U.S.-taxpayer-funded staff to lambaste the U.N.'s critics, can carry out allegedly full and independent investigations of all these troublesome matters. By now, the debate outside the U.N. walls has expanded from calls for Mr. Annan to resign over Oil for Food to arguments that he really ought to resign over U.N. toleration of genocide, in which he has played a sustained part
    http://www.opinionjournal.com/columnists/cRosett/?id=110006082

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Friday, December 31, 2004 ~ 6:12 a.m., Dan Mitchell Wrote:
Nanny state antics. In an age of terrorism, one might hope that politicians would re-focus government on its legitimate role of protecting life, liberty, and property. But that would be naive. The latest example is a proposal to impose new labeling requirements on restaurants. This may not win an award for the worst piece of legislation ever conceived, but it certainly would be a strong candidate for the silliest proposal:

    Iowa Senator Tom Harkin and Connecticut Congresswoman Rosa DeLauro plan to re-introduce bills requiring chain restaurants with more than 20 outlets to list calorie counts either on menu boards or printed menus. And once that law went into effect? As sure as New Year's resolutions follow holiday gorging, watch for "mislabeling" lawsuits. Watch too, for prices to go up; a legislative labeling mandate isn't cost-free for restaurant owners. But all this is really beside the point. Yes, too many Americans are overweight. But this isn't exactly a state secret. The solution to the obesity problem isn't requiring restaurants to tell us that a glass of egg nog contains a gazillion more calories than a Diet Coke. It's learning to say no to the egg nog.
    http://online.wsj.com/article/0,,SB110419520873010580,00.html?mod=opini on&ojcontent=otep   (subscription required)

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Thursday, December 30, 2004 ~ 11:30 a.m., Dan Mitchell Wrote:
Saving lives should trump environmental fundamentalism. A Wall Street Journal column explains that faster economic growth is the key to avoiding needless deaths in developing nations. This is why policies which harm the economy - such as the Kyoto pact - are so damaging to poor people:

    ...every week in 2005, more than 120,000 people will continue to die prematurely in poor countries from malaria, dirty water, indoor air pollution, lack of sanitation and malnutrition. Most of these deaths, and indeed many of those caused by the tsunami, could have been prevented but for the anti-growth, anti-technology policies of governments in poor countries. ...Puritan environmentalists in Britain -- abstaining from the traditional holiday consumption and merriment -- were quick to exploit Sunday's tragedy. A British newspaper quoted one such activist responding to Indian Ocean earthquake and tsunami: "Here again are yet more events in the real world that are consistent with climate change predictions." Such pronouncements are not merely scientific jibberish, they are glib and self-serving. Multinational environmental groups promote the view that natural disasters are increasingly caused by global warming. This draws attention to their organizations, helping to swell their coffers and promote their anti-growth, anti-technology policies. Meanwhile, the poor continue to suffer. This week's tragedy illustrates why environmentalists' proposals are preposterous and counterproductive. Policies such as the Kyoto Protocol -- a global treaty to limit emissions in industrialized countries -- would in fact harm the poor the most, by slowing economic growth and distracting attention from real and present problems.
    http://online.wsj.com/article/0,,SB110427294600311383,00.html?mod=opini on&ojcontent=otep

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Thursday, December 30, 2004 ~ 10:45 a.m., Dan Mitchell Wrote:
Nobel Prize winner promotes private Social Security system. Writing in the Wall Street Journal, Nobel Laureate Edward Prescott outlines why demographic changes necessitate a switch to a system based on mandatory private saving:

    Social Security was developed at a time when the number of workers paying into the system greatly outnumbered those who were receiving funds, and thus the promise made by government was easily kept. But times change while policies atrophy, and Social Security has evolved into a system that places an increasingly onerous burden on the young; the ratio of workers to elderly has shifted from 41-to-1 in the 1930s, to 3-to-1 today. Young workers today are being told that their Social Security contributions -- or taxes -- may have to increase to support the burgeoning elderly population. Moreover, those young workers are being warned that the same benefits will not apply to them -- that they will have to work longer and receive less than the folks they are now supporting. Such are government promises, especially those grounded on ill-founded policy. ...The reason we need to have mandatory retirement accounts is not because people are irrational, but precisely because they are perfectly rational -- they know exactly what they are doing. If, for example, somebody knows that they will be cared for in old age -- even if they don't save a nickel -- then what is their incentive to save that nickel? Wouldn't it be rational to spend that nickel instead? So, indeed, people are acting rationally when they choose not to save. We have rational people making choices based on the rules. The trick is to get the rules right. A mandatory retirement system, properly designed, would establish effective rules.
    http://online.wsj.com/article/0,,SB110428249934411688,00.html?mod=opini on&ojcontent=otep

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Thursday, December 30, 2004 ~ 9:22 a.m., Dan Mitchell Wrote:
European Union court harms consumers and private property. By ruling against Microsoft (for the supposed transgression of providing free software), the European court has undermined the principle of private property. Moreover, it has adopted a tortured definition of competition - one based not on the presence of competition, but instead on maximizing the number of competitors in a market:

    Europeans will have to pay for what Americans may have for free. A European court ruled that Microsoft must comply with sanctions imposed by former EU Commissioner Mario Monti in March on the basis that the corporation was abusing its dominant position. ...intellectual property rights are at stake: if Microsoft has to share its codes with competitors, the very idea of an exclusive right to the fruits of one's intellectual labor is in trouble. If this is the case, the EU is taking a serious step towards less competitiveness, less innovation, and less research & development -- again, the EU actual policy is very far from the rhetoric of the Lisbon Strategy, a commitment aimed at strengthening EU's ability to innovate and compete on global markets. Moreover, there seems to be no such thing as presumption of innocence in Europe, at least for large corporations. Any other citizen, under any legal system, would be regarded as innocent until a reasonable certainty has been reached on her or his possible guilt. ...consumers should and are contesting it, since they realize they will have either to pay or to spend time to find an American version of Windows in order to enjoy the pleasure of listening to music or watching a movie. Apparently, former Commissioner Monti's idea of competition is a matter of numbers: you have to have as many companies as possible in any given field. But the real competition is something else: it's about process and freedom of entry -- and this is the only way how consumers may benefit from competition.
    http://www.techcentralstation.be/122304C.html

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Wednesday, December 29, 2004 ~ 11:45 a.m., Andrew Quinlan Wrote:
Treasury Secretary needs to seize new opportunity. Writing in the Washington Times, Richard Rahn explains that Secretary John Snow undermined his tenure at Treasury by failing to override the bureaucracy and implement changes to boost America's economic performance. Two early tests of Snow's second-term performance are whether he modernizes the revenue-estimating process and whether he withdraws a Clinton-era regulation that would force US banks to put foreign tax law above US tax law:

    Despite the urgings of many tax economists and scholars in the major think tanks (as well as some in the Bush White House), Mr. Snow has done little to insist his own tax revenue operation move away from static analysis and do more realistic dynamic tax scoring. Moreover, he has tolerated performance by some of his staff whose personal agendas have undermined administration positions. One example is a proposal (made in the last week of the Clinton administration) by the Internal Revenue Service to provide tax information to certain foreign governments (such as France) on nonresident aliens who invest in the U.S. economy and have no U.S. tax liability. Senior White House economic officials and many members of Congress, plus virtually every regulatory agency, industry group and public-policy organization that testified on the proposal oppose it. Opposition is intense because the move would undermine our economic and national security, violate financial privacy rights and weaken the dollar. Mr. Snow told several senior members of Congress he would withdraw the proposal. By not doing so he has damaged his credibility.
    http://www.washingtontimes.com/commentary/20041228-102339-1312r.htm

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Wednesday, December 29, 2004 ~ 11:09 a.m., Dan Mitchell Wrote:
Florida professor rips OECD tax harmonization agenda. Using economic analysis, an economist dismantles the intellectually shoddy position of the Organization for Economic Cooperation and Development:

    As trade and investment barriers fall, investors are able to take advantage of an ever increasing number of investment opportunities. That sounds like good news, doesn't it? The problem with this scenario, if you are one of the bloated, high-tax Western European welfare states, is that you are witnessing an exodus of investment capital to jurisdictions that are more tax friendly. ...If private parties engage in rate fixing, they are subject to fines and jail, but when government officials do basically the same thing, it is perfectly legal. Why is that? Their excuse is that they are doing it in the public interest. But how is it in the public interest to raise tax rates? ...There is an inverse relationship between the rates a government charges and the rate of economic growth. Countries that have the lowest tax rates tend to have the highest economic growth. One reason for that is because investment capital tends to flow into low tax countries and out of high tax countries. ...Since low rates foster economic growth and the expansion of employment, and since these are among the OECD's stated goals, it seems inappropriate that it should be targeting low tax countries instead of high tax countries. Targeting low tax countries makes the OECD's claim that it is not trying to raise tax rates very difficult to believe. ...If the bloated welfare states of Western Europe want to be competitive with the lean non-welfare states, they can be competitive. All they have to do is relinquish their welfare states and let taxpayers keep more of the money they have earned. They should not use the force of government to impose sanctions that only do harm to nations that have done nothing wrong.
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=617444 (click on "SSRN" under "Download the document from:")

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Wednesday, December 29, 2004 ~ 9:30 a.m., Dan Mitchell Wrote:
Turkish tax cuts show power of fiscal competition. New tax cuts in Turkey may not be very large, but they are steps in the right direction. Most important, they demonstrate a growing recognition of the importance of lower tax rates and the fact that lower tax rates do not necessarily mean less revenue:

    The Turkish government has stated its intention to cut a series of taxes next year in a bid to boost foreign investment. In an announcement made on Tuesday, Prime Minister Recep Tayyip Erdogan revealed that the corporate tax rate will be cut to 30% from 33%, ...The programme of tax reform, designed to simplify the tax system and increase compliance, will also see the top rate of personal income tax fall to 35% from 40%. These changes will go into effect from January 1, 2005. ..."Our government is confident it would not lose any tax revenue as a result of the cuts because lower rates would push down tax evasion," he added.
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18357

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Tuesday, December 28, 2004 ~ 10:15 a.m., Andrew Quinlan Wrote:
Prosperity is best defense against natural disasters. Environmental fundamentalists argue that the tsunami is a result of global warming, even though this requires the rather implausible belief that greenhouse gases cause earthquakes. As the Wall Street Journal explains, the real lesson from the tragedy in South Asia is that economic growth is the best way to protect human life:

    ...in the world of environmental zealotry, even an event such as this is seen as an opportunity to press the agenda. Thus, the source of the South Asian tsunami is being located in global warming. ...People prone to hysteria often become further unhinged in the face of a great disaster... That is all the more reason to come to grips with the real causes of calamities such as this. Geologists say that groups of giant earthquakes hit Sumatra every 230 years or so. The last quakes there were in 1797 and 1833--and surely not even Greenpeace would blame those on greenhouse gases--and so Sunday's latest quake was more or less on schedule. ...The more sensible response to natural disasters is to improve forecasting, put in place efficient communications and evacuation procedures and, should the worst arrive, conduct relief efforts and rebuild what nature has destroyed. Those cautionary measures, as is now clear, cost money. The national income necessary to afford them is made possible only by economic growth of the sort too many of environmentalists retard with their policy extremism. Rich countries suffer fewer fatalities from natural disasters because their prosperity has allowed them to create better protective measures. Consider the 41,000 death toll in last December's earthquake in Iran compared with the 63 who died when a slightly stronger earthquake hit San Francisco in 1989.
    http://www.opinionjournal.com/editorial/feature.html?id=110006079

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Tuesday, December 28, 2004 ~ 9:56 a.m., Dan Mitchell Wrote:
Understanding costs and benefits. Tom Sowell uses the recent controversy over anti-pain drugs to explain that policy makers should consider trade-offs. Almost everything in life - including taking a shower in the morning and walking down a flight of stairs - has some degree of risk. When politicians try to eliminate risk, they almost always fail to consider whether they are imposing higher costs and creating additional risk elsewhere. And they rarely consider the benefits that are lost when a "risky" activity or product is banned:

    Maybe Vioxx or Celebrex is too dangerous, all things considered. Maybe not. The problem is that all things are not considered. Too many people seem to think that if the risk of stroke or heart attack is doubled when you take some medication, that is the end of the story. ...Studies indicate that the great majority of people taking even heavy doses of these drugs over an extended period of time did not have either a stroke or a heart attack. However, the small number of people who did was greater than among those who did not take these drugs. Obviously people would not be taking these or other medications unless they had a problem that these drugs were intended to help. The question then is whether the benefits exceed the costs or vice-versa. ...But that is not good enough for "safety" advocates, many of whom have no medical training. If a drug is not "safe," they say it should not be allowed on the market. But nothing is categorically safe. Some people can die from eating ordinary wholesome foods like salmon or peanut butter. If the government banned every food that was fatal to someone, we might all die of malnutrition. If a drug is not safe, neither is the illness for which the drug is prescribed. Nor are alternative drugs likely to be perfectly safe, since nothing else is. Life involves weighing alternative risks, whether in football, pharmaceutical drugs, or a thousand other things.
    http://www.townhall.com/columnists/thomassowell/ts20041228.shtml

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Tuesday, December 28, 2004 ~ 8:48 a.m., Dan Mitchell Wrote:
International Monetary Fund improves its analysis. The IMF is notorious for recommending bad economic policy, including higher taxes and currency devaluations. The international bureaucracy's recent analysis of the U.K., however, is surprisingly close to being accurate. The IMF is too myopically focused on the budget deficit, but it does say that spending reductions are the best option and warns that higher tax rates are the worst option:

    In its concluding statement on the 2004 Article IV consultation with the United Kingdom, the International Monetary Fund (IMF) announced that the country's economic performance remains "impressive", but suggested that Chancellor Gordon Brown's growth estimates are over-optimistic. ...The IMF warned that either cuts in spending or tax increases will likely be necessary to balance the Chancellor's books and bridge what some observers are referring to as the 'budget black hole'. "We would favor an approach that relies on spending restraint - both to reduce the current risks of running into limits on absorbative capacity and to allow more time to assess value for money," the Fund announced. However, it continued: "If more reliance on revenue measures were desired, broadening the tax base would be preferable to raising tax rates, given potential adverse effects on supply."
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18355

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Monday, December 27, 2004 ~ 10:48 a.m., Dan Mitchell Wrote:
Global shift to personal retirement accounts. The Wall Street Journal takes a world tour of nations that have either fully or partially privatized their Social Security retirement systems. About two dozen nations have created personal retirement accounts - and the results have been spectacularly successful. Yet statists in the U.S. continue to argue that reform is a "risky" and "untested" idea:

    Chile runs the most advanced and oldest of the reformed plans; it relies mostly on the second pillar. When it was established in 1980, workers were allowed to opt out of the government pension plan and contribute 10% of pre-tax wages to personal, private accounts. ...Workers can choose among several private companies to manage their accounts. ...Average real rates of return for these private accounts have been high -- around 10% a year. Just as nice, pension funds have now accumulated about $50 billion in assets. This giant pool of savings has contributed to the more than doubling of the rate of economic growth in Chile, which has been running at a little over 7% a year. ...Australia started its reform program in 1992. Employers make mandatory payments of 9% of employee salaries into a privately managed fund. Currently, employers select the fund but, starting next year, workers will be able to choose among a variety of funds. Workers also have tax incentives to make additional, voluntary pension contributions. Pension plan assets have grown from $238 billion in 1992 to almost $700 billion now. Almost 90% of workers are covered. ...And then there's Sweden -- otherwise known as the most socialized economy in the West. In 1998, Sweden transformed its retirement plan -- a defined-benefit, pay-as-you-go system -- into a mainly second pillar program requiring contributions of 18.5% of earnings, split between employers and workers. The plan has two parts. The first part set up defined contribution accounts with a mandatory contribution rate of 16% of earnings. ...The second part requires a contribution of 2.5% of earnings into individual accounts. Here, workers can choose among many investment options (including both domestic and global mutual funds) and returns depend on the success of each worker's investment strategy. At retirement age, the money must be withdrawn and annuitized.
    http://online.wsj.com/wsjgate?source=jopinaowsj&URI=/article/0,,SB11041 0626569609679,00.html%3Fmod%3Dopinion%26ojcontent%3Dotep   (subscription required)

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Monday, December 27, 2004 ~ 9:27 a.m., Andrew Quinlan Wrote:
Is the United Nations is worth the cost? Arnold Beichman of Stanford University's Hoover Institution asks whether American taxpayers should be funding 25 percent of a bureaucracy that arguably makes the world less safe:

    Shouldn't President Bush be asking if it isn't time to dump the United Nations and to start anew? What kind of an organization is the United Nations whose General Assembly, with its automatic anti-Israel majority, devotes its time and finances (the United States pays almost a quarter of the U.N. budget) to badgering Israel, the only genuine democracy in the Middle East? What kind of organization is the U.N. Security Council in which a has-been like France is a permanent member but Germany, India and Japan are not? Does it make any sense to give French President Jacques Chirac, America-hater No. 1 and the best friend Saddam Hussein ever had, a veto over U.S. foreign policy to which fortunately we pay no attention? ... am referring to the oil-for-food outrage, a crime by any standard, but the United Nations is immune from chastisement. In fact, the perpetrators of this crime will undoubtedly retire with full pensions plus the usual golden handshake, paid for by the U.S. taxpayer. But there are other U.N. crimes. The U.N. Commission on Human Rights is a tragic joke. Members of the commission include China, Cuba, Saudi Arabia, Sudan - Sudan, for heaven's sake - and Zimbabwe. ...The United States is assessed 25 percent of the U.N. general budget, double the assessment of Japan, the next closest underwriter. Is it worth the money? If you ask me, no.
    http://www.washingtontimes.com/commentary/20041222-084333-9025r.htm

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Sunday, December 26, 2004 ~ 6:10 a.m., Dan Mitchell Wrote:
The Terminator's bad political judgment. In his Townhall.com column, Cal Thomas explains why Governor Schwarzenegger is mistaken when he argues that Republicans should move to the left:

    Schwarzenegger suggested that the Republican Party should move left in order to attract more voters. ...Why would Schwarzenegger want to trade a winning strategy for one that has a proven record of failure? When the Republican Party was controlled by lefties like Nelson Rockefeller and House Minority Leader Charles Halleck, the party lost elections. For 40 years, the moderate-liberal wing of the Republican Party never achieved majority status in the House of Representatives. The change began with Barry Goldwater in 1964 and culminated in the election of Ronald Reagan in 1980. By then, the once "Solid South" on which Democrats could rely for their electoral and congressional base had all but disappeared. In 1994 the GOP "revolution" erupted, led by Newt Gingrich. Republicans have maintained - and in the last election, they expanded - their majorities in the House and Senate. None of this was done by appealing to liberal voters. Schwarzenegger told his interviewer Republicans could win 5 percent more of the vote by moving "a little to the left." ...The Schwarzenegger "strategy"- if one can call political suicide a strategy - would gain favor with editorial page editors in Los Angeles, San Francisco and New York, but it would return the Republican Party to minority status virtually overnight. Conservatives would either stay home or vote for a third-party candidate, not so much in protest as to demonstrate that for them convictions mean more than party loyalty.
    http://www.townhall.com/columnists/calthomas/ct20041222.shtml

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Saturday, December 25, 2004 ~ 3:45 p.m., Dan Mitchell Wrote:
Reform opportunity at Fannie Mae. The Wall Street Journal says that lawmakers should use the shake-up at Fannie Mae as an opportunity to reduce government subsidies to the quasi-private company. America, the editorial explains, should not be like France:

    The new management will also have to get cracking with those in Congress, the Bush Administration and the Federal Reserve who want to rein in Fannie and its fellow quasi-government lender, Freddie Mac. Between them, Fannie and Freddie hold or guarantee about half the nation's $8 trillion in residential mortgages. For two years Mr. Raines and his pals in Congress have resisted more oversight, but they've brought it on themselves now. It's also probable that Fannie's capital requirements will be raised to a level closer to that of other financial organizations of its size. More broadly, Fannie Mae's problems should serve as a cautionary tale. Advocates of the notion that government should have a role -- through subsidies or partnerships -- in "helping" market forces achieve public-policy goals (in housing or even health care) need to come to grips with what happened here. They created Fannie as a vehicle to increase American home ownership, a worthy goal, but the time has come to retire the quasi-public model of doing good on a massive scale. ...Fannie Mae -- a slick, semi-private firm operating with the patronage of politicians -- is the kind of institution one still expects to find in a country like France. It is wholly inappropriate to a modern economy, as here in the U.S.
    http://online.wsj.com/article/0,,SB110376311575707912,00.html?mod=opini on&ojcontent=otep (subscription required)

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Saturday, December 25, 2004 ~ 12:34 p.m., Dan Mitchell Wrote:
Crony capitalism threatens South Africa. A Wall Street Journal column warns that South Africa's economic future is threatened by government-imposed racial discrimination. Low-income blacks are the biggest victims of this spoils system:

    South Africa matters, because if it fails, the rest of Africa hasn't a prayer. Yet if it booms, it could do for the poorest continent what Japan did for East Asia. It has Africa's most sophisticated economy, by far. ...Economic growth sputters along at a whisker above population growth. The poor have grown poorer since '94, partly because of AIDS, but also because about half of all blacks are jobless. Only rapid economic growth can solve that problem, but the government has not made this a priority. ...Instead, the focus is on redistribution. And not the conventional sort, from rich to poor, but from white to black, which is not the same. South Africa has embarked on probably the most extreme affirmative action program anywhere. Private companies above a certain size are obliged to try to make their workforces "demographically representative" (i.e. 75% black, 50% female, etc.) from factory floor to boardroom. This is not a minor irritant, like affirmative action in the U.S. ...Unlike private companies, the government finds it easy to hire by race rather than merit, because it has no competitors and cannot go bust. This is nice for the blacks it employs, but less good for the much larger number who depend on the state for health care, water, roads and pensions. The state does not even try to deliver these services cost-effectively. Black-owned contractors can charge more and still win public-works contracts, so poor blacks get fewer clinics than they otherwise would have. Legions of white managers have been pushed out to make way for inexperienced blacks, and then hired back as expensive consultants to tell their replacements how to do their jobs. The most insidious effect of the new racial laws has been to provide a cloak for the sort of cronyism that has wrecked the rest of Africa. The black tycoons who made fortunes by parlaying political connections into a share of someone else's business actually believe they are helping to "de-racialize" the economy. They regard themselves as role models for black youth, and magazine covers reinforce this delusion. The idea that wealth needs to be created is little aired.
    http://online.wsj.com/article/0,,SB110376334634607918,00.html?mod=opini on&ojcontent=otep (subscription required)

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Friday, December 24, 2004 ~ 3:11 p.m., Dan Mitchell Wrote:
Tongue-in-cheek awards for biased journalists. Tom Sowell gives much-deserved prizes to Dan Rather and Ted Koppel for ideologically-motivated "reporting":

    ...this column announces the first annual Joseph Goebbels award for that journalist who best exemplifies the spirit and the practice that Dr. Goebbels pioneered. For people too young to remember or too unschooled in history to know, Dr. Joseph Goebbels was the minister of propaganda in the Nazi regime back in the 1930s and 1940s. Facts never distracted him from his mission nor did a lack of facts inhibit his zeal. ...This year's Joseph Goebbels award goes by a narrow but decisive margin to CBS News anchorman Dan Rather for his planned broadcast on "60 Minutes" -- just days before the election -- to discredit President Bush's National Guard service 30 years earlier. Leave aside for the moment the fact that discrepancies in the documents he relied on have convinced experts and many others that they were forgeries. Why was what George W. Bush did or didn't do 30 years earlier "news" in 2004? ...Dan Rather's closest competition for the Joseph Goebbels award was Ted Koppel, whose "Nightline" broadcast went to a Communist country to get witnesses to speak on camera -- with a Communist official present -- to discredit what the Swift Boat Veterans had said about an incident involving John Kerry during the Vietnam war. Not one of the American eyewitnesses, who could have spoken freely in a free country, was interviewed in this "Nightline" broadcast.
    http://www.townhall.com/columnists/thomassowell/ts20041224.shtml

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Friday, December 24, 2004 ~ 1:43 p.m., Dan Mitchell Wrote:
Tax competition forcing Canada to be less irresponsible. Tax-news.com reports that the Canadian Parliament is considering corporate tax rate reductions and reform to keep pace with U.S. tax policy changes. Needless to say, it is unlikely that Canada's leftist government would even contemplate these improvements in the absence of international tax competition:

    A Canadian parliamentary committee has called upon the government to continue cutting corporate taxes to allow the country to compete effectively with the United States in attracting international business. In its pre-budget report, the House of Commons Finance Committee recommended a number of changes to the Canadian system of business taxation, including a review of the timetable for the elimination of the federal large corporation tax. ..."Like a number of our witnesses, the Committee believes that our tax environment should be competitive with that of the US, recognizing that competitive does not mean identical," the committee report stated. It went on to add that: "Otherwise, there is a danger that Canadian businesses will not prosper to the extent that they can, and to the extent that they should."
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18336

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Friday, December 24, 2004 ~ 10:55 a.m., Andrew Quinlan Wrote:
Governors seeking sales tax cartel. Behaving like a bunch of European politicians, the National Governors Association is trying to create an Internet sales tax cartel to reduce tax competition between states. As the Wall Street Journal explains, this cartel would undermine Constitutional principles and lead to bigger government:

    Governor Mark Warner of Virginia, who heads the NGA, is leading the effort. Governor Warner is a "new" Democrat, meaning he was smart enough to blame the tax hike he signed this year on the Republican Legislature. In his effort to mine the Web for more tax dollars, however, Mr. Warner and other pro-tax Governors are getting help from Republicans in Congress. No sooner had the Internet tax moratorium been extended than Mike Enzi of Wyoming took to the Senate floor to announce that his colleagues should turn their attention to the Streamline Sales and Use Tax Act, a bill he's introduced that would eliminate federal barriers to state and local taxation of interstate commerce and Internet sales. Senator Enzi says his bill is needed to help states respond to a "budget crisis" and "begin to recover from years of budgetary shortfalls." His Senate colleague Lamar Alexander, the former Governor of Tennessee and another proponent of Internet taxes, goes so far as to claim that states will be forced to raise other taxes if they can't get their paws on e-commerce transactions. We're all for tax simplification, but the Enzi bill looks more like collusion. It would require each state to "provide a central point of administration for all state and local sales and use taxes." In essence this would establish a national sales tax -- albeit for use by the states -- by easing the process of collecting taxes for the purposes of more easily raising them. Moreover, the Senators' references to state budget crises makes us wonder when they last looked at the revenue data. According to the Bureau of Economic Analysis, state and local tax revenue is rising, and has been for more than a year. Even the Conference of State Legislatures, no foe of tax hikes, acknowledges that "more money is flowing into state coffers." Earlier this month, its revenue report noted that "Personal income and sales tax collections -- about two-thirds of state tax collections -- are above target in almost every state," and that corporate income taxes "also are coming in above expectations."
    http://online.wsj.com/article/0,,SB110367932686306775,00.html?mod=opini on&ojcontent=otep (subscription required)

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Thursday, December 23, 2004 ~ 11:00 a.m., Dan Mitchell Wrote:
Higher taxes are not the solution to Social Security mess. The Bush Administration presumably will be unveiling a Social Security reform plan in the next couple of months, and this is leading to speculation that the White House may make the mistake of increasing the burden of the payroll tax - presumably by imposing the tax on a larger share of labor income. As Bruce Bartlett and Alan Reynolds explain in their respective columns, higher tax rates are the wrong approach:

    Since the Social Security system was created, the payroll tax has applied only to a portion of total wages. Originally, the limit was $3,000, which Congress raised from time to time. Since 1972, the wage base has been indexed and rises automatically each year. This year, it was $87,900. Starting on Jan. 1, the taxable wage base will rise to $90,000. Thus, the maximum tax one can pay will rise by $260. When Franklin D. Roosevelt put this system into place, it wasn't out of love for the wealthy. Rather, it was in order to maintain some reasonable relationship between taxes and benefits for everyone who pays into Social Security. ...If the cap is removed and benefits are limited to current levels, the return for high- income workers will become nonexistent. This means that Social Security will no longer be a pension system to which one earns benefits, but will instead be nothing but a welfare program. ...Of course, another consequence of raising the cap is that it will constitute a massive marginal tax rate increase. The top rate on wages will, in effect, rise by 12.4 percent, raising the de facto top rate from 38 percent to more than 50 percent (including the 2.9 percent Medicare tax, which has applied to all wages since 1993). This will reduce labor supply, encourage tax-sheltering activities and move tax policy in the opposite direction that President Bush has been going for the last four years. A study by the Institute for Research on the Economics of Taxation says that the negative economic effects of raising the wage cap could be devastating: "On an income-weighted basis, there would be a net reduction in work incentives economy-wide." A Heritage Foundation analysis found that lifting the wage cap would constitute the largest tax increase in American history, raise the unemployment rate, reduce the personal saving rate by about one half of a percentage point and reduce real economic growth by about a tenth of a percent per year.
    http://www.townhall.com/columnists/brucebartlett/bb20041223.shtml

    ...every proposed solution to the "Social Security funding gap" that eschews private accounts just promises to leave younger generations facing disappointing and delayed Social Security benefits and much higher taxes. And that, in turn, is why we need to get started on private accounts -- to give those now in their 20s and 30s some time to build bigger and more reliable sources of retirement income than simply relying on the unlikely generosity of increasingly scarce young taxpayers in the future. If the "Social Security funding gap" was all that mattered, that could easily be fixed by raising the Social Security retirement age from 67 to 77, or perhaps 97. Such solutions pretend to "fix the system" by putting young people in a fix. They try to dodge the unavoidable reality that during the next few decades, too many older people will be trying to retire at the expense of too few young taxpayers. The threat of increasingly punitive tax rates on future workers (or, even worse, trying to dump the burden on a few with high salaries) is not even part of a workable solution and is, in fact, the fundamental threat to future prosperity for workers and retirees alike.
    http://www.townhall.com/columnists/alanreynolds/ar20041223.shtml

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Thursday, December 23, 2004 ~ 10:36 a.m., Andrew Quinlan Wrote:
Real tax reform requires smaller government. Walter Williams explains that good tax reforms like the flat tax should be accompanied by reductions in the size of government. He also warns that repeal of the 16th Amendment would be an absolute requirement before considering a national sales tax:

    Keeping the numbers small, suppose the annual value of what Americans produce, our gross domestic product, is $100. If government spends $40 of it, of necessity the government must force us to spend $40 less. There are several ways this can be done. Government could tax us $40. Government could borrow, thereby driving up interest rates and reducing private spending. Government could simply print money, which would cause inflation and reduce our purchasing power. Finally, government could employ some combination of the three. The bottom line is that if government spends $40 of our GDP, we can't spend that same $40. There's no question that tax reform is needed, but tax reform is secondary to a much larger issue -- federal spending. From 1787 to 1920, except during war, federal spending was a mere 3 percent of GDP, compared to today's 20 percent. If the federal government takes only 3 percent of the GDP, just about any tax system is relatively non-oppressive. However, if government were to take 50 percent, 60 percent or 70 percent of the GDP, you tell me what tax system would be non-oppressive. ...Before we accept a national sales tax, there are two minimal requirements. First, there must be a repeal of the 16th Amendment so Congress can't hit us with both an income and sales tax. Second, there must be a constitutional amendment fixing the national sales tax at a certain percentage that can only be increased by a three-fourths vote of the House of Representatives. People have advocated a national sales tax or a flat income tax for years, and I don't want to rain on their parade. But here's my prediction: Congress will never enact a sales tax or a flat tax. Why? The two most powerful congressional committees are the House Ways and Means Committee and the Senate Finance Committee. Both dispense tax favors to different Americans that come at the expense of other Americans. With a sales or flat tax, their Santa Claus roles, not to mention campaign contributions, would be diminished. On top of that, they'd have restricted opportunities for social engineering through fiddling around with the tax code.
    http://www.townhall.com/columnists/walterwilliams/ww20041222.shtml

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Thursday, December 23, 2004 ~ 9:31 a.m., Dan Mitchell Wrote:
American values versus European values. Though written last year, this article from the Chairman of Harvard's Economics Department is an interesting comparison between liberty-minded people in the United States and socialists in Europe:

    America and Europe have profoundly different views on fundamental and basic values and attitudes. Take their views on poverty, inequality and the welfare state. According to the World Value Survey, (a respected attitudinal survey conducted in about 40 countries) 60 per cent of Americans believe that the poor are "lazy," 26 of Europeans have the same belief. The exact opposite proportions (60 per cent of Europeans and 29 per cent of Americans) believe that the poor are trapped in poverty. According to evidence drawn from surveys about well being, Americans are much less bothered by inequality than Europeans. In fact even the American poor do not mind inequality, which they see as a social ladder that they can climb, while the European poor view it as an insurmountable social obstacle. ...European culture remains profoundly affected by a Marxist tradition in which classes are viewed as cast in stone-which implies that it is almost impossible for a "poor" ("proletarian" in the old language) to become rich. Marxism assumes social immobility to justify the concept of "class." In many European countries political institutions were shaped in revolutionary periods with a strong and powerful presence of Socialist and Communist parties, and European Constitutions often reflect an emphasis on equality and redistribution. In America the Marxist cultural influence was much more limited. Instead the culture (or myth) of the self- made man was an excellent ideological tool for the social conservatives to justify limited government intervention. The American Constitution, though reshaped, amended and adapted to changing times, still reflects its origin as a document which had a strong flavor of defense of private property against the State.
    http://post.economics.harvard.edu/faculty/alesina/columns/Europe_US.pdf

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Thursday, December 23, 2004 ~ 9:08a.m., Dan Mitchell Wrote:
Wrong analysis of Italian tax cuts. Italian legislators are undermining the Prime Minister's tax cuts, but critics are overstating the damage. The economic benefits of pro-growth tax cuts are due to lower rates on productive behavior - not by putting money in people's pockets. The goal of good tax policy is not to boost consumer spending, which simply indicates how people are using their income. Instead, the goal of good tax policy is to lower tax rates on work, saving, and investment so that people have an incentive to earn more income:

    The Italian Senate last week approved the 2005 budget, although some key changes are likely to negate the effect of tax cuts which Prime Minister Silvio Berlusconi fought hard to have included. Under the version of the budget approved by the upper house, more than EUR1 billion will be raised in revenues from increases in indirect taxes such as stamp duty, while local governments will be given new powers to push up rates of local income tax. Economists fear that the benefits from EUR6 billion in tax cuts that Berlusconi insisted should be included in budget to help boost growth, will be cancelled out by the revenue-raising measures. "The new measures in the amendment add to my conviction that the budget will do very little to boost consumer spending," observed Giada Giani, an economist at Banca Intesa in Milan, according to Dow Jones.
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18312

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Thursday, December 23, 2004 ~ 8:44 a.m., Dan Mitchell Wrote:
Wasting other people's money. Reviewing disaster aid payments following a spate of hurricanes in Florida, the Sun-Sentinel newspaper published a great article in November (http://www.freedomandprosperity.org/blog/2004-11
/2004-11.shtml#237
) about the scandalous waste, fraud, and abuse at the Federal Emergency Management Agency. The newspaper has a follow-up story showing how government hand-outs encourage fraud across the nation:

    From Mobile, Ala., to Detroit to rural eastern North Carolina, the federal government has approved millions in assistance to areas largely unaffected by disasters, even after local officials warned of possible fraud. The $29.2 million sent so far to residents of Miami-Dade County for Hurricane Frances, the Labor Day storm that struck 100 miles to the north, is not an anomaly, the South Florida Sun-Sentinel found in its continuing investigation. "It's just the same nationwide," said Paulette Williams, emergency management director in Mobile County. he Federal Emergency Management Agency gave Mobile residents $29.5 million for flooding last year, despite repeated calls and letters from Williams saying that the county suffered no damage. ...Officials in Wayne County, Mich., learned from the Sun-Sentinel that more than 30,000 of their residents collected $33.9 million for storms in May and June. "That's just staggering," said Mark Hammond, Wayne County's deputy director for homeland security and emergency management. "I could see 2,000 homes, but not 30,000." ...In North Carolina, the emergency manager in Columbus County, Ronnie Hayes, had no idea residents have collected $3.9 million for Frances so far. A tornado touched down during the storm but damaged at most 50 homes, he said. "We did have some damage," Hayes said. "Did we have $3 million worth? Not in my opinion. I didn't see that. I sure didn't." In nearby Cumberland and Scotland counties, emergency managers did not think any of their residents had even applied for FEMA assistance after Frances. "We only had two residents who were impacted at all," said Scotland's director, Roylin Hammond (no relation to Mark). Yet, FEMA records show 560 residents of Scotland and Cumberland counties applied for aid, receiving $398,442 as of last week. ...Byrd, an emergency manager for 16 years, said FEMA needs to be overhauled. "This business of bailing people out every time a disaster happens," Byrd said, "it's going to break the United States."
    http://www.sun-sentinel.com/news/local/florida/sfl-fema19dec19,0,4244131, print.story?coll=sfla-news-florida

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Wednesday, December 22, 2004 ~ 11:15 a.m., Dan Mitchell Wrote:
The value of jurisdictional competition. Kevin Hassett of the American Enterprise Institute notes that individuals almost always win when governments compete. This is why high-tax nations generally want to create cartels, but it also explains why the United States should be very careful about ceding power to international bureaucracies:

    ...our forefathers' preferred design of a federal system allowed for ample competition between the individual states, and free movement of citizens between the states, for a good reason. Should a state pursue policies that are harmful to overall welfare, its citizens could pick up and move to a neighbor. The federal system set up a competition between states that acted as a natural governor of the growth of harmful government. This political insight was later incorporated into the economic lexicon by economist Charles Tiebout, who demonstrated that "voting with your feet" often leads to efficient provision of government. As the United States turns its gaze outward to the world community, therefore, it must entertain the possibility that membership in an aggregated global governing body may be necessary in order to ensure that global public goods are adequately provided. But it must weigh the benefit of improved coordination in the provision of these public goods with the potential costs of harmonizing policies with nations that have far different social preferences. And the citizens of the United States should be wary of entering into compacts that limit the beneficial competition that preserves liberty and constrains the growth of inefficient and intrusive government. ...In an isolated nation, with no factor mobility, it is easy for the government to tax labor, capital or both. When these factors can move freely between countries, then the power to tax is undermined and sometimes eliminated. Today, capital is highly mobile between countries, and this has set off a raging tax competition. The biggest mover in this contest has been Ireland, which began lowering its corporate tax rate from 50 percent in the late 1980s to the current rate of 12.5 percent and has experienced remarkable and persistent economic growth, as tax-dodging capital from around the world flowed across its borders. Subsequently, many other nations (most recently Greece) have sought to copy the Irish example. Clearly, as my colleague Eric Engen and I noted in a recent article in Tax Notes, the world may be headed for an equilibrium with a zero capital tax. However, tax competition need not erase the ability to tax altogether. First, countries can always tax immobile factors such as land. Second, mobile individuals might voluntarily expose themselves to taxation if valuable government services are bundled with it. Indeed, individuals are likely more sensitive to the quality of public goods (parks, schools, clean air) than is capital. Accordingly, taxes on labor will not necessarily be eliminated by global tax competition, even as the homogenization of cultures, language and low cost of travel makes migration more common. If a country offers a good mix of public goods and taxes, laborers will choose to work there, just as many Americans voluntarily move to high-tax suburbs. If it does not, they will move to a country that does. ...cartels formed by the world's governments to prevent competition will likely do so to protect redistribution. Germany and France, for example, have social welfare states that put a heavy burden on all of their revenue raising devices. Tax competition from countries like Ireland reduces their ability to rely on capital taxes, making their spending plans difficult to finance. The problem is not that paupers move to these countries. Rather, it is that those with the financial wherewithal to finance the democratic socialists' objectives are moving away, literally and figuratively. Similarly, heavy labor-market regulation has made unemployment high throughout most of Europe and has led to higher emigration. This impact of policy on mobility is becoming visible in the data, a sign that competition may be heating up in many areas. And multinationals are not the only mobile players in the game. If one plots net migration patterns in OECD countries against the Heritage Foundation's index of economic freedom, for example, one can see a clear and statistically significant tendency for individuals to move toward countries with more freedom. In response to these and other factors, Germany and France have attempted to force fellow members in the EU to harmonize tax and regulatory policy in their direction. So far they have failed on taxes. The benefits to deviating from the harmonized policy, as Ireland has demonstrated, are too rich to ignore.
    http://www.aei.org/news/newsID.21737/news_detail.asp

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Wednesday, December 22, 2004 ~ 10:54 a.m., Dan Mitchell Wrote:
Treasury Secretary warns that America should not repeat Europe's high-tax mistakes. Discussing Social Security reform, Treasury Secretary John Snow warned against higher payroll taxes. Snow explained that high tax rates helped cause economic stagnation in Europe:

    Snow said the most important element of the Bush's ideas is his determination not to allow higher Social Security taxes. He contended Europe's socialist economies during the second half of the 20th century showed high payroll taxes hurts employment and the economy. "We don't want to go the way of Europe," Snow said. "We want to keep robust employment levels and growth levels. So, ruling out increases in payroll taxes is awfully important."
    http://apnews.myway.com/article/20041219/D872SNA00.html

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Wednesday, December 22, 2004 ~ 9:42 a.m., Andrew Quinlan Wrote:
Big government hinders European growth - and influence. A book review notes that bad economic policy will prevent Europe from becoming a superpower counter-weight to the United States:

    In The United States of Europe: The New Superpower and the End of American Supremacy, T. R. Reid provides an overstated but inadvertently insightful treatment of the European challenge to American hegemony. On his intended thesis - that "the planet has a second superpower now" - Reid fails to convince. Nevertheless, his book offers a valuable portrait of a continental political class obsessed with "counterweighting" the United States of America. ...So far, it is true, the euro has succeeded, but double-digit unemployment, a declining birthrate, soaring taxes, and a union-dominated welfare state suggest a grimmer economic future. A controversial blue-ribbon commission, chaired by former Dutch prime minister Wim Kok, reported in November that Europe, with a growth rate roughly half the world average, will fail to meet its goal of outperforming the U.S. economy by 2010. Instead, its economy appears even more booby-trapped than our own. Reid assumes that if EU regulators are strong, the EU must be too. Devoting an entire chapter, "Welch's Waterloo," to the EU's veto of the GE-Honeywell merger, he misses the larger point. Europe's regulators legislate the length of leeks and the curves of cucumbers, mandate minimum tax rates, and prop up a pathetically inefficient agricultural sector. Rather than making a superpower, the EU's ham-fisted regulators keep the world's largest unified market from reaching its full potential.
    http://www.nationalreview.com/comment/ramosmrosovsky200412200804.as p

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Wednesday, December 22, 2004 ~ 8:08 a.m., Dan Mitchell Wrote:
Bad political analysis from the Terminator. Governor Schwarzenegger naively assumes that Republicans would pick up more votes if the Party moved to the left. But elections are more likely to be won or lost on turnout, which is driven by motivation. As the 1980 and 1994 elections demonstrated, the GOP has big victories when it has a conservative platform. If Schwarzenegger's theory was correct, the first President Bush would have enjoyed a landslide re-election in 1992:

    California Gov. Arnold Schwarzenegger suggested in a German newspaper interview published Saturday that the Republican Party should move "a little to the left," a shift that he said would allow it to pick up new voters. ...In an interview with Germany's Sueddeutsche Zeitung daily, Schwarzenegger said that "the Republican Party currently covers only the spectrum from the right wing to the middle, and the Democratic Party covers the spectrum from the left to the middle." "I would like the Republican Party to cross this line, move a little further left and place more weight on the center," he was quoted as saying. "This would immediately give the party 5% more votes without it losing anything elsewhere."
    http://www.usatoday.com/news/washington/2004-12-19-arnold-gop_x.htm

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Tuesday, December 21, 2004 ~ 12:15 p.m., Dan Mitchell Wrote:
President's Chief Economic Adviser explains benefits of tax reform and territorial taxation. In a recent speech, Greg Mankiw of the Council of Economic Advisers discussed the importance of low tax rates. He also said the tax code should not discriminate against saving and investment and noted the growing consensus for territorial taxation:

    The current tax code is a drag on the economy, discouraging saving and investment, and requiring individuals and businesses to spend billions of dollars and millions of hours each year to comply with the system. The President has stated that his goals are to make the tax code simpler, to make it more fair, and to further promote growth and job creation. ...As a general matter, the less the tax code distorts decision-making, the better the allocation of resources, and the more prosperous the economy will be. Standard economic theory indicates that the distortion of any tax rises with the square of the tax rate. That is why the standard mantra for economists interested in tax reform is .broaden the base, lower the rates. A large scholarly literature in economics has pointed out that another way to strengthen the economy would be to reduce the tax bias against saving and investment inherent in the current system. This literature suggests that the optimal tax system would use consumption, rather than income, as the tax base. Under an income tax, a person who immediately spends all his wages pays lower taxes over his lifetime than his neighbor who earns the same amount but chooses to save and invest in order to enjoy a more prosperous retirement or to leave a bequest to his children. By contrast, under a consumption tax, these two families would pay the same tax in present value. Savers would no longer be disadvantaged relative to spendthrifts. The result would be greater saving, increased capital accumulation, and higher growth in productivity and wages. ...one of the first questions to ask about the corporate income tax is whether it should have a global reach, or whether it should apply only to income earned within the United States . My reading of the literature on this topic is that economics profession once favored a global tax system. But that consensus is now eroding, and recently many economists have favored a territorial system.
    http://www.whitehouse.gov/cea/international-tax.html

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Tuesday, December 21, 2004 ~ 11:50 a.m., Andrew Quinlan Wrote:
A pro-growth agenda for the Treasury Department. Writing for the Wall Street Journal editorial page, Steve Forbes explains why a flat tax, strong dollar, and Social Security privatization are key elements for a successful Treasury Department:

    The federal income tax code. Your position should be simple: Get rid of it. Start over. Replace it with a flat tax... The current system is an abomination. It is a stain on our national character and our politics. It retards economic growth and encourages the worst in us. It bars our people from fully realizing one of the critical components of the American dream -- the opportunity for each of us to discover and develop to the fullest our God-given talents. Income tax rates are far higher than they should be because of the code's Byzantine complexities. Think of it this way: Politicians tax us a dollar and then give us back -- unevenly, inequitably -- 50 cents in various credits, deductions, exemptions. Why not just tax us 50 cents in the first place and save everyone all the trouble? High tax rates retard economic growth. Taxes are a price. The tax you pay on your income is the price you pay for working; on profits, the price you pay for being successful; on capital gains, the price you pay for taking risks...

    The dollar. Leave it alone. Get away from this crazy theory that a cheap dollar will cure our perceived trade woes and give us greater prosperity. Richard Nixon had the same illusion in 1971, when he severed the dollar from gold -- a cheap dollar would improve our balance of trade, he thought. All we got was a decade of stagnation and inflation. Urge Alan Greenspan to have the Federal Reserve soak up excess dollars until the price of gold goes below $400 an ounce. The dollar should be a fixed measure of value, just as is the foot (12 inches) or the hour (60 minutes). ...The dollar's value is not an economic issue -- it is, fundamentally, a moral one. When an individual receives a dollar for his labor, what right have politicians, central bankers or other "we-are-smarter-than-the-American people" Mandarin types to change the value of what that individual receives for his or her labor? No windfall losses, no windfall gains. Debasing the dollar just breeds inflation. ...Inflation is a destroyer. It undermines the social fabric. "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose," is John Maynard Keynes' apt summary.

    Social Security. Keep in mind that any proposed changes to the system will create a political firestorm, that Democrats and other demagogues will rail that you are undermining the wellbeing of the elderly. Rather than recommend tepid reform, you may as well go for something big. Instead of allowing workers to put 2% (out of 12.4%) of their Social Security taxes into personal accounts, allow them to put in 6% or 8%. That way workers who choose to take this option would start seeing meaningful money quickly accumulate in their accounts. Critics will cry that we will have to float bonds to implement this kind of reform. So what? Social Security's unfunded liabilities are well in excess of $10 trillion, versus the $7 trillion of our official national debt. So the liability is already there. A well-structured reform would mean that any borrowings could be amortized over a 30-year to 40-year period. It would turn Social Security from a pay-as-you-go liability into a capital-creating, economy-growing asset.
    http://online.wsj.com/article/0,,SB110350609792404469,00.html?mod=opini on&ojcontent=otep (subscription required)

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Tuesday, December 21, 2004 ~ 11:00 a.m., Dan Mitchell Wrote:
Congressional Budget Office acknowledges supply-side impact of tax policy. The bureaucracies that estimate the revenue impact of tax policy changes do not recognize the effect of changes in taxable income. Under this "static scoring" methodology, for instance, both the Joint Committee on Taxation and the Treasury Department's Office of Tax Analysis would assume no change in the economy even if tax rates were doubled or reduced by 50 percent. This means policy makers must rely on inaccurate information when considering tax policy changes. Fortunately, the Congressional Budget Office is shining some light on this flawed process. The CBO recently produced a paper reviewing very strong evidence that taxpayers do change their behavior in response to movements in tax rates:

    Although the ETI [elasticity of taxable income - the degree to which taxable income rises or falls as the tax rate decreases or increases] literature appears to be moving toward a consensus, a deeper look at the research suggests little agreement. Despite the complexities inherent in the estimation, several recent articles suggest a consensus value of about 0.40 (see Table 1). Carroll (1998), Saez (2003) and Gruber and Saez (2000) all find an overall elasticity of 0.40, even though they examine different tax changes and use alternative methodologies. A closer examination of the studies suggests, however, that focusing on that single number masks considerable variation in the estimates. In addition, Saez (2004) and Kopczuk (2003) suggest a great deal of uncertainty surround their ETI estimates. In some cases the overall elasticities vary greatly depending on specification. ...The ETI, which measures the responsiveness of reported income to changes to marginal tax rates, is a key parameter for estimating the impact of income-tax-rate changes on tax revenues and for measuring the efficiency implications of those rate changes. Studies have examined the tax changes of 1981, 1986, 1990, and 1993, as well as the bracket creep of the late 1970s and early 1980s, to estimate an overall ETI with respect to the net-of-tax rate. In addition, some studies have separately estimated ETIs for different income groups. Estimated elasticities appear to vary by income, with the highest-income households being the most responsive.
    http://www.cbo.gov/ftpdocs/60xx/doc6028/2004-16.pdf

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Tuesday, December 21, 2004 ~ 9:47 a.m., Dan Mitchell Wrote:
Massachusetts lawyers seek cartel to exploit consumers. Fear of competition is leading lawyers in the Bay State to push restriction on non-lawyers. This would be good for legal fees, but it would be bad news for consumers. The Wall Street Journal explains why:

    Massachusetts already bears the dubious distinction of having more lawyers per capita than any state. Now it seems its legal class would like to game the system to ensure they are also the best paid and least threatened with competition. That's the way to read a recent Massachusetts Supreme Judicial Court proposal to define the "practice of law." The legal class has been on a mission to create such definitions to prohibit anyone but themselves from giving legal advice or working on legal documents. Proponents say such rules are necessary to protect consumers from fraud and to give nonlawyers guidance on services they can legally perform. And if you believe that, we've got another lawyer joke to tell you. In practice, these definitions shield lawyers from competition, curtail access to the justice system and saddle consumers with fewer options and higher costs. ...the definition could (read: would) be interpreted by lawyers to prevent real estate agents from explaining smoke detector laws to clients, prohibit software makers from selling will-writing programs, or constrain advocacy organizations from providing information about legal rights. And that's just for starters.
    http://online.wsj.com/article/0,,SB110350585257204460,00.html?mod=opini on&ojcontent=otep (subscription required)

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Tuesday, December 21, 2004 ~ 9:00 a.m., Andrew Quinlan Wrote:
Wasting tax dollars in outer space. On the issue of controlling big government, the Bush Administration has a less-than-stellar record. A good example is NASA, specifically the international space station. Terrence Jeffrey explains in the Washington Times:

    Someone ought to apply this logic to the internationalist agency our space program has become. NASA will cost taxpayers $16.2 billion in fiscal 2005... That is an astronomical sum, considering not only the less-than-stellar returns NASA has yielded Americans recently... When the Clinton administration signed a deal in 1993 to include the Russians in the station, Aerospace Daily said the deal would bring Russia's "cash-strapped aerospace industry some $1 billion in U.S. funds over the life of the project." Clintonites pitched the project as a transnational jobs program. "Officials said it has the added benefit of helping forestall unemployment for workers at Russia's Baikonur space-launch site," reported The Washington Post. The International Space Station is international socialism, and it exemplifies why many have fallen out of love with NASA. ...In January, President Bush announced a bold plan to build a permanent base on the moon as a stepping-stone to Mars. But he didn't pitch it like Kennedy's moon shot. "The vision I outlined today is a journey, not a race," said Mr. Bush, "and I call on other nations to join us on this journey in a spirit of cooperation and friendship." It cost $100 billion in today's dollars to put an American on the moon in 1969. How many U.S. tax dollars will it take to put a Russian on a moon base? NASA outgoing director didn't believe his NASA job was worth the sacrifice his children might face if they incurred a great debt for college. How many taxpayers want their children to incur a great national debt to put an international station on the moon?
    http://www.washingtontimes.com/commentary/20041217-084900-4541r.htm

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Monday, December 20, 2004 ~ 10:30 a.m., Dan Mitchell Wrote:
Falling dollar being used a Trojan Horse for tax increases. Alan Reynolds explains that there is no link between budget deficits, trade deficits, and the falling dollar. The first is a fiscal policy issue, and is properly understood as a symptom of excessive government spending. The second is merely a reflection of the fact that Americans are richer than the rest of the world and therefore can buy more from others than they buy from us. Last but not least, monetary policy may be heading in the wrong direction and hurting the value of the dollar, but this can only be fixed by shifting to a better monetary policy, not be raising taxes:

    Some of the most painful errors in economic policy resulted from the belief monetary problems were not monetary but fiscal - caused by budget deficits. Blinded by such fiscal fundamentalism, President Hoover persuaded Congress to triple income tax rates in 1932, President Lyndon Johnson proposed a surtax as a counterproductive alternative to Federal Reserve tightening in 1968-69. A series of Japanese governments imagined wasteful public works schemes and new taxes on consumers and investors would somehow undo the Bank of Japan's prolonged deflation. Over the past two decades, the U.S. dollar has often gone up and sometimes down. Although these ups and downs were transparently unrelated to budget deficits or surpluses, apostles of the quaint Keynesian faith have nonetheless misspent two decades alternating between predictions that budget deficits must push the dollar up or down. ...Any proposal to "fix" the current account deficit by imposing brutal European or Japanese tax policies on the United States simply aims to weaken the U.S. economy and thus reduce demand in general, including demand for imports. It "works" only in the same sense recessions have always cut our need for imported industrial materials, components and equipment, and our ability to pay for them.
    http://www.washingtontimes.com/commentary/20041218-100134-1250r.htm

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Monday, December 20, 2004 ~ 10:13 a.m., Dan Mitchell Wrote:
Term limits reduce power of lobbyists. Free-market advocates generally support term limits because politicians become more supportive of big government the longer they are in office (see http://www.ustl.org/Research/articles/010817catodaily.html for more info). Opponents argue that terms limits increase the power of lobbyists, but Paul Jacob explains why this is upside-down logic:

    ...the idea that lobbyists have gained power with term limits is laughable. Oh, you can probably find lobbyists who will advance the claim, when they argue against term limits, but such talk is a ruse. All in all, the shorter the terms served, the more time lobbyists have to spend re-investing in new representatives. Politicians are hard to buy, actually. It's often said that you can only rent them. But with term limits, lobbyists are limited to the length of the rental agreements. That's why lobbyists are so consistently against term limits.
    http://www.townhall.com/columnists/pauljacob/pj20041219.shtml

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Monday, December 20, 2004 ~ 8:55 a.m., Andrew Quinlan Wrote:
The economic wisdom of America's Founding Fathers. A Townhall.com column quotes many of America's early leaders on the value of limited government. It is a shame that today's politicians do not have the same understanding and appreciation of the benefits of a free society:

    The author of our Constitution, James Madison, wrote in The Federalist Papers: "The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation and foreign commerce." ...All of our Founders were rightly concerned about this power -- indeed, our nation was born out of revolution to unjust taxation. No sooner was our Constitution ratified than Madison challenged his colleagues to refrain from extra-Constitutional expenditures: "I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents...." Of the "General Welfare," Benjamin Franklin observed: "I am for doing good to the poor, but...I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed...that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer." As for the effect of excessive taxation on the economy, Alexander Hamilton wrote: "If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds."
    http://www.townhall.com/columnists/markalexander/ma20041217.shtml

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Sunday, December 19, 2004 ~ 11:00 a.m., Andrew Quinlan Wrote:
Kyoto's much-deserved demise draws near. Ronald Bailey reports from Argentina that environmental fundamentalism has suffered a major setback. It seems that the Europeans are the only ones willing to sacrifice growth based on deeply flawed science - and some countries such as Italy clearly want to break ranks with their more statist neighbors:

    The conventional wisdom that it's the United States against the rest of the world in climate change diplomacy has been turned on its head. Instead it turns out that it is the Europeans who are isolated. China, India, and most of the rest of the developing countries have joined forces with the United States to completely reject the idea of future binding GHG [greenhouse gas] emission limits. At the conference here in Buenos Aires, Italy shocked its fellow European Union members when it called for an end to the Kyoto Protocol in 2012. These countries recognize that stringent emission limits would be huge barriers to their economic growth and future development. ...So what now?  Two different but complementary paths for addressing any future climate change have emerged from the Buenos Aires Climate Change Conference. The Europeans and activists have been pushing the first, which envisions steep near term reductions (next 20 years) in the emissions of GHG as a way to mitigate projected global warming. On the other hand, the United States has been advocating a technology-push approach in which emissions continue to rise and then GHG concentrations and emissions are cut steeply beginning in about 20 years. Over that time, the US sees the development of new energy efficient technologies, the creation of low cost methods for capturing and storing carbon dioxide both as emissions and atmospheric concentrations, and the invention of low carbon energy supplies. Such an approach has the advantage of fostering economic growth in the developing countries, lifting hundreds of millions from abject poverty over the next 20 years. ...History will record that the COP-10 Buenos Aires Climate Change Convention is where it was first widely recognized that the Kyoto Protocol is a dead end. And where humanity chose to embark on a high tech path toward confronting whatever challenges any future global warming may present.
    http://www.techcentralstation.com/121704G.html

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Sunday, December 19, 2004 ~ 10:24 a.m., Dan Mitchell Wrote:
Gun rights end where property rights begin. USA Today recently ran a balanced story on the dispute between gun owners and employers regarding whether workers should be allowed to bring their guns to work. This blog is a strong defender of the Second Amendment, but there is no "right" to a job. If an employer wants to prohibit guns, that is his right since he is making rules for his property. This does not mean that companies always make wise decisions. Indeed, allowing employees to carry guns almost surely will deter crime, and gun owners should use the power of persuasion to convince employers of this. But the ultimate decision belongs with the owners of the business. If workers do not like the decision, they can always look for another job:

    Employers have long banned guns from the workplace as part of a violence-prevention strategy, but those policies are being tested as states pass laws making it easier for residents to carry concealed guns - in some cases, crafting legislation that strikes down employers' attempts to keep guns off company property. That means employers, who have traditionally shied away from such politically charged issues as gun control, are filing lawsuits to preserve their no-guns-allowed rules. Gun owners are also fighting back, boycotting companies that ban guns or fire workers for having them. ...Gun-owner groups say employers who ban guns are stripping away workers' right to defend themselves on the job. Roughly 76% of all workplace homicides are robbery related, compared with 7% in the general population, according to an unpublished 2003 report by the National Institute for Occupational Safety and Health (NIOSH). Having a gun is what Terry Pickle believes saved his life. In 2001, the owner of Pickle's Pawn Shop in Salt Lake City, was at work when two intruders broke in. They didn't ask questions or demand money. They simply walked in and opened fire. But Pickle and his son, David, grabbed the loaded guns they carry and fired back, injuring one. The intruders fled, firing at a customer as they left. Pickle says he now knows firsthand that guns on the job can deter crime and keep employees safe. The two men were later caught and sentenced to prison, with one serving 10 years and the other serving 71/2 years. "It saved our lives," Pickle says. "We would have been shot, probably dead, had we not had the ability to protect ourselves. They came in shooting. No words, nothing." ...So far, some state courts are siding with employers who want to keep guns away. ...Even as employers wage legal battles to ban guns, some state legislators say companies should have less control. They support legislation that would allow employees with proper gun permits to carry concealed weapons on the job, not just into the parking lot. "Companies are prohibiting the rights of employees to protect themselves," Democratic Oklahoma state Sen. Frank Shurden says. "I am in favor of letting a licensed permit holder carry the gun in the workplace. There's no reason to fear law-abiding citizens."
    http://www.usatoday.com/money/companies/management/2004-12-09-guns- cover_x.htm

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Sunday, December 19, 2004 ~ 9:47 a.m., Dan Mitchell Wrote:
Protecting taxpayers from government-subsidized companies. So-called Government Sponsored Enterprises and nominally private companies that have their snouts buried in the public trough. These subsidies are misguided, but they are downright dangerous when they create the conditions for financial calamity similar to the savings-and-loan bailout during the late 1980s-early 1990s:

    In Greek mythology, the Centaur was a monster with the head of a man but the body of a horse. In today's financial system, the Centaurs are Fannie Mae and Freddie Mac, the mortgage giants that are half-public, half-private. Understanding their half-man, half-beast nature is crucial to fixing these two behemoths in the wake of their recent financial scandals. The latest haymaker hit Fannie this week, when the SEC's chief accountant found it had violated accounting rules and that it must restate its earnings to include $9 billion in losses over four years. Yes, that's billion, and it's only what Fannie has acknowledged so far. ...In any normal company, the CEO running this show would have been sacked long ago. Even at Freddie, the board fired two CEOs and several top executives when its accounting foulups were discovered in 2003. Had Messrs. Raines and Howard repented and pledged reform after the Ofheo report, they might have earned a reprieve. But they resisted instead, betting that their pals in Congress and a John Kerry victory would save them from further scrutiny, and that the SEC would provide an escape route. In poker terms, they went all-in and lost. ...The roots of the current problem go back to 1992, when Ofheo was created and Fannie and Freddie's capital requirements were set so low. Able to borrow at below-market rates because of their government guarantee, the two companies expanded into new markets and grew like Microsoft. That growth resulted in huge profits for shareholders and executives, but at the cost of ever-more-public risk to taxpayers. This game of public risk but private profit is what needs to be stopped.
    http://online.wsj.com/article/0,,SB110324299258402878,00.html?mod=opini on&ojcontent=otep (subscription required)

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Saturday, December 18, 2004 ~ 9:30 a.m., Dan Mitchell Wrote:
Anti-money laundering laws impose huge costs and generate scant benefits. The UK-based Times reports on a new study showing that compliance burdens imposed by regulators now account for 15 percent of total costs for financial companies. Such costs might be acceptable if they generated a concomitant benefit, but there is no evidence that anti-money laundering laws put a noticeable dent in either crime or terrorism:

    The cream of the City lined up to lambast the Financial Services Authority (FSA) yesterday, accusing the regulator of forcing ever-heavier compliance costs on them. The financial watchdog's regime placed "too great a burden" on firms, prevented the offering of new products and services and was detrimental to consumers, the Financial Services Practitioner Panel, an FSA monitoring body, concluded. No fewer than 29 per cent of all City firms, including banks, brokers, advisers and fund managers, complained that compliance now accounts for more than 15 per cent of their total costs, according to a survey commissioned by the panel, which comprises 14 senior City figures. Smaller retail firms were even harder hit, with 36 per cent of them saying that compliance expenses had breached the 15 per cent level. ...On costs, firms were not so much concerned about the levy imposed on all City firms as the level of investment in staff and systems to ensure they were compliant. The majority said the cost was "excessive" and only one firm in ten thought the expense was reasonable. Nine out of ten think compliance costs will continue to rise. Many also attacked the FSA's cost-benefit analysis for underestimating the cost of new rules and overstating the likely benefits.
    http://business.timesonline.co.uk/article/0,,9063-1406264,00.html

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Saturday, December 18, 2004 ~ 8:55 a.m., Dan Mitchell Wrote:
Double-talk from the EU, but perhaps some progress. The President of the European Commission ventured into Orwellian waters by claiming that growth is necessary to protect the policies that hinder growth. But this double-talk perhaps is necessary to convince European politicians to move in the right direction and allow a form of regulatory competition based on "country of origin" rules for provision of health care:

    For Europe's Social Model to survive, the EU has to become economically more dynamic, European Commission President José Manuel Durão Barroso has said. "Without growth, without job creation, without more dynamism in our economies we cannot maintain the high levels of social insurance, protection and environmental protection which ... we call the European model", Mr Barroso told MEPs on Tuesday (14 December). ...Several of the comments from MEPs concerned a services directive which proposes to liberalise a range of services, including healthcare. A principle contained within the directive meaning that service providers are subject to the laws of their country of origin rather than where the service is actually provided has caused concern among left of centre politicians. They fear a spiral downwards in the level of social service providers.
    http://www.euobserver.com/?sid=9&aid=17993

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Friday, December 17, 2004 ~ 10:38 a.m., Dan Mitchell Wrote:
Protecting judicial sovereignty. The Wall Street Journal explains why governments should not seek "universal" jurisdiction to prosecute crimes outside their borders. The competing principle - exclusivity of jurisdiction - is preferable both to avoid legal anarchy and also to avoid politically correct stunts:

    For centuries, exclusivity of jurisdiction has been a generally undisputed prerogative of sovereign states, except in a handful of well-specified cases, such as when a state is unable to exercise its jurisdiction, or when a state seeks to commit genocide against its own people. Those situations aside, states recognize each other's jurisdictional exclusivity because the alternative is legal anarchy. Can you imagine, say, Bill Clinton traveling to Frankfurt and being detained indefinitely because a group of Serbian expats have persuaded a German judge that the former President should be indicted for war crimes in Kosovo? ...At the time, Mr. Pinochet's arrest was hailed by the likes of Amnesty International as a wonderful legal innovation that sent the "powerful message \[that\] no one is above international law." Others, like Margaret Thatcher, recognized it as the betrayal of an old political ally who had rendered good service during the Falklands War, a political vendetta against a fashionable villain of the left, and a dreadful legal precedent. She was right. Following his Pinochet stunt, Mr. Garzon issued an arrest warrant for several dozen Argentine military officers, as well as Italian Prime Minister Silvio Berlusconi. Former Secretary of State Henry Kissinger was summoned by a French magistrate while on a visit to Paris, a summons Mr. Kissinger prudently skipped. A Belgian court indicted Israeli Prime Minister Ariel Sharon, leading to a diplomatic crisis between the two countries. In 2002, Secretary of Defense Donald Rumsfeld threatened to move NATO headquarters from Brussels unless Belgium amended its self-anointed grant of universal jurisdiction. At this, finally, the Belgians caved.
    http://www.opinionjournal.com/editorial/feature.html?id=110006043

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Friday, December 17, 2004 ~ 10:00 a.m., Andrew Quinlan Wrote:
Should the U.S. prop-up the U.N.? An article in the Weekly Standard corrects Kofi Annan's historical nonsense and asks whether the United States should be undermining itself by allowing the U.N. to operate as a "hostile power":

    In his 2003 speech to the General Assembly, Kofi Annan intimated that America was challenging the system that had preserved international law and world peace for nearly 60 years. This is a fantastical denial of history. It is the United States that has preserved some semblance of order in the world for the past 60 years, while the U.N. dedicated itself chiefly to abusing Israel. ...The U.N. is sapping America's prestige, tying us down in Lilliputian legal restraints whose origins and logic are never questioned. To hope that the U.N. will go the way of the League of Nations ignores the vital force America has imparted to it over the last 60 years. Our creation has become a hostile power, one that profoundly distorts the natural power patterns of international security, and protects the gestation of the most terrifying threats we have ever faced. The U.N. should either be reformed to serve the purposes of its founding, or we should kill it off once and for all.
    http://www.weeklystandard.com/Content/Public/Articles/000/000/005/028pa ljb.asp

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Friday, December 17, 2004 ~ 8:30 a.m., Dan Mitchell Wrote:
Italy steps back from Kyoto nonsense. A Techcentralstation.com article discusses the recent announcement that Italy has no intention of committing economic suicide to placate the environmental fundamentalists:

    The European Union is no longer united. Until a few days ago, all of the member states were supposed to share a common position at least on environmental policies. Now, Italy has put it clear that it will not follow Brussels on the path of a perennial struggle to cut greenhouse gas (GHG) emissions. "The first phase of the protocol ends in 2012; after that it is unthinkable to go ahead without the United States, China and India," said Altero Matteoli, Italian minister of Environment. ...even if it is true that man-made emissions are affecting the climate, a Kyoto-style treaty will result in nothing, except an expensive bill to be paid for by the Kyoto-ist countries. The Kyoto Protocol requires developed countries to cut their GHG emissions by 5.2% under 1990 levels. Since developed countries account for roughly 50% of global emissions, this would mean a mere 2.6% cut in net terms. That is, almost nothing. In fact it is worse than nothing: resources which are spent in cutting emissions are no longer available for fighting more urgent problems... Things get even worse if you look at the future: developing countries are projected to emit 75% of global emissions by 2050. A 100% cut in the emissions from developed nations (i.e., our extinction as a civilization) would not prevent atmospheric concentrations of CO2 to increase. ...in Italy the cost of energy is very high. Reducing emissions might push the price of energy upwards. Corrado Clini, the director general of the ministry of Environment, repeatedly warned against the high cost of Kyoto to Italy; and Paolo Togni, the chief of Matteoli's staff, often called the attention over the scientific uncertainty. The president of the Environmental Committee of the Senate, Emidio Novi (Forza Italia), and his counterpart in the Chamber, Pietro Armani (Alleanza Nazionale), have been strong supporters of the minister. Italian entrepreneurs seem to agree, too. Emma Marcegaglia, a vice-president of the Confindustria (the association of entrepreneurs) said that actions aimed at mitigating global warming "should not compromise Italian competitiveness." Nor does the opposition to Kyoto come just from right-wing parties and industry: Senator Franco Debenedetti (Democratic Left) wrote that "Kyoto would be an exogenous shock for our economy, as it happened with the first oil crisis, but differently from that time, this would be a permanent shock."
    http://www.techcentralstation.com/121604F.html

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Friday, December 17, 2004 ~ 7:45 a.m., Dan Mitchell Wrote:
Government-run school monopolies produce poor results. This page has reported on the dismal output of government schools in America. According to an OECD report, other nations share this problem - largely because of excessive centralization. When the bureaucrats at the OECD recognize that there is too much government control, this should set off alarm bells everywhere:

    The future of the world economy may lie in Finland. Or Hong Kong, Taiwan, Japan and South Korea. As a new study on education standards world-wide shows, unlike in the U.S. and much of Europe, high school students in these countries actually learn something. ...Less publicized has been why U.S. scores are so low. The OECD researchers identified several key characteristics that most successful school systems share -- namely, decentralization, competition and flexibility. These aren't exactly the hallmarks of your typical American school system, where choice and accountability aren't usually on the curriculum. The recipe for success, as project director Andreas Schleicher explained at a recent briefing in Brussels, is a decentralized system where schools are given a large degree of autonomy over curriculum and budget decisions. Whether schools are public or private is not as important as whether they "operate like a private one," Mr. Schleicher said.
    http://online.wsj.com/article/0,,SB110307612749100515,00.html?mod=opini on&ojcontent=otep (subscription required)

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Thursday, December 16, 2004 ~ 12:05 p.m., Dan Mitchell Wrote:
Make the supply-side tax cuts permanent. The Wall Street Journal opines in favor of permanent tax cuts - especially for the tax cuts that improve incentives to work, save, and invest. Extending the pro-growth tax cuts is especially critical if lawmakers want more economic growth:

    ...the tax cuts at issue are precisely those that helped to lift the economy out of its doldrums after they passed in mid-2003. The quarterly GDP figures tell the tale. While the first round of Keynesian, phased-in Bush tax cuts in 2001 did little, round two focused on boosting the incentives that would invigorate the economy's animal spirits. We doubt Republicans would be sitting on larger House and Senate majorities if they hadn't passed those lower rates. Nonetheless, the 15% rate on capital gains and dividends expires at the end of 2008, while the marginal-rate cuts on income expire in 2010. Some Republicans are asking what's the rush, since those expiration dates are still a ways off. But investors have to think long term, and if they conclude that those lower rates are going to expire they will plan accordingly. Not extending those cuts would mean a substantial tax increase, and its impact on investment and growth would be felt long before 2008.
    http://www.opinionjournal.com/editorial/feature.html?id=110006034

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Thursday, December 16, 2004 ~ 11:21 a.m., Dan Mitchell Wrote:
Good primer of Social Security reform. A Wall Street Journal editorial and accompanying column by the President's chief Economic Adviser explain why personal retirement accounts are necessary:

    The notion was that Social Security would nick a little bit off everybody's paycheck with a payroll tax and then redistribute that money to anybody over retirement age. The holding pen for this pay-as-you-go transfer was called, brilliantly if dishonestly, a "Trust Fund." Demography made the whole arrangement work for a long time. In the 1930s there were 41 workers for every one retiree; the payroll tax could thus be set at a low rate -- about 2% for the first $3,000 of earnings. It was quite a deal for the beneficiaries -- the average rate of return for people retiring in 1940 was 114%. And like all income redistribution programs, Social Security presented politicians with lots of incentives for sweetening. In the 1950s, Congress started increasing both benefits and the number of people covered. At the same time, however, the demographics were turning sour. Life expectancy was rising to the 78 years it is today, from 69 years for men born in 1940. And fertility rates were declining, from 2.2 children per woman in 1940, to a peak of 3.7 in 1957, to two per woman right now. No surprise, then, that the ratio of workers to retirees began to fall -- in 1950, it had dropped to 16 workers to one retiree and now it is just three to one. Payroll taxes have had to rise accordingly -- they are now 12.4%. And real rates of return have gone into a free-fall; real returns for workers born in 1960 and retiring in 2025 are less than 2%.
    http://online.wsj.com/article/0,,SB110315966081601640,00.html?mod=opini on&ojcontent=otep

    Without reform, we will face little choice but vastly higher taxes and the resulting drag on economic growth. For example, putting Social Security permanently on a sustainable basis through a higher payroll tax would involve raising the tax rate from 12.4% of wages up to the earnings limit to 15.9% -- an increase of $1,400 for a family making $40,000 a year. Delay only makes the required tax increases even larger. Such large tax increases would have adverse effects on the overall economy. Ed Prescott, the most recent winner of the Nobel Prize in economics, has shown that a large part of the difference in performance between our economy and those in Europe is that Europeans work less because they are taxed more. Raising taxes to solve the Social Security shortfall would, in essence, make the U.S. economy more like those of Europe. That is not the direction we should be heading. ...In the upcoming debate over alternative proposals, everyone should be careful to avoid the sophistry of those opposed to reform. In particular, we should be wary of comparisons between a new, reformed Social Security system and current law. The benefits now scheduled for future generations under current law are not sustainable given the projected path of payroll-tax revenue. They are empty promises. Unless a listener is discerning, empty promises will always have a superficial appeal.
    http://online.wsj.com/article/0,,SB110316027904101665,00.html?mod=opini on&ojcontent=otep (subscription required)

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Thursday, December 16, 2004 ~ 9:45 a.m., Andrew Quinlan Wrote:
Tax increases will drive Japan further in the wrong direction. Tax-news.com reports that Japanese politicians intend to reduce - and then fully repeal - the tax cuts implemented in 1999. These tax cuts probably are not worth defending since they were Keynesian-style deductions rather than supply-side marginal tax rate reductions, but this is still a bad sign that the government does not understand the need to reduce the burden of government:

    Japan's ruling Liberal Democratic Party has approved proposals to halve special income tax reductions implemented in 1999, a senior LDP official has revealed. "Our plan is to cut the 20% income tax break to 10%, or the value of the breaks from Y250,000 to Y125,000, starting January 2006," Yuji Tsushima, the head of the LDP's tax research panel, indicated this week. Tsushima added that the proposals will also cut residential tax breaks to 7.5% from 15%, or to Y20,000 from Y40,000, starting June 2006. The rest of the tax break will be dissolved when the government considers that economic conditions have improved sufficiently to do it, Tsushima stated. ...not all members of the coalition are happy about reversing the tax cuts, which were introduced in 1999 to help pull the economy out of a severe recession, and many fear the fragile economic recovery could be nipped in the bud.
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18261

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Wednesday, December 15, 2004 ~ 11:23 a.m., Dan Mitchell Wrote:
Rampant tax evasion in France. The UK-based Times reports on widespread tax-dodging in France, an inevitable consequence of an oppressive tax system. Many of France's successful people are moving overseas - and those that don't wind up fighting with a greedy government. No wonder the French government is seeking tax harmonization. The politicians foolishly think that people won't escape if the rest of the world is forced to live under the same wretched system:

    Florent Pagny, 43, one of France's biggest pop stars, is defending himself in the appeal court against a tax-evasion conviction which got him a suspended prison sentence and £30,000 fine last January. He is the latest in a line of French celebrities convicted of "forgetting" to declare large chunks of income: about £300,000 in his case. Since avoiding tax is a French national sport, to use the words of Jacques Delors, a former Finance Minister, celebrity miscreants often enjoy sympathy. However, Pagny, who styles himself a left-wing rebel, has made his case a national cause by scoring a smash hit with a song casting himself as a heroic martyr to the greed of the tax man. Called Ma Liberté de Penser (My Freedom of Thought), the song tells the taxman: "Seize my wife, the sofa, the microwave, the fridge . . . I can empty my pockets on to the table. They have long had a hole in them. But you can't take away my freedom to think." ...The problem for le fisc, as the inland revenue is nicknamed, is that "everyone else" does not pay their dues to the state in France, which is one of the world's most-taxed nations. Plain evasion is estimated to cost the state £31 billion a year. Hairdressers and restaurateurs for example, were alleged in a recent study to declare only 50 to 55 per cent of their income. President Chirac's admission two years ago that he used stacks of cash to pay for holidays and air tickets added to a widespread belief that the elite might not be eager to declare everything. ...Another big loss of state revenue comes from a growing exodus of the rich, including a roll-call of France's showbiz and sports stars, to lower tax territories. Switzerland tops the list of tax havens, then Britain and the United States. ...An estimated £7.6 billion was lost between 1997 and 2002 to Switzerland, whose estimated 100,000 French tax exiles include Charles Aznavour, Amelie Mauresmo, the tennis star, and Alain Prost, the former Formula One champion. Some try more exotic locales. Pagny now lives in Patagonia. Jean-Christophe Mitterrand, the son of the late President, who was sentenced to 13 months suspended for tax evasion on Wednesday, failed to convince the court that he was resident in Mauritania.
    http://www.timesonline.co.uk/article/0,,3-1396523,00.html

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Wednesday, December 15, 2004 ~ 10:45 a.m., Andrew Quinlan Wrote:
Kyoto fundamentalists are losing steam. Jim Glassman of Techcentralstation.com explains that left-wing environmentalists are losing the long-term battle. The scientific evidence increasingly is pointing away from climate-change fundamentalism, and it is also now apparent that Kyoto would have almost no impact on so-called greenhouse gases:

    ...on the surface, the Greens seemed to achieve a victory in October when Russia, in return for Europe's supporting its bid for WTO membership, ratified Kyoto. The treaty goes into force in February even though President Bush rejected it as "fatally flawed" in 2001. Despite Russia, smart environmentalists aren't rejoicing. Anyone with even minimal knowledge of energy and the science of global warming knows Kyoto is a sham. Europe isn't meeting its targets, and, anyway, the rise in CO2 emissions is steepest, not in the United States and Germany, but in China and India, with booming coal-based economies. And China and India, like more than 100 other developing nations, are exempt from Kyoto's strictures. Economic studies show that, to achieve even minuscule temperature reductions, economic growth in the United States would have to fall to stagnation levels. Imagine the impact on the rest of the world of such a decline. ...there's important research to be done. We still don't know whether the rise in temperatures is natural and cyclical (it was warmer many centuries ago when the Vikings colonized Greenland) or human-induced. But the radicals are losing. Michael Crichton, author of science-based best sellers like Jurassic Park, has a new book, State of Fear, which casts serious doubt on global warming and extremists who espouse it. As Crichton says, "Why are we not feeding people in this world who are hungry? Why are we not giving clean water to the almost billion people who don't have clean water? The greatest source of environmental degradation is poverty. Why aren't we cleaning up poverty?"
    http://www.aei.org/news/newsID.21703/news_detail.asp

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Wednesday, December 15, 2004 ~ 9:32 a.m., Dan Mitchell Wrote:
Government stupidity in action. A Townhall.com column bemoans the absurd policy of requiring Air Marshals to dress in a "professional" manner - a requirement that often makes them visible to passengers. This is not quite as bad as it seems since putting Air Marshals on planes is a typical example of "generals fighting the last war." After all, passengers surely would resist if terrorists tried another 9-11 attack. Nonetheless, it is frustrating to realize that government officials almost always choose to implement ineffective policies in the most incompetent fashion:

    No idiot would send his men on a covert mission wearing clothes that would so blatantly give them away, right? Wrong. Meet Federal Air Marshal Service Director Thomas Quinn. The man in charge of our in-flight cops, who are supposed to be spying secretly on would-be terrorist hijackers, refuses to allow his employees to dress undercover. Quinn insists that air marshals abide by military-style grooming standards and a rigid business dress policy regardless of weather, time of year or seating arrangement. ...This nonsense has been going on for two years. The result is that the federal government has not made air travel any safer, and is instead endangering the people who are supposed to be protecting us. The Federal Law Enforcement Officers Association, which represents over 22,000 federal agents including air marshals, notes that civilian passengers have publicly outed marshals on countless flights since the Sept. 11 attacks. Air marshals have recounted receiving thumbs-ups and thanks from travelers nationwide. No doubt al Qaeda's operatives who are surveilling flights are mumbling thanks under their breath, too. ...Another air marshal working out of the Las Vegas field office, who wished to remain anonymous out of fear of retaliation, told the government watchdog group Airline Passengers for Safer Skies (APSS): "Under the current policies of Director Quinn, airline passengers are actually safer flying on aircraft that do not have air marshals on them." Marshals refer darkly to Quinn's dress requirements as the "kill-me-first dress-code policy." ...Quinn's response to critics? Kill the messengers! As online journalist Annie Jacobsen reported in September, the air marshals service threatened to take action against the passenger who pointed out the marshals made vulnerable by Quinn's own dress-code policy. The passenger, Quinn protested, had disclosed "sensitive security information."
    http://www.townhall.com/columnists/michellemalkin/mm20041215.shtml

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Wednesday, December 15, 2004 ~ 9:15 a.m., Dan Mitchell Wrote:
Romania may be poised for 16 percent flat tax. In a surprising election upset, Romanian voters have elected a free-market reformer to the Presidency. This may set the stage for a simple and fair 16 percent flat tax, which will be more bad news for Western Europe's high-tax welfare states:

    ...Orange Revolution has spread to Romania, where Traian Basescu claimed the presidency in a stunning upset over Prime Minister Adrian Nastase. ...The president-elect also faces high inflation (14.1% in 2003) and poverty (which oppresses one-third of all Romanians) that have persisted despite steady economic growth since 2000. Central to his platform is creating a flat tax of 16% for both corporations and individuals. This proposal is expected to stimulate growth in two ways: By lowering the tax burden, and by discouraging widespread tax evasion. (Romania's black and gray economies have been estimated at around 40% over the last five years.)
    http://online.wsj.com/article/0,,SB110306723863500267,00.html?mod=opini on&ojcontent=otep

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Tuesday, December 14, 2004 ~ 11:00 a.m., Andrew Quinlan Wrote:
Big business conspires against free market. The Wall Street Journal comments on the growing "support" for Kyoto restrictions from the business community. Not surprisingly, this support is based on the fact that some companies have figured out they can profit from the special subsidies that Kyoto would create:

    The Kyoto idea is 10 years old now, and no better for its age. The U.S. wisely chose to forgo the pact, as the long- term costs add up to hundreds of billions a year across the world economy, not to mention untold lost economic opportunities. The energy industry has heretofore backed this U.S. decision, noting that even Kyoto's defenders have admitted the pact wouldn't slow climate change. Yet suddenly business pooh-bahs are claiming they've seen the eco-light. Cinergy, the big Ohio utility, issued a report this month fretting that human activity is "likely contributing" to global warming and endorsing a national CO2 program. The nation's largest utility, AEP, says what's needed to address this "serious challenge" is a "committed policy response." The media are meanwhile making hay about the self -- appointed "National Commission on Energy Policy," a panel containing energy executives from the likes of Exelon and ConocoPhillips, which last week called for CO2 limits. These executives are thinking green all right—as in greenbacks. The real story behind their conversion is that the industry has figured out that a U.S.-based climate program holds profit opportunities, while any costs can be foisted on the backs of others -- consumers, taxpayers or competitors. This new cynical approach to regulation is worrying, if for no other reason than that the quickest way to bad policy is a co-opted business community. ...We have nothing against companies exploiting the business opportunities that regulation sometimes creates; that's capitalism. The difference here is that because CO2 isn't even a pollutant, and because no realistic program will even slow global warming, any market for trading CO2 emissions would be entirely unnecessary. There's nothing capitalist about lobbying government to erect a program that serves no other purpose than the redistribution of wealth, whether it be from one company to another, or from consumers to corporations.
    http://online.wsj.com/article/0,,SB110290434517998109,00.html?mod=opini on&ojcontent=otep (subscription required)

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Tuesday, December 14, 2004 ~ 10:23 a.m., Dan Mitchell Wrote:
Democrats want to tax their own people. Many of the nation's "blue states" (ones that supported John Kerry) have a disproportionate share of "rich" taxpayers. So why, then, are Democrats in favor of high tax rates on the so-called rich when it means they are taxing their political base? A column in the Wall Street Journal tries to explain to a left-wing commentator (Mr. O'Donnell) that the flat tax is the only fair solution:

    Mr. O'Donnell's complaint seems to be that blue states like Connecticut pay a much higher average tax rate than do red states like Oklahoma, making them carry a disproportionate share of the federal tax burden. If that is so, enacting John Kerry's proposed tax hike on high-income earners would only have made things worse. Using the Kerry campaign's $200,000 income cutoff, four times as many Connecticut residents would have seen their taxes go up as Oklahoma residents. Connecticut residents would have paid $1.5 billion more in taxes, taking their average rate up 1.3 points to 19.2%, while Oklahoma residents would have paid $300 million more in taxes, taking their average rate up half a point to 12.7%. Democrats like Mr. O'Donnell seem to want the rich to pay more in taxes, but not for rich states with rich people to pay more taxes. It's unclear how one accomplishes this mathematically. ...What to do? One obvious point is that if you have a federal income tax, you can't have tax rates that vary by state. However, this leads inescapably to the mathematical fact that flat taxes are not only simpler by most measures, they are also the only way to deal with the type of unfairness that Mr. O'Donnell complains about. Flatter is fairer. Flat rates coupled with lump-sum credits, for children for example, are a lot closer to producing a "fair" result by what seem to be Mr. O'Donnell's standards than the current multi-bracketed system he has been schooled to think of as "fair."
    http://online.wsj.com/article/0,,SB110290129211398078,00.html?mod=opini on&ojcontent=otep (subscription required)

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Tuesday, December 14, 2004 ~ 9:15 a.m., Dan Mitchell Wrote:
Chile's private Social Security working well for retirees. A former World Bank official explains that Chilean workers have astutely chosen annuities or phased withdrawals to ensure that they get the maximum retirement benefits from their nation's private Social Security system:

    Chile adopted a new pension system featuring privately managed individual accounts in 1981. The system gives us an opportunity, based on more than 20 years of experience, to examine how pensioners and pension providers react when individual accounts replace government-run, defined benefit pension systems... Almost two-thirds of all retirees have chosen annuities - a very high proportion compared with annuities markets in other countries. However, early retirees and normal age retirees tend to make different choices. The normal retirement age is 65 for men and 60 for women, but many workers have met the preconditions to retire at an earlier age. (Early retirement means that they start withdrawing and may stop contributing; it does not necessarily mean that they stop working.) Currently 60 percent of all retirees have chosen to retire early, many before age 55, and 85 percent of them have annuitized. By contrast, 66 percent of normal age retirees have taken programmed withdrawals. ...Adverse selection occurs when people in poor health choose programmed withdrawals, while people with longer life expectancies choose annuities. Such behavior may have had a small impact on the system, but it does not seem to be a big problem, as indicated by the high rate of annuitization. As a result, the Chilean life insurance industry has grown from infancy in 1980 to an industry with annuity premiums that currently exceed $1 billion annually and reserves that exceed $10 billion. The evidence suggests that, with appropriate incentives, a high proportion of pensioners in countries with individual account systems will purchase annuities. The Chilean experience also shows that in designing the payout stage, countries need to coordinate early withdrawal conditions with minimum pensions and other safety nets in order to avoid moral hazard problems and unexpected public liabilities.
    http://www.ncpa.org/pub/st/st271/

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Monday, December 13, 2004 ~11:12 a.m., Dan Mitchell Wrote:
Reagan saved America from European-style welfare-state stagnation. Brian Wesbury writes in the Wall Street Journal that the Reagan revolution - expanded upon by Clinton and the current President - has rejuvenated America and saved the nation from economic malaise:

    In the 1970s, the U.S. and most of the noncommunist world were headed toward a European-style welfare state. Huge swaths of the economy were regulated, government spending was out of control and income-tax rates topped out at a sky-high 70%. Ronald Reagan stopped that process and turned the U.S. around. Many Western European societies kept moving down the socialist path and have now reached a point where any change in policy is nearly impossible because a majority of voters benefit in some way from government largesse. President Clinton contributed to the Reagan revolution by declaring that the "era of big government is over." He signed into law welfare reform and Nafta, continuing the trend toward more personal responsibility, less government and more competition. ...In the past 24 years, the top marginal tax rate has been cut in half, while dividend and capital-gains tax rates have been reduced significantly. These lower tax rates have spurred massive new investment and attracted talent and brainpower from around the world. The U.S. has led the way in a global and technological revolution. ...There are clearly many who complain about the impact of these forces, and purport that the U.S. should return to its 1970s roots, following the lead of Europeans. In his book, "The European Dream," Jeremy Rifkin argues that "even the most self-reliant American can no longer go it alone in a world where a SARS epidemic, a computer virus, a terrorist attack, a stock-market scandal or global warming make everyone potentially vulnerable and reliant on each other." He holds up the European Dream of "sustainable development, quality of life and the nurturing of community" as defenses against these threats. Mr. Rifkin echoes the well-known economist John Kenneth Galbraith, who in 1984, five years before its collapse, praised Russia for the "well-being of the people on the streets," adding that, "partly, the Russian system succeeds because, in contrast with the Western industrial economies, it makes full use of its manpower." Just as Galbraith's ideas were toppled by the aftershocks of the Reagan earthquake, the free market is undermining Mr. Rifkin's ideas. What Mr. Rifkin fails to realize is that an entrepreneurial society will not function if people do not work together. The facts speak for themselves. The EU has 455 million inhabitants and a GDP roughly equal to the U.S. After doing the math, this means that average per capita income in the EU is roughly 40% less than in America. With more wealth, the U.S. is in much better shape to defend itself against disease, terrorists or corporate shenanigans.
    http://www.opinionjournal.com/ac/?id=110006010 (subscription required)

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Monday, December 13, 2004 ~ 10:43 a.m., Dan Mitchell Wrote:
White House economic adviser endorses better revenue-estimating system. The left has created a powerful bias against tax cuts by setting up institutions and methods that estimate only the "static" effects of changes in tax policy. In other words, the current revenue-estimating system would assume a tripling of tax revenue if tax rates were tripled - even though real-world evidence unambiguously shows otherwise. Economists have urged this system to be modernized with "dynamic" revenue-estimating, and this effort got a major boost from the Chairman of President Bush's Council of Economic Advisers:

    Gregory Mankiw, chief of the White House economic advisory team, last week unveiled new research showing that tax cuts effectively pay for themselves through increased consumption, investment and growth. Presenting a seminar at the Heritage Foundation, Mankiw described a method of calculating the cost of a tax cut known as 'dynamic scoring', which factors in economic growth and the increased income that is likely to ensue from tax cuts, effectively reducing the cost to the government. Currently, the government and Congressional Budget Office relies on 'static scoring' when calculating the cost of a cut in taxation, a system that does not take into account future changes in economic growth. This system is therefore "very misleading", argues Mankiw. The White House adviser likened the process of dynamic scoring to the purchase of a new car, where the initial price does not reflect the discount that will be negotiated at the final sale. Moreover, he explained that some types of tax cuts, such as capital and dividend tax cuts, trigger a higher discount than others. For instance, he explained that the discount on a cut in capital tax will equal around 50%, whereas labor tax cuts will produce a discount of 17%.
    http://www.tax-news.com/asp/story/story_open.asp?storyname=18231

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Monday, December 13, 2004 ~ 9:37 a.m., Andrew Quinlan Wrote:
Politicians forget that government spending has an economic cost. Paul Jacob's Townhall.com column notes that the American public is anti-government because most people realize that government can't give something to people without first taking it from people. Democrats certainly don't understand this common-sense observation, while Republicans frequently forget this elementary fact:

    Most Americans, as Democrats regularly remind us, desire good schools, good roads, and other public bennies. But unlike liberals, voters are also concerned about costs. Most Americans long ago learned an important lesson about government: Progress does not consist in piling up federal programs. Most Americans realize that public resources are limited, and that if we demand one thing from the government, we probably have to give up something else. This common-sense approach is not just a right-wing understanding, it is the view of people of good sense of all parties ...Liberals, on the other hand, pretend that nothing has to be given up. Not in government. We can have it all. There was a reason our pandering former president, Bill Clinton, said, "The era of big government is over." Though uttered as a diversion, the nation's Democrat-in-chief knew the statement summed up where the American people were. And are today. And wish that Washington would visit. Republicans will continue to win as long as Democrats remain the first party of big government. That wouldn't be so bad, if only Republicans would stop being the second party of big government.
    http://www.townhall.com/columnists/pauljacob/pj20041212.shtml

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Monday, December 13, 2004 ~ 8:45 a.m., Dan Mitchell Wrote:
Right diagnosis, wrong medicine. Writing in the Wall Street Journal, three academic experts want to expand tax deductibility of health care costs to eliminate the inefficient special preference for employer-provided health insurance system. Eliminating the preference certainly is the right idea, but this goal should be achieved by ending tax deductibility of employer-provided health insurance, not by extending the subsidy to other forms of health care spending:

    We propose a simple change to tax law that would cut unproductive health spending, reduce the number of uninsured and promote greater tax fairness. For anyone with at least catastrophic insurance coverage, all health-care expenses--employee contributions to employer-provided insurance, individually purchased insurance and out-of-pocket spending--would be tax-deductible. The deduction would be available to those who claim the standard deduction and to those who itemize. The most important effect of tax deductibility would be to reduce unproductive health spending. Under current law, medical care purchased through an employer's insurance plan is tax-free, while direct medical care purchased by patients must be made with after-tax income. As we and many others have observed, this tax preference has given patients the incentive to purchase care through low-deductible, low-copayment insurance instead of out-of-pocket, which in turn leads to cost-unconsciousness and wasteful medical practices. In addition, the tax preference for insurance creates incentives for the health-care system to rely on gatekeepers rather than deductibles and copayments when it does try to control costs.
    http://www.aei.org/news/newsID.21664/news_detail.asp

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Sunday, December 12, 2004 ~ 1:07 p.m., Andrew Quinlan Wrote:
Time to re-think UN membership. Cal Thomas applies some much-need cost-benefit analysis and concludes that the United States should withdraw from the United Nations:

    The United Nations does not serve the interests of the United States or the objectives of democracies. The oil-for-food scandal, in which billions of dollars were misappropriated in Iraq, exposed a corrupt bureaucracy, rotting from the head. In the U.N., the United States is opposed by dictatorial regimes who are treated as our equals. ...What is the United States getting for its money? We pay 22 percent of the U.N. budget, but get 100 percent of the grief from nations who hate us and what we stand for. ...Modern diplomats too often prefer the dithering process to the successful outcome. The process allows them to baptize their failures beneath the soothing water of "caring." It is caring and a willingness to address "complex problems" that is more highly valued than actually resolving something for the common good. The U.S. presence in the U.N. gives credence to dictators and prevents accountability by most nations. Consider the worthless resolutions passed by the U.N. to control Saddam Hussein before the United States took them seriously and did what the U.N. was afraid to do: act. Too many U.N. members hate us because our decisiveness exposes their vacillation. The world would be better off without this body and with an association of democracies in its place. It is not likely to happen, because false hope is preferred by too many diplomats and politicians over actual results.
    http://www.townhall.com/columnists/calthomas/ct20041208.shtml

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Sunday, December 12, 2004 ~ 11:30 a.m., Dan Mitchell Wrote:
Tax hikes not needed for Social Security. The Wall Street Journal editorializes against those who would use Social Security reform as an excuse to raise taxes:

    In case you've been living in Al Gore's lockbox and haven't heard, Mr. Bush's big Social Security idea is to shift the system away from the current pay-as-you-go model, in which taxes on current workers are used to fund current retirees. At present tax and benefit levels, the increasing retiree-to-worker ratio will lead to a projected $11 trillion in unfunded liabilities (promises to retirees) over time. But if younger workers were allowed to invest some of their 12.4% Social Security tax in private accounts, where they could earn market rates of return, the shortfall would be eliminated over time. The main obstacle here is a political bogeyman called "transition costs." We're not surprised to hear Democrats demanding a tax hike to "pay" for this reform, or that Senate Finance Committee Chairman Charles Grassley (a major villain in the Medicare debacle) appears poised to join them. ...taking money out of the pay-as-you-go part of the program to put in private accounts would mean we'd arrive earlier at the point where payroll taxes would no longer meet current expenditures (now predicted to be about 2018). But over time those growing accounts would plug the funding gap. And the obvious way to pay benefits in the meantime is to take some of the unacknowledged $11 trillion in long-term Social Security debt -- the benefits that politicians have promised -- and be honest about it by issuing Treasury bills. White House spokesman Scott McClellan was absolutely right yesterday when he said "the financial markets will look very favorably on that approach." Why? Because they know the government already owes the money anyway. The same politicians expressing horror at new "borrowing" don't seem to be urging any benefit cuts that would allow us to borrow less. The transition to Social Security private accounts means a medium-term increase in government borrowing, but it would mean a long-term reduction in overall government liabilities. And it is certainly preferable to all of the economic pain (and general revenue loss) that the tax hikes necessary to sustain our current system would cause.
    http://online.wsj.com/article/0,,SB110264163254896474,00.html?mod=opini on&ojcontent=otep  (subscription required)

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Saturday, December 11, 2004 ~ 12:05 p.m., Dan Mitchell Wrote:
British academics give top grade to Prime Minister who wrecked the UK economy. Left-wing bias in academia is not exactly a big revelation, but it is still surprising to see some of the manifestations. English professors actually named Clement Atlee as their nation's best 20th century Prime Minister. In other words, the man responsible for wrecking the UK economy was graded higher than Winston Churchill or Margaret Thatcher:

    The British polling service MORI, in conjunction with the University of Leeds, has conducted what it says is a first-of-its-kind survey of British academics to discover who deserves the title of the best prime minister of the 20th century. What they discovered, in canvassing 258 profs and receiving responses from 139 of them, is that British academics (surprise!) tilt strongly to the left. ...This left-wing predominance is not very different from the makeup of academia in most of the rest of the world, but it does explain why Clement Atlee, the architect of the postwar British welfare state -- and with it the notorious National Health Service -- snagged the top spot. Winston Churchill, who only managed to lead his country to victory in World War II, came in second, while Margaret Thatcher, the prime minister who saved her country from the terminal welfarism with which it had been saddled by Atlee and his successors, finished fourth. In itself it's hardly surprising that a group so composed would choose the triumph of socialism instead of the triumph over National Socialism as the defining achievement of Britain's 20th-century leaders.
    http://online.wsj.com/article/0,,SB110237301967692484,00.html?mod=opini on&ojcontent=otep (subscription required)

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Saturday, December 11, 2004 ~ 10:40 a.m., Dan Mitchell Wrote:
Hong Kong may dodge misguided sales tax proposal. Hong Kong traditionally has been ranked as the world's freest economy, so it has been disheartening to read that the government may impose a sales tax. But defeat is not a foregone conclusion. A strong economy is generating additional revenue, thus exposing the false claims of the pro-tax policy makers:

    While the government is forecasting a budget deficit of HK$42.6 billion (US$5.48 billion) for the 2004/2005 fiscal year, many observers and analysts have predicted that the actual figure will come in much lower, due to a sharp rebound in the economy and additional revenues raised this year from land auctions and other sources. ...Tim Lui, also a tax partner at PricewaterhouseCoopers, expressed his belief that Financial Secretary Henry Tang is being lured into arguing for the tax because it could bring in as much as HK$30 billion in additional revenue, despite the predicted surplus potentially making this unnecessary. ...He added that opposition to other levies, such as a capital gains tax would also meet with determined opposition. "He knows jolly well those won't fly," observed Lui.
    http://www.tax-news.com/asp/story/story.asp?storyname=18173

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Friday, December 10, 2004 ~ 9:15 a.m., Dan Mitchell Wrote:
Friedman calls for smaller government. Writing for the Wall Street Journal, Nobel Laureate Milton Friedman urges policy makers to continue Reagan's agenda for smaller government and more freedom:

    Reagan's election brought the growth in government non-defense spending to a halt. As of 2003, government non-defense spending equaled 30% of national income, the same as it was in 1983. Government intervention through regulation and controls did fall somewhat during Reagan's presidency, but has since resumed its steady rise. ...We have largely won the battle of ideas... we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. ...That is the overriding non-defense task for the second Bush term -- as President Bush clearly recognizes.
    http://online.wsj.com/search#SB110255773839695254 (subscription required)

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Friday, December 10, 2004 ~ 8:47 a.m., Dan Mitchell Wrote:
Academic fads hurt minorities most. Tom Sowell explains that black and hispanic kids suffer most when teachers spend time on "feelings" and "issues" rather than the more challenging job of teaching kids the tools needed to succeed:

    A finer breakdown of American teenagers' test scores shows that while white and Asian American students meet international standards in math, blacks and Hispanics fall well below those standards. Those students who are already less fortunate have the most to lose by turning classrooms into chatter sessions. The children of affluent and well-educated parents can learn a lot at home, even if the schools waste their time on "activities" and "projects." But the kid from a low-income family in the ghetto or barrio usually has just one shot at a decent life -- and that shot is in the school. Teachers who fail to equip these youngsters with mental skills send them out into the battles of life unarmed. Teachers who think they are doing something good for those kids by sympathetically dwelling on racial grievances are giving them chips to carry on their shoulders instead of brainpower in their heads. Is anybody going to be more employable with a chip on his shoulders? Is anybody more likely to be work hard on improving himself when he is led to believe that his problems are caused by other people? The message that gets through to many minority youngsters is that you are a chump for trying when The Man is not going to let you get anywhere anyway. Those minority students who still try hard are often accused of "acting white" -- and that accusation can bring anything from social ostracism to outright violence.
    http://www.townhall.com/columnists/thomassowell/ts20041210.shtml

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Friday, December 10, 2004 ~ 7:00 a.m., Andrew Quinlan Wrote:
More corporate tax cutting, this time in India. The beneficial impact of tax competition and good tax policy is spreading around the world. India is looking to cut the corporate tax rate by five percentage points. Unlike the bureaucrats at the OECD and EU, Indian policy makers appear to understand that lower tax rates are the best way to boost compliance:

    The Indian government is considering a plan that would reduce the country's 35% corporate tax rate to 30% in the 2005/2006 budget, the Business Standard has revealed. Government officials told the Indian daily that the proposal is being considered under a wider plan designed to integrate the personal and corporation tax systems, in line with a recommendation by the Kelkar committee on direct taxation reform. The government's rationale is that by reducing income tax rates in tandem with a lowering of tax exemption thresholds, more people will be brought into the tax net at a lower rate, which is likely to improve levels of compliance. "Although income tax rates in India are comparable with those in other countries, there is a view that income tax rates can be further reduced. Past experiences have shown that a reduction in tax rates has resulted in better tax collection," one official stated.
    http://www.tax-news.com/asp/story/story.asp?storyname=18174

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Thursday, December 9, 2004 ~ 1:39 p.m., Dan Mitchell Wrote:
The EU vultures are consuming each other. The EU Observer has an unintentionally amusing story about the fight over the EU 2007-2013 budget. Almost every nation wants to bury its snout deeper into the trough, while the handful of nations who foot the bills are finally coming to their senses and objecting:

    A row is brewing over the distribution of funds to the EU's poorer regions, threatening to further hinder attempts at agreement over the already thorny issue of the EU budget from 2007-2013. The row threatens to pit new member states against some of the poorer, mainly Southern European "old member states". EU sources say that Spain has requested key changes to a draft working document on the budget to remove specific references to "solidarity" and the "particular needs" of the EU's new member states when handing out EU cash to poorer regions. ...visceral disagreements continue over the spending levels in the next EU budgetary period. Governments from six member states (the UK, France, Germany, the Netherlands, Austria and Sweden) have said that they want to see the EU budget from 2007-2013 capped at one percent of gross national income (GNI) but the Commission proposes an average of 1.14 percent over the seven year period. Diplomats said that Member States broadly stuck to their positions, with Germany refusing what it called an "unprecedented" hike in spending. ...Even if this tricky spat is resolved, there remains the problem of the so-called British rebate. The UK is clinging on to a 4.6 billion euro amount it receives back every year from the EU coffers, in the teeth of opposition from most other Member States.
    http://euobserver.com/?aid=17940&rk=1

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Thursday, December 9, 2004 ~ 11:56 a.m., Dan Mitchell Wrote:
Left-wing academic fraud. Universities cost more and deliver less. In part, this is due to the "third-party payer" phenomenon that has caused so much damage in health care. But, as Walter Williams explains, it also is the result of biased and insular left-wing thinking:

    While costs are rising, education quality is in precipitous decline, particularly at the undergraduate level. Part of the reason is the political climate on college campuses, where professors use their classrooms for proselytizing and indoctrination and teach classes that have little or no academic content. ...In a study to be published in Academic Questions, sociologist Charlotta Stern and economist Daniel Klein found in a random national sample of 1,678 university professors that Democratic professors outnumber Republican professors 3 to 1 in economics, 28 to 1 in sociology, and 30 to 1 in anthropology. ...That strong campus leftist bias goes a long way to explain mindless university courses like: "Canine Cultural Studies" (University of North Carolina, Chapel Hill), "I Like Ike, But I Love Lucy" (Harvard), "History of Electronic Dance Music" (UCLA), "Rock and Roll" (University of Massachusetts) and "Hip-Hop: Beats, Rhyme and Culture" (George Mason University). ...Americans as donors and taxpayers have been exceedingly generous to our universities. Given our universities' gross betrayal of trust, Americans should rethink their generosity as well as rethink who serves on boards of trustees that, in dereliction of duty, permit universities to become hotbeds of political activism and academic fraud.
    http://www.townhall.com/columnists/walterwilliams/ww20041208.shtml

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Wednesday, December 8, 2004 ~ 1:05 p.m., Dan Mitchell Wrote:
Competitive currencies are best option to eliminate exchange rate fluctuations. Richard Rahn explains that monopolistic national currencies necessarily result in exchange rate fluctuations, even if central bankers genuinely are trying to do the right thing by seeking price stability:

    A currency is supposed to provide a benchmark to determine the relative value of goods and services. So long as the major central banks use different and elastic benchmarks, the world will suffer from exchange rate instability. Neither Alan Greenspan, nor the leaders of the European Central Bank or the Bank of Japan (and even yours truly) know how to properly define money or determine how much should be supplied. What is to be done? The great and Nobel Prize-winning economist F.A. Hayek provided the answer for us more than 30 years ago: Governments should give up their monopoly over money. If the market could operate freely, private parties would compete to provide the "best" money. Ultimately, we might end up with a global commodity basket standard, a gold standard or some other measure that best provides the functions of money. Governments would still need to define the appropriate measure for tax and government payments, but private parties could contract in whatever "money" they wished to for all goods and services, including labor. For private monies to compete effectively, all capital gains' taxes would need be eliminated from currency transactions. Short of this reform, destructive exchange rate swings probably will continue to plague the world.
    http://www.washingtontimes.com/commentary/20041206-085213-6624r.htm

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Wednesday, December 8, 2004 ~ 12:41 p.m., Andrew Quinlan Wrote:
Quantifying left-wing media bias. Robert Barro of Harvard discusses a new research paper proving overwhelming left-of-center bias in the media. The two worst outlets are the New York Times and CBS News:

    Is there a left- or right-wing bias, or have the media actually managed to be objective? A serious assessment requires quantification of the output put forth by the media. The best analysis I know along these lines is the ongoing study "A Measure of Media Bias," by professors Tim Groseclose of UCLA and Jeffrey Milyo of the University of Missouri. These researchers use a clever statistical technique to construct an objective measure of conservative or liberal bias in the news coverage of major U.S. television and radio stations, newspapers, magazines, and the Internet. Their main finding is that the liberal inclination of the mainstream media is clear. Among 20 major outlets, Fox News and the Washington Times emerge as conservative, but the other 18 range from slightly to substantially left of center. ...They use the well-known ratings of members' voting records issued by Americans for Democratic Action (ADA), a self-described liberal organization. ...The ADA score has a 0-100 scale, with 0 meaning that a legislator voted with the ADA 0 percent of the time and 100 signifying 100 percent agreement. ...On the conservative end, the only two outlets below 50 were the Washington Times (35) and Fox News Special Report with Brit Hume (40). Although right of center, these ratings are much closer to the centrist position of 50 than to congressional Republicans' average position of 16. The other 18 outlets are on the liberal side of 50. Particularly striking are the high liberal ratings for the New York Times and CBS Evening News (both 74), not too far below the average score of 84 for Democratic members of Congress. ...The one Internet representative, the Drudge Report, comes in at 60, moderately left of center. The most balanced reporting shows up in the NewsHour with Jim Lehrer, CNN News Night with Aaron Brown, and ABC's Good Morning America, each of which had a score of 56. ...One surprise is that the Wall Street Journal's news pages have the most liberal rating of all, 85, about the same as the typical Democrat in Congress. The rating for the Journal's editorial pages would of course look very different. ...The bottom line from the Groseclose-Milyo study is that the political slant of most of the mainstream media is far to the left of the typical member of Congress. Thus, if the political opinions of viewers, listeners, and readers are similar to those of their elected representatives, the political leanings of most of the media are far to the left of those of most of their customers.
    http://www.weeklystandard.com/Content/Public/Articles/000/000/004/997m eijg.asp?pg=1

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Wednesday, December 8, 2004 ~ 11:39 a.m., Dan Mitchell Wrote:
Tennessee suffering from Hillary-care. The Democratic governor of Tennessee is looking at ways to dismantle a 10-year old government-run health care system because of exploding costs. The system was supposed to do for Tennessee what the Clinton plan would have done for America - which is why every American should give thanks that Hillary-care was defeated:

    In 1994, Tennessee passed what was then a very hot New Democrat idea--call it government managed care--a version of the reform the former first lady was also pitching nationwide. TennCare promised the impossible dream of politicians everywhere: Lower health-care costs while covering more of the "uninsured." They got the impossible, all right. After 10 years of mismanagement and lawsuits, TennCare now eats up one-third of the state's entire budget and is growing fast. Governor Phil Bredesen, a Democrat, is preparing to pull the plug and return the state to the less lunatic subsidies of Medicaid. ...TennCare opened enrollment to hundreds of thousands of people who did not qualify for Medicaid, even to some six-figure earners. Costs quickly exploded, and despite attempts to tighten eligibility rules the program still covers 1.3 million of the state's 5.8 million people. The skyrocketing costs led previous Governor Don Sundquist, the Republican who had inherited the program, to try to impose a state income tax. His efforts failed, fortunately, but in 2002 Mr. Bredesen was elected promising to cut TennCare's costs. ...Mr. Bredesen has instructed state officials to start thinking about dismantling TennCare. "It makes no sense for one facet of our responsibilities--health care--to be able to come to the table first and eat and drink all it wants, and then if there is anything left over, we then can consider our other responsibilities," he told the Tennessee School Board Association recently. Good for Mr. Bredesen for recognizing that the entitlement mentality inevitably leads to fiscal perdition. Has he told Mrs. Clinton, not to mention certain Republicans in Washington?
    http://www.opinionjournal.com/editorial/feature.html?id=110005987

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Wednesday, December 8, 2004 ~ 9:22 a.m., Dan Mitchell Wrote:
Process matters more than results for Kyoto zealots. With each passing day, the scientific evidence against the Kyoto treaty becomes even stronger. It is also increasingly apparent that the Kyoto agreement is a bit of a farce - one that will have no effect on emissions for several years. This doesn't mean the agreement is not dangerous, however, since proponents clearly will use this backdoor form of central planning for nefarious purposes if it ever goes into effect:

    Will it reduce emissions? Contrary to what many believe, it will not. On the basis of the allowances allocated to existing facilities covered by the EU emission trading scheme, Fred Singer, the dean of the climate sceptics, forecasts that European industry will be allowed to increase annual CO2 emissions by 5% during the first phase of the scheme (2005 to 2007) relative to their emissions in 2000. Additional allowances will also be available through reserves set aside for the construction of new plants. If all these reserve allowances are issued, then emissions would be permitted to increase by an additional 6%. In total, the first phase of the scheme could therefore allow emissions to increase by up to 11% relative to 2000 levels. And Singer comments: 'These increases are in stark contrast to the commitments of European Member States under the Kyoto Protocol which require a collective reduction in emissions across all EU 15 countries of 8% by 2010 from 1990 levels.'  ...Countries that are presently exempted form any emission cuts, such as China and India, Brazil and Mexico, will have to join at a later stage (after 2012). Ultimately all 193 countries in the world have to join in order to eliminate loopholes in the system. It should be borne in mind that their allocations will have to be accommodated within a shrinking total of available emission allowances. Some Kyoto adherents foresee an evolution of the system, whereby in a couple of decades the worldwide distribution of CO2 emission rights will be taking place on the basis of equal rights per capita. Such an allocation would be in conformity with traditional UN egalitarian philosophy, to which some countries, however, have explicitly taken exception, while other countries have remained conspicuously silent. It goes without saying that this would require a degree of central control at the global level which is unprecedented in the history of mankind. ...Ironically, this huge bureaucratic moloch in the making is based on science which is fatally flawed. Recent peer-reviewed literature offers a spate of articles refuting crucial elements of the man-made global warming hypothesis, thereby undermining the scientific basis underlying the models and scenarios by the IPCC. These models and scenarios do not stand up to rigorous scientific analysis, while the extreme projections, the ones that make the best scaremongering headlines, are nothing but sheer fantasy. But so far Kyoto has proved to be impervious to logic. Let's hope that its inherent loss of national sovereignty and democracy will concentrate the minds.
    http://www.techcentralstation.com/120304A.html

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Tuesday, December 7, 2004 ~ 8:30 a.m., Dan Mitchell Wrote:
Senate Democrat leaders wants to get rid of income tax, warns against US becoming like Europe. Senator Harry Reid of Nevada comes for a state with no income tax. Moreover, Nevada companies are some of the best tax planning vehicles in the world. Not surprisingly, Senator Reid has a much friendlier attitude toward tax reform - though he specifically warned on Meet the Press that America should never be like Europe and have both a consumption tax and an income tax:

    The income tax code, as we know it, is tough, it's unworkable. You know, we couldn't put the code on this desk. And I think we should work towards simplifying it.  We had a pretty good program, Bradley-Gephardt, where we had three tax structures, but, of course, we changed that.  Congress changed that and now it's more complicated than ever. What I am concerned about that's happening with the talk that's coming from 17th and Pennsylvania Avenue is that they're talking about having a consumption tax and an income tax.  That's the worst of all worlds.  That's what they have in Europe where you have an income tax and you add on that the value-added tax. It's a terrible system.  So what I say is if we can figure out a way to make our tax less burdensome and if we could go to a consumer based tax, I think it would be wonderful. But the transition rules of that are very difficult and I have looked into that.  It's extremely difficult.
    http://www.msnbc.msn.com/id/6646457/

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Tuesday, December 7, 2004 ~ 8:09 a.m., Andrew Quinlan Wrote:
Annan and the UN deserve each other. Jeff Jacoby of the Boston Globe writes that Kofi Annan is a disastrous Secretary-General, but that this is exactly the kind of chief executive the UN deserves:

    But odds are the world won't much care about getting to the bottom of the latest UN scandal. UN scandals rarely provoke lasting outrage. There was no global uproar when the brutal regime in Libya was chosen to chair the UN's Human Rights Commission. Nothing happened to the UN after its troops allowed Serbs to slaughter 8,000 Muslim men and boys in the "safe haven" of Srebrenica. Sex scandals seem to erupt wherever the UN goes -- the latest involves charges of rape, child abuse, and prostitution by UN personnel in the Congo -- but they never cause heads to roll in Turtle Bay. Annan himself became secretary general despite his failure, when he headed the UN's peacekeeping operations, to pay attention to warnings of genocide in Rwanda. Why should anything be different this time? Oil-for-Food may be the greatest international rip-off of modern times, it may have strengthened one of the world's bloodiest dictators, it may have deprived countless Iraqis of food and medicine, but if history is any guide, the scandal headlines will fade from view long before the secretary general does. ...Which is just as well. Annan is merely a symptom of the UN's sickness, not the cause of it. His resignation would do nothing to reform the UN into the engine of peace and liberty its founders envisioned. Better that Annan remain in place as a symbol of UN fecklessness and failure, and a spur to those who can envision something better. The UN is a corrupt institution, one that long ago squandered whatever moral legitimacy it once had. The UN's founding documents venerate justice and human rights, but for the past 40 years, the organization has been dominated by a bloc of states -- essentially the Afro-Asian Third World -- most of whose governments routinely pervert justice and violate human rights.
    http://www.townhall.com/columnists/jeffjacoby/jj20041206.shtml

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Tuesday, December 7, 2004 ~ 7:15 a.m., Dan Mitchell Wrote:
America should learn from Chile on Social Security. Jose Pinera was the architect of private Social Security accounts in Chile. His plan is now almost 25 years old and it has been a smashing success. With any luck, US policy makers will follow his example:

    The Chilean retirement system was originally based on exactly the same principle that guides the United States' system. It originated in 19th century Prussia, where Bismarck created a pay-as-you-go-system. But such a defined-benefit system is not only hostage to demographic trends, it also has a fatal flaw: it destroys the link between individual contributions and benefits, or, in other words, between personal effort and reward. Chile's Social Security Reform Act of 1980 allowed current workers to opt out of the government-run pension system financed by a payroll tax and instead contribute to a personal retirement account. What determines those workers' retirement benefit is the amount of money accumulated in their personal account during their working years. ...When the system was inaugurated, one-fourth of the eligible work force signed up in the first month. Today 95 percent of covered workers participate. For Chileans, their retirement accounts represent real property rights. Indeed, the accounts, not risky government promises, are the primary sources of security for retirement, and the typical Chilean worker's main asset is not his used car or even his small house (probably still mortgaged) but the capital in his retirement account.
    http://www.nytimes.com/2004/12/01/opinion/01pinera.html?oref=login

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Monday, December 6, 2004 ~ 11:13 a.m., Dan Mitchell Wrote:
Financial Times editorializes for flat tax. Though it is not known as a free-market newspaper, a recent editorial in the Financial Times correctly notes that high tax rates undermine growth and encourage evasion. The editorial specifically praises the pro-growth flat tax reforms in Eastern Europe:

    If you tax something, you will get less of it: if you subsidise something, you will get more of it. Britain seems far from recognising these incentive effects in aspects of fiscal policy, as this week's pre-Budget report showed. ...Try as the Treasury might, there is no stopping the anti-avoidance treadmill - as fast as one loophole is closed, another opens. High taxes encourage the transformation of income and capital gains into tax-free pension contributions or dividends taxed at lower rates, or their diversion into stripped corporate bonds or options. Raising the level of taxation on income means less income to tax - though not necessarily less income for the taxpayer. ...Many of the countries in transition from planned economies to the market have recognised the impact of these perverse fiscal incentives. Faced with large-scale tax evasion and avoidance, countries in eastern Europe and the former Soviet Union have introduced low, flat-rate taxes with minimal allowances and exemptions. This has boosted revenues, made them more attractive to inward investors and entrepreneurs - and less attractive to the tax advisers who are among the main beneficiaries of high taxation. ...As many of the new market economies have recognised, lower tax rates and fewer exemptions are good for raising revenues - and good for encouraging business.
    http://news.ft.com/cms/s/d16f56f0-4598-11d9-8fcf-00000e2511c8.html (subscription required)

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Monday, December 6, 2004 ~ 10:30 a.m., Dan Mitchell Wrote:
Wise observations from a top economist. Tom Sowell periodically writes a much-anticipated "Random Thoughts" column, and it is definitely worth the wait. His latest contribution has many insights - particularly about the tendency of politicians to ask for more government to solve problems caused by government:

    During his long tenure as NBC News anchorman, Tom Brokaw took that program from last place among the big three broadcast networks to first place. But he had more viewers when he was in last place, more than 20 years ago, than he had in first place this year. That is because fewer people now watch NBC, ABC, or CBS News. Good! ...It is fascinating to watch politicians come up with "solutions" to problems that are a direct result of their previous solutions. In many cases, the most efficient thing to do would be to repeal their previous solution and stop being so gung-ho for creating new solutions in the future. But, politically, that is the last thing they will do. ...Why are we spending the taxpayers' money to allow ex-Presidents to build monuments to themselves? Whatever the historical value of material stored in Presidential Libraries, that same material can be stored in the National Archives, so that people doing research on former Presidents can go to one place, instead of having to run all over the country. ...People who believe in judicial activism often cite "good" policies imposed by judges and "bad" policies created by elected officials. But you could just as easily cite the reverse. It was the Supreme Court which enhanced the rights of slaveowners in the Dred Scott case and it was elected officials -- the President and Congress -- who abolished slavery.
    http://www.townhall.com/columnists/thomassowell/ts20041206.shtml

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Monday, December 6, 2004 ~ 8:58 a.m., Dan Mitchell Wrote:
Wrong reasons to worry about the US dollar. Alan Reynolds has an excellent article in the Washington Times explaining that trade deficits and budget deficits have no relationship to the value of the dollar. In other words, the falling dollar may be a cause for concern, but not for those reasons:

    The U.S. budget deficit is 3.7 percent of gross domestic product, the same as Germany's and France's. Japan's budget deficit exceeded 6 percent of GDP for the past five years and is now above 7 percent. If budget deficits explained trade deficits or interest rates, Japan would have the largest trade deficit and highest interest rates. Mr. Bartlett's thesis that a smaller budget deficit would strengthen the dollar by shrinking the current account deficit is false. The U.S. dollar has declined as much against the Australian dollar as against the euro, yet Australia's current account deficit is larger than ours. Besides, current account deficits are unrelated to budget deficits here or there. The U.S. current account deficit was 0.8 percent of GDP in 1992, when the budget deficit was 4.7 percent of GDP. After the budget moved into surplus, the current account ballooned to 2.3 percent of GDP in 1998, 3.1 percent in 1999 and 4.2 percent in 2000. ...foreigners who export to the United States are paid in dollars that have to be either spent or invested here. If foreign exporters refused to either invest or spend those dollars, we would have their goods and they would have nothing in exchange. There are doubtless many things worth worrying about, but the old "twin deficits" and "hard landing" theme that a budget deficit leads to trade deficits and hence to some ill-defined catastrophe is not one of them.
    http://www.washingtontimes.com/commentary/20041205-123307-6837r.htm

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Monday, December 6, 2004 ~ 7:17 a.m., Andrew Quinlan Wrote:
Another call for Annan's resignation. Kofi Annan's scandal-plagued reign as UN Secretary General may be coming to an end - at least if there is any accountability at the world's most inefficient bureaucracy:

    Obviously it is time for young Kojo's father to go. The United Nations has been a tabernacle of hypocrisy for decades. Its racism against unfavored nations - for instance, Israel - is well known. The corruption is now impossible to ignore. Kofi Annan's departure should be the first gesture at reform, but much more is needed. The halls of U.N. headquarters crawl with conspiracy. During the Cold War, the conspiring was mainly for political advantage. Now it is for lucrative deals, as well. Many more retirements will be needed before the United Nations' integrity is restored. For now, our government should demand reform and refuse to send this corrupt institution any more money until reform begins.
    http://www.washingtontimes.com/commentary/20041202-083643-8688r.htm

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Sunday, December 5, 2004 ~ 1:00 p.m., Dan Mitchell Wrote:
Trade deficits don't matter. A Techcentralstation.com article explains that a weak currency is not the way to reduce a trade deficit. More importantly, the author explains that the trade deficit is not a problem:

    ...perceived trade imbalances are not corrected by devaluations. To begin with, the dollar has been falling for the last two years, yet the trade deficit has continued to rise, hitting a record $51 billion in October. In a 1977 study, economist Arthur Laffer researched fifteen currency devaluations, and found that the trade balance of the devaluing country tended to worsen on average. ...In truth, the problem with trade deficits has nothing to do with the deficits themselves, but instead with the media and political class that continue to misunderstand what they are. The very idea of a trade deficit is a misnomer in that as Irwin points out, "If a country is buying more goods and services from the rest of the world than it is selling, the country must also be selling more assets to the world than it is buying." ...because of the mostly impressive economic growth of the United States since its founding, the U.S. has almost continuously had a trade deficit.  Thank goodness it has, in that the flipside of excessive U.S. consumption of foreign goods is heavy foreign investment in U.S. assets. This is nothing to be ashamed of, or worried about for that matter. The United States most recently had a trade surplus in 1991. Unsurprisingly we were in a recession in 1991.  The U.S. also ran surpluses during the Great Depression.
    http://www.techcentralstation.com/120304E.html

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Sunday, December 5, 2004 ~12:13 p.m., Dan Mitchell Wrote:
Tax competition forces lower rates in Indonesia. Thanks to better tax law in Hong Kong and Singapore, politicians in Indonesia are being compelled to make reductions in the corporate tax rate:

    Indonesia plans to cut its corporate tax rate starting next year, in an attempt to spur investment and growth, Minister for Economic Affairs, Aburizal Bakrie, has announced. Under the government proposals, the corporate tax rate will be cut by one percentage point to 29% next year, which will be followed by further cuts to 25% over the course of the government's five year term. ...The tax cut would also bring Indonesia's corporate tax rate more in line with other regional economies, such as Singapore and Hong Kong.
    http://www.tax-news.com/asp/story/story.asp?storyname=18144

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Sunday, December 5, 2004 ~ 11:24 a.m., Dan Mitchell Wrote:
Tax revolts in many states. It is good to see the American people don't allow greedy politicians to get away with too much greedy behavior. The Christian Science Monitor has an article about a growing property tax revolt:

    While fuel prices may be starting to skid, there's another expense closer to home that is upsetting many Americans: rising property taxes. From Madison, Wis., to Bucks County, Pa., the local tax assessor is dipping deeper into homeowners' pockets... In many states, the tax bite is finally causing taxpayers to bite back. For example, in New Jersey, a grass-roots group, Citizens for Property Tax Reform, says it has 500,000 participants after 15 months of existence. The group's mission is to force a property tax reform "convention." ...Some states are looking at the California model of capping property taxes so they rise only 2 percent a year.
    http://www.csmonitor.com/2004/1203/p01s01-usec.html

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Saturday, December 4, 2004 ~ 1:30 p.m., Dan Mitchell Wrote:
Tax competition leads to better policy in Finland. The Finnish government is eliminating its class-warfare wealth tax, a decision that explicitly is the result of tax competition. This positive development is yet another example of why it is so important to defeat EU and OECD tax harmonization schemes:

    The Finnish government has proposed scrapping its wealth tax alongside further reductions in tax on labour, in a package of tax cuts worth EUR1.7 billion which are aimed at making the economy more competitive. ...Finance Minister Antti Kalliomaki told a news conference: "The wealth tax has been abolished in many other countries, so (scrapping it) is partly done for competition reasons. Also, we thought it could support investments." The new proposal will mean that the government has cut taxation by EUR4 billion since 2003. Analysts have been somewhat surprised by the scope of the tax cuts, although some experts believe that Finland still needs to cut the top rate of personal income tax.
    http://www.tax-news.com/asp/story/story.asp?storyname=18125

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Saturday, December 4, 2004 ~ 12:52 p.m., Andrew Quinlan Wrote:
OECD endorses higher taxes in the UK. As a previous blog  noted, the United Kingdom desperately needs to lower taxes and reduce the burden of government. Not surprisingly, the Paris-based OECD has a different perspective. True to form, the bureaucracy endorses higher taxes, as reported by Tax-news.com:

    Further doubt has been cast on UK Chancellor of the Exchequer, Gordon Brown's fiscal management after the OECD warned this week that the United Kingdom will need to raise taxes next year to counter rising levels of public borrowing. ..."The government deficit is likely to be above 3 per cent of GDP (gross domestic product) in 2004, and in the absence of a spontaneous rise in taxes, additional action may be required to achieve a decisive and sustainable reduction," observed the OECD in its twice-yearly assessment of the world economic outlook. Despite rising corporate tax receipts brought about by increased company profitability, and higher revenues from fuel tax as a result of fast-increasing oil prices, the OECD warned that these sources of additional taxes will not be enough to make up the anticipated fiscal shortfall. The Paris-based organisation concluded that a "further period of fiscal retrenchment was almost certainly needed" if Brown is to meet his self-imposed 'Golden Rule' of borrowing only to invest over the economic cycle.
    http://www.tax-news.com/asp/story/story.asp?storyname=18123

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Saturday, December 4, 2004 ~ 12:04 p.m., Dan Mitchell Wrote:
Political correctness vs. airline safety. A Wall Street Journal column reveals how Department of Transportation bureaucrats are undermining the fight against terrorism:

    As American's record makes clear, it is almost never the case that someone gets additional screening based on his apparent ethnic heritage or national origin alone; behavior and no-fly-list matching are key in the assessment. (In fact, about half the complainants in the government's action were not even Middle Eastern. DOT simply assumes, without evidence, that American scrutinized the men because of the mistaken belief that they were Arabs.) A pilot trying to apply the "but-for" test to his own security judgment will inevitably reduce the test to an easier calculus: "Deny passage to someone who is or could claim to look Muslim only under the most extreme circumstances." In application, the "but-for" test reduces to a "never-ever" rule: Ethnic heritage, religion, or national origin may play no role in evaluating risk. But when the threat at issue is Islamic terrorism, it is reckless to ask officials to disregard the sole ironclad prerequisite for being an Islamic terrorist: Muslim identity or its proxies -- national origin or ethnic heritage. (Muslim identity should be at most only one factor in assessing someone's security risk.) American contested DOT's action, but fighting the government civil-rights complex is futile. In February 2004, the airline, while denying guilt, settled the action for $1.5 million, to be spent on yet more "sensitivity training." American's pilots were outraged. "Pilots felt: 'How dare they second-guess our decision?'" says Denis Breslin, a pilots' union official. Not satisfied with just one scalp, DOT lawyers brought identical suits against United, Delta and Continental. Those carriers also settled, pledging more millions for "sensitivity training" -- money much better spent on security training than on indoctrinating pilots to distrust their own security judgments.
    http://online.wsj.com/article/0,,SB110194850394688792,00.html?mod=opini on&ojcontent=otep  (subscription required)

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Saturday, December 4, 2004 ~ 10:23 a.m., Dan Mitchell Wrote:
A fringe benefit of voting against the EU Constitution. If voters in the United Kingdom reject the statist EU Constitution, they likely will get the best possible outcome - escaping the regulatory clutches of Brussels while still retaining membership in the common market. A Wall Street Journal column explains this additional reason to vote no:

    Jacques Chirac, Gerhard Schroeder and Valéry Giscard d'Estaing have all said that, if Britain persists in rejecting the draft, the other countries will offer it some form of associate membership based on its participation in the single market but not the common political structures. The outgoing trade commissioner, Pascal Lamy, has gone so far as to say that Britain would be granted a status similar to Switzerland's. Since this is the clearest definition we have, it is worth looking at how Switzerland -- and, for that matter, its three partners in the European Free Trade Area, Iceland, Norway and Liechtenstein -- manage their relations with the EU. The first thing one notices is that these countries are very rich. Over the past decade, the EFTA four have comfortably outperformed the EU. GDP per head in EFTA countries is, on average, twice that in the EU. Their unemployment rates are lower, their stock markets stronger, their currencies more stable and their interest rates well below those in the euro-zone. What does it mean to be an EFTA country? The EFTA states are covered by the so-called four freedoms of the EU's single market: free movement of goods, services, people and capital. They are able to opt into other common policies on a case-by-case basis, whether research and development, classification of medicines or border-free travel. Yet they are spared the huge costs and inefficiencies of the Common Agricultural Policy. They are also free to control their own fisheries and their own energy reserves. They are able to sign free-trade deals with third countries, and they are outside much of the EU's social and employment regulations.
    http://online.wsj.com/article/0,,SB110193851383188450,00.html?mod=opini on&ojcontent=otep  (subscription required)

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Saturday, December 4, 2004 ~ 9:55 a.m., Dan Mitchell Wrote:
"Affirmative action" has racist results. The Ashbrook Center of Ohio has a column about the adverse impact of racial preferences. The column excerpts a section of a forthcoming Stanford Law Review article that demonstrates that racial preferences actually reduce the number of black lawyers by putting minority students in the wrong academic environment:

    After a year of law school, the GPAs of 51 percent of black students place them in the bottom tenth of their classes, compared with 5 percent of white students; Of those entering law school in 1991, about 80 percent of white students passed the bar exam on their first try, but only 45 percent of black students; Without affirmative action, the number of black graduates passing the bar the first time would jump to 74 percent according to Sander's statistical analysis of how better GPAs in less competitive schools would result in higher bar scores; Without affirmative action, the number of new black lawyers would increase by 8.8 percent because students would attend law schools that fit their preparation, leading to better grades and better jobs.
    http://www.ashbrook.org/publicat/oped/morel/04/disaffirmation.html

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Friday, December 3, 2004 ~ 11:30 a.m., Andrew Quinlan Wrote:
EU accused of "Financial Terrorism." Deputy David Jones, a Member of the States of Guernsey, is sick of the heavy handed tactics of the European Union. David Jones says that the EU is using "financial terrorism" to force the bankrupt policies of old Europe on the "buoyant and well regulated economies" of the low-tax countries around the world.  Deputy Jones writes in part:

    The French Finance Minister's obsession with tax harmonisation across the EU has now seen him consorting with others, in what can only be described as flagrant economic terrorism, the purpose, to force harmonisation further up the EU's agenda. Given that EU tax laws cannot be altered without the agreement of all the member states, has sparked a flurry of activity by certain EU finance Ministers to step up their campaign to have the right of veto removed, their behaviour in this matter can only be likened to a bunch of terrorists launching a campaign in order to scupper resistance by those who have no wish to sign up to the horrifying and unworkable concept of tax harmonisation. ... Financial terrorism is now apparently an acceptable weapon used to impose the will of the failed stagnant economies of the EU on successful buoyant and well regulated economies of the offshore finance centres around the globe. The New Oxford English dictionary defines terrorism as "the use of violence and intimidation in pursuit of political aims" I can think of no better description to describe the methods used to impose the so called bi-lateral agreements recently demanded by the EU.  ... The EU knows that it cannot compete for business with its present high tax rates, while at the same time watching investment in Europe decline, so with it's usual unimaginative zeal, they have decided that their only course of action is to extinguish competition elsewhere, wherever it exists. The European cartel can only work if all avenues of choice are choked off to businesses and citizens resident within the EU. The current opening salvo from the EU on corporation tax is just one of many deliberate actions to come, the ultimate aim of this economic terrorism is to erode the competitive business climate built up over several years by the offshore dependencies, to the point where financial business takes flight to other less well regulated jurisdictions outside the EU.  … Now that the EU has seen that these acts of economic terrorism are producing results, I fully expect shortly a new set of demands to be put on the table with the same revolver placed along side them.  We will in the future have to be much more robust in defending our right to be different. The new European constitution signed recently by Blair and Straw shows the disdain they have for the democratic process,  considering that the referendum on this subject ought to have been put to the British people first.
    http://www.freedomandprosperity.org/blog/david_jones.pdf

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Friday, December 3, 2004 ~ 11:14 a.m., Dan Mitchell Wrote:
UK experts issue call for lower taxes and less government. The United Kingdom is drifting in the wrong direction. As recently as 2000, government spending consumed 37 percent of GDP. Today, it consumes about 43 percent of national output. Tony Blair and Gordon Brown apparently think it is okay if England becomes more like France, yet the Tories are afraid to offer an alternative vision. But things may be moving in the right direction. A lengthy list of UK economists and business leaders released a public letter urging dramatic reductions in the burden of taxes and spending:

    It is clear that recent large rises in public spending and taxation have not delivered commensurate improvements in public services. Instead, the priority should now shift to reducing taxes on wealth-creating businesses and on the millions of families for whom the ever increasing tax take is a damaging imposition on their ability to support themselves in raising children and saving for retirement. It is therefore vital that, at the very least, the government of the UK should be committed to containing further growth in public spending to below the rate of growth in the economy as a whole. This will not only avoid the need for any further rise in the tax burden, but also enable the tax level to be progressively reduced. We simply do not accept that the government can get better value for each extra pound it spends than those who have to pay the extra pound in tax. Rather than asking if we can afford to cut taxes, we should take the view that we cannot afford not to cut taxes - and to discipline spending growth accordingly.
    http://news.ft.com/cms/s/7703cfbe-41ad-11d9-95ae-00000e2511c8.html   (subscription required)

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Friday, December 3, 2004 ~ 9:55 a.m., Andrew Quinlan Wrote:
Sweden's welfare state is destroying itself. A Techcentralstation.com article uses OECD numbers to demonstrate that Swedish taxpayers are paying more and more, but getting comparatively little compared to their European neighbors:

    ...let us look at what the Swedish system actually produces in resources devoted to welfare, compared with six other West European countries: Finland, Denmark, the Netherlands, Germany, Austria and Ireland. ...the Swedish government, despite the highest taxes, does not have most euros to spend on welfare. Instead, Denmark and Austria do. Lower economic growth has diminished the Swedish tax base in comparison with the other countries. A large share of a shrinking pie soon gets smaller than a small share of a growing pie. ...It is not sustainable to rely on raising taxes to ensure enough revenue for an expensive and extensive welfare system. Good welfare states depend on a growing economy. And high taxes impede growth. Welfare states are therefore a contradiction in themselves.
    http://www.techcentralstation.com/112904D.html

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Thursday, December 2, 2004 ~ 9:00 a.m., Dan Mitchell Wrote:
Tax reform is working in Eastern Europe. Several nations have adopted simple and fair flat tax systems. This has led to more economic growth, but also has generated more revenue for the government. This should not be a surprise. The so-called rich paid more income tax when Ronald Reagan lowered their tax rate from 70 percent to 28 percent, and corporate tax revenues skyrocketed when Ireland lowered its corporate tax rate from 50 percent to 12.5 percent. Too bad the economic luddites at the OECD and EU never examine real world evidence:

    Flat taxes have been introduced in several former communist countries in the past few years. So far, the evidence shows they are working. If that success is sustained, it will give a powerful boost to the proponents of flat taxes. After all, even in tax policy, good ideas are eventually copied. Let's take a tour of flat-tax-land. Start in tiny Estonia, which has a flat rate of tax of 26 percent for individuals. And how have government tax receipts been holding up? According to the Bank of Estonia, government revenue for 2003 was 48 billion kroons ($4.06 billion). That compares with 42 billion kroons in 2002, and 36 billion kroons in 2001. In other words, revenue has risen steadily. Next, head south to Slovakia. At the end of last year, the country introduced a flat tax of 19 percent for individuals and companies. The system came into effect at the start of this year. And how's it working out? Well, this month the government of Slovakia said tax revenue will probably exceed its forecasts for the year by 700 million koruna ($23.6 million). As a result of that, it said the budget deficit would be smaller than originally forecast. Again, the flat tax seems to be producing higher revenue. Now, head east to Russia. Russian President Vladimir Putin may be an inconsistent supporter of free markets, as shown by his support for Ukraine Prime Minister Viktor Yanukovych in that country's disputed Nov. 21 presidential election. Yet in 2001, Putin introduced a flat tax of 13 percent. So how is Russia's tax revenue doing? Pretty well. After adjusting for inflation, personal income tax revenue increased 25.2 percent in 2001, 24.6 percent in 2002, 15.2 percent in 2003, and is predicted to total more than 16 percent in 2004, according to Andrei Grecu, who completed a study on flat taxes for the London-based Adam Smith Institute recently.
    http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_lyn n&sid=aNSQHmLkk_Lw

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Thursday, December 2, 2004 ~ 8:20 a.m., Andrew Quinlan Wrote:
EU pushes back-door protectionism. Marian Tupy of the Cato Institute forcefully defends free trade and explains that nations are much more likely to prosper when they avoid protectionism. Sadly, the European Union is seeking to impose indirect forms of protectionism that will hurt the world's poorest nations:

    Development economists have, for decades, advocated increased trade between rich and poor countries as the best way to combat developing-world poverty. Empirical evidence suggests that people in countries that are more economically integrated with the rest of the world enjoy a higher standard of living. According to the Fraser Institute's Economic Freedom of the World report, gross domestic product (GDP) per capita in the quintile of countries with the most restricted trading was only $1,883 in 2002. However, the 2002 per capita GDP in the quintile of countries with the freest trading regimes was $23,938. ...Swedish author Johan Norberg points out that the European industrial revolution did not have to content with stringent environmental and labor regulations. After Europe developed and the standard of living increased, however, many people became willing to pay a premium for commercial goods that were produced in an environmentally friendly way. Increased efficiency of production and the concomitant reduction of waste contributed to better quality of the environment. But, as Norberg explains, "environmental quality is unlikely to be a top priority for people who barely know where their next meal is coming from." ...Developing countries ought to pursue pro-growth domestic reforms and liberalize no matter what the EU does. Increased economic openness will result in increased productivity that will more than compensate for the already low external tariffs that the EU imposes on imports from overseas. There is, in other words, no compelling reason why Europe's scandalous attempts to force its Luddite and protectionist agenda on weaker and poorer nations should not be resisted.
    http://www.cato.org/dailys/11-30-04.html

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Thursday, December 2, 2004 ~ 7:40 a.m., Dan Mitchell Wrote:
Weak dollar threatens America. An excellent article posted at Nationalreview.com exposes the foolish thinking of those who thinking debasing America's currency is a good idea. Inflation is always a terrible idea, and it is an even worse idea when it is proposed to solve a non-existent problem:

    Key members of the Federal Reserve Board and a cadre of Wall Street economists have become fixated on the current account deficit as a worrying symptom of economic distress and a sign of impending crisis. This has led a host of Reserve Bank presidents and Fed governors to imply that the dollar should fall in order to rectify imbalances before a crisis becomes inevitable. Since the theory of imbalances holds that a crisis eventually will ensue, destructive policy actions that surely would trigger a crisis are being advanced as "solutions" to a non-problem. Steep tax increases to augment "savings," a depreciated dollar to boost exports, and higher tariffs or a sharp domestic-growth slowdown to discourage imports have all been floated as "solutions" to our current account deficit. In other words, precipitating a crisis to solve a non-crisis only can reduce the severity of a crisis that would have happened anyway.  ...Those advocating a weak dollar to redirect trade flows do not have history on their side. While a depreciating currency is assumed to boost exports and shut off the demand for imports, this is only the first effect. Eventually a weak currency invites inflation, which neutralizes the effect of the lower exchange rate. This was proven by economist Michael Salant, who conducted an exhaustive study of 101 devaluations in 1977 by both developed and emerging countries. In total, the study found that the balance of trade improved in 46 instances of devaluation, deteriorated in 54 cases, and remained unchanged in one episode. ...Persistent currency depreciation has never brought lasting prosperity to any government in the history of the world. If the dollar continues to depreciate it will bring higher inflation, higher interest rates, lower real growth rates, and a reduced standard of living for most wage earners. There is zero evidence to support the notion that moving to fiscal surplus from fiscal deficit will have an influence on trade flows or the current account.
    http://www.nationalreview.com/nrof_comment/darda200412010816.asp

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Thursday, December 2, 2004 ~ 6:55 a.m., Dan Mitchell Wrote:
Another government boondoggle horror story. If you were outraged by the waste, fraud, and abuse in the FEMA program (http://www.freedomand
prosperity.org/blog/2004-11/2004-11.shtml#237
), you will be similarly flabbergasted by the United Kingdom's traffic website. This inefficient contraption is absurdly over-budget and is widely seen to be grossly inferior to a private-sector rival:

    What would you call a Government sponsored website that cost nearly $90 million, is slow, provides inaccurate information, falls over regularly, fails at its appointed task and looks set to drive its private sector competitor out of business? Dependent upon your level of cynicism you might describe it as a tragic waste of community resources, par for the course, an unusual error or even all of the above. ...There are only two major problems that seem to have derailed this wondrous idea. The first is, as the site proves on those rare occasions that it works, that public transport is a great deal slower than simply getting in one's car and driving. This really isn't what it was supposed to prove at all. The second is that the Government did it. It took them four years to get their act together (to the limited extent that they have), it simply replicates information available elsewhere, appears to send people on very odd journeys indeed... well, all the joys you would expect from a system designed by committees of people who have never actually had to work for a living. The argument in favour of this sort of enterprise is that it is something that the free market would not provide, that there is some failure in provision of a service that only the Government can correct. This is certainly true sometimes but a great deal less often than proponents of State action like to admit. In this particular case we actually know that it is untrue. For there is a private sector competitor, one that provides a rather better service and, to the surprise of few one that cost some $1.8 million, or one fiftieth of the Government one to create.
    http://www.techcentralstation.com/113004A.html

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Wednesday, December 1, 2004 ~ 11:00 a.m., Dan Mitchell Wrote:
U.S. is losing race for lower corporate tax rate. Richard Rahn's column in the Washington Times catalogues the dramatic shift to lower tax rates around the world. In many nations, the corporate tax rate is less than 20 percent. Sadly, America is not competing in this race. Indeed, the U.S. corporate tax rate is even higher than the corporate tax rates in welfare states like France and Germany:

    Many countries, seeking higher economic growth and employment, have sharply cut their tax rates. Ireland cut its corporate tax rate from 43 percent to only 12 1/2 percent, attracting investment from around the world and, in turn, becoming not only one of the fastest-growing but one of the wealthiest economies in Europe. The new market economies of Eastern Europe seeking high growth and rapid job creation have also been cutting their corporate tax rates. Slovakia, Lithuania and Poland have a 19 percent corporate rate; Hungary 16 percent; Slovenia and Latvia 15 percent; and Bulgaria just announced it will move to a 15 percent rate next year. Montenegro, not to be outdone, announced it will go to a 9 percent rate. Estonia has become the champion by going to a zero rate on reinvested profits. As a result of this competition, even France (34 percent) and Germany (38 percent) have been forced into modest corporate tax reductions, giving them lower rates than corporations face in the United States. American companies now have an average 40 percent rate (including state corporate taxes), and only very poorly performing Japan with its 42 percent rate is higher.
    http://www.washingtontimes.com/commentary/20041130-084445-1131r.htm

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Wednesday, December 1, 2004 ~ 10:32 a.m., Andrew Quinlan Wrote:
Key Senator says U.N. Secretary General should resign. The Chairman of the Senate Subcommittee investigating the oil-for-food swindle at the United Nations writes in the Wall Street Journal that Kofi Annan should step down. Senator Coleman of Minnesota explains that any chief executive who presided over such a large scandal already would have been forced to resign, and there should be similar accountability even at a notoriously inefficient international bureaucracy:

    It's time for U.N. Secretary-General Kofi Annan to resign. ...Our Investigative Subcommittee has gathered overwhelming evidence that Saddam turned this program on its head. Rather than erode his grip on power, the program was manipulated by Saddam to line his own pockets and actually strengthen his position at the expense of the Iraqi people. At our hearing on Nov. 15, we presented evidence that Saddam accumulated more than $21 billion through abuses of the Oil-for-Food program and U.N. sanctions. We continue to amass evidence that he used the overt support of prominent members of the U.N., such as France and Russia, along with numerous foreign officials, companies and possibly even senior U.N. officials, to exploit the program to his advantage. We have obtained evidence that indicates that Saddam doled out lucrative oil allotments to foreign officials, sympathetic journalists and even one senior U.N. official, in order to undermine international support for sanctions. In addition, we are gathering evidence that Saddam gave hundreds of thousands--maybe even millions--of Oil-for-Food dollars to terrorists and terrorist organizations. All of this occurred under the supposedly vigilant eye of the U.N. ...All of this adds up to one conclusion: It's time for Kofi Annan to step down. The massive scope of this debacle demands nothing less. If this widespread corruption had occurred in any legitimate organization around the world, its CEO would have been ousted long ago, in disgrace. Why is the U.N. different?
    http://www.opinionjournal.com/extra/?id=110005966

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Wednesday, December 1, 2004 ~ 9:41 a.m., Dan Mitchell Wrote:
Overcoming demagoguery to reform Social Security. If Social Security is not reformed, it will collapse. This is an inevitable result of demography. George Will explains that President Bush needs someone in the Administration to effectively explain that personal retirement accounts are the only way to avert this crisis. Will suggests Alan Greenspan, but former Texas Senator Phil Gramm would be a better choice:

    ...two years ago two former senators, Democrat Bob Kerrey of Nebraska and Republican Warren Rudman of New Hampshire, proposed a thought experiment: ``Suppose that a member of Congress introduced legislation called 'the Social Security Do Nothing Act.' Under this bill, promised retirement benefits would be cut by 16 percent for today's 30-year-olds, by 29 percent for today's 20-year-olds and by 35 percent for today's newborns. Alternatively, payroll taxes would go up by roughly 40 percent in 2041. How many politicians would rush to endorse this bill? And yet these are the choices under the Do Nothing Plan.'' The president probably will propose a plan that will permit individuals to invest a portion of their Social Security taxes in broadly diversified and conservatively managed funds. This would provide a higher return on Social Security taxes. And it would narrow the nation's wealth gap by giving individuals of modest incomes ownership of bequeathable estates. The plan will be attacked primarily on two grounds: Investments are risky. And transition costs might approach $2 trillion dollars as young workers pay less into the system while older workers continue to receive full benefits. Greenspan has the standing, with Congress and the public, to contrast the risks of the market with the risks of doing nothing, and to reiterate what Kerrey and Rudman emphasized: Because any reform involves problems, no reform looks desirable when compared with the false hypothetical of the existing system being forever solvent.
    http://www.townhall.com/columnists/georgewill/gw20041201.shtml

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Wednesday, December 1, 2004 ~ 8:30 a.m., Andrew Quinlan Wrote:
OECD calls for increase in corporate tax burden. In a bizarre move, the OECD has once again allied itself with left-wing fringe groups and is calling for companies to pay more tax than is legally required. This new attack on tax planning seeks to demonize taxpayers who legally structure their affairs to minimize the amount of money transferred from the productive sector of the economy to government:

    In the US, avoiding taxes has been dubbed unpatriotic. In the UK, the Inland Revenue has compared it with drinking and driving. Tax avoidance is firmly on the agenda of the "corporate social responsibility" movement, says the Organisation for Economic Co-operation and Development (OECD). ...Does aggressive tax planning put a company's reputation as a good corporate citizen at risk? Or is it simply minimising costs a duty to shareholders? ...The effort expended on reducing tax bills is partly due to the growing emphasis on shareholder value. Moreover, globalisation has created new opportunities for tax avoidance. But the tax-planning industry defends its methods vigorously and cites globalisation in its defence. Many in the tax-planning business believe tax should be a matter of law, not morals. "Taxation is no more than legalised confiscation of someone else's money," argues Stephen Edge of law firm Slaughter & May . He thinks companies if not individuals are justified in seeking to minimise their bills. Scepticism about tax morality has a long tradition. "Taxes are enforced exactions, not voluntary contributions," said a US judge in 1947. "To demand more in the name of morals is mere cant." ...The OECD's Jeffrey Owens thinks that the emergence of nongovernmental organisations intent on exposing largescale tax avoiders could eventually achieve a change in attitude comparable to that achieved on environmental and social issues: "Tax is where the environment was 10 years ago."
    http://www.bday.co.za/bday/content/direct/1,3523,1757527-6078-0,00.html

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Wednesday, December 1, 2004 ~ 7:00 a.m., Dan Mitchell Wrote:
Another politicized international bureaucracy. Doug Bandow explains that the World Health Organization caters to left-wing political fads - thus undermining the fight against disease:

    Unfortunately, like most United Nations agencies, the WHO's activities have long been captive to a highly political agenda. For instance, earlier this year the organization claimed that a third of childhood deaths in Europe resulted from environmental causes. It's a preposterous assertion. European analysts Jaap Hanekamp and Julian Morris observe, "few of these deaths were actually caused by problems generally associated with 'the environment.' Out of 100,000 total deaths, 75,000 were caused by accidents." The remainder, most in poorer countries such as Russia and Turkey, largely resulted from problems like malaria, poor sanitation and dirty water. ...the WHO is advancing its so-called Children's Environment and Health Action Plan for Europe which proposes more regulations over technology, such as fossil fuels, pesticides, and plastics. The result would make us all poorer, yet wealthier societies are better able to prevent and treat illness.
    http://www.townhall.com/columnists/dougbandow/db20041129.shtml

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Wednesday, December 1, 2004 ~ 6:15 a.m., Dan Mitchell Wrote:
No link between deficits and currency. Some advocates of higher taxes say that the US dollar is falling because of the budget deficit. This is nonsense. Such a relationship between deficits and currency value can exist in third world countries where government spending is financed by printing money, but that is not a relevant concern in America. If budget deficits caused weak currency, why has the Euro been strong even though European nations have similar budget deficits? As Jack Kemp explains in his Townhall.com column, monetary policy determines the value of the dollar:

    Shrinking demand for the dollar manifested in a falling foreign-exchange rate can be one indirect signal that the central bank is running too loose a monetary policy, generating inflation and depreciating the dollar's value. However, since the Fed has this monopoly power over the issuance of our fiat currency, only the Fed can alter the supply of dollars and ultimately the dollar's value. It is impossible for government to correct the monetary error or rectify the declining economic competitiveness emanating from the error by manipulating foreign exchange markets (whether by word or deed), by raising taxes or by any other fiscal policy.
    http://www.townhall.com/columnists/jackkemp/jk20041129.shtml

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