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The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The Heritage Foundation, respectively. |
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The Market Center Blog |
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Observations and insights on the global fight |
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CF&P's Market Center Blog Archives |
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Monday, February 28, 2005 ~ 11:31 a.m., Andrew Quinlan Wrote: How much lower is your real income because of excessive regulation? And how much higher is unemployment because of too much regulation? ...A more sophisticated business person might also say the regulatory costs for his particular business are not just those of equipment and employees, but the additional legal and accounting work needed to comply with the rules (often vague and subject to various interpretations). In addition, the business person might note these added costs must be passed on to the customers through higher prices. ...The additional costs to the business will mostly be tax-deductible. That, in turn, means less tax revenue for federal, state and local government. This loss in tax revenue means other taxes need to be higher to provide the same level of government service. ...If businesses are more heavily regulated in the United States than elsewhere, the additional costs will make them less competitive. Hence jobs will flow from the U.S. to more competitive countries. A couple of years back, Congress passed the Sarbanes-Oxley bill to "improve corporate governance." The bill cost companies listed on U.S. stock exchanges enormously,
so many have now de-listed (i.e., by going private) or are moving to foreign stock exchanges. These regulatory cots have cut jobs and investment. Yet no one has been able to provide proof of any benefits. Much
of the anti-money laundering regulation in recent years also meant major cost increases for financial institutions and a rise in the unbanked poor. Yet again there is no sound evidence of benefits to justify all
the new costs.
Monday, February 28, 2005 ~ 11:02 a.m., Dan Mitchell Wrote: President Bush went out of his way last week in Europe to praise the growing number of countries that have junked their complicated tax
codes and adopted a flat tax. Mr. Bush speaks for a growing number of Americans who are embracing the idea--among them Clint Eastwood, whose said few years back that the adoption of a flat tax would mean
"a little old lady on a home computer [could do] the work of all these thousands of bureaucrats and accountants. Passing that would be
amazing, wouldn't it?" ...In 1994, newly independent Estonia borrowed the idea of the flat tax from highly prosperous Hong Kong, which 45 years before had introduced a dual income tax system, allowing
taxpayers to pay a flat rate on their gross income. (In practice, almost everyone in Hong Kong pays the flat tax.) Lithuania and Latvia quickly
followed Estonia's lead. Today, all three Baltic states are booming, and, along with Slovakia, a recent convert to the flat tax, they are the
least-taxed countries in the European Union. The success of the Baltics attracted the attention of Andrei Illarionov, Russian president Vladimir
Putin's economic adviser. At his suggestion, Mr. Putin implemented a 13% flat tax... Europe is becoming so crowded with flat-tax nations that the original proponents of the idea are having to play catch-up.
Estonia has just cut its rate to 24%, and has promised to slash it to 20% over the next two years. Mr. Rabushka's book "The Flat Tax" has just
been published in Chinese, with a preface by Lou Jiwei, the vice minister of finance. If China were to climb on board the flat-tax train, more than a quarter of the world's population would be filling out their
taxes on the back of a postcard. ...Despite all of its advantages, the flat tax faces enormous ideological opposition. Envy and the lust for the
political control that complicated tax regimes can provide are powerful motivations to keep progressive tax systems in place. Karl Marx in
"The Communist Manifesto" was among the first to call for "a heavy progressive or graduated income tax" at a time when a flat rate was
the norm in advanced countries. He listed it as second in the list of priorities for a new society based on the class struggle.
Monday, February 28, 2005 ~ 10:13 a.m., Dan Mitchell Wrote: Critics of personal accounts often cite the risk of poverty for retirees who outlive their retirement savings and for vulnerable populations like
low-wage workers and women as reasons to reject this approach. But international examples demonstrate how individual account systems can successfully protect participants against these risks. ...Chile (and
many other Latin American countries) provides a minimum pension guarantee — equal to 25 percent of the country's average wage — to every worker with 20 years of contributions, and a smaller means-tested
welfare benefit for noncontributors. Sweden, Poland, Hungary and most other Eastern and Central European countries also offer a minimum pension — usually 15 percent to 35 percent of the average wage — plus
a public benefit that increases with work and contributions. Australia, the Netherlands and the United Kingdom supplement the pension from the individual account with a flat or means-tested public benefit that
most older people receive, whether or not they have worked. In addition to a minimum pension guarantee, Mexico tries to encourage work and prevent poverty by paying a flat public contribution into the account of
every worker for every day worked. Switzerland's safety net is a very progressive defined benefit. The benefit has a floor and a ceiling — but
there is no ceiling on taxable earnings. Benefits grow when the average wage in the economy grows, but at a somewhat slower pace.
Monday, February 28, 2005 ~ 9:39 a.m., Dan Mitchell Wrote: States have been adopting tax and spending limits since the 1970s and 28 now have them on the books. Some are more restrictive than others,
but Colorado's Taxpayer's Bill of Rights (also known as Tabor), passed in 1992, is considered the gold standard. And no wonder. The measure, which limits increases in state spending to inflation and population
growth and returns surplus revenues to taxpayers, ushered in Colorado's most prosperous decade ever. ...By forcing lawmakers to restrain spending during the boom years, the state was better able to
cope with revenue shortfalls when the economy went south. "While states like California had a $38 billion deficit because they had spent all
their excess tax revenue and increased the size of government, Tabor saved Colorado's financial fanny," says Jon Caldera of the Independence Institute, a Denver think tank. ...Now Mr. Owens is
working with the Democratic Legislature to undo Tabor, and he's using the same excuses he once excoriated. Tabor limits spending to the previous year's level, plus inflation and population growth. This means
that recession years "ratchet down" state spending levels and force politicians to make tough decisions, which is what they're paid to do.
...By forcing lawmakers to put the brakes on spending, even after a downturn in the economy, Tabor gives government an incentive to take
on self-correcting tasks that aren't in its nature. Selling off excess assets and reforming procedures for procurement and competitive contracting
aren't high on a state's list of priorities unless there's a fiscal squeeze. Tabor helps state governments find these efficiencies. Bill Owens used to know that.
Sunday, February 27, 2005 ~ 1:13 p.m., Dan Mitchell Wrote: It was left to Adam Smith to identify the more-general set of principles that brought conceptual clarity to the seeming chaos of market
transactions. In 1776, Smith produced one of the great achievements in human intellectual history: An Inquiry into the Nature and Causes of the Wealth of Nations. Most of Smith's free-market paradigm remains
applicable to this day. ...He concluded that, to enhance the wealth of a nation, every man, consistent with the law, should be "free to pursue his
own interest his own way, and to bring both his industry and capital into competition with those of ... other ... men." "It is not from the
benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." The individual
is driven by private gain but is "led by an invisible hand" to promote the public good, "which was no part of his intention." This last insight is
all the more extraordinary in that, for much of human history, acting in one's self-interest--indeed, seeking to accumulate wealth--had been
perceived as unseemly and was, in some instances, illegal. ...there can be little doubt that the Industrial Revolution and the emergence of
free-market capitalism have brought civilization to a material level that could not have been imagined two centuries ago. The late eighteenth
century, when the dramatic rise in standards of living and in population began after millennia of virtual stagnation, was one of the seminal
turning points of history. With few exceptions, that advance has carried forward to this day. Average global real per capita GDP has risen 1.2
percent annually since 1820, enough to double standards of living every fifty-eight years. In the same period, world population has increased
sixfold. In the previous two millennia average per capita incomes barely exceeded levels required to support, at minimum subsistence, a marginally noticeable rise in population. ...The marked increase in
government intervention into markets, in effect a partial reversion to mercantilism, was perhaps an inevitable response to the distress of the Great Depression. At the same time, the notions of Marx gained
influence in the West, perhaps because the repressions of the Soviet Union, the major avowed practitioner of Marx, were not well known before World War II. But cracks in the facade of economic management
by government emerged early in the post-World War II years, and those cracks were to widen as time passed. Britain's heavily controlled economy, a carryover from the war, was under persistent stress as it
encountered one crisis after another in the early postwar decades. In the United States, unbalanced macroeconomic policies led to a gradual
uptrend in the rate of inflation in the 1960s. The imposition of wage and price controls to deal with rising inflation in the 1970s proved ineffective and unworkable. The notion that the centrally planned
Soviet economy was catching up with the West was, by the early 1980s, increasingly viewed as dubious, though the view was not fully discredited until the collapse of the Berlin Wall in 1989 exposed the
economic ruin behind the Iron Curtain. ...The incredible insights of a handful of intellectuals of the Enlightenment--especially the Scottish Enlightenment, with Smith and Hume toiling in the environs of
Kirkcaldy--created the modern vision of people free to choose and to act according to their individual self-interest. As a consequence, today
we enjoy material benefits and longevity that Smith's generation could not have remotely imagined. We owe them, especially Adam Smith, a debt of gratitude that can never be repaid.
Sunday, February 27, 2005 ~ 11:00 a.m., Dan Mitchell Wrote: "I complimented the Prime Minister on putting policies in place that have helped this economy grow," Mr. Bush said about Mikulas
Dzurinda. "The most important responsibility we have at home is to make sure our people can find work. And the President put a flat tax [at 19%] in place; he simplified his tax code, which has helped to
attract capital and create economic vitality and growth." The result has been an economic boom, with growth last year of 4.9%, a plunging
jobless rate and a Laffer Curve effect of rising tax revenues. Oh, and by the way, Slovakia has also introduced pension reform that includes
private accounts of the kind Mr. Bush is proposing in the U.S. Is there any way we can trade Congress for the Slovakian parliament?
Saturday, February 26, 2005 ~ 1:35 p.m., Dan Mitchell Wrote: One of the more dangerous fads in Supreme Court jurisprudence of late is something called "international law," in which American laws are
measured not just against the Constitution but against the laws of foreign countries. The purpose is to put the U.S. law in what supporters
delicately call a "global context." What they really mean is that they can't persuade enough Americans of their views to change U.S. law so
they want to persuade judges to do it for them. Among the most ardent supporters of this view are opponents (here and abroad) of the death penalty, who argue that capital punishment violates international
norms. ...Which brings us to Medellin v. Dretke, a death penalty-related case that the Supreme Court will hear next month and which has the
potential to catapult the concept of international law to a new level of acceptability in American courts. At issue is whether an order issued by
the International Court of Justice at The Hague must be enforced by a court in Texas. That is, the "supreme" court of the United States would
reside in the Netherlands, not the District of Columbia. ...Letting the ICJ tell Texas how to run its courts would move the U.S. in the direction of the European Union, which has a supernational legal
system to which national courts must bow. Not far down the line would be an ICJ ruling declaring the death penalty illegal and ordering Texas
to get rid of capital punishment. ...there's a battle royale between the State Department, which doesn't want to upset Europeans who support
the ICJ (and hate the death penalty), and the Solicitor General's office, which understands the legal principles at stake. At the ICJ, the Bush Administration argued that Mexico's demand would be an
"unwarranted intrusion" on U.S. sovereignty. That's still the correct position.
Saturday, February 26, 2005 ~ 11:56 a.m., Andrew Quinlan Wrote: A consumer group sued the federal government Thursday, saying that salt is killing tens of thousands of Americans and that regulators have
done too little to control salt in food. Despite advisories to take it easy on sodium, Americans are now consuming about 4,000 milligrams a day -- nearly double the recommended limit to keep blood pressure under
control, the Center for Science in the Public Interest said. So the CSPI renewed a lawsuit first filed in 1983 to ask federal courts to force the Food and Drug Administration to declare sodium a food additive
instead of categorizing it as "generally recognized as safe." This would give the agency the authority to set limits for salt in foods.
Friday, February 25, 2005 ~ 12:19 p.m., Dan Mitchell Wrote: I complimented the Prime Minister on putting policies in place that have helped this economy grow. The most important responsibility we have
at home is to make sure our people can find work. And the President put a flat tax in place; he simplified his tax code, which has helped to attract capital and create economic vitality and growth. I really
congratulate you and your government for making wise decisions. Slovakia is a great example of what can happen when people are set free. And this is an exciting place to be. Link to this Blog Entry
Friday, February 25, 2005 ~ 12:05 p.m., Andrew Quinlan Wrote: Some corporations have chief executive officers who double as the corporations' chief appeasement officers. A CEO/CAO will do nearly
anything to befriend anti-capitalist forces, and J.P. Morgan Chase is seen as a soft target. Maybe that's why the Rainforest Action Network, an eco-activist group, transported Fairfield County, Connecticut
second-graders to New York City in an attempt to pressure J.P. Morgan Chase CEO William B. Harrison into agreeing to stop lending money to
development projects that "cause global warming." ...Do corporations have social responsibility? Yes. Nobel Laureate Professor Milton
Friedman put it best in 1970 when he said that in a free society "there is one and only one social responsibility of business -- to use its resources
and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and
free competition without deception or fraud." Only people, not businesses, have responsibilities. A CEO is an employee. He's an employee of shareholders and customers. When the corporate executive
community fails to recognize that fact and engages in activities unrelated to the pursuit of profits, lower national wealth, higher product prices, and lower return on investment are the result.
Corporate executives caving in to anti-capitalists' attacks will not buy peace. Capitulation only whets anti-capitalist appetites for bigger, bolder and more widespread attacks and extortion.
Friday, February 25, 2005 ~ 11:22 a.m., Dan Mitchell Wrote: The Russian government is considering a number of tax cuts that could reduce the country's overall tax burden by an estimated RUB500 billion
(US$17 billion), it has been reported. ...One of the options reportedly under examination by the Finance Ministry is a reduction in value added tax from the current rate of 18%. Under the possible change,
VAT could be either cut to between 13% and 15%, or reduced to a flat rate of 16%, with preferential rates of 10% to 12%. Ministry officials are also said to be considering a cut in profits tax to 20% from 24%.
Friday, February 25, 2005 ~ 10:33 a.m., Dan Mitchell Wrote: ...we need a safety net, the current view seems to go; but we don't need a Europe-style welfare state. What's called for is the traditional
American "opportunity society," as much a boon to the poor as to everyone else. ...Taken together, compassionate conservatism's elements added up to a sweeping rejection of liberal orthodoxy about
how to help the poor, which a half century's worth of experience had discredited. If you want to help the poor, compassionate conservatives argued, liberate them from dependency through welfare reform; free
their communities from criminal anarchy through activist policing; give them the education they need to succeed in a modern economy by holding their schools accountable; and let them enjoy the rewards of
work by taxing their modest wages lightly--or not at all. ...legislation that boosted welfare benefits and established other programs for the
poor, including Medicaid--created its own form of depression, as women long dependent on welfare became so convinced of their own inferiority that they could hardly present themselves without trembling at a job
interview. And, as a far worse psychological consequence, the sense of victimization and of entitlement to government support that the War on Poverty fostered created a corrosive self-pity and resentment among
the children of its beneficiaries, and their children's children. The self-pity led to drink and drugs; the resentment to crime and violence;
and both together to a perpetuation of irresponsibility, dysfunction, and failure over the generations. ...The failure of the European model,
explicitly based on the belief that free-market capitalism is dangerous and needs to be tied down with a thousand trammels, like Gulliver, is
one of the signal facts of our era, along with the failure of communism. In Europe, the idea that capitalism creates a permanently jobless class
has become a self-fulfilling prophecy, as strict regulation and the high taxes needed to pay lavish welfare and unemployment benefits have resulted in half the U.S. rate of job creation, twice the rate of
unemployment, and thus little opportunity.
Friday, February 25, 2005 ~ 8:19 a.m., Dan Mitchell Wrote: The Belgian government was expected on Thursday to admit that a controversial 'foreign tax dodge' law had raked in just half the amount
it had predicted. The tax amnesty, introduced last January, gave people a year to declare earnings hidden abroad in return for paying a lenient
tax rate on them of between 6-9 percent. ...At the start of 2004, the government said it expected around EUR 850 million to be legalised under the One-Time Voluntary Declaration scheme, but had to rapidly
downscale its expectations when little overseas cash was declared in the first few months of the amnesty. On Thursday, the media estimated that
Finance Minister Dider Reynders would announce a final haul of around EUR 400 million. |
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Thursday, February 24, 2005 ~ 1:02 p.m., Dan Mitchell Wrote: Medicaid was established in 1965 with the worthy aim of providing medical care for the poor; it was never intended as a middle-class entitlement or as inheritance protection
for the children of well-off seniors. Yet the latter is precisely what has happened -- to the point that sheltering assets and income to qualify for Medicaid is now as routine as writing a will. If you don't
believe us, Google "Medicaid estate planning" on the Web and see what pops up. There's a whole "elderlaw" industry out there dedicated to the children of seniors who want to make sure that
other taxpayers, not they, pay for nursing-home care via Medicaid should mom or dad ever need it. As one advertiser puts it, "You can qualify for Medicaid while preserving most assets & savings!"
Such "asset-shifting" may be morally questionable, but in most cases it is entirely legal. Anyone can give away most of his assets and three years later become eligible for Medicaid with no questions
asked. Or, since a home, business and car of unlimited value are excluded from the calculation of assets, someone who wishes to qualify for Medicaid may shield his money by remodeling his house, investing in the
family business, or purchasing expensive cars that he then gives away to family members (the notorious "two Mercedes rule"). ...Long-term care accounts for about one-third of federal and state
expenditures on Medicaid, to the tune of $100 billion this year. It is the biggest driver of skyrocketing Medicaid costs that are bankrupting many states and localities. Medicaid was created 40 years ago to care
for the needy. The rest of us have an obligation to pay for our own care -- or to protect our wealth with private insurance. Link to this Blog Entry
Thursday, February 24, 2005 ~ 12:35 p.m., Andrew Quinlan Wrote: Vital to any Ponzi scheme, like Social Security, is the ability to recruit as many suckers as possible. In 1999, a little noticed part of President
Clinton's plan to "save" Social Security was to force 5 million previously exempted employees into Social Security. If they were forced
into Social Security, it would have created billions in additional revenue. Guess what. Twelve senators, including five Democrats -- Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.), Christopher
Dodd (D-Conn.), Richard Durbin (D-Ill.) and Edward Kennedy (D-Mass.) -- descended on the White House to demand that President Clinton not support forcing 5 million of their constituents into Social
Security. They warned of the adverse impact on employees in terms of lower rates of return and lost flexibility. Isn't that great? These are the
same politicians who are now resisting President Bush's call to allow Americans to take a part of their Social Security taxes to put into private retirement accounts. If they'd go to bat for those 5 million
workers to remain out of Social Security, to avoid the adverse impact of lower rates of return and lost flexibility, why would they fight to deny
tens of millions of workers a right to use a portion of their taxes to do the same?
Thursday, February 24, 2005 ~ 11:15 a.m., Dan Mitchell Wrote: [IMF] Directors stressed that broadening the tax base and stabilizing revenues remains a key policy priority. They considered a goods and
services tax (GST) as an appropriate instrument for improving the efficiency of the tax regime... Directors welcomed the authorities' plans to engage in extensive public consultations in order to build consensus
on the introduction of a GST.
Thursday, February 24, 2005 ~ 10:00 a.m., Andrew Quinlan Wrote: Liberal lobbyists inside and outside PBS, including the Times editorial page, are once again trying to convince the Congress to allow them to
create a massive $5 billion endowment so they may achieve "financial independence." When PBS stations go digital, requiring less space on
the broadcast spectrum, they want to sell their surplus spectrum and keep the profits. Fiscal conservatives should insist that PBS stations should return any proceeds from spectrum sales directly to the U.S.
taxpayers, who massively subsidized the network in the first place. ...Creating a PBS endowment was a terrible idea 10 years ago, and it still is. We need a public broadcasting system that is held more
accountable to the taxpayers who fund it, not less. An endowment would only make PBS more insular, and the PBS bureaucracy is already as insular as the Harvard faculty lounge.
Wednesday, February 23, 2005 ~ 12:13 p.m., Dan Mitchell Wrote: Financial markets took a header yesterday, as gold and oil rose while the dollar and stocks fell. The Dow dipped by 174 points, or 1.6%. Our
interpretation is that many investors are awaking to the fact that the Federal Reserve's march back up to positive interest-rate territory isn't
a free lunch. ...it didn't help to hear President Bush suggesting last week that marginal-rate tax increases are on the table as part of Social Security horse-trading. Even though GOP leaders in Congress quickly
said no such thing would happen, the disagreement suggests Republican disarray on what has been a core economic policy conviction. Just as
Mr. Greenspan is raising rates to head off any inflation is precisely the wrong time to hit the economy with the double whammy of a tax hike. Link to this Blog Entry
Wednesday, February 23, 2005 ~ 11:50 a.m., Dan Mitchell Wrote: Raising Social Security taxes today will not leave a dime more to pay pensions to future retirees. Right now there is more money coming into
the system than is going out -- and the difference gets spent on other things. Higher taxes now would mean a bigger excess to be spent on other things, leaving nothing more for the future. Time and again, over
the centuries, price controls have produced three things: shortages, quality deterioration and black markets. Why would anyone want any of
those things with pharmaceutical drugs? What "eminent domain" laws mean in practice is that politicians have a right to seize your property and turn it over to someone else, in order to gain campaign
contributions and win votes. ...If the government gave a $5,000 subsidy to anyone who buys an automobile, do you doubt that the price of automobiles would go up -- perhaps by $5,000? Why then does no one
see any connection between government subsidies to college students and rising tuition? People who oppose the privatization of Social Security call it "a risky scheme." But is anything more risky than
turning money over to politicians and hoping that they won't spend it before you retire? They have been spending the "trust fund" for decades.
Wednesday, February 23, 2005 ~ 11:04 a.m., Andrew Quinlan Wrote: A little over two centuries ago, a small group of planters, landowners, merchants, and lawyers met in Philadelphia to decide how their new
country was to be run. Within four months this remarkable collection of patriots, veterans, pragmatists, geniuses, oddballs, and the inspired
succeeded in agreeing the extraordinary, beautiful document that, even with its flaws, was to form the basis of the most successful nation in
history. On February 28, 2002, another constitutional convention began its work, in Brussels this time, not Philadelphia. Its task was to draw up
a constitution for the European Union. The gathering in Brussels was chaired by Giscard D'Estaing, no Hamilton or Madison, but a failed, one-term president of France best known for his unseemly involvement
with Jean-Bedel Bokassa, the cannibal "emperor" of central Africa. Giscard's convention was packed with placemen, cronies, creeps, and
has-beens to make up a body where to be called second rate would have been an act of grotesque flattery. ...Once the convention had completed
the draft constitution, there was further haggling over the text by the governments of the EU member states. A final version was agreed in June 2004, and what a sorry, shabby work it is, an unreadable
mish-mash of political correctness, micromanagement, bureaucratic jargon, artful ambiguity, deliberate obscurity, and stunning banality that somehow limps its way through some 500 pages with highlights
that include "guaranteeing" (Article II-74) a right to "vocational and continuing training," "respect" (Article II-85) for the "rights of the
elderly... to participate in social and cultural life," and the information (Article III-121) that "animals are sentient beings." On the status of
spiders, beetles, and lice there is, unusually, only silence. ...And it is at this point that, rather surprisingly, the Bush administration has come
into the picture. Speaking a few days ago to the Financial Times, Condoleezza Rice appeared, weirdly, to give the constitution some form of endorsement: "As Europe unifies further and has a common foreign
policy - I understand what is going to happen with the constitution and that there will be unification, in effect, under a foreign minister - I think
that also will be a very good development. We have to keep reminding everybody that there is not any conflict between a European identity
and a transatlantic identity..." ...How can I put this nicely? Well, there is no way to put it nicely. Even allowing for the necessity to come out with
diplomatically ingratiating remarks ahead of a major presidential visit to the EU, the comments from Bush and Rice are either delightfully insincere or dismayingly naïve. The project of a federal EU has long
been driven, at least in part, by a profound, and remarkably virulent anti-Americanism, with deep roots in Vichy-era disdain for the sinister
"Anglo-Saxons" and their supposedly greedy and degenerate culture. Throw in the poisonous legacy of soixante-huitard radicalism, then add
Europe's traditional suspicion of the free market, and it's easy to see how relations between Brussels and Washington were always going to be troubled. What's more, the creation of a large and powerful fortress
Europe offered its politicians something else, the chance to return to the fun and games of great power politics. ...as it represents another step
forward in the deeper integration of the EU, the ratification of the constitution cannot possibly, whatever Secretary Rice might say, be good news for the U.S. How deep this integration will be remains a
matter of dispute. In Euro-skeptic Britain, Tony Blair's government has denied that the document has much significance at all, but without much success. Link to this Blog Entry
Wednesday, February 23, 2005 ~ 9:39 a.m., Dan Mitchell Wrote: European Union Finance Ministers on Thursday called on the EC to put forward a plan for introducing an air travel tax in order to fund
development revenue for third world countries. EU member states such as France, Germany and Luxembourg have expressed their support for either a tax on airline tickets or a levy on aviation fuel (which is
currently exempt from tax), as a way to raise additional development aid. However such proposals have caused division within the 25 member EU, and at Thursday's ECOFIN meeting 10 countries,
including Greece and Spain, expressed reservations regarding the plan.
Tuesday, February 22, 2005 ~ 11:02 a.m., Dan Mitchell Wrote: In 1982, the independent McCaw Committee was appointed to review the New Zealand tax system. The main conclusions outlined in the Committee were that the New Zealand's loophole-ridden, high-rate tax system needed a major overhaul. The Review then made a series of recommendations that, together, constituted a call for a very Reaganesque tax reform. The driving idea was to create a simple and transparent tax system, where tax rates are lower and apply more consistently in practice. The aim was a more efficient tax system that would lead to decisions made on their economic merits rather than on the pursuit of tax advantages. Surprisingly, later governments, especially the 1984 elected labor government, adopted most of the review's recommendations. As a result, New Zealand's tax system was dramatic transformed. Combined with other reforms such as trade liberalization and elimination of agricultural subsidies, the New Zealand economy boomed. Reviewing the tax reform, NZ shifted its income tax towards a simpler and flatter structure using a broad-base, low-rate principle. The top marginal personal income tax rate was reduced from 66 percent to 33 percent. The tax base was extended and most loopholes removed to reduce complexity and compliance costs to a minimum. In that spirit, many innovations were introduced such as the low rate Fringe Benefit Tax applied to non-cash income. The NZ tax base is broad by international standards but avoids double-taxing certain types of income. There is, for instance, no second layer of tax on capital gains. The absence of capital gains tax is consistent with New Zealand's move towards a consumption-type tax, like the flat tax, which doesn't tax capital gains at all. New Zealand also lowered the top corporate marginal tax rate from 45 percent to 33 percent. The alignment of the corporate and individual tax rate along with the full integration of dividend income meant a simple tax system with no double-taxation of corporate income. ... On the budget side, New Zealand also made impressive progress in the battle to control the size of government. According to OECD data, the
level of government spending has fallen from about 53 percent of GDP in 1987 to 39 percent of GDP in 2005. The current level of government spending is still too high but the decline is nevertheless impressive.
Finally, the country got rid of inflation, and privatized large public companies. The results were astonishing. Unemployment dropped and the deficit disappeared. ...Notwithstanding a bit of back-sliding, New
Zealand remains a great success story. New Zealanders have again proved that simplification of the tax code and large rate cuts trigger strong economic growth. More importantly, it proves that if the political
will to cut rates is not quite there yet, having a clean tax system can compensate and help sustain economic growth.
Tuesday, February 22, 2005 ~ 10:48 a.m., Andrew Quinlan Wrote: In his first term, Mr. Bush enacted some of the most fiscally reckless budgets in a quarter-century. The budget grew twice as fast as under
Bill Clinton. The first-term Bush administration rhetoric of Reaganite tight-fistedness never caught up with the reality of the fiscal meltdown in Washington. Bloated Bush budgets, only padded with more grease
and fat by Congress, created spending growth unmatched by any president since Lyndon B. Johnson, and a soaring $400 billion deficit. ...this new budget is a departure from his first-term budget bloat. If Mr.
Bush sticks to his guns, federal domestic outlays will grow more slowly than at any time since the mid-1990s. ...This is not to say there aren't
disappointments in spending and priorities. ...These include $260 million for coal research subsidies, $28 billion more for college student aid, $300 million more for the NASA Mars project, and $1.5 billion for
high-school aid. The foreign aid budget would rise by 22 percent under what the White House calls its "leanest budget yet." Thanks to all the
new school initiatives, the Education Department budget will now approach $100 billion - twice its 1995 spending. ...The key to the Bush budget is enforcement and a steely commitment to holding Congress to
these spending totals - and not a dime more. Mr. Bush needs to defend this budget with a sharpened budget veto knife. Otherwise, the budget proposal isn't worth the 892 pages it's printed on.
Tuesday, February 22, 2005 ~ 9:41 a.m., Dan Mitchell Wrote: From Erie County, New York, home to the city of Buffalo, comes a useful lesson in what can happen when local governments get caught in
a spiral of ever-higher spending and taxes. Voters finally said, "enough!" last week and demanded that the legislature balance the $1
billion county budget by cutting spending rather than raising taxes one more time. The breaking point was a proposal that would have increased the county's already exorbitant sales tax by a full percentage
point to 9.25%. How that would have been good for business in a slow-growth region whose biggest difficulty in attracting investment is its location in high-tax New York state is anyone's guess. The legislature
was gearing up to do just that in December when angry voters launched a grassroots campaign demanding an end instead to patronage jobs and pork-barrel spending. Pro-tax legislators -- led by Republican County
Executive Joel Giambra -- issued dire warnings about cuts in services should the tax increase not pass. But even the threat of reductions in snow-plowing -- no minor matter in February in Buffalo -- wasn't
enough to persuade fed-up voters.
Tuesday, February 22, 2005 ~ 7:58 a.m., Andrew Quinlan Wrote: Sobbing 31-stone Chris Leppard was dragged off to a mental hospital against his will by meddling social workers and police. Chris, 23, has
been forcibly detained for a month because he cannot stop eating. The authorities used powers normally used to detain mentally ill people who might harm themselves or others. They locked him up despite the fact
neither he nor his family wanted him to go. Last night Chris's furious mother Anne said he has no mental problems and was winning his fight against the rare illness that compels him to eat. Chris's case was
condemned by opponents of a nanny state. They asked whether others with life-threatening addictions could be next. ...Shadow Health Minister Tim Loughton was outraged. He said: "It's a taste of things to
come if the Government's draft Mental Health Act becomes law. It will subject people who are not strictly suffering from mental illness, to
sectioning." Angry Libertarian Alliance spokesman Dr Sean Gabb said: "What on earth justifies the intervention of the police and compels him to have medical treatment?"
Tuesday, February 22, 2005 ~ 7:11 a.m., Dan Mitchell Wrote: Privatizing Social Security, or part of it, is a great idea for many reasons -- not least that it would be a much better deal for future
generations, as Federal Reserve chairman Alan Greenspan said last week. But much will depend on the price President Bush is forced to pay
for achieving his goal -- and, if I'm not mistaken, he just blinked. Maybe it was just a teenie-weenie blink, but there it was on the front pages late
last week. In an interview with some regional newspapers, the president "left the door open" -- in the all-too-happy words of the liberal New
York Times -- to raising the cap on earnings subject to the Social Security tax. Mr. Bush rushed to add he was dead-set against raising the Social Security tax rate itself, but that's a distinction without much
difference. If wages subject to the tax are raised from the current $90,000 to, say, $100,000 or $120,000, it would entail a higher out-of-pocket cost to many working families. Read my lips: That's a tax
increase. This George Bush is clearly made of sterner stuff than the father. ....But offering up concessions even before he has unveiled the specifics of his plan is dubious strategy. It places the president in
negotiations with himself. There are lots of other, even more important, issues swirling around Social Security reform, including the nature of
the personal accounts themselves. Will they be truly private? Or will they be vessels for ever-deeper intrusion by government into the mighty American capital markets? ...privatization backers -- Mr. Bush's
preference for the term "personal accounts" is telling in itself -- should be careful what they wish for. They might get it, but only at the price of
bells, whistles and taxes that over time produce the very socialization of capital markets they have worried about. And the partial privatization
Mr. Bush advocates could lead to the worst of both worlds -- personal accounts so heavily regulated they offer little return, while the doddering old Social Security System continues on permanent life support.
Monday, February 21, 2005 ~ 11:13 a.m., Andrew Quinlan Wrote: Bush clearly stated after last November's election that his visionary Social Security reform plan to include personal savings accounts would
not countenance payroll-tax increases. Just this week he undercut that position when he said an increase in the payroll-tax cap - now $90,000 -
would be "on the table" in forthcoming negotiations with Congress. White House spokespeople have tried to suggest that an increase in the
payroll-tax cap is not a new tax, and that only a rise in the payroll-tax rate would constitute a tax hike. This is nothing but doublespeak. The
American public will see it for what it is. ...Why has Bush 43 moved into this fudge-factor trial-balloon zone? It is a politically dangerous space.
His proposal could also have highly negative economic consequences. When John Kerry floated a payroll-tax cap increase during the last election campaign, esteemed Harvard professor Martin Feldstein
calculated that a family making $110,000 a year would face a tax increase of more than $2,700, essentially a 20 percent hike. According to Americans for Tax Reform, a new tax cap of $150,000 would
increase the combined employer-employee tax burden by roughly $7,400. The Heritage Foundation estimates that raising the cap would directly increase taxes for 7 million middle-class families. Wall Street
economist Michael Darda has also turned in some startling numbers. Eliminating the $90,000 ceiling on payroll taxes would boost the top marginal income-tax rate to 47.6 percent from 35 percent. Darda
estimates that after-tax returns on marginal work effort would fall from 65 cents to 52.4 cents on the extra dollar earned, a 20 percent decline.
...Fortunately, House Majority Leader Tom Delay has publicly stated that the lower body will not pass a Social Security tax hike of any kind - including increased marginal tax rates or a higher wage cap. Speaker
Dennis Hastert and Rules Committee chairman David Dryer have indicated the same. They won't touch a John Kerry tax-hike proposal, especially one that will inflict serious economic damage. This is good news.
Monday, February 21, 2005 ~ 10:44 a.m., Dan Mitchell Wrote: The remorseless rise in regulation has become the greatest risk facing the banking sector according to the latest 'Banana Skins' survey
conducted by the CSFI, the independent City of London think tank, and sponsored by PricewaterhouseCoopers. The report finds that regulatory
overkill saps bank resources, reduces risk diversification and creates a false sense of security. ...John Hitchins, UK Banking Leader at PricewaterhouseCoopers, said: "Bankers have thrown down a
challenge against too much prescriptive regulation. Many are worried that it is beginning to stifle innovation and judgement across the industry. While few challenge the objectives of regulators, there is a
clear need for further debate on how these are implemented." The growing burden of domestic and international regulation is the biggest risk facing the world's banks in the coming year as new rules
impose additional costs and create a false sense of security, according to a survey of financial executives. In its annual poll of risks facing
banks, the Centre for the Study of Financial Innovation, the think-tank, found overwhelming agreement that excessive regulation is perceived as the biggest threat to the financial sector. Link to this Blog Entry
Monday, February 21, 2005 ~ 10:29 a.m., Andrew Quinlan Wrote: Singapore yesterday offered new incentives to retain its status as a leading Asian business centre, including cutting its top personal income
tax to 20 per cent by 2007 to attract skilled foreigners and multinational companies. ...Corporate tax remains unchanged at 20 per cent. After last year's reduction from 22 per cent, business had been
hoping for further cuts in the corporate tax rate to bring it closer to Hong Kong's 17.5 per cent. The top income tax rate would gradually
fall from 22 per cent to 20 per cent over the next two years but it would still be above the personal tax rate of 18 per cent in Hong Kong, seen as a main rival to Singapore for foreign investments. Link to this Blog Entry
Monday, February 21, 2005 ~ 9:57 a.m., Dan Mitchell Wrote: Abraham Lincoln would have opposed it to his last breath, but the EU's pioneering "exit clause" might be the best reason to back the draft
constitution. Hidden deep, deep in Valery Giscard d'Estaing's ungainly document -- which faces a long journey to possible ratification, starting
with Spain's referendum this weekend -- EU countries could agree to leave and negotiate a different relationship with the bloc. ...Czech President Vaclav Klaus, that curmudgeonly euroskeptic, should not
have refused to sign the treaty but instead run to Rome for the ceremony. Article I-60 could be the best way to save his cherished nation state and stop the rise of supranational government.
Monday, February 21, 2005 ~ 9:18 a.m., Dan Mitchell Wrote: State and local government workers enjoy generous health plans when compared to private industry workers. According to the Bureau of
Labor Statistics, the proportion of compensation spent on health benefits was 50 percent greater among state and local government workers compared to those in private sector. In fact, the average cost
of health benefits per hour is more than double that of workers in the private industry. For example: The average cost of health benefits per hour of compensation for all state and local government workers was
$3.38 in 2004. ...By comparison, the average hourly cost of health benefits for private industry workers was only $1.54.
Sunday, February 20, 2005 ~ 12:19 p.m., Andrew Quinlan Wrote: During her confirmation hearings, Secretary of State Condoleezza Rice was asked a question that got lost in the Barbara Boxer brouhaha: Did
the administration favor the ratification of the Law of the Sea Treaty, or LOST? Rice said the administration "would certainly like to see it
pass as soon as possible." Assuming she was authorized to say that by President Bush, who courageously "unsigned" the treaty creating the
International Criminal Court because it would infringe on U.S. sovereignty and rights of American citizens, the question is why? ...The Convention on the Law of the Sea would do to our maritime activities --
military and economic -- what the ICC would have done to our system of criminal justice: place it under the thumb of a supranational body, in
this case the discredited and corrupt U.N. ...LOST would also crimp our use of naval power. Signatory Communist China contends, for example, that the treaty bans an initiative under which we can stop and search
ships on the high seas suspected of transporting WMD on behalf of terrorists. Who'd decide such a dispute? An international court, of course, specifically a Law of the Sea Tribunal with power to compel
changes in our military and economic policies. The likes of Sierra Leone and Sri Lanka would have a veto over our use of the seas. When John
Kerry declared that U.S. actions be subjected to a "global test," Bush rightly responded that our national security was too important to be left
to bodies such as the United Nations Security Council. So why the administration support for LOST? Deep-six this treaty, Mr. President. Link to this Blog Entry
Sunday, February 20, 2005 ~ 11:49 a.m., Dan Mitchell Wrote: Congress has tried before to tamper with the subsidy to federally funded radio. The attempt stands as one of the signature failures of the fabled
Republican-revolution-that-wasn't, away back there in the dreamy days following the election of 1994. "If the Corporation for Public Broadcasting still exists in two years," Newt Gingrich said then,
referring to the government agency that funds public radio, "then we will have failed." Ten years later, Gingrich is gone but NPR survives, as
one further indication of who really wears the pants in the great big family that is the federal government. A chief reason for the failure was
the bureaucratic flow chart of public radio--a system of funding that would have puzzled Rube Goldberg. National Public Radio itself receives no direct subsidy from CPB; the money is instead laundered
through local stations, who return the money to NPR in payment for the programs it produces. The intricacies and indirections of the system might lead a skeptic to think they were designed precisely to frustrate
any congressional attempt at privatization. But as our friends in the White House constantly remind us, we live in a transformational era--a time for trying the impossible. And public radio's continued success,
measured in purely commercial terms, provides an excellent justification for removing the subsidy. Already the country is awash in news and talk and "informational programming." Is it fair to those
commercial broadcast companies--who really are forced by the market to draw large audiences--to compete with government-subsidized stations aiming to fill the same market demand? Most public radio
programmers are happy to boast of their success. Indeed, if you pump them with enough Chablis, they will even acknowledge that their strategy of eliminating arts programming has been so successful, and
revenues to NPR's member stations have risen so high, that the $80 million in federal money is probably no longer essential to the system's survival.
Sunday, February 20, 2005 ~ 9:15 a.m., Dan Mitchell Wrote: President Bush's fiscal 2006 budget is being widely derided in the media and across the political landscape. The newswires are alive with
dramatic claims of "deep cuts" and "scores" of programs being axed. The New York Times has taken umbrage with what it refers to as "the
cruelest cuts." The Washington Post labeled proposed cuts "draconian" and counseled lawmakers to "remember the poor." All lament the
president's "tax cuts for the rich" and obsess over the deficit. ...The fact is that this administration has presided over federal budget growth
unseen since the days of Lyndon Johnson. Since Mr. Bush came into office four years ago, the federal budget has grown 33 percent, and will begin approaching 40 percent next year. Although Congress deserves
much of the blame for promoting this rampant largesse, the president has yet to veto a single bill and has rarely made a serious effort to limit
spending, let alone cut it. ...This latest budget may be a step in the right direction, but a much stronger stance against runaway entitlement spending is required. While the president is to be applauded for his
willingness to address Social Security, Medicare remains the biggest long-term budget liability. Last week's news that the Medicare prescription drug benefit is projected to cost taxpayers an astounding
$724 billion over the next 10 years proves that its creation was a mistake that needs quick correcting. But instead of reaching out to folks on the Hill like Rep. Mike Pence, Indiana Republican, and Sen. Judd
Gregg, New Hampshire Republican, who have publicly entertained the possibility of scaling back the drug add-on, the president immediately threatened to veto any such attempts to do so.
Saturday, February 19, 2005 ~ 10:09 a.m., Dan Mitchell Wrote: The Social Security system has no trust fund. No lock box. When you pay your payroll tax every year, the money is not converted into gold
bars and shipped to some desert island, ready for retrieval when you turn 65. The system is pay-as-you-go. The money goes to support that year's Social Security recipients. What's left over is ``loaned'' to the
federal Treasury. And gets entirely spent. It vanishes. In return, a piece of paper gets deposited in a vault in West Virginia saying that the left hand of the government owes money to the right hand of the
government. These pieces of paper might be useful for rolling cigars. They will not fund your retirement. Your Leisure World greens fees will be coming from the payroll taxes of young people during the years you
grow old. ...2042 is a fiction. The really important date is 2018. That is when this pay-as-you-go system starts paying out more (in Social Security benefits) than goes in (in payroll taxes). Right now, workers
pay more in than old folks take out. But because the population is aging, in 13 years the system begins to go into the red. To cover retiree benefits, the government will have to exhaust all of its FICA tax
revenue and come up with the rest -- by borrowing on the world market, raising taxes or cutting other government programs. Link to this Blog Entry
Saturday, February 19, 2005 ~ 9:20 a.m., Dan Mitchell Wrote: Cuts in Washington usually mean lowering the projected increases. Take, for example, NASA, the U.S. Space Agency. The president
proposes $16.45 billion for NASA in 2006. That's a 2.4 percent increase over what the government is spending this year on the program. But it
is $500 million less than what the space agency was expecting for 2006. So, NASA is listed as one of the 154 programs facing extinction or
"drastic spending reductions." Only in Washington does a decrease in the proposed increase equal a spending cut. ...did the Founding Fathers
ever intend for the federal government to involve itself in education, health care or retirement benefits? The answer, quite clearly, is no. The
Constitution, in Article I, Section 8 -- which contains the "general welfare clause" -- seeks to restrain federal government, not expand it.
Section 8 begins, "The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for
the common Defense and general Welfare of the United States," and then goes on to specify these powers. Does this allow the federal government to do anything it wants to promote the general welfare?
Not according to Founding Father James Madison, also known as the father of the Constitution. When Congress appropriated $15,000 to assist French refugees in 1792, Madison wrote, "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." About the general welfare clause, Madison said, "With respect to the words general welfare, I have always regarded them as
qualified by the detail of powers (enumerated in the Constitution) connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which
there is a host of proofs was not contemplated by its creators." ...For a look at the damage done by a welfare state, turn to Europe. The European Union's double-digit unemployment and lower productivity
result from Europe's cradle-to-the-grave, the-state-owes-me, there-is-such-a-thing-as-a-free-lunch welfare state. In 2003, President Vaclav Klaus of the Czech Republic -- then a candidate for European
Union membership -- said Europeans have yet to realize "they are not moving toward some sort of nirvana. . . . [T]hey are still in the dream world of welfare, long vacations, guaranteed high pensions and
cradle-to-grave social security. . . . The enemies of free societies today are those who want to burden us down again with layer upon layer of
regulations. We had that in communist times. But now if you look at all the new rules and regulations of EU membership, layered bureaucracy is staging a comeback." Link to this Blog Entry
Saturday, February 19, 2005 ~ 8:49 a.m., Dan Mitchell Wrote: Republicans swept to power in Congress 10 years ago championing state prerogatives, and one of their first acts was to repeal federal
speed-limit requirements. Another was aimed at ending unfunded state mandates. So last week's House vote to require costly and intrusive federal standards for state drivers' licenses is a measure of how far the
party has strayed from these federalist principles. ...Aside from the privacy implications of this show-us-your-papers Sensenbrenner approach, and the fact that governors, state legislatures and motor
vehicle departments have denounced the bill as expensive and burdensome, there's another reality: Even if the Real ID Act had been in place prior to 9/11, it's unlikely that the license provisions would have
prevented the attacks. That's because all of the hijackers entered the U.S. legally, which means they qualified for drivers' licenses. The Real
ID Act wouldn't change that. Moreover, you don't need a driver's license to fly. Other forms of identification -- such as a passport -- are acceptable and also were available to the hijackers. Nothing in the
Sensenbrenner bill would change that, either.
Saturday, February 19, 2005 ~ 7:16 a.m., Andrew Quinlan Wrote: The debate about taxing airline fuel has sprung back into life, thanks to the German government. The money could be used for development
assistance, they say. Actually, it could be used to do much more than that. ...Furthermore, a tax on airline fuel would also be socially progressive, falling most on those who can afford to pay most, the
richer people who fly frequently. The sums involved are substantial: billions of euros a year. ...It is not really possible for a country in Europe to introduce such a tax unilaterally. For example, if the UK
were to introduce some kind of taxation on airline fuel on its own, it would place its own airline industry at a competitive disadvantage. Intercontinental flights would switch from Heathrow or Gatwick to
Charles de Gaulle or Schiphol. There would be no overall environmental benefit from this, only the loss of jobs from the UK. Link to this Blog Entry
Friday, February 18, 2005 ~ 2:19 p.m., Andrew Quinlan Wrote Not that his ``lean'' (his adjective) and ``austere'' (John McCain's) $2.57 trillion budget is anything of the sort. It proposes spending 38 percent
more than the government was spending when Bush became president. It would slice off only thin slivers here and there: remember, entitlements and interest are two-thirds of the budget and discretionary
domestic spending is just 17 percent. It calls for a 3.6 percent increase over last year's spending total. Discretionary spending unrelated to
security is slated to decrease only 0.7 percent. The net cut of 1 percent of the Education Department's budget is a mere nick to a budget that
has grown 40 percent under Bush. ...Today's president, the first since John Quincy Adams to serve a full term without vetoing anything, last week announced the limit of his tolerance: He vowed to veto a spending
decrease. That is the unmistakable meaning of his statement that he would brook no changes in his prescription drug entitlement that by itself has an unfunded liability twice as large as the entire Social
Security deficit.
Friday, February 18, 2005 ~ 2:06 p.m., Dan Mitchell Wrote: President Bush deserves credit for devoting his prestige to trying to fix a Social Security funding shortfall that some President and Congress
will have to deal with sooner or later. But we sure wish he and his Republican colleagues weren't making such a hash of the politics. Consider this week, when everyone knew the big news was going to be
Alan Greenspan's Congressional testimony. Few Americans are such recognized authorities on Social Security as the Fed Chairman, who crafted the bipartisan 1983 fixes that gave us the tax and benefit mix
we have today. So Mr. Greenspan's endorsement Wednesday of private accounts ought to have been the undiluted Social Security headline of the week. ...Instead, somebody decided the President should interfere
with that message by giving interviews suggesting his openness to a payroll tax increase to finance any reform. "The one thing I'm not open-minded about is raising the payroll tax rate," he told one
newspaper. Asked specifically about raising the cap on the amount of earnings subject to the tax -- currently $90,000 -- Mr. Bush replied he
was interested in any "good ideas." ...As a political matter, we might be able to understand the need to raise the cap modestly at the end of
negotiations to close a deal with Democrats. But by putting a cap increase on the table now -- by negotiating with himself -- Mr. Bush has all but guaranteed that Democrats will stage a tax-cap auction in
exchange for their votes. Nebraska's Ben Nelson might be available for $100,000, but North Dakota's Kent Conrad isn't the liberal we've come to know if he doesn't demand $200,000, or lifting the limit altogether
(as it has already been lifted for Medicare's 2.9% payroll tax). An income of $90,000 -- even $150,000 -- is hardly rich if you're trying to
raise a family in many areas of this country. Lifting the cap amounts to a whopping 12.4-percentage-point marginal tax rate increase on middle-class households, as well as on small-business owners who don't
even get to enjoy the fiction that their employer is paying half. These are some of America's most productive people, and, by the way, they tend to vote Republican.
Friday, February 18, 2005 ~ 1:56 p.m., Andrew Quinlan Wrote: President Bush's tax cuts routinely come in for a whipping from Europe, Japan and former Treasury Secretary Robert Rubin, but maybe they all
should think again. The U.S. economy continues its healthy expansion, while Germany and Japan announced yesterday that they spent the last portion of last year essentially in recession. ...The current growth
continues the expansion that gained steam in mid-2003 as the second round of Bush tax cuts were passed. These were the tax cuts that
accelerated the marginal rate income tax reductions on "the rich" and that also targeted capital investment through reductions in capital gains
and dividend tax rates. Some people suggested at the time that these would spur growth, while others (we won't name names) said they would not. We are experiencing a market test of who was right. ...As
Rand economist Charles Wolf also points out, this global trade and capital imbalance is much worse for the rest of the world than it is for the U.S. Without exports, especially to the U.S., Japan and Germany
would barely be growing at all. If the U.S. economy slows again, their economies are in real trouble because they generate too little home-grown investment opportunity. U.S. prosperity, by contrast, is not
as dependent on the kindness of strangers.
Friday, February 18, 2005 ~ 12:21 p.m., Dan Mitchell Wrote: The latest winner-cum-loser is the airline passenger, particularly patrons of low-fare carriers, by way of the new EU laws on
overbooking and scheduling delays that took effect yesterday. Forcing airlines to compensate travelers denied boarding on overbooked flights and give free meals to those who experience lengthy delays may sound
like a swell idea to consumer groups who hear the complaints of the affected few. But in the real world, those government-imposed costs -- just like taxes and other forms of regulation -- are passed along to
consumers. ...The airlines most likely to be hurt are low-fare carriers. "Bumped" passengers are due anywhere from EUR150 to EUR600, depending on the length of the flight they miss, but even the lower
figure is three to four times the average fares on Ryanair, Air Berlin and other low-fare airlines. In the U.S., by contrast, airlines can mostly decide on their own the best way to reimburse delayed or bumped
passengers. Airlines who want to avoid any brush with bankruptcy will be smart enough to keep their customers happy. ...The number the Commission likes to throw around is the 250,000 ticketed passengers it
says were denied boarding in 2002. The industry officials weren't able to confirm that number, but Mr. Concil said that, if accurate, it would
represent about 1.1 bumped passengers for every 1,000 who flew. If the EU has solved enough problems that it's now trying to fix things that affect 0.0011% of the public, then things are better than we thought.
But with Brussels unable to resist meddling, that may not be true for much longer.
Friday, February 18, 2005 ~ 11:30 a.m., Dan Mitchell Wrote: The government proceeded to improve Slovakia's microeconomic environment by eliminating unnecessary business regulation. In
recognition of these improvements, the World Bank's "Doing Business in 2005" report declared Slovakia the world's leading reformer and
ranked it among the top 20 countries with the best business conditions. As a consequence of economic liberalization, Slovak macroeconomic performance improved as well. Between January 2000 and June 2004,
cumulative foreign direct investment to Slovakia rose five-fold. The list of foreign investors included a number of American blue chips such as Citibank, Ford, Motorola, U.S. Steel and Whirpool. Economic growth
accelerated to 4.9% last year from a low of 1.5% in 1999. According to the Ministry of Labor, the Slovak unemployment rate fell from 19.8% in January 2001 to 13.1% in December 2004. In addition, Slovak
foreign-policy objectives were met in 2004 when the country joined both NATO and the EU. Steve Forbes, who visited Slovakia in 2003, wrote in Forbes Magazine: "The Slovak Republic is set to become the
world's next Hong Kong or Ireland, i.e., a small place that's an economic powerhouse." But it is Slovakia's reform of its tax and pension systems that may be of particular interest to Mr. Bush. On Jan
1, 2004, Slovakia adopted a 19% flat income and corporate tax rate. The dividend tax and a plethora of tax exemptions were eliminated. The tax reform has resulted in an increase of tax revenues from SK 200
billion in 2003 to SK 209 billion in 2004 -- some 30% above government expectations. This tax reform is part of a regional trend. Flat tax rates
in Estonia, Latvia, Russia and Ukraine have also proved successful. More recently, the flat-tax club grew to include Georgia, Romania and
Serbia. As Alvin Rabushka of the Hoover Institution argues, "President Bush's most effective way to promote tax reform [in the United States]
is to showcase the experiences of Eastern and Central Europe."
Friday, February 18, 2005 ~ 10:19 a.m., Dan Mitchell Wrote: The European Commission is this year set to pump around eight million euro into information campaigns on the EU Constitution. The money
will be allocated according to various factors, including how much citizens know about the EU and how the Constitution will be ratified in a certain member state. The Commission argues that the extra funds
will help national governments to raise awareness of the new treaty among their citizens. ...In what is dubbed a "second wave" of allocation, three million euro is to be distributed among the member
states according to special criteria - whether these criteria are met will be judged by the Commission. ...Member states ratifying the Constitution by popular poll are also expected to receive more from the
common coffers.
Thursday, February 17, 2005 ~ 9:17 a.m., Dan Mitchell Wrote: Governor Arnold Schwarzenegger has called for reforming California's public pension funds for teachers and other public employees. His
radical idea is to . . . treat government retirees like their counterparts in the private sector. Arnold wants to accomplish this by converting the
current defined-benefit systems into 401(k)-style defined-contribution plans. More than 60% of California residents like the idea, according to a recent survey, but it's raising hackles among union officials and
people like Phil Angelides. He's the state Treasurer who manages two giant retirement funds -- the $180 billion California Public Employees Retirement System (Calpers) and the $120 billion California State
Teachers Retirement System -- and this month he launched a national campaign to protect this stupendously rich kitty and the political influence it buys him. ...Mr. Schwarzenegger is asking the state
legislature to amend the constitution to require that government employees hired after 2007 be covered under a defined-contribution plan. Under such an arrangement, the state would match an employee's
contribution up to a specified percentage. This would result in more budget stability because a worker's benefit will never exceed what the system can support. More importantly, it frees California taxpayers
from having to fund annual pension deficits. If lawmakers reject his reforms, the Governor says he'll put the issue to voters later this year in
the form of a ballot initiative. ...In the past decade, more than a dozen states -- including Michigan, Florida, Ohio and Montana -- have begun
offering workers the option of private retirement accounts. And what's driving the trend is no secret. Business Week reports that "the 127
largest state and local plans are $200 billion short of the funds they need to pay beneficiaries," a situation that "has forced some states to
cut services or borrow heavily to pay pensioners." ...Mr. Schwarzenegger's proposal is a way to protect both taxpayers and public-employee retirees from the shenanigans of state politicians --
which explains why those politicians are so desperate to stop him.
Thursday, February 17, 2005 ~ 9:02 a.m., Dan Mitchell Wrote: In 1945 Clement Attlee led the British Labour Party to victory over Winston Churchill's Conservative Party. He then proceeded to socialize
much of the British economy, for he believed that "the creation of a society based on social justice . . . could only be attained by bringing
under public ownership and control the main factors in the economic system." Labour's goal was to get rid of the waste and irrationality that,
in the socialist view, doomed market economies to failure. Fast forward six decades, and you hear an Attlee echo--Sen. Hillary Clinton telling a
California audience last summer that taxes must rise because "We're going to take things away from you on behalf of the common good." American socialist Noam Chomsky made the same argument
concerning Social Security: that allowing people to invest in markets is a bad thing, for "putting people in charge of their own assets breaks
down the solidarity that comes from doing something together, and diminishes the sense that people have responsibility for each other."
...Ultimately the argument isn't about investment accounts, or stocks or bonds or "gambling" or "insecurity." It is about socialism versus
individualism, about Attlee's social justice and Hillary's common good and Chomsky's economic solidarity. AARP CEO William Novelli is in favor of allowing the government to invest Social Security surplus funds
in the stock market, but against allowing individuals to do so--exactly the socialist argument, that government should control the distribution
of the nation's wealth. When you increase an individual's wealth, he becomes less dependent on government, and his attitude towards government changes. Socialists can't allow that, for it erodes their
fundamental principle that social justice can only be achieved when important segments of the economy are under government control.
Thursday, February 17, 2005 ~ 7:45 a.m., Andrew Quinlan Wrote: France is looking to Germany to provide symbolic help ahead of its referendum on the European Constitution in June. According to
German daily FT Deutschland, in order to increase the chances of the country saying yes to the referendum, the German parliament wants to ratify the charter at the beginning of June - just before the French
referendum. ...French Socialists were bitterly divided on the document which some in the party saw as being too Anglo-Saxon and free market in spirit - but an internal referendum in the party in December saw the
majority decide to back the Constitution. However, President Jacques Chirac's hopes of a yes to the treaty were dealt a blow earlier in February when members of the second biggest trade union in France,
the CGT, spoke out against the new charter.
Wednesday, February 16, 2005 ~1:00 p.m., Dan Mitchell Wrote: There's no craftier politician in Washington than Fed Chairman Alan Greenspan, who knows that when he testifies before the Senate today
he'll be asked about Social Security from every possible angle. So it is going to be fascinating to see if he devotes the credibility he's built up
over the years to promoting the kind of reform he's long supported. ...At the current political moment, he can play an especially constructive role by explaining why a change in the Social Security formula for
determining future benefits is essential and isn't a benefit "cut." The current formula, which is based on wages, will actually inflate benefits
for future retirees by something like 40% from what they are now. By changing to a formula based on prices, the system would become both more accurate and, by reducing future taxpayer liabilities, fairer to
younger workers. Chances for entitlement reform are rare, and if the current moment passes we'll wait years for the next one. As for Mr. Greenspan, he's long warned about the dangers of runaway entitlement
obligations. The Chairman's term expires next year, when he'll have to leave office, so now would be a good time for him to abandon any tactical political positioning and speak candidly about what is best for
the U.S. economy.
Wednesday, February 16, 2005 ~ 12:42 p.m., Andrew Quinlan Wrote: A proposal by the German government to impose a tax on airline fuel in order to boost development funding has prompted a fierce debate
pitting airlines against environmentalists. ...the Green party in the European Parliament said it "strongly supported" the proposal and
would seek to use its influence in member states to push it through. ...the spokesman for environment commissioner Stavros Dimas added, "if you put a kerosene tax only on European companies flying, say,
transatlantically, you weaken their competitive position, so you have to look at this, by definition, from a global perspective". The proposal will
be discussed, at Germany's request, at the meeting of finance ministers later this week but any changes to tax law need unanimity and this appears far from certain. Ireland ...has been touted as one of the main
member states opposed to the move ...the need for unanimity makes even Mr Beeckmans from the Green group pessimistic for agreement.
Wednesday, February 16, 2005 ~ 11:51 a.m., Dan Mitchell Wrote: …after receiving a federal bailout for a fiscal "crisis" that never materialized, America's 50 state governments now find themselves
benefiting from a revenue boom. So how about repaying the $20 billion handout they've received from the feds as part of the 2003 tax-cut deal? …two years ago…Washington Democratic Senator Patty Murray was
calling it "the most severe economic crisis since the Second World War" to hit the states. Others argued that without the handout the states
might increase taxes and prolong the recession. Maine's two Republican Senators, Olympia Snowe and Susan Collins, insisted on the payout during the tax cut debate. The only demand on governors was that they
certify with a signed statement to Treasury that the funds would go to close budget gaps or fund current spending commitments. We don't know if any of the governors were laughing as they signed on the dotted
line, but someone has been laughing all the way to the bank. The associations of governors and budget officers report in their fiscal survey that one-fourth of the states used the federal bailout to increase
Medicaid spending, while the remaining three-fourths used it to avoid enacting reforms that might have brought the program under control. …We realize this is all probably fanciful; governments simply don't
return money once they've got their mitts on it. But the lesson for Congress is still worth learning for the next time the governors come to Washington looking for a handout: Just say no.
Wednesday, February 16, 2005 ~ 10:19 a.m., Dan Mitchell Wrote: We will probably never know the full truth of the United Nations' oil-for-food scandal. We will probably never see any of those implicated
in the scandal punished. And that's just the way the U.N. wants it. ...the oil was allotted to politically connected insiders, allegedly including the
head of the oil program himself. The insiders got rich while Iraq's people suffered. One beneficiary of the program was U.N. Secretary-General Kofi Annan's own son, who was employed by a firm
that played a key role in the scandal-plagued program. ...Annan last year relented and appointed former Federal Reserve chairman Paul Volcker to investigate. Just over a week ago, Volcker released a
preliminary report. It found "grave" conflicts of interest in the program. ...Yet there is reason to doubt the finality of that final report.
Volcker's inquiry has been given sharply limited investigative powers. It can't subpoena documents, and it cannot force anyone to testify. Many
on the inquiry's staff are drawn from the U.N.'s own ranks and seem to share its institutional prejudices: The inquiry's communications director
had to resign in September after she gave an interview to a British newspaper in which she seemed to equate President Bush with Osama bin Laden.
Tuesday, February 15, 2005 ~ 12:13 p.m., Dan Mitchell Wrote: It is true, as some critics observe, that there is no magical gain in privatizing Social Security, since all systems have to provide incomes
for retired persons. By that token, however, there's no gain in privatizing a government steel plant either, since steel still has to be produced, too. Yet there are very good reasons -- with roots in political
economy -- to privatize steel. And as with steel (and the like), there are excellent reasons for a privatized individual-account Social Security
system. …Pay-as-you-go systems are in trouble in good part because of changes in the number of workers per retiree, but also because of politically determined decisions that altered the system from a saving
system for old age to an inefficient and complicated welfare system for some of the elderly. Despite the growing mental and physical health of
older persons, political pressures in all nations with such systems forced a restructuring of social security payouts to encourage retirements at
earlier ages than even the originally established 65. In the U.S., many retirements occur at 62 or earlier, while Italians retire frequently while
in their mid-50s. Very early retirement is common in Germany, Belgium and other European countries. In addition, the link between contributions and benefits has been separated, so that each additional
dollar contributed in taxes pays no more than about 40 cents in additional benefits. Hence, the social security system has evolved into two largely independent systems: a sizeable tax on wages, starting with
the first dollar earned; and retirement benefits that are "guaranteed" by the government. There is only a modest link from an individual's
accumulated tax payments on his earnings to these "guarantees."
Tuesday, February 15, 2005 ~ 11:56 a.m., Andrew Quinlan Wrote: In this era of dumbed-down education, when rhetoric has replaced both logic and evidence for many people, some think the issue is "freedom of
speech." Indeed, some critics of Professor Churchill have been shouted down by his supporters, in the name of freedom of speech. Too many
people -- some of them judges -- seem to think that freedom of speech means freedom from consequences for what you have said. If you believe that, try insulting your boss when you go to work tomorrow.
Better yet, try insulting your spouse before going to bed tonight. While this column is protected by freedom of speech, that does not stop any
editor from getting rid of it if he doesn't like what I say. But, even if every editor across the length and breadth of the country refused to
carry this column, that would be no violation of my freedom of speech. Freedom of speech does not imply a right to an audience. Otherwise the audience would have no right to its own freedom. Editors, movie
producers, speakers' bureaus and other intermediaries have every right to decide what they will and will not present to their audiences.
Tuesday, February 15, 2005 ~ 11:00 a.m., Dan Mitchell Wrote: ...postponing Social Security reform by just one year means an extra $600bn in costs (read: tax increases) in the future. Social Security
privatisation, especially the Bush plan, is eminently reasonable. The plan will narrow deficits in the long term and erase trillions of dollars in
unfunded liabilities. (Indeed, anyone who natters on about US fiscal imbalances and does not mention Social Security in the next breath is a
hypocrite.) Such reform is the most important domestic step a president can take.
Tuesday, February 15, 2005 ~ 10:16 a.m., Dan Mitchell Wrote: George W. Bush could well turn out to be the best president in recent history. ...President Bush's proposal for private accounts for Social
Security is the first time ever we've tried to associate effort with reward in this program. Taking steps to reduce the unfunded liability of the
Social Security program, both Ronald Reagan and Bill Clinton reduced Social Security benefits by subjecting them to income taxes -- 50% of benefits following the 1986 tax act and then 85% of benefits after the
1993 tax act. In addition, Reagan's Blue Ribbon Commission on Social Security, chaired by Alan Greenspan, extended the age of retirement. Mr. Clinton took the additional pro-growth step of removing the
"retirement test" for receipt of Social Security benefits, thereby lowering taxes on the working elderly. But President Bush's proposal is so much better than any of these changes. ...By allowing four
percentage points of the employee's FICA tax to go to private retirement accounts, as President Bush has proposed, a full 20 cents of each dollar in taxes would yield a direct benefit to the individual worker
on the margin. This is a huge move in the right direction. Now we have only 80 cents left to go. ...From the standpoint of seeing the big picture,
President Bush is unique among politicians in that he truly comprehends that the U.S. today is the single best performing economy ever to have
existed and that only by pushing pro-growth reforms will it retain its vigor. ...To make sure these trends don't stop, President Bush is proposing: (i) making his 2001 and 2003 tax cuts permanent; (ii) taking
the second step towards the elimination of the double taxation of corporate capital; (iii) accelerating to the present and making permanent the abolition of the federal death tax; (iv) consolidating a
hodgepodge of tax-free savings accounts into one lifetime savings account; and (v) moving aggressively on tort reform. ...And, as if that's not enough, President Bush now wants a capstone for the second half of
his second term in office to be fundamental tax reform of a flat tax nature. Supply-side pro-growth economics couldn't ask for a better champion
Tuesday, February 15, 2005 ~ 9:45 a.m., Dan Mitchell Wrote: German Finance Minister Hans Eichel has told a national newspaper that he is currently working on a new plan to simplify Germany's
complex corporate taxation structure which will bring about a single income tax rate for businesses. …At present, large companies in Germany pay a basic 25% corporate tax. However, this is on top of
local company taxes, charged at around 13%, making a nominal corporate tax rate of 38% - one of the highest in Europe. Meanwhile, small and medium-sized firms are taxed on a different legal basis, on a
scale of between 15% and 42%. Eichel also told Handelsblatt that he was in favour of a new form of European corporate tax harmonisation whereby a multinational firm's profits within the entire European Union
would be aggregated and then divided according to the level of the firm's activities in each country.
Monday, February 14, 2005 ~ 3:51 p.m., Andrew Quinlan Wrote: You don't have to be a financial wizard to know that Social Security is a lousy investment. Unlike the money you deposit in a bank or salt away
in an IRA, you don't own the money you pay into Social Security. You have no legal right to get those dollars back, and when you die you can't pass them on to your heirs. Nor can you use your Social Security
account before you retire -- you can't borrow against it and you can't cash it in. You aren't allowed to put the money into a balanced portfolio.
You can't even watch as the interest accumulates, since your Social Security nest egg doesn't earn any interest. Your nest egg, in fact, doesn't even exist. Because Social Security is financed on a
pay-as-you-go system, the dollars withheld from your paycheck today aren't being saved in an account with your name. They are immediately
paid out to retirees. ...Social Security wasn't always a sucker's game. As with all Ponzi schemes, players who got in early made out like bandits.
For many years, Social Security deductions were minuscule. Until 1949, the combined employer/employee tax rate was only 2 percent, and it was imposed on just the first $3,000 of income, for a maximum payroll
tax of just $60 a year. The first Social Security recipient was Ida May Fuller of Ludlow, Vt., who retired in 1940 after having paid a grand total of $44 in payroll taxes. By the time she died in 1975, she had
collected $20,933.52 in benefits -- a return on her "investment" of more than 47,000 percent. It wasn't really an investment, of course. It was a
forced transfer of wealth from younger persons to an older one. ...One tiny notch at a time, payroll taxes have been ratcheted up to a level that
would have been unthinkable in Franklin Delano Roosevelt's day. No wonder Social Security is so unpopular among the young. It provides no security for their retirement, while it impoverishes them in the present.
In exchange for an eighth of their earnings today, it guarantees nothing but higher taxes tomorrow.
Monday, February 14, 2005 ~ 2:17 p.m., Dan Mitchell Wrote: The waitress forced into prostitution by the government pimp is, at one level, merely an example of the unintended consequences that follow
every legislative initiative. But at another, it's the logical reductio of the modern secular welfare state. Like all those European utopias John
Kerry wants America to be more like, Germany has a permanently high unemployment rate and, as a result, penalizes those who refuse to take
available jobs - like providing "sexual services." The welfare office in Gotha ordered a 23-year-old woman to audition for a job as a "nude
model." As Queen Victoria is said to have advised her daughter on her wedding night, lie back and think of England. Now the welfare office says lie back and think of Germany. And why not? When you cede to
the state the responsibility for feeding, clothing, housing you, for your parents' retirement and your own health care, it's hardly surprising they
can't see what the big deal is about annexing your sex life as well. If a welfare state were a German S&M club, the government is the S and
you're the M. The "security" of welfare is not usually quite such literal bondage, but it always is metaphorically.
Monday, February 14, 2005 ~ 9:00 a.m., Dan Mitchell Wrote: Kyoto is absurd because it does absolutely nothing measurable within the foreseeable future about planetary temperature, while one nation -
the United States - bears almost all the cost. Kyoto is an economic weapon, not a climatic instrument, pointed at America. Europeans, allies or not, know this full well. That is why, for several years, not only
did the French and Germans demand the U.S. implement it but do so in the way that would do us the most financial harm. ...The 1-degree warming already observed was accompanied, in developed nations, by
doubled life expectancy, quintupled yields of some crops, and democratized wealth. Global warming actually contributed to the crops, thanks to the fertilizing effect of carbon dioxide and the fact that
warming the coldest air (the greenhouse effect "signature") lengthens the growing season a bit. Where measured by aircraft, the human warming was concurrent with a decline in maximum winds in
destructive hurricanes, no change in the frequency of severe tornadoes, and a general slight increase in precipitation in the agricultural mid-latitudes. Contrary to popular media accounts, the professional
climatology literature demonstrates this increase is not disproportionately in extreme rains.
Sunday, February 13, 2005 ~ 2:00 p.m., Dan Mitchell Wrote: With billions of dollars at stake, a large network of influential conservative groups is mounting a high-priced campaign to help the
White House win passage of legislation to partially privatize Social Security and limit class-action lawsuits. Corporate America, the financial services industry, conservative think tanks, much of the
Washington trade association community, the Republican Party and GOP lobbyists and consultants are prepared to spend $200 million or more to influence the outcome of two of the toughest legislative fights
in recent memory. ...This diverse coalition is bound by economic, ideological and partisan concerns. Many of the groups, for instance, are staunch advocates of free-market policies and reducing dependence on
government. Some of the corporate group leaders also believe that the economic health of their industries hinges on the long-term solvency of the Social Security system and on restraining costly litigation. Some
business groups have calculated that if the Bush Social Security plan fails, pressure will grow to raise payroll taxes to pay future costs of the program. Every percentage point increase would cost corporate
employers about $50 billion annually. ...In addition, many conservative think tanks have joined Cato in supporting Social Security privatization, recognizing that the proposal offers a rare opportunity to
restructure a pillar of liberalism and the social welfare state. The Heritage Foundation, the National Center for Policy Analysis, the American Legislative Exchange Council, and such advocacy groups as
the Club for Growth, Progress for America, FreedomWorks, Americans for Tax Reform and the Free Enterprise Fund are now in the middle of the fight.
Sunday, February 13, 2005 ~ 12:48 p.m., Dan Mitchell Wrote: The virtues of Chile's system have been trumpeted by those seeking to replicate it here. Unlike traditional social security payments, benefits in
Chile are based on personal investment accounts owned by workers. Chileans don't worry about whether the government will run out of money as baby boomers retire, because benefits are financed by their
own assets, which have been accumulating in their own accounts, not by taxes paid by current workers. The funds are privately managed and therefore insulated from political interference. Less well known is this:
To protect worker-investors from market risk, Chile's government has issued extensive regulations and guarantees -- guarantees that are vital but which could still prove costly. While studies show that Chile's
retirement system has contributed to the country's rapid rate of economic growth over the past 20 years, those who look to Chile's system as a model for the United States must remember that it is a work
in progress. Chileans like their private accounts, but they have been busy improving the design ever since it started. ...Chilean workers were allowed to choose between a new system and the old. Practically
everyone under the age of 50 (and some older people as well) switched. ...Has it been a good deal? Yes. The annual rate of return excluding fees
(more on that shortly) during the first 22 years was an astonishing 10 percent above inflation -- fortunate for the new system but far above the rate that any country can maintain in the long run. However, even
lower returns can ensure comfortable retirements. If the rate of return falls to 4.9 percent above inflation (a figure the U.S. Social Security Administration uses as the expected return of a mixed portfolio of
stocks and bonds) while wages grow at 2 percent above inflation, the average Chilean worker who contributes until he retires at 65 would get 60 percent of his final wage plus a survivor's pension for his spouse.
(Under Social Security, the average U.S. worker currently gets 38 percent of the average wage.) ...One rationale for private retirement accounts is to give workers control over how they invest their savings.
But regulations in Chile tightly limited the types of investments allowed in those accounts. Initially, almost all money was put into bank deposits
and government bonds -- little else was available in Chile's then undeveloped financial markets. Since then, regulations have loosened, permitting a wider variety of investments. Nonetheless, funds whose
returns deviated by more than 2 percentage points from the industry average have been penalized. This has caused "herding," or copycat behavior, among fund managers, but has prevented workers from
mistakenly betting on specific firms or sectors. In the United States, we can accomplish the same goal more efficiently by using index funds
linked to diversified market benchmarks such as the Standard & Poor's 500-stock index. ...Lots of rules, and lots of guarantees. All these
guarantees will cost money in the long run. The risks (of low returns or insurance company failure) are there and someone has to bear them.
Chile decided that the taxpayer is the risk-bearer of last resort. ...Chile's system initially had very high administrative costs, in part because fund
managers had to invest in new information technologies and marketing tools. As assets grew, costs fell dramatically and are now about 1 percent of assets, lower than in the average U.S. mutual fund.
Sunday, February 13, 2005 ~ 11:12 a.m., Dan Mitchell Wrote: Germany's Finance Minister Hans Eichel, has ruled out a cut in corporate income tax before 2006, despite statements from Chancellor
Gerhard Schroeder and other ministers arguing that corporate tax reform is desirable. In comments made earlier this week, Schroeder revealed that he was in support of corporate tax reform, a view
supported by Economy Minister Wolfgang Clement, who last weekend called for a simplification of the corporate tax system. However, in an interview with the weekly magazine Die Zeit, Eichel poured cold water
on the idea of reforming the corporate taxation regime, citing constraints in the fiscal finances. "Because of our public debts there is
no room for further tax cuts," Eichel stated in the report which was published on Wednesday. He also argued bizzarely that Germany already has the second lowest tax levels in the European Union behind
Slovakia, citing an OECD comparison of national tax burdens. However, the figures in question omitted social security contributions, which in Germany are comparatively high.
Saturday, February 12, 2005 ~ 12:25 p.m., Dan Mitchell Wrote: Presidents come and go, but laments about the high price of higher education are eternal -- and so are calls for ever more federal aid to
mitigate it. For 60 years, the federal government has been shoveling money into programs meant to make college more affordable -- yet a college degree today is more unaffordable than ever. Rarely has
Washington so comprehensively worsened a problem it was determined to solve. ...Then there are the billions of dollars' worth of tuition credits
and deductions written into the tax code -- the Hope Tax Credit, the Lifetime Learning Tax Credit, the higher education expense deduction, the student loan interest deduction, and the tax-exempt Qualified
Tuition Plans, known as "529s." And the result of this energetic government campaign to hold down the cost of a college education?
The cost of a college education is skyrocketing -- and has been for years. ...Every dollar that Washington generates in student aid is another dollar that colleges and universities have an incentive to
harvest, either by raising their sticker price or reducing the financial aid they offer from their own funds. Higher Education Act funds "are seen
by colleges and universities as money that is there for the taking," observes Peter Wood, <http://cf.townhall.com/linkurl.cfm?http://www.nationalreview.com/co
mment/wood200405060831.asp> an anthropology professor at Boston University. "Tuition is set high enough to capture those funds and
whatever else we think can be extracted from parents. Perhaps there are college administrators who don't see federal student aid in quite this
way, but I haven't met them." ...Isn't it time to stop pouring fuel on this fire? Instead of renewing the Higher Education Act, Congress should
phase it out, thereby forcing colleges and universities to compete on price. That would leave financial aid to the private sector, which can
target it far more effectively -- and where it should have been left all along. As Congress debates the reauthorization of the Higher Education Act, it should heed Friedrich Hayek's warning that democracy is "peculiarly
liable, if not guided by accepted common principles, to produce over-all results that nobody wanted." One result of the federal government's
student financial aid programs is higher tuition costs at our nation's colleges and universities. Basic economic theory suggests that the increased demand for higher education generated by HEA will have the
effect of increasing tuitions. The empirical evidence is consistent with that-federal loans, Pell grants, and other assistance programs result in
higher tuition for students at our nation's colleges and universities. ...Also, when large numbers of students begin to rely on the federal government to fund their higher education, and the federal government
uses this financing to affect the behavior of state and private institutions, we should be concerned about how the resulting loss of independence of our colleges and universities affects the ability of
voters to form opinions about public policy that are independent of the government's position. Rather than expand the current system, Congress should consider a phase-out of federal assistance to higher
education over a 12-year time frame. As the federal government removes itself from student assistance, we should expect several things to happen. First, sticker tuition prices should decline. Second, the
private market should respond to the phase-out of federal assistance.
Saturday, February 12, 2005 ~ 11:04 a.m., Andrew Quinlan Wrote: ...in politics this week, everyone learned, or more accurately the government finally admitted, that the ballyhooed Medicare drug benefit
is going to cost much more than the 10-year, $400 billion estimate that the White House advertised in order to pass it. Of course, any Member of Congress with more than a room temperature IQ -- and that's
probably a majority -- knew that $400 billion was a fraud when he voted for it. But the entire exercise was still something of a Big Con. The main reason the latest 10-year estimate is now more than $700
billion is because the program actually starts in 2006, whereas the fall 2003 estimate included two "free" years. Duh. The far larger problem --
as critics and Medicare's own trustees informed Congress before the vote -- is that the total long-term liability they created is something on
the order of $7 trillion, or more that the entire projected Social Security deficit. However, do not expect anyone to be held accountable for this
act of fiscal recklessness. Medicare was barely an issue in last year's election, and the main criticism Democrats offered was that it wasn't generous enough. ...Republicans John McCain and Olympia Snowe are
joining with Ted Kennedy not to cut back on the Medicare benefit but to impose price controls on drug companies. So in the name of chasing another phantom 10-year cost goal -- price controls will have little
effect on long-term costs unless they massively reduce future drug research and development -- Washington's great and good are proposing punitive measures on one of America's most innovative
industries. We'd say it serves Big Pharma right for supporting the drug bill in the first place, except that price controls will literally end up costing future patients their lives.
Friday, February 11, 2005 ~ 10:12 a.m., Andrew Quinlan Wrote: Are you aware we are increasingly regulated and even taxed by international organizations that are undermining the protections
guaranteed by the U.S. Constitution? ...From the end of World War II, many new multinational organizations have been created, most with the ideal of promoting world peace and prosperity in one form or another.
...These organizations' professional staff quickly learn they are largely in charge of setting the agenda and operational structure. ...Bureaucrats, being bureaucrats, tend to want enhanced power and
budgets. They can increase power by "mission creep," expanding the original purpose, which requires more staff and money. ...The following
are a few examples of the problem. ...The World Bank has a 50-year record of mismanagement, and by lending almost exclusively to governments, it has ended up primarily promoting statism rather than
free markets. This undermines economic growth and saddles poor nations with repaying loans that should have never been made. The International Monetary Fund (IMF) has a long record of insisting
countries increase taxes, which has stunted rather than promoted economic growth. And the IMF's willingness to bail out states that have been fiscally mismanaged probably added to the systemic risk of world
finance by diminishing the penalties for countries that behave badly. The Organization for Economic Cooperation and Development (OECD)
charter includes responsibility for promoting policies that "contribute to sound economic expansion" and "extend the liberalization of capital
movements." Yet, it now promotes limiting tax competition, which will undermine economic growth in its member states and the world at large. And it promotes blanket information-sharing that, by reducing
privacy protections, will weaken the free flow of capital. ...Both our liberties and our pocketbooks will face continued danger unless adequate oversight is brought to the international institutions. Our
elected representatives need to wake up before it is too late.
Friday, February 11, 2005 ~ 9:53 a.m., Dan Mitchell Wrote: [Barroso] and several of his fellow commissioners been showing a lot of élan lately, talking a good game about creating jobs and growth. Their
report offers page after page of more promises about creating jobs and growth, and, like the original statement agreed in the Portuguese capital in March 2000, it sets admirable goals. But it also fails to
provide the necessary tools for achieving those goals. ...Former Estonian Prime Minister Mart Laar, another speaker at the conference, is a free-market hero who helped make his country an economic wonder
by insisting on pro-growth, low-tax policies coupled with an emphasis on high-technology and the service sector. He offered an astute diagnosis of the problem with the Lisbon agenda: "There are words,
words, words and no acts." ...Sounding more like a Sun-Belt Republican than a Labour party rabble-rouser, Skinner had probably the best line
of the whole debate when he said of the EU, "We're the world leaders in regulation. If we could sell regulation we would the richest bloc in the world." While the EU president is saying many of the right things about job mobility and pension portability, he is putting out a hodgepodge of ideas
that would, at best, negate one another and, at worst, choke growth to an even greater degree. Take, for example, Mr. Barroso's proposal to create EU-wide collective bargaining. While this might seem like a way
to facilitate worker movement from one member nation to another by creating uniform rules, it would be more likely to make the labor market less competitive. Countries would have one way fewer to
differentiate themselves in vying for or keeping employers. ...Continent-wide collective bargaining would be just as harmful to the EU economy as measures like tax harmonization, whose biggest
proponents are sluggish, tax-happy France and Germany. Even more stifling would be the Commission's proposal to give labor unions an even greater role in corporate management. Businesses are already
handcuffed by national laws on hiring and firing, and there's little hope that unions would make it any easier to trim the fat -- even if it meant more productivity, and possibly more jobs, down the road.
Friday, February 11, 2005 ~ 9:00 a.m., Andrew Quinlan Wrote: The president needs to take another look at this document, which was rejected by Ronald Reagan. During his presidency, Mr. Bush has
displayed a healthy skepticism about the U.N.'s ability to manage complex programs. It would be a major setback to allow the Senate to ratify this treaty, which would violate American sovereignty and
damage national security. "The sovereignty over the territorial sea is exercised subject to this convention," the document states in Article 2,
thus giving the U.N. control of seas, oceans and their natural resources. Under the treaty, U.S. national security would take a back seat to naive
U.N. officials who can't define terrorism and are unwilling to confront evil and danger in the world. ...The LOST also created the International
Seabed Authority (ISA) which adjudicates disputes among parties, has taxing power on members states and contractors, forces private mining and fishing companies to acquire ISA permits at hefty prices and
collects royalties from their successful acquisitions. ...President Bush showed great courage when he "unsigned" the treaty creating the
International Criminal Court. His actions sent a message to the world that the United States would not subject its citizens to the jurisprudence of international ambulance chasers. He should do the same on the
U.N.'s Law of the Sea Treaty. The treaty would violate American sovereignty, hurt national security, stifle America's economy and exploration for natural resources in the sea and allow a U.N. agency to
impose taxes and fees on American industry.
Friday, February 11, 2005 ~ 8:29 a.m., Dan Mitchell Wrote: The proposed EU Constitutional Treaty means more state intervention and less freedom. By centralising government, it gives politicians more
power over the citizens. As many scholars, from Immanuel Kant to Eric Jones, have pointed out, the secret of Europe's success over the last 500 years has been its decentralised nature - the absence of an empire.
Competition among the rulers gave the citizens some choice and protected their freedom. ...Even more than before, a majority of highly regulated Member States could impose their regulations on the less
regulated Member States. In the economic literature, this is called "the strategy of raising rivals' costs". As competition from the less regulated
Member States is suppressed, the more regulated Member States would raise their level of regulation even further. And they would again impose this higher level on the minority.
Friday, February 11, 2005 ~ 8:18 a.m., Dan Mitchell Wrote: The French parliament has hammered out a bill paving the way out of the 35 hour working week. Under the new rules, private-sector
employees will be allowed to work for up to 48 hours a week, as set by EU laws. The bill was supported by 370 MPs, while 180 voted against. Before it becomes law, it needs to be approved by the Senate, which is
expected to give the green light next month. ...More than 300,000 people protested against the bill over the weekend, and recent polls suggest that 69% oppose longer working hours, the BBC reported. But
the real powers of trade unions are said to be limited, as they only organise 8% of French workers. Presenting the French government's economic agenda in the run-up to the 2007 general election, new Finance Minister Hervé Gaymard has
pledged to continue reducing the country's tax burden with new tax cuts. ...Prior to the 2002 election, Chirac promised to slash French income taxes by 30%. Despite a pause in the tax cutting programme
last year to prevent an increase in the budget deficit target, Gaymard claimed that the conservative administration remains on course to achieve its target.
Friday, February 11, 2005 ~ 7:55 a.m., Dan Mitchell Wrote: Last year taxpayers funded Amtrak to the tune of $1.2 billion, twice the amount they had shelled out a mere four years earlier. "It is clear that
the present model of passenger rail service is flawed and unsustainable," Transportation Secretary Norman Mineta was quoted as saying this week. We admire the Secretary's capacity for
understatement. If going from more than a billion dollars to zero seems unfair, consider that Amtrak has had 34 years to get its caboose in
order. It was set up in 1971 with the idea that it would rapidly become a for-profit, self-sustaining entity. Instead, as the nearby chart shows, the
federal subsidies have grown larger and larger. ...Amtrak supporters love to make the argument that rail travel is somehow more cost-efficient than other modes of transportation and that the billions
thrown at the national railroad go further than the money spent on highways, commercial air travel and urban transit. A recent study from the Bureau of Transportation Statistics shows otherwise. BTS gathered
data on federal subsidies to these four areas between 1990-2002, subtracted any revenues brought in by user fees, and then divided by the number of passenger-miles. ...The results? Amtrak weighed in with an
average subsidy of $186.35 per thousand passenger miles -- a sum that could take you across the country and back on JetBlue. That compares with average subsidies of $118.26 for urban transit and $6 for airlines.
Highway users actually ended up paying Washington $1.91 per thousand passenger miles.
Friday, February 11, 2005 ~ 7:41 a.m., Andrew Quinlan Wrote: Weeks after the Asian tsunami destroyed their homes and livelihoods, tens of thousands of hungry Sri Lankans are still pleading for help,
accusing government officials of looting international aid and demanding bribes to deliver it. ...In a stunning revelation last week, the government said only 30 percent of those affected by the tsunami had
received aid, and set a target of Feb. 10-15 to complete delivery. Many still await the rice, sugar, noodles, milk powder and biscuits stacked in warehouses. The government has blamed bureaucratic bungling and
incompetence. Survivors blame corruption. In Balapitiya, two local officials have been suspended over accusations of misusing aid, and another for being drunk on duty. Others were being investigated,
including some who reportedly demanded bribes from survivors for death certificates for their loved ones. ...Millions of dollars worth of relief from around the world has poured into Sri Lanka since the
tsunami. The central government distributes it to administrators, who then channel it through divisional bureaucrats to village officials, who are supposed to deliver it to the displaced. But investigations have
uncovered abuse, mainly in the final delivery stages.
Thursday, February 10, 2005 ~ 9:46 p.m., Dan Mitchell Wrote: A fog of negativity obstructs the view of the possibilities. Only few citizens really want more responsibility and less state. ...The German
motto is "don't take any risks" (except for 250 kph on the autobahn). The land of the economic miracle, the land of inventors and entrepreneurs, has turned into Hobbitland. The most daring vision of
the future is to optimize the system of deposits on bottles. Germany is being left behind at the station, waving good-bye to progress as it chugs
away. ...Today, all parties are green; this attitude has taken over nearly the entire society. No technological innovation has been welcomed in
Germany since the color television. New technologies are immediately blocked if a risk cannot be completely ruled out. This spirit has co-opted
the rising elites in academia, churches, cultural institutions, media and the bureaucracy.
Thursday, February 10, 2005 ~ 12:17 p.m., Andrew Quinlan Wrote: A recent Washington Post editorial instantly decried any and all spending cuts "draconian" or "dramatic," not to mention "unrealistic."
What a shock that was. An L.A. Times editorial, accidentally misplaced on the news page, whined that President Bush's proposed haircut for a few budget items "will touch people on food stamps and farmers on
price supports, children under Medicare and adults in public housing." ...When planned spending for 2006 is compared with actual spending in
2001, it becomes ridiculous to pretend there is anything "draconian" or "breathtaking" about the president's belated tap on the brakes. It is
unsurprising and probably understandable that defense spending rose 38.6 percent from 2001 to 2006. What is less well known and harder to rationalize is that the increase in spending over those same five years
was 39.8 percent for education, 41 percent for the judicial branch, 48.1 percent for the legislative branch, 56.4 percent for state and international aid and 84.5 percent for commerce. Even if we measure
this spending surge in constant dollars, to adjust for inflation, overall spending is projected to rise more than 23 percent from 2001 to 2006. Since the economy (GDP) did not grow nearly that much, federal
spending will have risen from 18.5 percent to 19.9 percent of GDP. Yet this is being called a "draconian" budget? ...As for all the banal
commentary about draconian budget cuts and unaffordable tax cuts, I've heard it all too many times before. Please wake me up if somebody at The New York Times, L.A. Times or Washington Post ever has
something novel or intelligent to say about taxes and spending. But somebody would have to wake them up first.
Thursday, February 10, 2005 ~ 11:50 a.m., Dan Mitchell Wrote: A major reason why government has grown to the point where President Bush has submitted a record $2.57 trillion budget to Congress
is that too many Americans have ceded personal responsibility to the state. Most children expect to leave home and lead independent lives. Most parents expect them to do so. But government is the omniscient
(not to mention omnipotent and omnipresent) parent that never kicks out the "children" no matter how old they get. Too many of the "kids"
think it perfectly normal to have a permanent "allowance" and take no responsibility for their own lives or retirement. ...It is a sign of our
collective economic ignorance that the president's proposal for cutting just 150 wasteful and unneeded programs (many more could be cut) is drawing fierce opposition from Democrats and interest groups. In
Washington, it is easier to drive a stake through the heart of a blood-sucking vampire than it is to kill off a money-sucking and useless government program. The principles of a free market work if properly
applied. It is best to learn them early and practice them always. I would love to hear the president say, "Why don't you take care of yourself first
and if all else fails, through no fault of your own, then come to government." That won't happen because he would be labeled
"insensitive" and "mean-spirited." Sometimes people need a kick in the pants to get them to do what they would be doing if government weren't there as a perpetual parent.
Thursday, February 10, 2005 ~ 11:14 a.m., Dan Mitchell Wrote: Under President Bush's Social Security reform plan, the management and investment options of personal accounts would be strikingly similar
to those of the Thrift Savings Plan (TSP) - the retirement program available to Sen. Reid and Rep. Pelosi, their congressional staffs, and millions of federal government workers. ...In addition, under the Bush
plan, retirement funds would be paid out over time through some combination of annuities and phased withdrawals pegged to life expectancy. This would protect retirees from emptying their retirement
nest eggs all at once. The Thrift Savings Plan has had a demonstrated track record of safety and soundness, while producing healthy annual rates of returns for 3.4 million federal workers. For example, the TSP's
most conservative fund, the bond index fund, has produced a 4.58 percent real annual rate of return, more than double the paltry 1 to 2 percent rate of return under Social Security. In truth, putting your
money into the current Social Security program is a riskier proposition than investing in the private equity markets because Social Security is heading toward bankruptcy and cannot pay promised benefits. Without
action to fix Social Security, today's 30-year-old workers can expect a 27 percent benefit cut when they retire - a bad deal indeed.
Thursday, February 10, 2005 ~ 9:30 a.m., Dan Mitchell Wrote: Farm subsidies as we know them grew up around the Great Depression, when they didn't work particularly well, and they have maintained their
tradition of not working for more than seven decades now. As The New York Times recently reported, farm income doubled during the past two years, and -- holy soybean! -- farm subsidies still went up 40 percent.
Farmers game the commodity markets to get both high prices for their products and high federal subsidies. It goes to show that few things are
as addictive and distorting as a government handout. ...Ten percent of farms -- i.e., the biggest ones -- receive 60 percent of the subsidies. According to Brian Riedl of the Heritage Foundation, giant Riceland
Foods got $110 million in federal largess alone last year. By his calculation, the feds could guarantee every full-time farmer an income
of $35,000 a year at a cost of "merely" $4 billion. Subsidies now run roughly $15.7 billion annually.
Thursday, February 10, 2005 ~8:17 a.m., Dan Mitchell Wrote: An association of Australian chief executives has joined the growing chorus of voices calling for the government to reduce taxation and
maintain national competitiveness, highlighting Australia's top rate of income tax, which compares unfavourably with other nations. ..."Reform in these areas of the economy will provide the basis for
strong jobs growth and continuing rising wealth over the long term", the Business Council stated in its submission, which added that these
reforms "should commence now" in consideration of the long lead time before the benefits will be felt.
Wednesday, February 9, 2005 ~ 11:12 a.m., Dan Mitchell Wrote: Talk to any European company with a U.S. listing right now and the discussion will soon turn to deregistration -- that is, the termination of
U.S. reporting obligations and escape from corporate governance and related requirements under the Sarbanes-Oxley Act. There is unprecedented interest in this subject among European corporations,
and perhaps a new sense of momentum. Currently four U.K. companies -- ITV, mmO2, Premier Farnell, and United Business Media -- are taking active steps toward deregistration, and numerous others here
and on the Continent have signaled their eagerness to deregister if they can find a way to do so. Indeed, on Monday, ITV shareholders voted overwhelmingly in favor of plans to cash out unwanted U.S.
shareholders as a prelude to deregistering. The rush to delist and deregister is, in the first instance, about money: Being a U.S. reporting company is about to get a whole lot more expensive. This is because of
Section 404 of the Sarbanes-Oxley Act, which requires reporting companies to produce a detailed assessment of their internal control regime, together with an auditors' attestation report on that assessment.
For non-U.S. companies, this requirement is currently due to come into force for financial years ending after July 15, 2005. The Section 404 attestation report looks to be phenomenally costly. ITV, for example,
has claimed that if it succeeds in deregistering it will save £4 million this year and £3 million annually thereafter. A significant chunk of this can
be traced to Section 404 compliance. ...This has not been lost on the SEC. In a speech at the London School of Economics on Jan. 25, SEC Chairman William H. Donaldson indicated that the SEC will consider
delaying the effective date of the Section 404 internal-control requirements for non-U.S. registrants -- it is now widely expected that they will be deferred beyond the end of 2005 at least. In the same
speech, Mr. Donaldson signalled clearly that new SEC rules on deregistration will be forthcoming soon: "We should seek a solution that will preserve investor protections without inappropriately
designing the U.S. capital market as one with no exit." His remarks appeared to be aimed at slowing the rush to deregister and persuading non-U.S. registrants to adopt a wait-and-see attitude to their U.S.
listings.
Wednesday, February 9, 2005 ~ 10:54 a.m., Andrew Quinlan Wrote: ...long before the trust fund is exhausted, income taxes must rise by an amount equal to difference between current Social Security revenues
and benefits. In other words, income taxes will have to go up by about 2½ percent of GDP between now and when the trust fund is exhausted to redeem the bonds it holds, which will be cashed in to pay benefits
over and above Social Security taxes. ...it is very undesirable to raise taxes by the equivalent of 2½ percent of GDP over the next several decades to pay benefits. That would be equivalent to raising income
taxes 34 percent this year. This is the real reason for Social Security reform - not looming bankruptcy, which will never be allowed. People talk about potential benefit cuts as if they would be war crimes. The unspeakable truth is that benefit cuts are ultimately inevitable,
because the baby boom's retirement costs will force them. Social Security and Medicare, according to various government projections, would require at least a 30% tax increase by 2030. The wiser policy is
not to wait; it is to pare benefits now. Social Security and Medicare are programs with split personalities. They're part "safety net" (the
common view) and part retirement subsidies. By retirement subsidies, I mean that older people are paid -- by the government, meaning taxpayers -- to stop working and to enjoy themselves. How? Well, about
20% of cruise ship passengers are retired; so are 17% of casino gamblers. In its magazine, the AARP offers its 35 million members
motorcycle insurance. "It's time to ride," says the ad. It's doubtful that Franklin Roosevelt had casinos and motorcycles in mind when signing
Social Security in 1935. It's time to nudge these programs back toward their original purpose as safety nets -- and not retirement subsidies. The
consequences of subsidizing retirement are undesirable. It penalizes the young, threatens the economy with higher taxes (or deficits) and drains capable workers from the labor force.
Wednesday, February 9, 2005 ~ 9:35 a.m., Dan Mitchell Wrote: Charity is reaching into one's own pockets to assist his fellow man in need. Reaching into someone else's pocket to assist one's fellow man
hardly qualifies as charity. When done privately, we deem it theft, and the individual risks jail time. What would some of our ancestors say about government "charity"? James Madison, the father of our
Constitution, said, in a January 1794 speech in the House of Representatives, "...Charity is no part of the legislative duty of the government." ...Unlike President Bush, a few of our former presidents
understood that charity is not a government function. Franklin Pierce, our 14th president, vetoed a bill to help the mentally ill, saying, "I
cannot find any authority in the Constitution for public charity," adding that to approve such spending "would be contrary to the letter and the
spirit of the Constitution and subversive to the whole theory upon which the Union of these States is founded." In 1887, President Grover
Cleveland, our 22nd and 24th president, said, when he vetoed a bill to assist drought-inflicted counties in Texas, "I feel obliged to withhold my
approval of the plan to indulge in benevolent and charitable sentiment through the appropriation of public funds. ... I find no warrant for such
an appropriation in the Constitution." Tennessee Rep. Col. Davy Crockett, in a speech before the House of Representatives, said, in protest against a $10,000 appropriation for a widow of a distinguished
naval officer, "We have the right, as individuals, to give away as much of our own money as we please in charity, but as members of Congress,
we have no right to appropriate a dollar of the public money."
Wednesday, February 9, 2005 ~ 8:00 a.m., Dan Mitchell Wrote: You've got to hand it to the French. No people work as hard or as enthusiastically to avoid work. For the past two years, politicians,
business leaders and trade unions have labored overtime against France's mandated 35-hour workweek. Hundreds of thousands of union sympathizers capped a series of nationwide demonstrations by turning
out Saturday, that sacred day of leisure, to denounce government plans to free up the workweek. ...In some quarters, the conventional wisdom holds that the French, Germans and other denizens of the EU's
low-growth countries simply prefer leisure to labor. But the 35-hour workweek denies people a free choice about how best to use their time. Some people need the extra money and want longer hours. The French
working class felt the cost of the law most painfully since it cut deeply into overtime pay, while many white-collar professionals were happy to
take long weekends at their second homes. More to the point, a growing chunk of the population can't choose to work at all. French unemployment has been stuck at nearly 10% for two decades. The
burden falls most heavily on the young and those nearing retirement. Only one-quarter of those under 25 are employed and a third of 55- to 64-year-olds. Those figures are 20 and 16 percentage points,
respectively, below the OECD average.
Tuesday, February 8, 2005 ~ 11:09 a.m., Andrew Quinlan Wrote: During the Bush Administration's first four years, the White House pursued a market-oriented tax reduction strategy-with much of the
effort, especially in 2003, focused on marginal rate reductions to boost economic growth and increase international competitiveness. In his proposed budget for fiscal year 2006, the President focuses his efforts
on slowing the growth of government. This is the correct decision, both because less government will boost economic growth by leaving more of the nation's resources in the productive sector of the economy and
because less government will facilitate pro-growth policies... Unfortunately, too many policymakers want to treat the symptom-deficits-rather than the problem-excessive spending. The
budget deficit is not the critical variable. The key is the size of government, not how it is financed. Taxes and deficits are both harmful, but the real problem is that government is taking money from the
private sector and spending it in ways that often are counterproductive. The need to reduce spending would still exist-and be just as compelling-if the federal budget were in surplus. ...his new budget makes one thing clear about the legacy of his first term in the White House: The era of big government is back. Bush's
$2.6-trillion budget for 2006, if approved by Congress, would be more than one-third bigger than the budget he inherited four years ago. It is a monument to how much Republicans' guiding fiscal philosophy has
changed over the 10 years since the GOP "Contract With America" called for a balanced budget and abolition of entire Cabinet agencies.
...Bush is releasing his budget at a time when many fiscal conservatives in his party are dismayed by how much he allowed federal spending and
the deficit to rise during his first term in the White House. This vocal but outnumbered faction of the GOP was furious when Bush in 2003 signed
a big increase in federal farm subsidies and pushed Congress to expand Medicare to cover prescription drug benefits. It is taboo to say this. And every editorial writer and politician in America will spend the next week denouncing federal red ink. But that's
all the more reason for someone to point out that the much-loathed budget "deficit" is the main, and perhaps the only, reason we may
finally get some federal spending restraint. ...In fact, the last time Congress showed any budget discipline at all was the last time there
was a large deficit, in the mid-1990s. Once "the surplus" arrived, however, both the Clinton Administration and the GOP Congress went
back on the sauce, and the spending boom continued in the early Bush years. The good news is that the size of the current deficit is once again
focusing political attention back where it belongs, on the rapid rise in federal outlays. ...For the first time in a decade, the White House is even
suggesting that 150 programs be either eliminated or scaled back. Since the political cost of merely cutting a program is nearly as great as
killing it, we'd suggest Republicans put as many of these as possible out of their misery this year. They'll be that much further ahead next year.
...the way to get the budget rebalanced is to focus once more on slowing the growth of spending. Entitlement reform is essential, as the Bush
Administration is proposing. But restraint in annual domestic accounts also helps because big increases in any one year become a wedge that expands more rapidly into the future. The fiscal 2006 federal budget is being billed as the tightest yet by the Bush administration. But the administration's rhetoric does not match
the budget substance. Overall spending is projected to rise 3.6% in 2006, but that follows an enormous 33% increase over the past four years. ...In prior years, Congress has ignored most of the limited cuts
proposed by the administration because of a conflicted message from the White House -- namely, We want spending restraint, except in the many areas where we want increases. It's the same mixed message this
year -- the budget's five-page summary begins with three pages of tough talk about spending restraint, but the last two pages offer a laundry list
of 37 "program increases and new initiatives." ...One reason that the Bush administration has made so little progress on spending restraint is
because it continues to use the deficit as the bellwether of "restraint." It's true that the deficit is expected to fall in coming years, but that's
mainly because revenues will be rising so quickly. The focus on budget deficits implies that it makes little difference whether the government
spends less or taxes more. In reality, the evidence is clear that higher tax rates discourage productive efforts, and that reduced government
purchases and transfer payments have the opposite effect. ...President Bush is a staunch tax-cutter and he should be lauded for tackling Social
Security and tax reform. But spending needs to be cut more sharply to avert tax hikes down the road. What if the next president is a liberal Democrat or a weak-kneed Republican? High deficits could be used as
an excuse to reverse prior tax cuts, as they were for George H.W. Bush and Bill Clinton, who together pushed the top income tax rate up from 28% to 40%. President Bush and the Republicans need to make sure
that their recent tax cuts are a lasting legacy and begin serious downsizing of the huge federal budget.
Tuesday, February 8, 2005 ~ 10:55 a.m., Dan Mitchell Wrote: ...economists Eric Hurst and Paul Willen of the University of Chicago set out to explore this question in a working paper published by the
National Bureau of Economic Research. While the paper does not address all possible considerations, their estimate provides a ballpark figure for how people value the system. They found that fully rational
individuals who calculated precisely the true costs of the constraints associated with the current Social Security system might be willing to
pay as much as 7.5% of their lifetime consumption to get out. ...In 2004 alone, 7.5% of the consumption of America...amounted to about $500
billion. With the welfare cost of an irrational system that high, there is plenty of room to achieve fiscal balance by reducing future benefits. That is because today's workers are so much better off if they are
granted more control of their money. ...A reform that reduces the large annual burden of Social Security's antiquated financial constraints offers our citizens a welfare enhancement regardless of whether it
addresses any fiscal imbalances. While fiscal responsibility is a worthy objective in and of itself, in this case it is a sideshow. It does not matter
if the current program runs out of funds in 2042, 2075 or never. ... the Social Security Trustees' projections actually indicate is that the system's "trust fund" will be exhausted by 2042. But since this fund
consists of IOUs from the Treasury, the relevant date is 2018, when benefits promised to retirees will start exceeding payroll taxes and the
system will begin running a chronic annual deficit. The point is not that the Treasury will refuse to pay off its bonds but that doing so will require lower spending, higher taxes or more borrowing (which
ultimately will mean higher taxes). In other words, Social Security's fiscal crisis begins in about a dozen years, so the focus on 2042 is misleading. ...Although sold to the public as a pension system, Social
Security is based on the forced transfer of resources between generations. It steals from the poor to give to the rich, and it substitutes dependence on a beneficent state for self-reliance and voluntary mutual
aid. It may not be financially bankrupt, but it is morally so. By contrast, private investment accounts (assuming they really are private) represent genuine savings, as opposed to claims on other people's
money. There is no getting around the fact that requiring people to save also involves the use of force, but this sort of paternalism seems preferable to the predation at the heart of the current system.
Tuesday, February 8, 2005 ~ 10:21 a.m., Dan Mitchell Wrote: The current sugar program was established in 1981. ...The loan guarantee program has been costing around $200 million a year. Alas,
outlays can go higher: in 2000, the Agriculture Department spent $465 million to pay farmers to destroy their crops. When Congress reauthorized the program in the 2002 Farm Bill, it cut penalties on
farmers who forfeited their sugar, boosting industry winnings by another half billion dollars. In addition, Washington spends an extra $90 million a year to pay for higher-priced sugar-laden products as part
of its feeding programs. Washington also maintains import quotas, which have been estimated to cost U.S. consumers about $2 billion annually. These restrictions have ravaged the economies of poor Latin
American nations. A fifth of farmers collect 60 percent of the benefits. And driving up prices - to as much as five times the world level - has
pushed manufacturers to substitutes, such as high-fructose corn syrup, decimating the domestic refining industry (12 of 22 refineries closed over the last two decades).
Tuesday, February 8, 2005 ~ 9:40 a.m., Andrew Quinlan Wrote: The United Nations Convention on the Law of the Sea was a terrible idea when then-President Reagan refused to sign it in 1982 and fired the
State Department staff who helped negotiate it. It's an even worse idea today because of the additional dangers it poses. ...The LOST is grounded in such un-American and un-Republican concepts as global
socialism and world government. There is not much of a constituency today for giving more power and wealth to the United Nations, whose officials just committed the biggest corruption in history (oil-for-food)
and continually use the United Nations as a platform for anti-American diatribes. LOST is so bad that it is a puzzlement how anyone who respects American sovereignty could support it with a straight face.
LOST would give its own creation, the International Seabed Authority, the power to regulate 70 percent of the world's surface area, a territory
greater than the Soviet Union ruled at its zenith. LOST would give the authority power to levy international taxes, one of the essential indicia
of sovereignty. This authority power is artfully concealed behind direct U.S. assessments and fees paid by corporations, but the proper word is
taxes. LOST would give the authority power to regulate ocean research and exploration. The LOST would give the authority power to impose production quotas for deep-sea mining and oil production. LOST would
give the authority the power to create a multinational court system and to enforce its judgments. ...The real purpose of LOST is to force the
United States to use our wealth and technology to mine the riches of the sea and turn them over to a gang of Third World dictators who are consumed with envy of America.
Tuesday, February 8, 2005 ~ 8:27 a.m., Dan Mitchell Wrote: A key German economic policy expert has suggested that the government should increase its sales tax, in a bid to maintain revenues
and to avert a potential "crash" in state funding. Speaking to Der Spiegel magazine, Bert Ruerup, who is due to assume the chairmanship
of Germany's panel of five economic 'wise men' in March, stated that an increase in the 16% sales tax could be undertaken as part of a wider package of reforms aimed at financing the health and social security
system. ...Ruerup warned that if no action was taken, state finances "will if anything crash into a wall in a few years".
Tuesday, February 8, 2005 ~ 7:51 a.m., Dan Mitchell Wrote: Despite the fact that taxes in Sweden already account for half of its GDP, new Finance Minister Pär Nuder has indicated that the
government may ...consider raising tax rates to fund the country's extensive social security system. In an interview with the Financial Times, Mr Nuder explained that the country's increasingly wealthy
electorate rejected the notion that higher taxes will damage national competitiveness, and were demanding higher investment in schools, hospitals and other public services. ...We are talking about a gradual
raise in taxes. If you look around the corner, in five to 10 years we have to slowly increase the tax rates," he added. Figures released by
Eurostat, the European Union's statistical office, last month show that Sweden's tax burden in 2003 was 51.4% of gross domestic product, the
highest in the EU, and significantly above the EU average... "It is unthinkable to increase the world's highest tax rates and be competitive
in the global economy," Krister Andersson, tax spokesman for the Confederation of Swedish Enterprise stated, according to the FT.
Monday, February 7, 2005 ~ 10:30 a.m., Dan Mitchell Wrote: While much of Washington's attention will be on the $368 billion deficit that CBO projects for 2005, the real story is CBO's forecast of tax
revenue collections. CBO estimates that federal tax revenues will total $2.057 trillion for FY 2005-$177 billion more than was collected last
year, an increase of 9.4 percent. This surge of new tax revenues for the federal Treasury is having a limited effect on lowering the federal deficit because spending continues to grow at a relatively rapid pace.
CBO projects FY 2005 outlays to top $2.425 trillion, a 5.8 percent (or $133 billion) increase above last year's level. This growth rate is two
and one-half times the rate of inflation and excludes any forthcoming appropriations for the war in Iraq. If spending were held to the rate of inflation rate this year (2.4 percent), the budget deficit could be
trimmed to $290 billion, rather than the projected $368 billion.
Monday, February 7, 2005 ~ 10:11 a.m., Dan Mitchell Wrote: Are tax rates a factor in job growth and economic development? Nevada, which does not levy a state corporate or individual income tax,
has recorded the highest percentage employment growth in the U.S. for the second consecutive year. Coincidence? ...Capital investment isn't fleeing to Nevada because of all that water in the desert. Factors
influencing any state's robust economic development include the rule of law, infrastructure, presence of a skilled work force, consistent regulatory policy, access to markets, and favorable tax rates. Nevada's
lack of a state corporate or individual income tax has attracted capital from states like California, Arkansas, and Michigan. California has a
top corporate rate of 8.84 percent and an individual rate of 9.3 percent - rates that are noticeably higher than the state's desert neighbor. The Golden State's labor market expanded at a much lower rate of 1.1
percent in 2004. Tax rates in Arkansas on capital investment are among the highest in the South. That state's job-creation rate barely budged
last year while the U.S. economy created 2.2 million jobs. ...A veritable job-creation machine has existed in No Tax Nevada for a long time.
Nevada's economic growth rate of 12 percent has led all 50 states since the last recession ended in 2001. Only one state - Florida - recorded more new jobs (379,000) than Nevada (124,000) in the period. Nevada
also led the U.S. in job creation (68 percent) in the record 10-year expansion of 1991 to 2001. Are tax rates a factor in job growth and economic development? Yes, indeed. Nevada's yet another case in point.
Monday, February 7, 2005 ~ 9:32 a.m., Andrew Quinlan Wrote: The concept of a minimum wage seems straightforward: If we believe the wages of some workers are too low, we should pass a law requiring
those wages to be higher. What could be simpler? The problem is that increasing the minimum wage may make some people better off, but others will be harmed. Experience proves that the minimum wage hurts
more people than it helps. ...Minimum wage jobs are not insignificant. They are the first rung on the employment ladder for most workers. The experience workers gain in such simple skills as showing up on time,
learning to follow instructions and how to interact with customers are critical to success in life. That is why - absent government mandated hikes - salaries grow rapidly for newly hired minimum wage workers
who stick with their jobs: About 90 percent of workers hired at minimum wage earn more than the minimum after one year, according to the BLS. ...From 1948 to 1955, unemployment of black and white
teenage males was essentially the same, 11.3 percent and 11.6 percent, respectively. However, after the minimum wage was raised from 75 cents to $1 in 1956, unemployment rose significantly for both black and
white teenage males, with blacks bearing more of the burden. By 1969, the unemployment rate was 22.7 percent for black teenage males and 14.6 percent for white teenage males. Economists Donald Deere, Kevin
Murphy and Finis Welch found that minimum wage increases totaling 27 percent in 1990 and 1991 reduced employment for all teenagers by 7.3 percent and for black teenagers by 10 percent. A study of the 1996
and 1997 increases by economists Richard Burkhauser, Kenneth Couch and David Wittenburg also found a 2 to 6 percent decline in employment for each 10 percent increase in the minimum wage.
...Advocates of a minimum wage hike ignore the evidence that it increases unemployment among the least productive workers: unskilled teenagers whose employment opportunities are limited. This is
unfortunate, because low wage jobs are the first rung on the economic ladder of success for workers entering the labor force.
Monday, February 7, 2005 ~ 8:14 a.m., Andrew Quinlan Wrote: John Ashcroft departed as Attorney General last week, and at least in one sense it was just in time. He wasn't around Friday when an
appellate court gutted the federal lawsuit against Big Tobacco that was the most embarrassing decision of his tenure. ...the D.C. Circuit Court
of Appeals has just stripped the feds of their main rationale for the suit by saying they can't get their hands on that $280 billion. The
government had sued under the federal RICO (as in "racketeering") statute, alleging the tobacco industry had conspired for 50 years to
misrepresent the health risks of its products. This no doubt surprised smokers, who have been able to read the federally mandated warning label on every pack of cigarettes for 40 years. ...The Justice
Department's use of civil RICO to force "disgorgement" in this case was an abuse of power that deserved to be smacked down. Political attacks
on Big Tobacco long ago stopped being about health issues or marketing to children; they are now about making government a de facto shareholder in the companies by giving it a chunk of future
profits. The states got their share in the 1998 deal, and this lawsuit was about the jealous feds trying to get theirs too. Now that this tobacco money pot has been taken away, newly confirmed Attorney General
Alberto Gonzales could do everyone a favor -- including Justice Department lawyers wasting their lives on a pointless suit -- by rolling up the case. Aren't there terrorists to pursue?
Sunday, February 6, 2005 ~ 1:05 p.m., Dan Mitchell Wrote: It is one of seven states without Satan's fingerprint -- an income tax. But it has a sales tax that raises $18.3 billion annually. That tax would raise
$26.5 billion were it not for the approximately 440 exemptions that are the reason why only 57 percent of transactions are taxed. Tattooing, body piercing, tanning services and lap dances are not taxed. Neither
are ostrich and racehorse feed, although dog and cat feed are taxed. Lawn mowers are taxed but lawn services are not. Pool services are not
but chemicals to clean pools are. Charter fishing boat services are not, fishing rods are. In the federal tax code, as in Florida's, almost every
wrinkle is there because a muscular interest group arranged to have it put there. Other wrinkles, just by existing, have summoned into existence interest groups that have learned how to benefit from them
and now will die in the last ditch defending them. Which is why radical reform of the code involves picking one or more fights with almost everyone. But that is one reason why the fights are worth picking. Tax
simplification would be political reform, reducing the influence of the Washington-based lawyer-lobbyist complex that exists to wrinkle the code. Unfortunately, even rhetorical simplifiers are operational
complicators. At last summer's Republican convention, Bush described the tax code as "a complicated mess -- filled with special-interest
loopholes" and vowed to "simplify" it. Well. The Weekly Standard's Andrew Ferguson notes that Bush's nomination acceptance speech also
included promises to make America "less dependent on foreign sources of energy," and to provide "opportunity zones" to attract businesses to
poor communities. Bush also promised to "give workers the security of insurance against major illness," to encourage the construction of 7
million "affordable homes" in 10 years and to make it easier for everyone to go to college. Sure as God made little green apples, these
promises would, as Ferguson says, involve adorning the tax code with more exemptions, credits and deferrals.
Sunday, February 6, 2005 ~ 12:39 p.m., Andrew Quinlan Wrote: Weyco Inc., a Michigan company, has decided to fire any employee who smokes. Not just any employee who smokes on the job. Any employee
who smokes anywhere, anytime, anyhow. Why? To help the employees make healthful life choices and become better persons; to help the employees "manage their health care." How does the company ensure
its employees remain truly and permanently "smoke free?" Mandatory "drug" tests. If traces of the "devil weed" tobacco are found, the
hapless employee who thought he or she lived in a free country - one in which a citizen could practice such horrible habits as lighting up a
cigarette or cigar in the "privacy" of his or her home - is summarily fired. ...Federal laws strictly regulate the extent corporations may use
polygraphs in hiring and firing decisions, for example. And there are strict legal limits on how companies may deal with employees found using mind-altering drugs. But companies apparently are free to
arbitrarily test employees for tobacco use and terminate them summarily for so doing. Obviously, off-duty smoking by its employees is more important to Weyco corporate leaders than employee theft or
cocaine use. How far this nonsense will be allowed to go is uncertain. Smokers are held in such low regard by government and the law these days, it is hard to imagine anyone in authority defending former Weyco
employees.
Sunday, February 6, 2005 ~ 12:03 p.m., Dan Mitchell Wrote: The debate over allowing younger workers to invest a portion of their Social Security payroll taxes in personal retirement accounts has
become increasingly politicized, with some groups charging that the plan will amount to "gambling" in the stock market and giving billions
in Social Security dollars to Wall Street pension fund managers. ...Despite these harsh attacks, in reality pension fund investing is anything but a political exercise. Fund managers have a fiduciary
responsibility to maximize the rate of return on the fund's investments by carefully balancing short-term and long-term risk in order to assure
enough assets to pay future retirement benefits. Some of the largest pension funds in America today are public employee and union pension funds. Most of these funds are managed on a contract basis by private
investment houses such as Alliance Capital, Goldman Sachs, Morgan Stanley, and Solomon Smith Barney. Very few are managed in-house. According to the Federal Reserve Board, public employee pension plans
alone had nearly $2 trillion in assets as of September 2004. Overall, 54.8 percent of these assets were invested in corporate equities, 36.1 percent were invested in fixed income instruments (such as corporate
and foreign bonds), with the remaining funds in cash or other investments. As most Americans are now becoming aware, the Social Security "Trust Fund" is not a diversified portfolio but is invested in
government IOUs, rather than real assets that will grow in value to pay future benefits. Pension funds, however, cannot deliver benefits to
future retirees unless they are invested in real assets that grow in value over time. That is why millions of public employees and union members
owe their retirement security to the prudent investment of their pension funds in domestic and foreign stock markets. The success of these funds
should put to rest the hysterical charges of critics of personal retirement accounts.
Sunday, February 6, 2005 ~ 10:17 a.m., Dan Mitchell Wrote: With more than 50,000 taking to the streets in provincial cities, organisers said they hoped for a national turnout of at least 300,000
nationwide to ram home their message. ...The protests come as parliament debates a government plan to allow staff in the private sector to increase overtime and work up to 48 hours a week, the
maximum allowed under EU law. But managers must first agree the changes with unions. Prime Minister Jean-Pierre Raffarin says rules must be relaxed to help cut stubbornly high unemployment, currently
close to 10 percent, and make the world's fifth largest economy more competitive. ...The 35-hour week was introduced in 1998 by the previous Socialist administration in an effort to reduce joblessness. The
party has called on Raffarin to abandon his reform and re-open negotiations with the unions. ...Buoyed by the success of Jan. 20 rallies that drew support from 210,000 state workers -- the public sector
employs about a quarter of the French workforce -- unions say their campaign is gaining momentum. ...A recent poll showed some 77 percent of workers surveyed wanted to keep their working week at the
current level. Only 18 percent wanted to work longer hours.
Saturday, February 5, 2005 ~ 12:42 p.m., Veronique de Rugy Wrote: According to Krugman's New York Times column Friday, when you divert some of your Social Security payroll-tax dollars into a personal
account of the kind that President Bush is proposing, the government is effectively making a loan to you so that you can buy stocks on margin — "speculation that no financial adviser would recommend."After the
White House issued a statement noting the error, the Post published a substantially correct version of the story on its website — removing the quotation from Orszag cited by Krugman in America's "newspaper of
record"! The New York Times's new motto: all the news the others find unfit to print.
Saturday, February 5, 2005 ~ 11:24 a.m., Dan Mitchell Wrote: ...the new European Party Regulation -- which threatens to turn Brussels into a cartel of government-funded parties... The regulation
provides EU subsidies for European-wide party alliances, initially up to EUR4.6 million each per year. But the purse strings are controlled by the European Parliament, whose members belong to the parties
receiving this money, so that figure could skyrocket soon. ...Making public scrutiny even more difficult, the parties' funding is buried in the
budget as a lump sum. Commenting on the regulation, the president of the Social Democratic group in the European Parliament, Martin
Schulz, said the parties' funding will have to "start off small" -- hardly a ringing endorsement for sustained restraint. And the experience of Mr.
Schulz's homeland, Germany, indicates the figure won't remain small for long. After Germany in 1959 became the first European nation to subsidize political parties, the funding swelled to 38 million marks from
five million marks in just six years. It took a court order to keep the pot from ballooning to 90 million marks in 1966. ...Once established, the
alliances keep the money largely among themselves. Like a cartel, they have set the hurdles for access to the EU funds so high that others hardly stand a chance. For example, a party can receive money from
the EU budget only if it has delegates in the parliaments (national, regional or European) of at least seven EU member states. The party also must obtain at least 3% of the votes in European elections in seven
member states. For a genuine European-wide party -- composed not of entrenched national parties but actual citizens, and focused not on regional or national politics but only on European affairs -- this is
impossible to achieve.
Saturday, February 5, 2005 ~ 10:15 a.m., Andrew Quinlan Wrote: In reality, however, regulation has often coddled inefficient companies by keeping competition down and prices up. Protectionist regulation,
like protectionist trade policy, is just a disguised subsidy from consumers to politically favored businesses. ..."Representatives of labor
unions and some consumer groups," it explained, "long for the stability of the time, before 1978, when the government decided fares and
determined where airlines would fly. ... These groups say it is time to consider reregulating airlines. ... Because the Democratic Party, a traditional ally of organized labor, is out of power, Congress could
easily turn a deaf ear. But that is not stopping union leaders and others from floating ideas, like asking the government to require airlines to
charge a flat fee per seat mile. ... Some people have even suggested forbidding companies to start new airlines." Asking the government to ban discounts and new competition is blatant special interest group
pleading... since the Civil Aeronautics Board (CAB) stopped dictating air fares and routes, "fares have dropped by more than 30 percent, on
average, and as much as 70 percent." Replacing regulation with competition also resulted in more choices in more cities: "American ...
flew to just 50 cities in 1975; it now serves more than three times that number. Southwest, which started in 1971 with a single route in Texas,
now flies to 61 cities." ...Those who plead for greater government involvement in business, whether that means complaining that Chinese
clothing is too cheap or that Wal-Mart's prices are too low, are really just hoping to enlist the government's help in profiting from higher prices. Government regulation of airline fares, like government
regulation of everything from milk to peanuts, was simply a political-industrial conspiracy to gouge consumers.
Saturday, February 5, 2005 ~ 9:30 a.m., Dan Mitchell Wrote: Ballistic fingerprinting was all the rage just a couple of years ago. Maryland and New York were leading the way where a computer
database would record the markings made on the bullets from all new guns. The days of criminals using guns were numbered. Yet, a recent report by the Maryland State Police's forensic-sciences division shows
that the systems in both states have been expensive failures. New York is spending $4 million per year. Maryland has spent a total of $2.6 million, about $60 per gun sold. But in the over four years that the
systems have been in effect neither has solved a single crime. To put it bluntly, the program "does not aid in the mission statement of the Department of State Police." The systems have drained so many
resources from other police activities that ballistic fingerprinting could end up actually increasing crime. In New York, how many crimes could 50 additional police officers help solve? ...Good intentions don't
necessarily make good laws. What counts is whether the laws actually work, and end up saving lives. On that measure, ballistic fingerprinting is just another failure in a long line of gun-control measures.
Friday, February 4, 2005 ~ 11:26 a.m., Dan Mitchell Wrote: With his State of the Union speech on Wednesday, President Bush made his bid to define a new progressive era -- this one aimed at reforming
the creaky, graying public institutions built during what Bill Clinton once referred to as "the era of big government." The paradox of this
new progressivism is that it requires government activism on behalf of reforming government. Note we did not say "limiting" government. Mr.
Bush is not a conservative in the mold of House Republicans, circa 1994, eager to reduce the supply of government as defined by cutting programs. We wish he had more of that in him. Instead, Mr. Bush is
asking Congress to join him in reforming government programs with a long-run goal of reducing the demand for government. ...the reason Mr. Bush has a chance is because this vision is consistent with the
decentralizing global information age in which we live. Big government grew in part as a counterweight to the corporate and union giants that
emerged in the industrial era. Amid the insecurity of the Depression, the public turned to government institutions for security. But today we
know those institutions are themselves imperfect and unsustainable. The European welfare and entitlement state model has become a crippling burden on job creation and taxpayers. While the U.S. never went as far
as Europe, we went far enough to face similar (if less severe) problems.
Friday, February 4, 2005 ~ 10:54 a.m., Andrew Quinlan Wrote: Is the United Nations attempting self-parody? How else to explain the announcement that a panel has been elected to decide which complaints
will be heard by the U.N. Human Rights Commission at its annual meeting in Geneva this spring -- and that three of the five members are Cuba, Zimbabwe and Saudi Arabia? ...The composition of the broader
Human Rights Commission remains no less Orwellian. Currently, it includes not only China and Russia but also Sudan, just elected to another three-year term despite Khartoum's role in what the United
States government calls genocide against black Muslims in the western Sudanese region of Darfur. ...Then there is the World Heath Organization, a United Nations "special agency." WHO's Director
General has just awarded its prize for "best anti-smoking and nutrition" programs to al Manar - the television station owned and operated by Hezbollah, among the world's most lethal terrorist
organizations. ...And then, of course, there is the steady drip of revelations regarding the U.N. Oil for Food Program in Iraq, the largest financial swindle in history. In recent days, questions have
arisen, too, about the impartiality of the U.N.'s own investigation into this scandal. On top of that are disclosures about U.N. peacekeepers in
the Congo sexually abusing girls as young as 13. ...Is it not high time at least to consider alternatives to the U.N., to explore the possibility of
developing new organizations in which democratic societies would work together against common enemies and for common goals?
Friday, February 4, 2005 ~ 10:27 a.m., Dan Mitchell Wrote: France and a few other EU member states with expensive welfare programs have raised the specter of "social dumping" to oppose the
[services directive]. This week, both President Jacques Chirac and his prime minister, Jean-Pierre Raffarin, declared that they would do
everything they could to prevent "social dumping."...what is "social dumping"? It refers to the way that EU states with less-expensive
welfare systems or less-onerous employment regulations tend to steal jobs from countries with stricter regulations or higher tax burdens. So, when Ireland cut corporate income taxes to 12.5% and started
attracting investment and growing like crazy, it was accused of "social dumping." It's "dumping" because cutting taxes or red tape lowers the
cost of doing business in one country, like Ireland, below that of doing business in another, like France. ...And it's "social" because, we are
asked to believe, it hurts both the million-odd Irish who have gotten jobs over the last decade because of more-sensible regulatory and tax policy as well as those who allegedly didn't get jobs in France as a
result. ...If nothing else, the ingenuity of this argument is impressive. It takes a win-win situation -- competition drives down taxes or other
costs of doing business, leading to economic growth and job creation -- and asserts that it is lose-lose: Countries are stealing our jobs and
exploiting their workers simply to attract rapacious capitalists to their shores.
Friday, February 4, 2005 ~ 9:44 a.m., Dan Mitchell Wrote: Chile's personal savings account system was established in 1981 because the state-run system was unsustainable. The new plan did not
force workers already in the system to change. It offered the option to use either the old government program or switch to the new personal account system. But with the goal of eventually closing the failing
government system, first-time workers were given no choice but the new program. Reformers believed that if retirement savings were in the hands of their owners, incentives for saving and investing in productive
assets would be greater and Chileans paying payroll taxes would be better off. They were right, as even the Times was forced to
acknowledge well into its "yes-but" article by saying, ". . . what all here agree is the main strength of the privatized system: an average 10
percent annual return on investments. Those results have been achieved by the pension funds largely through the purchase of stocks and corporate and government bonds -- investments that helped fuel an
economic expansion giving Chile the highest growth rate in Latin America over the last 20 years." But trust the Times to find the hole in
this tasty doughnut. Its report indicts the Chilean model on the grounds that "Only half of workers are captured by the system." Of course the
same was true of the old system. ...PSAs have made young workers who pay into the system better off, for the simple reason that their investment earns a tidy return, something not possible with a system
that merely transfers income to seniors from working persons. What PSAs do not do is redistribute income or create a dependency on the political system. Maybe that is what most bothers those who fear
George Bush's initiative.
Friday, February 4, 2005 ~ 8:59 a.m., Dan Mitchell Wrote: The revamped "Lisbon strategy" launched by Commission President José Manuel Durao Barroso has at its heart a bid to boost jobs and
economic growth, with less emphasis on the social and environmental aspects of the Lisbon process. This resulted in furious reactions from unions and socialist MEPs, who warned against dropping the social and
environmental "pillars" of the economic goals. The European Trade Union Confederation (ETUC) said, "this is a disappointing start for the
new Commission because it risks presenting Europe as an agent for lower social standards, worse welfare states and poorer environmental standards". ...The President of the Socialist Group in the European
Parliament, Poul Nyrup Rasmussen, said, "Europe's socialists will not stand for a blinkered economic vision that leaves the people and their
environment out". "Europe now needs to focus on realising change - and this will not be done by mimicking the American approach. This is
not what millions of jobless Europeans need", said Mr Rasmussen. ...Welcoming the emphasis on jobs and growth, Lisbon Council President Paul Hofheinz, called on the Socialist group to stop what he
called their "misleading and divisive rhetoric", adding, "without economic growth, our social system will simply collapse".
Thursday, February 3, 2005 ~ 12:03 p.m., Dan Mitchell Wrote: The president left no doubt that Social Security will be his supreme priority in this second term - and this is as it should be. Nothing this
president can do at home will have longer and more profound consequences than the creation of ownership accounts. Tax changes come and go: The great tax reform of 1986 was undone in part in 1991
and then again in 1993 and was very nearly unraveled altogether by the year 2000. But the conversion of the unreliable promises of a state pension system into the solid reality of assets in your own hands,
protected by the Fifth Amendment to the US Constitution. Bush directly challenged the Democrats' trust-fund myth - the idea that the system will be okay into the 2040s because the Congress has written a lot of
IOUs to itself. And he framed the issue exactly correctly: as one of character and courage against self-delusion and cowardice. There is much to celebrate in George W. Bush's State of Union 2005 address. The president appears really committed to much-needed
reform of the Social Security. Equally important, he is proposing to make his tax cuts permanent to encourage competition and move us
closer to a simple and fair flat tax. Also, in an effort to restore the fiscal credibility of his administration, the president called on Congress to
support a tough budget which reins in domestic spending. The president appears to have learned from his first-term mistakes. His speech Wednesday night contained much more detailed proposals about
controlling the size of government. But there still remains the challenge of translating good rhetoric into fiscal actions - even vetoes, if required.
President Bush has a very bad track record of doing was he says he will do on the issue of federal spending, largely because he has failed to veto
a single bill for spending too much money. ...So when the president tells us that this time the administration is really committed to fiscal
responsibility, one can at best be cautiously hopeful. The president, for instance, told us that "America's prosperity requires restraining the
spending appetite of the federal government." But then he turns around and undermines his own rhetoric by giving a non-exhaustive list of over
two dozens new or expanded spending initiatives such as funding for job-training and community colleges, small businesses to strong funding for leading-edge technology, from hydrogen-fueled cars to clean coal to
renewable sources such as ethanol. The good news is that unlike previous State of the Union addresses, the president did tell us that he was planning on cutting the budget and eliminating useless programs.
He said "My budget substantially reduces or eliminates more than 150 government programs that are not getting results or duplicate current
efforts or do not fulfill essential priorities." ...President Bush's tax agenda is great news for the American people. His Social Security reform agenda is good for workers and retirees. But in order to
maximize the economic benefits of these policies, the president needs to put our money where is mouth is and actually deliver on Wednesday night's budget promises.
Thursday, February 3, 2005 ~ 11:51 a.m., Andrew Quinlan Wrote: ...there is still unfinished business in the area of tax reform. A large gap between the top personal marginal income tax rate and the company
tax rate creates an incentive for a redefinition of personal income as company income. Also, while the maximum marginal income tax rate is
around the average by international standards, it cuts in at a relatively low income level, which may harm work incentives and discourage skill
acquisition. An additional important issue is that of effective marginal tax rates which, despite recent reforms, remain high for many low income earners, deterring labour force participation, including by
secondary earners and older workers. The priority for tax reform should be the simultaneous continuation of policies which contribute to the
lowering of these high effective marginal tax rates, and the raising of the threshold at which the maximum marginal income tax rate cuts in...
Thursday, February 3, 2005 ~ 10:27 a.m., Dan Mitchell Wrote: Senator John Kerry loudly proclaimed on "Meet the Press" that the Iraqi election represented President Bush's "last chance" to "get it
right." Nothing is easier than to demand more from somebody else -- even when you yourself have been an obstacle to achieving what has already been achieved. Senator Kerry has a long record as a defeatist
and obstructionist. Back in 1971, he said, "we cannot fight communism all over the world" -- adding in the same arrogant tone he uses today,
"I think we should have learned that lesson by now." Ronald Reagan never learned that lesson -- and hundreds of millions of human beings
are free of communist tyranny today as a result. But during all the years when President Reagan was building up our military forces and our
intelligence agencies, Senator Kerry was consistently voting against the appropriations required to do so. What both men were doing was consistent with their respective assumptions and goals. Senator Kerry
was just one of the defeatist elitists who regarded the communist bloc as a "fact of life" which we could only accept and which it was futile to waste resources opposing.
Thursday, February 3, 2005 ~ 9:48 a.m., Dan Mitchell Wrote: The number of unemployed has reached a new high in Germany, the latest figures from the German employment agency show. ... The agency
shows that 5,037 million people are unemployed - the highest figures since the 1930s. ...The surge was mainly due to new benefit rules that force all social welfare claimants to register as unemployed.
Thursday, February 3, 2005 ~ 9:30 a.m., Dan Mitchell Wrote: The good times keep rolling down under. Australia is now in its 14th year of uninterrupted vigorous growth, outperforming other major
developed economies. Unemployment has come down to a 28-year low of 5.1% today from almost 11% in 1992, and inflation has steadfastly remained at 2-3% since the early 1990s. Add to this the high budget
surpluses and low public sector debt, the share market's record-breaking advance, and the bullish consumer and business sentiment for the year 2005, and it is no wonder John Howard will tell
you Australia is "the envy of the industrialized world." ...Why then has Australia been so exceptional? Thank a smart mix of free-market
structural reforms and prudent monetary and fiscal policies during the past two decades. By restraining the deadening hand of the nanny state
and giving more play to market forces as the most reliable generator of wealth, Australian governments have transformed the way the nation does business. ...From the interventionist mindset that delivered
economic turmoil in the 1970s, Australia has moved to an era of sounder policy and more durable prosperity. Free markets now occupy the moral and policy high ground in Australia. The lesson: good policy
really does matter. ...By ditching Labor's socialist shibboleths, prime ministers Bob Hawke (1983-91) and Paul Keating (1991-96) fundamentally converted the nation's traditional protectionist mentality
to the idea that living standards of Australians depend on their ability to trade their way in the global marketplace. From the grasping of this
idea flowed the agenda of tariff cuts, lower taxes, reduced union power, budgetary and low inflation discipline, financial and exchange-rate deregulation, privatizing government-owned businesses, increasing
Asian engagement and strengthening monetary-policy independence. ...Given that Australian voters have recently given Mr. Howard's government a broad majority, the hope is that he and his able treasurer
Peter Costello will move further in the direction of free-market ideas and embrace a new wave of economic reforms in industrial relations, telecommunications and media policy. And then there is the unfinished
job of tax reform. At 47%, the top personal marginal tax rate is too high. And at A$70,000 (US$54,250), it cuts in too low. Why not cut the top MTR to something closer to the 30% corporate tax rate?
Thursday, February 3, 2005 ~ 9:08 a.m., Dan Mitchell Wrote: Today in Strasbourg, José Manuel Barroso is expected to tell the 732 lawmakers in the European Parliament that the way to economic
rejuvenation and job-creation in Europe lies primarily with intra-border competition, technological innovation, less rigid labor regulations and more stringent welfare programs. As a way to promote competition
within the borders of the Union, Mr. Barroso is also expected to step away from a strict interpretation of single market principles. He will likely oppose calls for tax harmonization, including the controversial
issue of minimum corporate tax rates. What may be music to the ears of leaders in new members states out East will be a sour note to Gerhard Schröder, Nicolas Sarkozy and others. The German chancellor recently
called moves to cut corporate tax rates in New Europe dangerous "tax-dumping." Mr. Sarkozy said this was unfair competition and suggested cutting EU transfers to states practicing it. ...Apart from
Ireland, newcomers Slovakia and Lithuania are the Union's only real-life laboratories for Mr. Laffer's ideas. Their overall tax burdens on corporate profits are below 15%, compared to tax rates in Old Europe
states that can be twice as high. Despite lower rates, these countries collect more corporate tax receipts than those with higher rates. Ireland's inflows are at 3.3% of GDP, Slovakia's at 2.2%, while
Germany's, for instance, linger at 0.7%. ...Meanwhile, Poland's leading opposition party, the conservative Civic Platform, has suggested that Warsaw should introduce a flat tax four points below Slovakia's.
Similarly, Romania just this year reduced its corporate and personal income taxes from 25% to a flat 16% rate, while keeping VAT at 19%. Serbia seems to want to outdo them all with its recent corporate rate
cut to 10%, to be followed by additional tax reductions in June. Even the spend-happy Czech Republic has now commenced a process to reduce its corporate rate to the low-20s from the high-20s over a period
of a few years. ...But New Europe is no policy nirvana. While a number of Central Eastern European states are now in the vanguard on tax policy, many are still laggards on fiscal policy. They can use the advice
of Mr. Barroso in this respect. His support for lower taxes should also be seen as a de facto petition for smaller governments, especially in the
East, where they are particularly bloated, slow and nontransparent. They're the major obstacles to a new phase of robust economic expansion needed to catch up quickly with Western levels of prosperity.
Countries like the Czech Republic, Hungary and Croatia have been most profligate in recent years, running budget deficits in the 5-13% range, compared to the 0-3% levels elsewhere in Europe. This is largely
due to a lack of political will to break away from Socialist-era welfare comfort and vote-buying dependency.
Thursday, February 3, 2005 ~ 7:54 a.m., Andrew Quinlan Wrote: Medicaid, the federal-state partnership to provide health care for the poor, is a fiscal and moral mess. The question is, what are our
politicians going to do about it? ...By far the most promising answer to date comes from Florida, where Governor Jeb Bush is proposing a radical restructuring of the program that serves 2.2 million low-income
people at an expected cost this year of $14.7 billion. ...the Sunshine State's vision could serve as a template for reforms in other states. And
in the best case, it could lead to a remaking of Medicaid in the same way that reforms in the early 1990s in Wisconsin and elsewhere paved the way for an historic and hugely successful national welfare reform.
...The defining feature of the Florida proposal is that it would transform the system into one centered on consumer choice, starting with letting
participants decide how to spend the money allocated on their behalf. Each participant would be assigned a premium with which to purchase coverage for basic and catastrophic care. Options would include HMOs,
insurers and community-based networks of physicians and hospitals. Premiums would be risk adjusted, which is to say that someone with AIDS, severe mental illness or other serious conditions would receive a
higher premium than a generally healthy person. By introducing competition, the aim is to encourage diversification of products and services. A third feature of the Florida plan is even more innovative.
Patients who follow the medical plan laid out for them by their doctors -- take their medication, have their children vaccinated, stop smoking -- will earn extra money that will be deposited for them in
flexible-spending accounts. ...This emphasis on personal responsibility will encourage healthy outcomes by providing incentives for patients to
comply with their doctor's orders. And since a huge share of Medicaid budgets go to managing chronic conditions that often can be ameliorated by personal behavior, the potential to save money is
enormous. The Florida idea must still be approved by the Republican-controlled state legislature, and parts of the plan must receive waivers from the Department of Health and Human Services in
Washington. The waivers ought to be a priority for new HHS Secretary Mike Leavitt, who used to be a governor himself. However, he took a beating on Medicaid during his confirmation hearings from liberals who
don't want anything to change, and so he may feel politically gun-shy. ...The complaint will rise that the poor will be hurt and that heartless
states will "race to the bottom," but those are the same unfounded fears we heard about welfare reform.
Thursday, February 3, 2005 ~ 7:12 a.m., Dan Mitchell Wrote: Hungarian Prime Minister Ferenc Gyurcsany has rejected calls from an opposition leader for the country to adopt a flat tax, despite a growing
trend towards the system in neighbouring countries. Gyurcsany was responding to comments made last week by Viktor Orban, the leader of the centre right Fidesz party, who has urged the government to
formulate a new budget for 2005 that will include radical tax cuts to ensure that Hungary can remain competitive with the likes of Slovakia and Romania, which have both recently introduced a flat rate of income
tax. ...At 16%, Hungary's corporate tax rate remains one of the lowest in the European Union. However, the country may find it harder to compete for international investment after neighbouring Slovakia cut
personal and corporate income tax to a flat 19%. Foreign firms also complain about local business taxes and high social security contributions.
Wednesday, February 2, 2005 ~ 1:40 p.m., Dan Mitchell Wrote: Despite the claims that Social Security has been a successful program up until now, the truth is that it offers Americans a lousy rate of return
on the 12.4% of their income (including the employers' portion of the Social Security tax) paid into the system. And demographic trends will make matters worse. By 2030 there will be barely two workers for every
retiree drawing a Social Security check. That's a system that cannot long financially sustain itself. The way out is to take advantage of what Albert Einstein called the eighth wonder of the world: compound
interest. By creating personal retirement accounts--allowing Americans to steer a sizable portion of their Social Security taxes into a 401(k)-type account, where individuals can pick which mutual funds to
place their money in--Social Security can start harnessing the power of the economy. ...Others propose allowing only small amounts of money to go into personal retirement accounts, say 1% of income. For the
working poor, this would effectively take away any chance a personal retirement account has of amassing enough wealth to make it worthwhile. For the people on the edge of poverty, servicing fees for the
account alone would eat up a significant portion of any gain. Again, strangling this baby before it has a chance to climb out of the crib.
...President Bush is left with the reality that the only way to save Social Security is to pursue a partisan bill, while continuing to take his
message to the people. By stirring up the voters, the president may get as many as two dozen Democrats to come along in the House and the half dozen he needs in the Senate. But he'll get that only if the doesn't
cede ground on the fundamental reform--large personal accounts, funded and controlled by individuals. Partisanship gets a bad wrap, but sometimes it's essential.
Wednesday, February 2, 2005 ~ 1:23 p.m., Andrew Quinlan Wrote: ...what about the flap over Dr. Summers' suggestion that genetics or innate differences might play a role in the paucity of women in science
and engineering? It's not that important whether Dr. Summers is right or wrong. What's important is the attempt by some of the academic elite
to stifle inquiry. Universities are supposed to be places where ideas are pursued and tested, and stand or fall on their merit. Suppression of
ideas that are seen as being out of the mainstream has become all too common at universities. The creed of the leftist religion is that any
difference between people is a result of evil social forces. That's a vision that can lead to the return to the Dark Ages.
Wednesday, February 2, 2005 ~ 1:05 p.m., Dan Mitchell Wrote: ...it does not follow that everyone should prepare for terrorism. Preparing can create needless fear and is costly. The fact that terrorists
could, in theory, strike anywhere does not making defending everywhere wise. The assumption underlying federal first responder grants, however, is that no matter how remote the risk of attack, every
American community should be ready to deal with any sort of terrorist attack. According to Veronique de Rugy of the American Enterprise Institute, homeland security funds going to first responders -- fireman
and emergency personnel -- grew from $616 million in fiscal year 2001 to $3.6 billion in fiscal year 2005, a 500 percent increase. A formula written into the USA Patriot act mandates that the Department split
40% of first responder funds equally among states, without regard to population, need, or risk. The Department distributes the other 60% of funds based purely on population. The result of this method is that the
less threatened a state is, the more funds it gets, per capita. Today Wyoming receives $35 in per capita homeland security grants, while New York receives $5. Preparing everywhere for terrorism is
counterproductive. In most rural areas, the risk of terrorism is too low to justify the cost of preparation. By combating tiny risks, we take money from places where greater dangers lie. A sensible approach to
homeland security would allow more funds to be used on tasks more vital to our safety. The money that goes to emergency responders in low-risk areas could be used to send more armored vehicles to Iraq, to
better secure loose nukes in Russia...
Wednesday, February 2, 2005 ~ 12:52 p.m., Dan Mitchell Wrote: Former Dutch Prime Minister Wim Kok, who wrote a key report on Europe's competitiveness, has admitted that the EU's Lisbon goal to
become the most competitive, knowledge-based economy in the World by 2010 is "a bridge too far". ...Mr Kok noted, "even if every target
were to be hit on time, which is highly improbable, we would still not be on safe ground", referring to competition from fast-growing economies
such as India and China. ...Mr Kok's comments come the day before Commission President José Manual Durao Barroso is due to unveil Brussels' proposal to "refocus" the Lisbon Strategy. ...The proposal
aims to redirect the Lisbon Strategy towards boosting growth and employment. The original plan - agreed in 2000 - was based around three pillars; economic, environmental and social. ...But the Socialist
Group in the European Parliament emphasised that the social and environmental aspects of the Lisbon Strategy should not be lost in the bid for stronger economic growth. Unveiling an "analysis of the failure
to implement the EU's Lisbon Strategy" and "more than 30 new ideas to revitalise it", the Socialist Group said, "We all agree that economic
performance must be improved. But the Socialist Group insists that social and environmental progress are part of the solution, not part of the problem". The President of the Socialist party, Poul Nyrup
Rasmussen, said in a statement that he was "very worried about rumours on the Barroso plan for more and better jobs". The Commission this week will re-launch the Lisbon agenda aimed at making the EU the world's most competitive economy by 2010. The
proposal follows the chain of events that was started by the October 2004 report The EU Economy: 2004 Review and culminated with the January 26-27 conference of the European Economic and Social
Committee. ...Despite the focus by the Barroso Commission on injecting new life into the clinically dead Lisbon agenda, the new policy objectives are about as realistic as the original 2010 deadline for the
EU's planned Economic World Domination. Using the latest forecasts, the average GDP growth in the Euro zone between 2000 and 2006 is expected to be around 1.48 percent. The unemployment rate remained
flat over the last 20 years, with young workers category staying at around 17 percent average for 1983-2003 period and 17.7 percent for the last three years. There is little that can be done to change this
without directly tackling the main sources of growth underperformance: low domestic demand (caused by high income and consumption taxation), low supply of hours worked, and low entrepreneurship and
labor force participation (all driven by the generous welfare systems and substantial labor markets rigidities) and low investment by the
firms (caused, you guessed it, by high taxation of capital income). All of these problems were identified in the European Competitiveness Report, 2004 (ECR), yet no policy proposal from the Commission addresses
these bottlenecks. According to both reports, labor income tax and welfare benefits reforms are a top priority in all of the EU-15 countries
(including low-tax Ireland). Wage bargaining policies (that reflect the degree of unionization and minimum wage policies) are the second highest priority in 10 out of 15 EU countries (again, including Ireland).
Incidentally, according to the ECR, not a single country has policies in place aimed at such reforms. ...Politics as usual prevails in Brussels. The
failed policies of the past aimed at smaller, less painful reforms of the regulatory environment and ever heavier involvement of the EU in strategic sectors remain at the top of agenda. At the same time, the
changes aimed at encouraging lower taxation of incomes, consumption and investment activity, and calling for reductions in government spending are no where to be heard. Neither rational nor irrational in its
prescriptions, the Commission appears to be bent on administering the same medicine of half-solutions and loud proclamations that made the EU economy sick in the first place.
Wednesday, February 2, 2005 ~ 12:26 p.m., Dan Mitchell Wrote: Medicare's new prescription benefit will cover sexual performance drugs, like Viagra, in addition to medications for such ailments as high
blood pressure and heart disease, program officials confirmed Monday. The move into what some consider "lifestyle" - rather than life-saving -
pharmaceuticals is being criticized by conservatives, who see it as an unnecessary frill for a program that already is projected to cost at least $400 billion over its first decade. ...Coverage by Medicare of
"impotence agents" was recommended in guidelines issued last year by United States Pharmacopeia, a nonprofit, nongovernmental standards-setting organization. But Medicare made decisions on what to
cover. "The bottom line is that plans are allowed to provide them and will have to provide them," said a Medicare official who asked not to be
identified. "But they can limit them only to medically necessary situations, and they can put quantity limits on them."
Wednesday, February 2, 2005 ~ 11:45 a.m., Dan Mitchell Wrote: EU foreign ministers made little progress towards an agreement on how to finance the Union between 2007 and 2013 during a two-hour
meeting on Monday (31 January) in Brussels. ...Six member states (France, Germany, the UK, the Netherlands, Sweden and Austria) want to cap spending at one percent of gross national income (GNI). This
move is strongly opposed by the Commission. ...
Wednesday, February 2, 2005 ~ 11:18 a.m., Andrew Quinlan Wrote: A multibillion dollar lawsuit against McDonald's for making people fat has twice been laughed out of court since it was first filed in 2002. But
last week the U.S. Court of Appeals for the Second Circuit partially reinstated it on a technicality. The plaintiffs lawyers are elated, though
not because they think their suit is actually winnable. ...What has the personal-injury set so excited is that the appellate court ruling will
allow them to collect more "evidence" to support their far-fetched case. These discovery proceedings will cost defendants millions of dollars,
which gives the plaintiffs leverage in any potential settlement talks. The main effect of the ruling, notes legal scholar Ted Frank in the Web log
Overlawyered.com, "will be to raise the cost of defending against meritless claims -- which will encourage nuisance settlements, which in
turn will encourage more meritless claims in the hopes of extorting such nuisance settlements."
Wednesday, February 2, 2005 ~ 9:59 a.m., Dan Mitchell Wrote: In 2003, the overall tax burden (i.e. the total amount of taxes and social security contributions) in the EU252 stood at 41.5% of GDP, compared
with 41.3% in 2002. After an increase from 42.4% in 1998 to 42.9% in 1999, the tax-to-GDP ratio declined steadily from 1999 to 2002. In all ten new Member States, the tax-to-GDP ratio was lower in 2003 than
the EU15 average (41.8%). Among the Member States there were substantial differences in the total tax burden. In 2003 Sweden (51.4%) recorded the highest tax-to-GDP ratio, followed by Denmark (49.8%),
Belgium ( 48.1%), France (45.7%) and Finland (45. 1%). The lowest ratios were observed in Lithuania (28. 7%), Latvia (29.1%), Slovakia (30.9%), Ireland (31.2%) and Estonia (33.4%). ...Looking at the
different types of taxes4 reveals significant differences in the structure of taxation systems between the Member States. In 2003, Poland (19.7%), Slovenia (20.8%) and Slovakia (23.2%) recorded the lowest
shares of direct taxes in the total tax burden, compared to the EU25 average of 31.6%. On the other hand, Denmark (59.6%), the United Kingdom (42.0%) and Finland (41.0%) had the highest shares of direct taxes.
Wednesday, February 2, 2005 ~ 9:34 a.m., Dan Mitchell Wrote: The U.S. occupation authority in Iraq was unable to keep track of nearly $9 billion it transferred to government ministries, which lacked
financial controls, security, communications and adequate staff, an inspector general has found. The U.S. officials relied on Iraqi audit agencies to account for the funds but those offices were not even
functioning when the funds were transferred between October 2003 and June 2004, according to an audit by a special U.S. inspector general.
...Some of the transferred funds may have paid "ghost" employees, the inspector general found. CPA staff learned that 8,206 guards were on
the payroll at one ministry, but only 602 could be accounted for, the report said. At another ministry, U.S. officials found 1,417 guards on the payroll but could only confirm 642.
Tuesday, February 1, 2005 ~ 11:33 a.m., Dan Mitchell Wrote: Laying out his ambition to shake up Europe's economy, the new president of the European Commission launched a blunt attack on
French and German efforts to end tax competition among European Union countries. Jose Manuel Barroso on Wednesday will present details of his economic-overhaul plans as the top priority of the
commission, the European Union's executive. The aim will be to create more growth and jobs by fostering greater cross-border competition, promoting technological innovation and pressing EU members to make
their labor markets more flexible and their welfare systems less burdensome on business and employment. ..."Some member countries would like to use tax harmonization to raise taxes in other countries to
the high-tax levels in their own countries," Mr. Barroso said in an interview during the World Economic Forum's annual meeting at this
Swiss ski resort. "We do not accept that. And member states will not accept it." His support for tax competition is a direct challenge to
German Chancellor Gerhard Schroeder, who last year accused new EU members of "tax dumping." Slovakia, Poland and Latvia have 19% corporate-tax rates, compared with 38% in Germany... Mr. Barroso's
stance exemplifies the new push for greater economic competition in Europe from Brussels, where the EU bureaucracy is better known for creating regulation than for free-market zeal.
Tuesday, February 1, 2005 ~ 10:45 a.m., Andrew Quinlan Wrote: ...is a flat tax or a progressive tax better? A progressive tax can have a marginal rate for the first dollar at 30 per cent and a marginal rate for
the last dollar at 30.1 per cent. Alternatively, a tax also counts as progressive if it starts at zero and goes up to 100 per cent. Anyone who favours a progressive tax must decide which tax rate structure they
support out of the billions that could be conjured up. The defender of the progressive tax will point to the undisputed proposition of the diminishing marginal utility of wealth. But it is impossible to come up
with a principled, intellectual way of determining the extent of diminishing marginal utility of wealth, just as it is impossible to come up
with a principled, intellectual way of setting the marginal increases in the rate of the progressive tax. Thus the task becomes a purely political
matter. Without principled argument, it is difficult to avoid a strong division of opinion and clash of wills. Legitimacy becomes difficult to obtain or retain. The process of figuring out the optimal level of
progressivity will create uncertainty and dissipate political capital that could be better spent on more productive activities. ...It is ironic that
the flat tax is popular in former communist countries. It was Karl Marx, in his Communist Manifesto of 1848, who was among the first to call
for "a heavy progressive or graduated income tax" at a time when a flat rate was the norm in the early industrialising countries. It is no accident that every strong defender of limited government has
gravitated toward the flat tax. This is true of John Locke, Adam Smith and Friedrich Hayek. Nobody would try to put themselves in that league, but I shall cast my vote with the giants and let those who dissent
find some other champion - perhaps Karl Marx.
Tuesday, February 1, 2005 ~ 10:04 a.m., Andrew Quinlan Wrote: Almost bursting at the seams with new technologies, U.S. businesses are more able than ever to deliver a good product, on time and at a
reasonable price - in a competitive world market that quickly rewards merit and punishes fault. And where is our government in this race for excellence? It is a hindrance - unable to keep up but too clumsy and
stubborn to get out of the way. ...Tax reform and Social Security reform are both about economic growth - the one about eliminating tax rules that unduly impede growth, and the other, through private accounts,
about allowing more Americans to participate in the benefits of a growing economy. The issue is whether the entrenched management of Government Inc. will give up some of its power and perquisites in the
best interests of the shareholders. Will the members of Congress cede to tax reform a large portion of the regulatory (and political) power they now exercise through the tax code? In the case of Social Security
reform, will they be willing today to pay the price for preserving the enterprise for future generations of shareholders?
Tuesday, February 1, 2005 ~ 8:59 a.m., Dan Mitchell Wrote: The Dutch government has come under heavy criticism following reports that it has reserved 1.5 million euro to fight the "no" campaign
against the EU Constitution. It emerged on Thursday (27 February) that the Dutch cabinet has put aside the money in case the "no" camp
runs a successful campaign in the run-up to the referendum on the new EU Constitutional Treaty, to be held in May. ...Bert Koenders, member of parliament for the opposition Labour Party, said according to Dutch
daily De Volkskrant: "The cabinet may sure propagate its "yes" - opinion. But it may not pursue state propaganda with taxpayers' money
in order to confront a successful "no" campaign." A majority of parties in the parliament share Labours' view that none of the campaigns
should be financially advantaged by the government. But Hans van Baalen, spokesman for the centre-right coalition party VVD stated: "If
the "no"-campaign buys a lot of TV advertising time, the government should be able to react."
Tuesday, February 1, 2005 ~ 8:19 a.m., Dan Mitchell Wrote: A 25-year-old waitress who turned down a job providing "sexual services'' at a brothel in Berlin faces possible cuts to her unemployment
benefit under laws introduced this year. Prostitution was legalised in Germany just over two years ago and brothel owners - who must pay tax and employee health insurance - were granted access to official
databases of jobseekers. ...Under Germany's welfare reforms, any woman under 55 who has been out of work for more than a year can be forced to take an available job - including in the sex industry - or lose
her unemployment benefit. Last month German unemployment rose for the 11th consecutive month to 4.5 million... job centres must treat employers looking for a prostitute in the same way as those looking for
a dental nurse. ...women who had worked in call centres had been offered jobs on telephone sex lines. At one job centre in the city of Gotha, a 23-year-old woman was told that she had to attend an
interview as a "nude model", and should report back on the meeting. ...Tatiana Ulyanova, who owns a brothel in central Berlin, has been
searching the online database of her local job centre for recruits. "Why shouldn't I look for employees through the job centre when I pay my taxes just like anybody else?" said Miss Ulyanova.
Tuesday, February 1, 2005 ~ 7:42 a.m., Dan Mitchell Wrote: Gov. Arnold Schwarzenegger last week proposed shifting California's pensions for state workers from a massive plan guaranteed by
taxpayers to individual 401(k)s controlled by the workers themselves. It's a great idea, not just because it would save taxpayers billions but
because it would keep the politicians and union activists who currently run the state's pension funds from improperly meddling in corporate boardrooms. ...Although private-sector fund managers focus on picking
lucrative investments - because that's how they get paid - public fund trustees have different incentives. Sure, they want funds to perform well. But if they don't, they know that taxpayers will make up the
shortfall. So they're free to pursue political objectives. ...When union advocates and politicians dependent on unions serve as trustees of
public pension funds, they have an irreducible conflict of interest: For them, the union workers they represent always come first, rather than
the success of the corporations in which they invest. Ten of CalPERS' 13 board members, for instance, are union members, union officers or current or former politicians who depend or once depended on union
support. There's no question that their political interests get in the way of what should be a trustee's only goal: maximizing financial performance to keep the pension fund stable and to cut the annual
pension bill for taxpayers.
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