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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, October 31, 2005 ~ 8:20 a.m., Dan Mitchell Wrote: …yesterday's decision to reinstate Davis-Bacon in the affected Gulf states on November 8 came after a meeting last week between Chief of Staff Andrew Card and about 20
Republican Congressmen from union-heavy districts. The move can only increase the cost and slow the pace of reconstruction. And as an act of unprincipled political calculation it ranks right up there with the
decision to impose tariffs on imported steel during Mr. Bush's first term. Davis-Bacon is almost always cast as "worker-friendly" legislation that requires federally funded construction projects to pay
the "prevailing" wage rate in a given area. But in reality the anti-competitive 1931 law is a relic of the Jim Crow era. New York Congressman Robert Bacon was upset about an Alabama contractor who had
brought a largely black construction crew to build a federal hospital in his district. "Colored labor is being brought in to demoralize wage rates," complained the American Federation of Labor at the
time. Many economists and minority leaders recognize that Davis-Bacon continues to be a cause of minority unemployment in the construction sector to this day. In addition to that ugly history, Davis-Bacon is
known for creating mountains of paperwork and unnecessary compliance costs. We know the White House is well aware of all these points, since it alluded to them when it suspended Davis-Bacon on September 8. So
the sudden reversal now -- well before hurricane reconstruction is finished, and at a time when the administration should be using all means necessary to expedite it and lower the price tag -- is a special
disappointment.
Monday, October 31, 2005 ~ 7:29 a.m., Dan Mitchell Wrote: For individuals, the number of brackets is reduced from six to three: 15%, 25% and 35%. The individual Alternative Minimum Tax (AMT) is
eliminated, saving millions of filers an average of 63 hours on tax preparation. A single, flat corporate rate of 35 percent will eliminate the
illogical roller coaster of the corporate code. …The Fair Flat Tax Act does retain many of the individual credits, deductions, exclusions and preferences most commonly claimed, including: deductions for
mortgage interest and charitable contributions, credits for children, and earned income. Additional preferences retained help our men and women in uniform, our veterans and the elderly and disabled, and help
people pay for health care and higher education… This bill …[creates] a new refundable credit for 10 percent of state and local income, sales and property taxes paid.
Sunday, October 30, 2005 ~ 10:44 a.m., Dan Mitchell Wrote: Why was there racially segregated seating on public transportation in the first place? "Racism" some will say -- and there was certainly plenty
of racism in the South, going back for centuries. But racially segregated seating on streetcars and buses in the South did not go back for centuries. Far from existing from time immemorial, as many have
assumed, racially segregated seating in public transportation began in the South in the late 19th and early 20th centuries. Those who see government as the solution to social problems may be surprised to learn
that it was government which created this problem. Many, if not most, municipal transit systems were privately owned in the 19th century and the private owners of these systems had no incentive to segregate the
races. …It was politics that segregated the races because the incentives of the political process are different from the incentives of the economic
process. Both blacks and whites spent money to ride the buses but, after the disenfranchisement of black voters in the late 19th and early 20th
century, only whites counted in the political process. …The incentives of the economic system and the incentives of the political system were not
only different, they clashed. Private owners of streetcar, bus, and railroad companies in the South lobbied against the Jim Crow laws while these laws were being written, challenged them in the courts after
the laws were passed, and then dragged their feet in enforcing those laws after they were upheld by the courts. …People who decry the fact
that businesses are in business "just to make money" seldom understand the implications of what they are saying. You make money by doing
what other people want, not what you want. Black people's money was just as good as white people's money, even though that was not the case when it came to votes.
Saturday, October 29, 2005 ~ 11:45 a.m., Dan Mitchell Wrote: In the wake of Hurricane Katrina's destruction of New Orleans, President Bush gave America's poverty pimps and race hustlers new
ammunition. The president said, "As all of us saw on television, there is also some deep, persistent poverty in this region as well. And that
poverty has roots in a history of racial discrimination, which cut off generations from the opportunity of America. We have a duty to confront this poverty with bold action." The president's espousing such
a vision not only supplies ammunition to poverty pimps and race hustlers, it focuses attention away from the true connection between race and poverty. ...In 1960, only 28 percent of black females ages 15 to
44 were never married and illegitimacy among blacks was 22 percent. Today, the never-married rate is 56 percent and illegitimacy stands at 70 percent. If today's black family structure were what it was in 1960,
the overall black poverty rate would be in or near single digits. The weakening of the black family structure, and its devastating consequences, have nothing to do with the history of slavery or racial
discrimination. ...Since President Johnson's War on Poverty, controlling for inflation, the nation has spent $9 trillion on about 80 anti-poverty
programs. To put that figure in perspective, last year's U.S. GDP was $11 trillion; $9 trillion exceeds the GDP of any nation except the U.S.
Hurricanes Katrina and Rita uncovered the result of the War on Poverty -- dependency and self-destructive behavior. Guess what the president
and politicians from both parties are asking the American people to do? If you said, "Enact programs that will sustain and enhance dependency," go to the head of the class.
Saturday, October 29, 2005 ~ 9:29 a.m., Dan Mitchell Wrote: ...subsidies are the wrong thing to do. There is no federal entitlement to analog television, nor should there be one. Viewers have been on notice
of the transition for nearly a decade, and there is no reason for those who have prepared for it to subsidize those who have not. Still, the real
surprise last week was not the subsidy itself, but its size. Even many subsidy supporters imagined that it would cost perhaps a few hundred million dollars. A study by the Government Accountability Office (GAO)
this February estimated that the subsidy would cost no more than $2 billion and as little as $463 million. The Senate committee's plan exceeds
GAO's top-end estimate by a billion dollars, which is real money even in Washington. Instead of a limited, narrowly tailored program, the plan
would provide set-top boxes to everyone, with few or no limits. Aid is not targeted to those in financial need-even the rich would receive subsidies for their old televisions. Equally problematic, the subsidy
would not be limited to those dependent on over-the-air TV. Even households with cable and satellite subscriptions would be eligible to receive aid. This is significant; while only a small fraction of households
have only over-the-air reception, many more have extra TVs stashed away in the spare bedroom or basement that are not connected to cable or satellite service. Under the Senate plan, these TVs will get set-top
boxes courtesy of the federal government-at a cost that probably exceeds the value of the TV sets themselves.
Friday, October 28, 2005 ~ 12:11 p.m., Dan Mitchell Wrote: …some increase in revenues will be necessary… a federal VAT should be considered. …retaining a personal income tax would allow the desired
degree of progressivity of the overall tax system to be achieved. …assuming successful implementation of the Streamlined Sales and Use Tax Agreement, Congress should authorise them to require remote
vendors to collect use tax on their behalf.
Friday, October 28, 2005 ~ 11:45 a.m., Andrew Quinlan Wrote: In short, this latest WTO ruling constitutes Euro-driven micromanagement of how the United States implements its tax laws,
and indeed of the U.S. political process itself. ... The WTO, far from the most Eurocentric global regulatory body (it recently slapped down a
proposed overhaul of European tariffs on banana imports), nonetheless carries in its rules a fundamental bias against U.S.-style tax policy. Tax
consultants Barbara Angus and Gregory Nickerson note "concern about the fairness of the WTO rules on direct and indirect taxes, which allow nonincome taxes like a VAT to be border-adjustable but deny border
adjustability in the case of income taxes." (That is, Euro-style taxes such as a value-added tax, or VAT, are deemed inherently incapable of
providing export subsidies, while American-style income tax breaks are "subsidies"!) Under global trade rules, U.S. tax laws are at an inherent
disadvantage. ... As global trade increasingly dominates the U.S. economy, this WTO bias against U.S. tax policy grows in importance. Pressure for the United States to shift to a VAT-type tax (value added is
taxed at each stage of the production process, but is not visible to the taxpayer in the final price paid) largely comes from U.S. businesses seeking a level international playing field. ... But there are many
problems with a VAT: its addition to the overall tax burden, and its hidden nature (preventing the public from knowing what it is paying for
government). ... It should not be the business of the WTO, or of Europe, to pressure the United States to "harmonize" its tax system with theirs,
especially when Europe lags far behind the United States on most measures of economic success. Does the phrase "no taxation without representation" ring a bell?
Friday, October 28, 2005 ~ 10:34 a.m., Dan Mitchell Wrote: The advisory panel appointed by George W. Bush to recommend changes to the Byzantine US tax system will call for an end to taxes on
US companies' foreign profits, eliminating a competitive handicap for US businesses. The proposal is part of an ambitious slimming down of the tax code proposed by the panel, set up by the president in January.
With Mr Bush's plan for Social Security reform foundering, tax reform is expected to rise up the agenda as Republicans prepare their platform for congressional elections in 2006. …Tax experts gave a cautious
welcome. Chris Edwards, head of fiscal studies at the Cato Institute, said: "Both plans are much better than existing tax law. Both would be a significant simplification and would help promote economic growth."
Friday, October 28, 2005 ~ 10:02 a.m., Dan Mitchell Wrote: United States Treasury Secretary John Snow has urged lawmakers to continue carrying through the Bush administration's commitment to low
taxation whilst at the same time maintaining fiscal discipline to avoid excessive budget deficits. In prepared remarks for a speech to the Center for National Policy, Mr Snow stated that low taxes and a strong
government balance sheet are not mutually exclusive, observing that: "The two go hand in hand". Whilst acknowledging the fact that there
are "clearly legitimate" spending needs, particularly in the wake of recent devastating natural disasters, and the need to protect the homeland, Mr Snow went on to warn that excessive deficits will
undermine growth and US competitiveness by asserting upward pressure on interest rates. "Fiscal responsibility gives us a competitive edge, and that is very much on the minds of Administration leaders as
we look at our budgets to tightly control spending," he noted. However, Snow went on to argue that reining in the deficit should not come at the price of higher taxes.
Friday, October 28, 2005 ~ 9:56 a.m., Dan Mitchell Wrote: The European Commission is set to use for the first time the "enhanced cooperation" method, allowing it to circumvent the veto of five states
that oppose a controversial law harmonising company tax rules. EU tax commissioner Laszlo Kovacs announced on Wednesday (26 October) that the Barroso commission will step up efforts to set up a law
harmonising corporate tax bases, setting 2008 as a target date for the legislation. Tax bases refer to rules on what share of businesses' profits
are taxed, taking special tax breaks and exemptions into account. The UK, Ireland, Estonia, Lithuania and Slovakia are fundamentally opposed to the harmonisation of tax bases, fearing that the next step for
Brussels will be interference in the levels of their corporate taxes as well. …Although a commission spokesman said Brussels wants to apply
enhanced cooperation only "as a last resort", Brussels' taxation department seems happy with the instrument as it can circumvent the veto in tax matters. …Experts have pointed out that a single EU
corporate tax base will not hamper competition between states on tax levels, but rather boost it, as real tax differences will become more visible with one set of rules. Commissioner Kovacs has frequently tried
to reassure the five mistrustful states, saying in a recent speech "Let me be clear: the purpose of the commission is to harmonise only the
corporate tax base. Tax rates should remain in the competence of the Member States". …The issue of corporate taxation last year sparked a
passionate war of words between "old" and "new" member states. The low-tax policies of the new states prompted the French, German and
Swedish governments to call for an EU minimum company tax standard - fearing that their companies would shift production to the east. German chancellor Schroder called the new states' tax policies
"ruinous" and former French finance minister Nicolas Sarkozy said EU funds to the new countries should be slashed if they did not raise their
taxes. But meanwhile, "old" member states have followed the new member states' example by themselves cutting their company tax rates. Since EU enlargement in April 2004, seven old EU member states
decided to reduce rates, with Austria frequently advertising one full-page ad in "The Economist" that its new tax rate is competitive to that of new member states. You'd expect a former politburo member who managed a seamless political transition to post-Communist Hungary -- even becoming his
country's first European Commissioner -- to be clever. But Laszlo Kovacs's tax harmonization proposal on Wednesday was an act of political adroitness with few parallels. "Tax harmonization" has long
been code for the attempt of statist countries like France and Germany to impose their outdated, failed systems on the rest of Europe. In a press
conference, Mr. Kovacs managed to turn the tables on Paris and Berlin. French President Jacques Chirac and departing German Chancellor Gerhard Schröder have been trying to harmonize tax rates across
Europe in order to stop what they call "tax dumping," particularly from new East European members, several of which have introduced a flat
tax with great success. But tax matters fall under national sovereignty and harmonization would require unanimity among governments. …Mr. Kovacs went around this problem by suggesting that if the required
unanimity cannot be found, those countries that support the idea could simply go ahead voluntarily. Fair enough. But the really clever part of
the Commissioner's new initiative was to spell out what kind of tax base he had in mind. Mr. Kovacs said the Commission was likely to model its
proposal on the Slovak corporate system, which introduced a flat tax last year. Their corporate profit base knows no exception, no exemptions or special regimes, he said. …The beauty of the proposal is
that rather than reducing tax competition, as France and Germany might have hoped, adopting such a tax base would increase competition. The relatively high German and French "headline" tax
rates are only sustainable thanks to the myriads of exceptions that allow corporations, by employing an armada of tax accountants, to reduce
their "effective" tax rate much below the official rate. If these countries had to adopt the Slovak tax base, the "headline" tax rate would become
the "effective" tax rate. This would be so uncompetitive that the pressure to lower tax rates would be irresistible.
Thursday, October 27, 2005 ~ 4:51 p.m., Dan Mitchell Wrote: Both plans would eliminate the 10 percent bracket, putting the lowest rate back up to 15 percent. That's an efficient idea, since creating that
lowest rate had very little bang for the buck. Yet the very large amounts of extra revenue from raising the lowest tax rates are not to be devoted
to reducing higher tax rates. Plan A trims the top individual tax and the corporate tax trivially, from 35 percent to 32 percent. Plan B doesn't even do that much, leaving the individual rate unchanged. Today's
simple flat tax of 15 percent on dividends and long-term capital gains would be replaced by excluding 75 percent of capital gains for stocks but not other investments. There is no coherent rationale for applying
progressive tax rates to capital gains, so this looks like a complicated distortion. … Plan B is far bolder, but this is not a virtue. It began as a
strange sort of flat tax -- one that is not remotely flat. There would be four individual tax rates from 15 percent to 35 percent and a corporate
rate of 32 percent. Plan B postures as a "consumption tax," simply because business investments could be immediately expensed, rather
than depreciated over years. In one key respect, however, income from personal investments would be double-taxed to an even greater degree than under current law. Plan B is structured like the Steve Forbes flat tax, but it has four tax rates instead of one. A pure version of Plan B would tax just labor
income at the individual level and capital income at the business level. It is "consumption-based" because individuals would not be taxed on the
returns to savings and businesses would immediately write off, or expense, investments. That would be a very pro-growth tax structure. However, responding to class warfare concerns, the panel added a 15
percent tax for dividends, interest and capital gains on top of the pure Plan B. With this compromise, it is not clear that the plan is much better
than Plan A. However, for businesses the use of cash-flow accounting and the equal treatment of debt and equity would increase efficiency and reduce tax sheltering. And as panel members noted, business
expensing would spur capital investment, increase worker productivity and raise American wages. The bad news is that substantial tax rate cuts are missing from the proposals. Under Plan A, the top individual
tax rate would be cut from 35 to 33 percent. Under Plan B, it wouldn't be cut at all. Under both plans, the corporate rate would be cut only
modestly from 35 to 32 percent. Yet if "tax reform" means anything, it means big cuts to marginal rates. …if "tax reform" means anything, it
means big cuts to marginal rates. The bipartisan Tax Reform Act of 1986 cut the top individual rate from 50 to 28 percent and the top corporate rate from 46 to 34 percent. The need for rate cuts is more
acute today than in 1986. Reformist governments around the globe are cutting marginal rates and putting pressure on antiquated tax systems like ours. Eastern Europe is enjoying a flat tax revolution. The average
corporate tax rate in the 10 European Union countries in that region is just 21 percent. The average rate across all 25 EU countries is 27 percent. The corporate rate of 32 percent proposed by the Bush panel
doesn't pass muster in today's competitive world economy.
Thursday, October 27, 2005 ~ 2:37 p.m., Dan Mitchell Wrote: Since at least 1998, bureaucrats in several dozen countries -- including US allies such as Canada and the UK -- have been quietly working to
craft a global cultural protectionism treaty. They have gathered annually at meetings of an inter-governmental group called the International Network for Cultural Policy (INCP) to plot strategy. Last
Monday, they got their wish -- the United Nations Educational, Cultural and Scientific Organization's (UNESCO) culture commission voted to support the treaty. On Thursday, the treaty won approval from the
overwhelming majority of UNESCO's member states, paving the way for its formal ratification. The United States is the only major holdout.
No surprise there -- the treaty is aimed squarely at the billions of dollars worth of cultural products America's film and recording industries
export each year. Reaction from Louise Oliver, the US Ambassador to UNESCO, was swift: "Under the provisions of the convention as
drafted, any state, in the name of cultural diversity, might invoke the ambiguous provisions of this convention to try to assert a right to erect
trade barriers to goods or services that are deemed to be cultural expressions," she said. …Blame-America-first types will cheer the news from UNESCO as yet another black eye for President Bush, courtesy of
the international community. The last laugh, however, may be on INCP's backers -- and UNESCO. They have their treaty now, sure. They can feel safer about imposing intrusive regulations regarding what can
be played on their national airwaves. They can set quotas and minimum standards and enact other rules to restrict choice and "nurture
diversity." The treaty will reduce their fear of retribution from the US for this anti-free-trade stance. But thanks to the spread of personal
electronic devices and the rise of sites where you can download content from the Internet, will this "right" to regulate mean anything? Can
governments seriously influence the viewing/reading/listening habits of citizens anymore? …Even the regulation-loving French may blanche at
the cost of that. France can regulate how often American movies can be shown on French movie screens. Does this matter, however, when French consumers can play American movies on their laptops after
downloading the movies from the Internet, bypassing that regulatory barrier? The INCP may have won this battle. Its members are fighting a war against consumer choice they cannot win.
Thursday, October 27, 2005 ~ 10:10 a.m., Dan Mitchell Wrote: ...a tax collected by business is not a tax on business. All taxes are paid by people, in their roles as employees, consumers, shareholders or homeowners.
When people talk of a tax on a particular company, what they mean is a tax on the people associated with the company - perhaps its customers,
shareholders or employees - just as when they talk of a tax on tobacco they mean a tax on the people who sell or use it rather than a tax on the tobacco
leaf itself. For some taxes, it is difficult to identify who the taxpayers are. Is a tax on payroll paid by the shareholders of the company, its customers or by
the employees themselves? The answer is hard to assess and probably differs between the short and long run: shareholders may bear the burden initially,
but in due course wages may be lower or prices higher. And if the tax discourages employment, it imposes an excess burden: the people who have
lost their jobs are worse off, but the government has gained no revenue from them. The costs of the tax exceed the amount of the tax.
Thursday, October 27, 2005 ~ 9:35 a.m., Dan Mitchell Wrote: According to a Financial Times report published on Monday, EU Tax Commissioner, Lazlo Kovacs intends to press ahead with the
presentation of legislation to create a single European corporate tax base, despite strong opposition from five member states. Mr Kovacs has
reportedly revealed that he plans to put forward his proposals next year, with the intention of legislating on the matter before his mandate ends
in 2009. Although the UK, Ireland, the Czech Republic, Estonia and Slovakia are opposed to any move towards corporate tax harmonisation, Mr Kovacs stated that he is prepared to leave them
outside the scheme, and move forward under the auspices of an 'enhanced cooperation' initiative.
Thursday, October 27, 2005 ~ 8:21 a.m., Dan Mitchell Wrote: Presidents expect their political appointees to exercise adult supervision over the career staff. So we can only hope Attorney General Alberto
Gonzales will start doing precisely that with his Antitrust Division, which oddly enough doesn't seem to understand antitrust law. The inmates have been running that corner of the Justice asylum since
Charles James departed in 2002. Successor Hewitt Pate suffered embarrassing legal defeats, including an attempt to block Oracle's hostile, but ultimately successful, takeover of PeopleSoft. The hope was
that Mr. Pate's departure would give President Bush a chance to improve this part of his economic policy-making team. So it is disappointing to find that his nominated replacement, acting antitrust
chief Thomas Barnett, has so far shown none of the fresh thinking needed to drag the career lawyers into the 21st-century marketplace. ...These antitrust shenanigans have little economic or legal merit, and
increasingly look to be examples of antitrust lawyers trying to justify their employment. It's worth noting that in the weeks after Oracle's PeopleSoft victory in court, numerous mergers were announced -- from
Sony's $3 billion bid for MGM to Cendant's purchase of Orbitz -- as businesses entertained hopes of overcoming regulatory review. Mr. Barnett's nomination is pending before the Senate. Someone ought to
tell him that if he can't respect antitrust precedent, he belongs in another job.
Wednesday, October 26, 2005 ~ 5:03 p.m., Dan Mitchell Wrote: Years ago, interviewing economist Walter Williams for a show ABC News called "Greed," I was perplexed when Williams said, "a thief is
more moral than a congressman; when a thief steals your money, he doesn't demand you thank him." ...The Republicans promised to change
the culture. Democrats sold panic. "Don't vote for them! They're going to shrink government and take away your favorite programs!" They
needn't have worried. The Republicans got elected, but if the Democrats' goal was to expand the government, they were the real winners. Once Republicans were in power, they started spending money even faster
than the Democrats did.
Wednesday, October 26, 2005 ~ 2:47 p.m., Dan Mitchell Wrote: Every Congressional session can be counted on to produce its share of bad bills, and a few dreadful ones. But the "reform" bill for Fannie Mae
and Freddie Mac...is in a class of its own. Think of Freddy St Germain's successful effort to increase federal deposit insurance limits in the
1980s, just ahead of the savings & loan debacle. Or imagine a bill to make New Orleans safer by taking down the levees surrounding the city as Katrina approached. This is the financial equivalent. The bill
sponsored by Congressmen Richard Baker and Michael Oxley is remarkable for not doing what it claims to do -- which is to reform both the operation and the oversight of Fannie Mae and Freddie Mac, the
trillion-dollar, government-sponsored mortgage giants. And it is even more astonishing for the bad things it does instead -- e.g., skimming a
portion of those companies' profits to create yet another "affordable housing" program. The bill passed Mr. Oxley's Financial Services
Committee in May on a 65-5 vote -- the kind of near-universal assent that should make any taxpayer nervous. The bill's new "affordable
housing" fund confiscates potentially billions of dollars of the profits of these nominally private companies to finance the pet projects of Barney
Frank and other Democrats. This sort of targeted profits tax is not only a bad idea in its own right but also gives Members of Congress an even
greater stake in opposing any reform that might dent that profit stream. That is precisely why it is being promoted by the homebuilder lobby and others who benefit from Fannie subsidies. We're not averse to
profit-making. But Fannie and Freddie's business model relies on borrowing money at taxpayer-subsidized rates and reinvesting that money to buy mortgage-backed securities, mostly of its own creation.
This is a lucrative business, but it creates interest-rate and other risk for Fannie and Freddie, which they hedge by engaging in complex and
opaque derivatives trading. ...In the event of a more serious misstep, Uncle Sam would be on the hook for some or all of the liabilities of these two federal nephews. This implicit taxpayer backing is the reason
Fannie and Freddie can borrow at bargain-basement prices in the first place, and it is one of the reasons that Fed Chairman Alan Greenspan
has argued that Fan and Fred pose a "systemic risk" to financial markets. ...The sad political truth is that a Democratic Congress
probably couldn't pass this stinker without being accused (accurately) of promoting state socialism. That an ostensibly conservative House will pass it is another embarrassment for Republican governance.
Tuesday, October 25, 2005 ~ 10:33 a.m., Dan Mitchell Wrote: ...when it comes to public policy, Europe has taken a wrong turn. Its welfare state has sapped initiative and driven jobs abroad; its treatment
of immigrants is shameful; unemployment is in the double digits; health policy is making people sick... The results are predictable: The countries
that use the euro will grow 1.2 percent this year, according to The Economist; the U.S. will grow 3.5 percent. Similar disparity has prevailed for a decade, and Americans today have a living standard
about one-third higher. The notion that Europe will be able to compete with resurgent China and India in the next 30 years is laughable. ...Europeans will have to find their own path. My concern is with
Americans. Is it inevitable that, as we grow more prosperous, we will become more like Europe -- losing initiative, insisting that our governments coddle us? I worry that we are beginning to see the initial
signs of just such a turn for the worse. A distinguished 20-member panel of experts convened by the National Academies, America's top science
advisory group, has warned in a new study that the U.S. "could soon lose its privileged position" as the world's top innovator and growth
engine. With competitors "who live just a mouse click away," we stand to lose high-paying jobs, especially to Asia.
Tuesday, October 25, 2005 ~ 8:51 a.m., Dan Mitchell Wrote: The Justice Department's lawsuit against the country's leading tobacco companies accuses them of "racketeering." Yet the government's
lawyers are the ones behaving like mobsters. Once you cut through the legalese, the message they're sending is clear: "Nice business you've got
here. It would be a shame if something happened to it." Like mafia thugs extorting money from a shopkeeper, the Justice Department cannot follow through on its threat without breaking the law. In a
decision the Supreme Court recently declined to review, the U.S. Court of Appeals for the D.C. Circuit said there was no legal basis for the
government's demand that cigarette makers "disgorge" $280 billion -- a sum that exceeds the combined value of the companies' stock.
Monday, October 24, 2005 ~ 10:31 a.m., Dan Mitchell Wrote: The spotted owl has become for property owners the poster child of everything wrong with the 1973 Endangered Species Act. That law has
taken a toll on thousands of communities, yet there was something about the scope of the spotted-owl action -- the speed with which it brought an entire region to its knees -- that brought home how badly the
law had gone wrong. One minute, the Western timber industry was proudly tending the timber stands that had built the nation. The next minute, poof, and it was pretty much all gone! -- the owl landed on the
species list in 1990, and the Clinton administration effected an 80% cut in logging on 24 million acres in Washington, Oregon and California. Northwesterners have taken to referring to this debacle as their own
"Katrina," and with some merit. According to a congressional committee, the spotted owl protections resulted in at least 130,000 lost
jobs, after more than 900 sawmills, pulp mills and paper mills closed in the mid-'90s. Many of these were family businesses and the effect on small communities was severe. Divorce rates shot up; men committed
suicide. ...But at least we have the owls, right? Wrong. Scientists are struggling to explain why, more than 10 years after a halt of logging on
the "old growth" trees in which spotted owls are supposed to thrive, the bird's population has continued to plummet -- declining by 7% a year in
Washington. The answer, biologists are beginning to admit, is ... another owl. Barred owls migrated into spotted owl territory decades ago, and
have a nasty habit of killing the smaller birds, driving them out of their homes, or mating with them -- producing impure offspring.
Monday, October 24, 2005 ~ 9:46 a.m., Dan Mitchell Wrote: House Republicans such as Mike Pence, Jeff Flake, and Marsha Blackburn are putting together an expanded budget package for
mandatory spending cuts and a 3 percent across-the-board discretionary sequester that could net $600 billion in 10-year savings estimates. Meanwhile, over in the Senate, Republican Tom Coburn valiantly tried
to halt the pork-barrel funding of Alaska's "bridge to nowhere." These are important developments, but the president and his top economic
managers seem to be offering no encouragement. For instance, Josh Bolton, the director of the Office of Management and Budget, has said nothing publicly about the necessary renewal of spending restraint. Only
a month ago, he promised to deliver, in a few weeks time, a new list of White House-sponsored budget cuts and perhaps even a rescission package. But the period elapsed without any new ideas coming out of
the administration. ...When a recent CNBC poll asked which party was worse on pork-barrel spending, Republicans earned profligacy honors by
a margin of 14 points -- 57 percent to 43 percent. This result shows that the investor class may understand politics better than the professionals
in the West Wing -- they know that in today's setting, pro-growth tax-cut extensions on capital gains and dividends will never make it through
without a strong budget-cutting package. If the investor class deserts the GOP in next year's midterm elections, Republicans will be crushed and the Congress could change hands. ...By not campaigning for tax-cut
extensions, an omission that has chilled the stock market, and by not supporting tough budget-cutting proposals, the president could be trapping himself.... Pro-growth, first-principle policies of tax cuts and
budget restraint are the hallmarks of Republican political victories. Has the White House forgotten this?
Sunday, October 23, 2005 ~ 1:24 p.m., Dan Mitchell Wrote: The Posse Comitatus Act (18 U.S.C. 1385) generally prohibits federal military personnel and units of the U.S. National Guard under federal
authority from acting in a law enforcement capacity within the United States, except where expressly authorized by the U.S. Constitution or Congress. Enacted during Reconstruction, the purpose of the Posse
Comitatus Act was to severely limit the powers of the federal government to use the military for local law enforcement. Would Americans tolerate such a gigantic leap in the federalization of law
enforcement? I'm guessing the answer is yes. In the name of safety, we've undergone decades of softening up to accept just about any government edict that our predecessors would have found offensive.
...We've accepted federal intrusion in our financial privacy through the Bank Secrecy Act. Rep. Ron Paul, R-Texas, says, "More than 99.999 percent of those [who] had their privacy invaded were law-abiding
citizens going about their own personal financial business." Most recently there's the U.S. Supreme Court Kelo decision, where the court
held that local governments can take a private person's house and turn it over to another private person. Politicians have learned and become comfortable with the fact that today's Americans will docilely accept
just about any legalized restraint on their behavior. ...In the late-1700s, the British Parliament enacted the Sugar Act, the Stamp Act and the Townshend Acts, and imposed other grievances that are enumerated in
our Declaration of Independence. I'm happy that we didn't have today's Americans around at the time to bow before King George III and say, "It's the law."
Saturday, October 22, 2005 ~ 11:15 a.m., Dan Mitchell Wrote: Gun manufacturers have been hit with more than 25 liability suits filed by states, cities and counties. The plaintiffs claim the companies should
be held responsible for crimes committed with their products -- as if the guns forced people to fire them -- a remarkable twist on the concept of
personal responsibility that all too many judges have been willing to take seriously. ...Liberals have adopted this lawsuit strategy because
they have discovered the hard way that gun control is a political loser. The "assault weapons" ban expired without a political whimper last
year, and John Kerry barely mentioned the subject. As for gun liability, the Senate passed its version in July with a filibuster-proof 65 votes, while the House version has 257 co-sponsors. A majority is 218.
Bull's-eye.
Friday, October 21, 2005 ~ 9:55 a.m., Dan Mitchell Wrote: If you want a real life example of how tax cuts boost the economy, take a look at the Homeland Investment Act of 2004. This law allowed U.S.
corporations to repatriate earnings from foreign operations back to these shores for one year at a reduced tax rate of 5.25%. Supporters
argued that this tax cut would lead to an "in-sourcing" of jobs by luring corporate income parked in foreign vaults back to America. Those
repatriated dollars could then be put to work for R&D spending, plant expansions, capital and technology purchases, or merely to improve balance sheets to the benefit of American shareholders. We also
predicted the measure would increase tax receipts because a 5.25% tax on several hundred billion dollars raises more money than a 35% corporate tax rate on nothing. Our only concern was whether the
Treasury implementing rules were too restrictive. Well, here's what has happened: In nine months the law has increased the flow of repatriated
foreign capital by a whopping $225 billion. J.P. Morgan estimates that another $75 billion will return to America in the fourth quarter. ...We
can't resist noting that this $300 billion of repatriated capital is nearly double the estimate by Congress's hapless Joint Tax Committee, which
had assured us this time last year that not a dime more than $165 billion would arrive. ...Treasury has already collected some $12 billion directly from the 5.25% rate on the capital inflows, and the American
Shareholders Association estimates that an extra $20 billion will be collected indirectly through the corporate income tax. So, just as supporters claimed, this act reduced the budget deficit and contributed
to the boom of an estimated $274 billion in additional tax revenue in Fiscal 2005.
Friday, October 21, 2005 ~ 8:36 a.m., Dan Mitchell Wrote: This year, Wall Street Journal columnist George Melloan wrote: "Congress knows it has a spending problem, just as alcoholics are
aware that they have a drinking problem. The late Democratic Senator Pat Moynihan once said to Journal editors, 'It doesn't do any good for
you to yell at us--we just can't help it.'" ...The railroad has already hemorrhaged $29 billion in federal funds and loses more money per
customer than any other form of transportation. Nonetheless, Senators Trent Lott (R., Miss.) and Frank Lautenberg (D., N.J.) gloss over Amtrak's failures and want to double subsidies to nearly $11.4 billion
over the next six years. Such generosity is absurd. Consider: In the 1990s, Congress ordered the Internal Revenue Service to give Amtrak a
$2.2 billion income-tax "refund" even though Amtrak never paid a penny in income taxes. Supporting the deceitful congressional action, Amtrak promised the bailout would improve its bottom line. But the
reverse happened, leading critics to equate the business practices of the nearly bankrupt Amtrak with those of Enron and WorldCom. ...French historian Alexis de Tocqueville warned that American democracy would
succeed only until the people realize they can vote themselves money from the public treasury, and then it would fail. We haven't failed yet,
but we still might if the damage caused by special interests doesn't end.
Thursday, October 20, 2005 ~ 1:04 p.m., Dan Mitchell Wrote: International bureaucrats and assorted countries are struggling to wrest control of "Internet governance" from that old unilateralist bogeyman,
the United States. There's one big problem with this picture: Cyberspace isn't "governed" by the U.S. or anyone else, and that's the beauty of it.
But if the United Nations gets its way in the coming month, the Web will end up under its control. Uh-oh is about right. ...Real "governance," on
the other hand, could bring oversight of content and even transactions by a new international body -- two jobs that Icann explicitly doesn't perform. For an example of how the Internet is governed, look no
further than the strict limits China -- one of the main proponents of "internationalizing" the root zone file -- places on Web sites that
promote or even discuss democracy. But if China and other countries already do this now, why would they be pushing for change? Good question. So far, exactly what this new intergovernmental body would
look like or do remains worryingly vague. ...One constant -- and this is where vagueness becomes an even bigger danger -- is that a U.N.-run
oversight body would address "public policy issues that currently do not have a natural home or cut across several international or intergovernmental bodies." In other words, it could do darn near
anything it wanted. It's no surprise that supporters' bureaucratic web of choice is the U.N., which cloaks its designs on Internet control in
language about such niceties as bridging the "digital divide." Spreading Web access is a worthy goal, but centralizing control runs directly at
odds with that aim. The phenomenal growth of email, e-commerce and e-everything else is directly attributable to the Internet's decentralized nature. One area where a U.N.-run Web might very well expand its
reach is into the taxpayer's pocket. Kofi Annan and Jacques Chirac have long dreamed of a global "solidarity" tax on online financial transactions. This could be their vehicle for doing so.
Thursday, October 20, 2005 ~ 12:21 p.m., Dan Mitchell Wrote: By far the most promising idea is for a spending cut of as much as 3% on every discretionary federal agency, program and department. The
case for across-the-board cuts is especially persuasive given the boom times that federal agencies have enjoyed in recent years. As the nearby chart shows, spending for federal education programs is up 99% since
2001; international affairs and foreign aid is up 94%; community development 71%; housing programs 86%, and so on. The inflation rate over the same period was 12.5%. This "cut," by the way, would only
reduce spending from the "baseline" that already includes annual increases for inflation for 2006. A 3% sequester, as it's known in Beltway lingo, would save $36 billion in 2006. And because baseline
spending levels would be reduced going ahead, the savings would magnify over time -- to as much as $500 billion over 10 years. This is without even touching the $1.4 trillion to be spent on Medicare,
Medicaid and other entitlements. ...Government is fully capable of rooting out waste if it is forced to. In 1987, when the Gramm Rudman deficit-reduction law was enforced, President Reagan ordered a 4.3%
sequester of all domestic and defense spending. A funny thing happened: Agencies found ways to save money. Social Security checks got sent out; the air traffic control system still operated; and the Washington
Monument wasn't closed down. Some conservatives want to exempt homeland security and Pentagon spending from the budget scalpel. That's a bad idea. The defense budget is up 64% in four years, or to
about 4% of GDP after it had fallen to 3% from 5% during the Clinton era. ...There was a time, in 1995 and 1996, when the freshly minted Republican majority really did try to restrain spending and kill
unnecessary programs. But over the years, the GOP has lost its way, albeit with the help of a White House willing to let the Members run
wild. If they want to regain their fiscal conservative credentials, they'll sign up for the 3% across-the-board sequester.
Thursday, October 20, 2005 ~ 12:10 p.m., Dan Mitchell Wrote: Hurricane Katrina evacuees hastily handed $2,000 in federal relief money last month have been living it up on Cape Cod, blowing cash on
booze and strippers, a Herald investigation has found. Herald reporters witnessed blatant public drinking at a Falmouth strip mall by Katrina victims living at taxpayer expense at Camp Edwards on Otis Air Force
Base. And strippers at Zachary's nightclub in Mashpee, a few miles from the Bourne base, report giving lap dances to several evacuees. ...The Federal Emergency Management Agency has issued more than $1.5
billion to 607,000 Katrina victims in the form of individual cash handouts of $2,000. There are no restrictions on how the money can be spent, FEMA officials said.
Thursday, October 20, 2005 ~ 10:32 a.m., Dan Mitchell Wrote: In August, Lockyer filed suit against McDonald's, Burger King, Frito-Lay and six other food companies, saying they should be forced to
put warning labels on all fries and chips sold in California that say something like: "This product contains a chemical known by the state of
California to cause cancer." The state "knows" no such thing. Lockyer's position is based on the stuff-the-mouse-till-it-explodes school of
science. The labeling of acrylamide as a "probable human carcinogen," according to Joseph Levitt, director of the Food and Drug Administration's Center for Food Safety and Applied Nutrition, is based
on studies where rats were fed a daily dose of 500 micrograms per kilogram of body weight over their life span. In human terms, the average adult, who weighs more than 75 kilograms, would have to
consume 195 pounds of French fries, 142 pounds of graham crackers or 5,350 one-ounce servings (333 pounds) of Cheerios every day for his or
her entire life to approach the lowest level of risk observed in laboratory rats. Eating that much tofu would kill you, but not from the acrylamide it might contain.
Thursday, October 20, 2005 ~ 10:00 a.m., Dan Mitchell Wrote: When Florida passed a law in 1987 making it easier for citizens to get licenses to carry concealed firearms, opponents predicted that blood
would run in the streets. "When you have 10 times as many people carrying guns as you do now, and they get into an argument and tempers flash, you're going to have people taking out guns and killing
people," one gun control activist said. Since the law was passed, it turns out, Florida's murder rate has been cut in half. Instead of becoming
more dangerous, the state has become considerably safer. ...Last spring, the Florida legislature passed a measure giving citizens more legal
protection when they act in self-defense. ...Supporters of the law think victims shouldn't be punished for acting in self-defense against a serious
threat. The change reflects the view that it would not be a bad thing for criminals to face greater risks when they resort to violence. And it
embraces the idea that self-defense is the fundamental right of every person. The Centers for Disease Control did an extensive review of various types of gun control: waiting periods, registration and licensing, and
bans on certain firearms. It found that the idea that gun control laws have reduced violent crime is simply a myth. I wanted to know why the
laws weren't working, so I asked the experts. "I'm not going in the store to buy no gun," said one maximum-security inmate in New Jersey. "So, I
could care less if they had a background check or not." ...Talking to prisoners about guns emphasizes a few key lessons. First, criminals don't
obey the law. (That's why we call them "criminals.") Second, no law can repeal the law of supply and demand. If there's money to be made selling
something, someone will sell it. A study funded by the Department of Justice confirmed what the prisoners said. Criminals buy their guns
illegally and easily. The study found that what felons fear most is not the police or the prison system, but their fellow citizens, who might be
armed. One inmate told me, "When you gonna rob somebody you don't know, it makes it harder because you don't know what to expect out of
them." ...Most states now have "right to carry" laws. ...Not one of those states reported an upsurge in crime. ...Alex Kozinski, a federal appeals
judge and an immigrant from Eastern Europe, warned in 2003, "the simple truth -- born of experience -- is that tyranny thrives best where government need not fear the wrath of an armed people. The prospect
of tyranny may not grab the headlines the way vivid stories of gun crime routinely do," Judge Kozinski noted. "But few saw the Third Reich
coming until it was too late. The Second Amendment is a doomsday provision, one designed for those exceptionally rare circumstances where all other rights have failed -- where the government refuses to
stand for reelection and silences those who protest; where courts have lost the courage to oppose, or can find no one to enforce their decrees. However improbable these contingencies may seem today, facing them
unprepared is a mistake a free people get to make only once."
Wednesday, October 19, 2005 ~ 11:13 a.m., Dan Mitchell Wrote: ...a growing China has created large investment opportunities for American business, an expanding market for American exporters, and
an important source of low cost goods for American consumers. ...a much larger, more troubling foreign economic situation poses a challenge quite opposite from that of China. The problem is not one of
fast growth in an emerging economy, but rather slow growth of a developed region; not of surging exports to the U.S., but rather slowing import growth from the U.S.; not about an economy stealing jobs from
America, but an inability to create jobs at all. The problem is Europe and it should worry us more than anything going on in China. ...the European economy is floundering. Annual economic growth in the
eurozone has averaged less than 2 percent since 2000. The unemployment rate has averaged 9 percent thus far in 2005, compared to 5.1 percent in the U.S. Half of Germany's unemployed are classified
as "long-term" compared to just 12 percent in the U.S. -- a direct result of the fact that Germans receive at least 12 months of unemployment
benefits and older workers can receive benefits for more than two and one-half years, compared to the typical six months of benefits available
in the U.S. ...government spending in Europe is nearly half of GDP as tax burdens are enormously high on everything from gasoline to low-income worker's wages. ...Unfortunately, the short term economic
outlook for Europe is poor. The International Monetary Fund (IMF) again lowered its growth forecast for Europe now to below 2 percent annually for this year and next.
Wednesday, October 19, 2005 ~ 9:48 a.m., Dan Mitchell Wrote: Treasurer Peter Costello faces more pressure to reform the tax system after a new report found Australian businesses are among the highest
taxed in the developed world. The Business Council of Australia report found only Luxembourg and Norway relied more heavily on the tax taken from the business sector than Australia. ...The survey of the
corporate tax system found the tax burden on Australian business was 5.3 per cent of Gross Domestic Product, 64 per cent above the OECD average of 3.4 per cent of GDP. ...Opposition treasury spokesman
Wayne Swan said the council had highlighted a major problem facing Australian business. "The report paints a picture of Australia's declining
competitiveness, particularly compared with key trading partners and competitors in the Asia-Pacific region," he told AAP.
Tuesday, October 18, 2005 ~ 5:35 p.m., Dan Mitchell Wrote: The truth that is now dawning on many movement conservatives is that George W. Bush is not one of them and never has been. ...From the
conservative point of view, the list of grievances is a long one, dating back to the first days of the Bush administration. One of President
Bush's first actions in office was a vast expansion of education spending with little real reform in return. To conservatives, it has always looked
like a transparent effort to buy off the so-called soccer moms. But rather than buy peace with the education lobby, it has simply led to continuous
calls for still more education spending, despite the paucity of evidence correlating spending with achievement. Almost all conservatives view
campaign finance reform as a blatantly unconstitutional abridgement of the First Amendment... government spending has exploded during the Bush years. Although the vast proliferation of pork-barrel spending,
which President Bush steadfastly refuses to veto, has gotten most of the attention, far more worrisome has been the expansion of entitlements,
especially the extraordinarily ill-conceived Medicare drug benefit. ...The Miers nomination has led to some long-overdue soul-searching among
conservative intellectuals. For many, the hope of finally turning around the judiciary was worth putting up with all the big government stuff.
Thus, Bush's pick of a patently unqualified crony for a critical position on the Supreme Court was the final straw.
Tuesday, October 18, 2005 ~ 10:52 a.m., Dan Mitchell Wrote: MEPs on Wednesday voted in favour of hauling both the commission president and the internal market commissioner before parliament to
explain Brussels' position on Sweden's social model. In a resolution put forward yesterday by the Socialist group and adopted by 189 to 157 votes, Jose Manuel Barroso and Charlie McCreevy have been asked to
appear to shed light on comments reportedly made by Mr McCreevy on a recent trip to Sweden. The comments, which appeared to call the country's collective wage agreements into question - an important part
of Sweden's economic model - caused uproar. ...Speaking on Wednesday, Martin Schulz, head of the socialists, said "Mr McCreevy is a loose cannon whose arrogant opinions have provoked anti-EU feeling
across Europe." "We want Mr Barroso to disown this unacceptable attack on a social model that is universally recognised as being one of the most successful in the world".
Monday, October 17, 2005 ~ 11:44 a.m., Dan Mitchell Wrote: The tax reform panel, having failed to follow its mandate, should be dissolved immediately and the panel members sent off to create mischief
elsewhere. Former Louisiana Senator John Breaux, who serves with Florida Republican Connie Mack as co-chairs of the panel, announced this week that the panel is not going to seek a wholesale reform of our
tax code. No surprise there. Why would politicians want to abandon a tax code that has served them, if not the people, so well for
generations? The ability to manipulate tax laws so as to buy votes and reward large campaign contributors is not something we should not expect politicians to abandon without a fight.
Monday, October 17, 2005 ~ 10:17 a.m., Dan Mitchell Wrote: France has called for an emergency debate on the EU trade commissioner's offer to cut farm subsidies. ...Paris has gathered support
from 12 other member states urging trade commissioner Peter Mandelson to discuss the issue with them before making any concessions on agriculture at the international forum, Financial Times reports. The
countries have also backed France in its concerns about the proposed cuts in EU tariffs and subsidies. ...Washington regards the Brussels reform package as insufficient, because its highest agriculture import
tariffs would only fall by 50 percent as opposed to 90 percent cuts suggested by US.
Sunday, October 16, 2005 ~ 12:28 p.m., Dan Mitchell Wrote: In a truly free market, businesses can't kill competition, because they can't use force. Unfortunately, in our "mixed economy," they can get
their friends in politics to use force to stifle competition. Adam Smith saw it all the way back in 1776. In "The Wealth of Nations (http://www.thbookservice.com/products/BookPage.asp?prod_cd=C496 5) ," he wrote, "People of the same trade seldom meet together, even
for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." He advised
that any legislation such a group proposed "ought always to be listened to with great precaution." Detroit and its dealers wield enough influence
in state capitals to make direct sales of cars on the Internet illegal everywhere but Alaska. ...Similarly, now that more home sellers sell
their homes themselves, real estate agents are using their political clout to try to protect their 6 percent commissions. In 2001 and 2002, California's Department of Real Estate, run by (surprise) a real estate
broker, sent warning letters to some "for sale by owner" websites, demanding that they comply with licensing laws for brokers. In 2004, a federal court held this demand unconstitutional.
Saturday, October 15, 2005 ~ 1:09 a.m., Dan Mitchell Wrote: Last month the Bush administration proposed using federal vouchers to meet the educational needs of the estimated 372,000 Louisiana and
Mississippi children displaced by Hurricane Katrina. Up to $7,500 would follow student evacuees "wherever they are enrolled." Mr. Kennedy, the ranking Senate Democrat on education matters, initially
couldn't abide this nondiscrimination and wanted private and religious schools excluded. More recently, he's softened that stance. Congressional Quarterly reports that while Mr. Kennedy is still not
ready to sign on to the President's plan, he now favors allowing federal money to be "routed through the local public school system -- so they
technically would not be vouchers -- to serve private and religious students." ...Other Democratic converts to school choice include Louisiana Senator Mary Landrieu, who sends her own children to a
private school but last year didn't support a pilot voucher program for the poorest of the poor in the District of Columbia. Post-Katrina, she's
cosponsoring a bill, as part of a larger relief package, that would use federal dollars to cover tuition at private and religious schools. Even Senator Chris Dodd of Connecticut, another longtime voucher
opponent, now says he could support them on a temporary basis. The former students of such educational wastelands as New Orleans' Ninth Ward, where drop-out rates and participation in free- and reduced-lunch
programs far exceed the national averages, could have used help on this front long before Katrina's visit. But better late than never.
Friday, October 14, 2005 ~ 9:30 a.m., Dan Mitchell Wrote: The Presidential Tax Advisory panel is likely to recommend curbing tax breaks on home ownership and employer-provided health insurance
plans when it produces its final report, scheduled for November 1. ...the eleven members were in broad agreement that the total amount of mortgage debt for which interest is deductible should be reduced to a
figure in the region of $300,000 to $350,000 from its current level of $1 million. The panel has also indicated its preference for limiting tax deductions for employer healthcare plans by placing an $11,000 per
year per employee cap on the amount of premiums that employers can deduct. ...Limiting these tax breaks would also help absorb the cost of repealing or limiting the Alternative Minimum Tax, another issue upon
which the panel has reached a consensus. This system was initially designed to ensure that the wealthy cannot get away with paying little or no tax, but it is now beginning to affect taxpayers in the middle
income brackets. Link to this Blog Entry
Friday, October 14, 2005 ~ 9:04 a.m., Dan Mitchell Wrote: The KPMG indictment has more verbiage than clarity, but at its core is an alleged violation of the business purpose doctrine. This doctrine was
invented by the IRS and the courts as a way to combat certain tax-motivated transactions. It holds that the courts should deny a taxpayer the tax benefits of a transaction that otherwise qualifies under
the words of the Internal Revenue Code if the expectation of gain that motivated the transaction derived primarily from the tax savings, not from some gain inherent in the transaction itself. But just how much
prospective "real" gain, as compared to tax benefits, will the IRS say is necessary to establish a business purpose? This is uncertain and often
varies with the nature of the transaction and the tax result sought. The business purpose doctrine is very much the moral equivalent of that
much-loved definition of pornography -- the IRS knows it when it sees it. Since the business purpose doctrine has no explicit statutory support
and is applied to disallow tax results which are otherwise consistent with the technical provisions of the tax law, the tax return itself never
mentions it. Nor does the return require any representation that the taxpayer's transactions have complied with the business purpose doctrine as it is understood by the IRS. The only things reported on the
tax return are the transactions undertaken by the taxpayer and the claimed tax result.
Friday, October 14, 2005 ~ 8:41 a.m., Dan Mitchell Wrote: In The Robber Barons, Josephson presented a quintessentially Marxian analysis of enterprise. Quoting Honore de Balzac's catchy but baseless
aphorism that "behind every great fortune lies a great crime," Josephson painted Gilded Age capitalism simplistically as a zero-sum game where a dollar acquired by one person was necessarily one stolen
from another. As Maury Klein has observed, Josephson was at heart "a moralist who cared less about the accuracy of the story than about the
ideological message he saw in it." In shaping his facts to backup his ideology, Josephson completely missed one elemental truth: The leading
entrepreneurs of the Gilded Age were to the modern American economy what the founding fathers were to the Bill of Rights. These men built the infrastructure upon which the whole of their country's 20th century
prosperity was based. The Carnegies, Goulds, Rockefellers and Morgans created -- and that is a key word here, created -- capacity and jobs, thus enabling the rise of that most radical and democratic of things: a
strong, stable, educated middle class. By being visionaries and taking business risks that served their own ends, the Gilded Age industrialists
generated new wealth not only for themselves, but for their emerging nation-state. During the forty years that followed the Civil War, the United States amazed European investors and observers with the speed
at which it morphed from a relatively backward agricultural republic to the most powerful industrial nation on the face of the planet. During the
"robber baron" years, the United States outstripped other nations by far when it came to growth in per capita income, industrial production, and
rising values generally. As well, the Gilded Age saw, for the first time, full economic participation by numerous previously disenfranchised constituencies.
Friday, October 14, 2005 ~ 7:56 a.m., Dan Mitchell Wrote: In California a group of golfers in wheelchairs are suing a hotel chain for not providing them with special carts that will enable them to
navigate the local hotel's golf course more comfortably and play the game better. According to a newspaper account, the kinds of carts the
golfers in wheelchairs want "have rotating seats so a golfer can swing and strike a ball from the tee, the fairway and on the green without
getting out of the vehicle." If golfers want this kind of cart, there is nothing to stop them from buying one -- except that they would rather
have other people be forced to pay for it. ...There was a time when people would have said that the hotel is not responsible for these golfers being in wheelchairs and therefore it has no obligation to spend
additional money for special carts in order to help their scores on the links. But that was before the Americans with Disabilities Act, under
which the hotel is being sued. ...It was a lawyer's full-employment act, creating another legally recognized victim group, empowered to claim special privileges, at other people's expense.
Friday, October 14, 2005 ~ 7:36 a.m., Dan Mitchell Wrote: The EU has matched Washington's move and said it is prepared to substantially cut subsidies for its farmers in a bid to get stalled world
trade talks moving. In a statement released on Monday (10 October), EU trade commissioner Peter Mandelson said the bloc would be prepared to reduce its aid to the agriculture sector by 70 percent.
Presenting the EU's plan to WTO counterparts in Zurich, Mr Mandelson also said the EU would be ready to reduce its import duties on farm goods by up to 60 percent. ...Although the European Commission is
entitled to negotiate on behalf of member states, a group of governments, particularly France, have said that they want to go through any agreement first before the Brussels executive signs up to it.
On top of this, around 13 member states are opposed to the move to cut subsidies by up to 70 percent, reports the Polish daily Rzeczpospolita.
Thursday, October 13, 2005 ~ 10:52 a.m., Dan Mitchell Wrote: Angela Merkel may have won the German Chancellorship, but the socialists will keep the Finance Ministry, and without a majority in the
cabinet Merkel will struggle to make necessary changes to the tax system. ...During negotiations so far, it appears to have been agreed that the tax system should be simplified, but most of Merkel's campaign
tax pledges - including plans to cut tax breaks for Sunday and night shifts and a proposal to finance a cut in non-wage labor costs by increasing value-added tax - have already been ditched. And the flat
tax, sorry, remind me, what was that?
Wednesday, October 12, 2005 ~ 10:28 a.m., Dan Mitchell Wrote: In the past two years, accounting failures at Fannie Mae and Freddie Mac, known as Government Sponsored Enterprises (GSEs), have led to
the largest financial restatements in history -- totaling more than $20 billion -- dwarfing the combined restatements of both Enron and WorldCom. In recent days, news reports indicate the financial
misconduct could be wider and deeper than has emerged thus far. Left undetected and unchecked, the web of misconduct at Fannie Mae and Freddie Mac might have unraveled in a way that caused serious
disruptions to our financial system. ...Yet, two and a half years after Freddie Mac's scandal unfolded, legislation to strengthen regulation remains mired in gridlock.
Wednesday, October 12, 2005 ~ 9:41 a.m., Dan Mitchell Wrote: Russia's Prime Minister Mikhail Fradkov has called upon the Finance and Trade ministries to draft plans for a 5% cut in value added tax
beginning in 2007 to help accelerate the pace of economic growth. If enacted, the measure will reduce Russia's VAT rate to 13% from 18%, although the government announced in a statement on its website that
the tax cut depended on must not increasing state spending as a share of gross domestic product (GDP). The government estimates that cutting VAT by 5% will increase economic growth by 0.5% of GDP, thus
helping President Valdimir Putin to meet his pledge to double GDP over a ten year period. Since 2002, the Putin administration has reduced and
abolished a number of taxes, including turnover tax, payroll taxes, sales tax, and value added tax, which was recently cut to 18% from 20%. Last month, Deputy Finance Minister Sergei Shatalov stated that the
tax cut programme is entering its concluding phase, but indicated that the tax burden on the Russian economy will continue to be reduced by the equivalent of around 1% of GDP annually for the next three years.
Tuesday, October 11, 2005 ~ 12:07 p.m., Dan Mitchell Wrote: The mainstream press is finally discovering the flat-tax movement that has been sweeping Europe. It must be painful to credit an idea
associated with the likes of Milton Friedman and Steve Forbes, but reality can't be ignored forever. ...By our count, this brings to 11 the number of nations with a single-rate, postcard tax system. More
dominoes are expected to fall in the next few years: Bulgaria, Croatia and Hungary are also preparing to feed their thousands of pages of tax code into the shredder in favor of lower, flatter rates. A flat-tax
proposal was debated as part of Poland's recent election campaign. And one of the countries that started it all, Estonia, plans to lower its rate
one more time, to 20% from 24%, which was down from the initial flat rate of 26%. Lithuania hopes to go to 24% from 33%. ...In response, even Old Europe has had to consider tax reform, lest its economies
become increasingly uncompetitive. Rather than catching the flat-tax wave, France, Germany and Italy have been attempting to stop it by outlawing tax competition through international entities, such as the
OECD, the European Union and United Nations. ...The best way to get more taxes out of rich people is to generate more rich people, and then give them more incentive to report their income by keeping tax rates
low. Russia, for example, has reported that it now gets more tax revenues from the rich from its 13% flat tax than from its pre-existing Swiss cheese tax code with massive evasion and 50%-plus tax rates.
Russia's revenues with the flat tax grew in real terms by 28% in 2001, 21% in 2002, and 31% in 2003, according to a recent analysis by the Hoover Institution. ...Last year the Internal Revenue code achieved a
new Olympic record for complexity, with nine million words -- 12 times the length of the King James Bible. High tax rates and mindless tax complexity are an economic ball and chain. We hope President Bush's
tax reform commission will cut through the class-warfare blather later this month and endorse a simple, broad-based, single-rate tax system. Link to this Blog Entry
Tuesday, October 11, 2005 ~ 11:44 a.m., Dan Mitchell Wrote: The US is ready to cut back certain farm subsidies by 60 percent within the next five years, its trade representative has said. In a comment
article in Monday's Financial Times, Rob Portman wrote that Washington has agreed to cut by 2010 those domestic farm subsidies believed to distort world trade. In a second stage, tariffs should be
brought down to zero, he said in the article. Mr Portman is set to present his proposals on Monday... Developing countries such as Brazil and India want developed nations to cut back farm subsides before they
agree to open their markets to industrial goods from richer countries. ...The EU has proposed a 65 percent cut in spending on its own
"trade-distorting" farm subsidies. But European farmers are protesting this.
Tuesday, October 11, 2005 ~ 11:00 a.m., Dan Mitchell Wrote: At present, many public policies and workplace practices discourage older people from carrying on working. On average in OECD countries,
fewer than 60% of people aged between 50 and 64 have a job, compared with 75% of people in the 25-49 age group. Such policies and practices are relics of a bygone age and unsustainable at a time when
population ageing is straining public finances and holding back higher living standards. If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area
over the next decades, from around 38% in 2000 to just over 70% in 2050. This, in turn, would lead to higher taxes and/or lower benefits, coupled with slower economic growth. On the basis of unchanged
patterns, OECD analysis shows, GDP growth per capita in the OECD area could shrink to around 1.7 % per year over the next three decades, about 30% below the average annual rates witnessed between 1970 and
2000. ...Governments should ensure that pensions and other welfare arrangements encourage rather than discourage work at older ages.
Tuesday, October 11, 2005 ~ 9:30 a.m., Dan Mitchell Wrote: The federal government does not pay to defend New York state against Lyme disease or New York City against terrorist attack. So it is a
question why it is a federal duty to pay for measures to protect or repair New Orleans from local storms. ...New Orleans is so vulnerable to hurricanes that it is not rational for governments to recreate its
infrastructure on the former scale. Parts of the city are 10 feet under sea level and cannot be reliably guarded against storms in category four or five. These parts are best made non-residential. Many of the
displaced inhabitants, moreover, will be moving on. They will learn that jobs are more plentiful elsewhere. The pre-storm unemployment rate, at 10%, was normal by the standards of Europe's museum-cities but far
above, say, New York City's 6% or the nation's 5%. New Orleans cannot create the jobs it did when the Mississippi was more important than it is
now. It would be quixotic to build infrastructure for a level of commerce and capital that -- absent a basic change -- will not come.
Tuesday, October 11, 2005 ~ 8:37 a.m., Dan Mitchell Wrote: The Christian Democratic Union's Angela Merkel will become Germany's first female leader. Little else can be said with certainty
about the next government. ...The real litmus test for this government will be the economy. Here, more so than on foreign policy, Ms. Merkel
will be hamstrung by the realities of coalition politics. Both parties lost voters in this election compared with 2002: the Social Democrats because they initiated cautious reforms and the Christian Democrats
because they promised even more of them. This outcome left the anti-market fringes of both parties stronger. Make no mistake, this holds true for the German right as much as the left: the traditional
elements in the Christian Democratic Union and its Bavarian sister party, the Christian Social Union, prefer the guiding hand of the state over the market's invisible hand at least as much as the Social
Democrats. ...The coalition partners agreed some concrete reform measures -- such as simplifying Germany's complicated tax code. But any tax overhaul won't be nearly as inspired as Ms. Merkel might have
pursued if the CDU and its allies had managed to win a majority. Her shadow finance minister pushed a flat tax, but scurried back to obscurity in academia after the election. The other planned measures --
increasing public spending on R & D and promoting industry-union pacts -- smack of the same tired corporatist approach that got Germany into this mess in the first place.
Tuesday, October 11, 2005 ~ 8:15 a.m., Dan Mitchell Wrote: ...consumers pay in advance for expected tort damages through higher prices for goods and services. For example, the price of a medical
procedure includes money to compensate the physician for his malpractice insurance premiums. Second, only about 22 cents of every $1 going through the system compensates for economic losses, with the
rest going to legal fees (54 cents) and compensation for non-economic losses such as "pain and suffering" (24 cents). Legal fees provide no
benefit to consumers. Payments for pain and suffering are worth much less than their actual cost, and no one voluntarily buys insurance against pain and suffering. This means that much of the money
consumers pay for expected tort damages is largely wasted. Finally, many actions subject to tort law, such as the practice of medicine and the sale of medicines and protective equipment, are risk reducing, not
risk increasing. One result is that, on net, tort law increases prices paid by consumers and patients for risk-reducing goods and services. These
higher prices may lead consumers to choose not to purchase these goods and services in some circumstances where they would actually reduce
risk. Theoretically, expansions in tort law might increase risk -- and tort reform might reduce risk, by reducing the prices and increasing the
consumption of risk-reducing goods and services. ...states passed 141 "tort reform" measures, enough to allow us to perform a statistical
analysis using the powerful tool of panel data regression analysis. This analysis allowed us to essentially compare death rates in each state before and after each tort reform was passed. It also allowed us to
adjust for other factors, such as the age distribution of state's population and the number of hospital beds per capita. ...Overall, we found that the risk-reducing effects of tort reform greatly outweigh the
risk-increasing effects. Tort reforms in the states from 1981-2000 have led to an estimated 14,222 fewer accidental deaths.
Monday, October 10, 2005 ~ 12:41 p.m., Dan Mitchell Wrote: Kofi Annan, Coming to a Computer Near You! The Internet's long run as a global cyberzone of freedom -- where governments take a "hands
off" approach -- is in jeopardy. Preparing for next month's U.N.-sponsored "World Summit on the Information Society" (or WSIS) in Tunisia, the European Union and others are moving aggressively to
set the stage for an as-yet unspecified U.N. body to assert control over Internet operations and policies now largely under the purview of the U.S. In recent meetings, for an example, an EU spokesman asserted
that no single country should have final authority over this "global resource." To his credit, the U.S. State Department's David Gross,
bristled back: "We will not agree to the U.N. taking over management of the Internet." That stands to reason. The Internet was developed in
the U.S. (as are upgrades like Internet 2) and is not a collective "global resource." It is an evolving technology, largely privately owned and
operated, and it should stay that way. ...regulators across the globe have long lobbied for greater control over Internet commerce and content. A French court has attempted to force Yahoo! to block the sale
of offensive Nazi materials to French citizens. An Australian court has ruled that the online edition of Barron's (published by Dow Jones, parent
company of this newspaper), could be subjected to Aussie libel laws -- which, following the British example, is much more intolerant of free speech than our own law. Chinese officials -- with examples too
numerous for this space -- continue to seek to censor Internet search engines. ...We favor the non-regulatory approach. But where laissez-faire is not an option, the second-best solution is that the legal
standards governing Web content should be those of the "country of origin." Ideally, governments should assert authority only over citizens
physically within its geographic borders. This would protect sovereignty and the principle of "consent of the governed" online. It would also give
companies and consumers a "release valve" or escape mechanism to avoid jurisdictions that stifle online commerce or expression. The Internet helps overcome artificial restrictions on trade and
communications formerly imposed by oppressive or meddlesome governments. Allowing these governments to reassert control through a U.N. backdoor would be a disaster. Link to this Blog Entry
Monday, October 10, 2005 ~ 10:59 a.m., Dan Mitchell Wrote: While emergency spending in the wake of Hurricanes Katrina and Rita has added billions to the deficit-riddled federal budget, those outlays are
just a drop in the bucket compared to the prestorm spending habits of the president and Congress. Indeed, when it comes to big-time spending, many think of Democrat Lyndon Baines Johnson -- who busted the
budget like a Texas tornado. But it's the current chief executive from the Lone Star State, with plenty of help from the Republican-controlled
Congress, who actually set the one-term record for raising discretionary spending. ...While Mr. Bush's new calls for cuts are heartening, he may well face his sternest opposition from within his own party. A
spokesman for Rep. Don Young, Alaska Republican and chairman of the powerful House Transportation Committee, has called pork-for-relief swap proposals "moronic." Tom DeLay, Texas Republican, recently
declared "victory" over federal budget fat, ludicrously asserting, "After 11 years of Republican majority we've pared [the budget] down pretty
good." While it remains unclear exactly what the budget for fiscal 2006 will look like, this much already is crystal-clear: If the president and his
Congress do not immediately and radically cut the massive spending spree of the last four years, the GOP can no longer claim the mantle of fiscal responsibility.
Sunday, October 9, 2005 ~ 12:28 p.m., Dan Mitchell Wrote: ...believe it or not, the legislators who already impose some of the highest tax rates in the nation want to give themselves even more
spending clout. They're promoting an amendment to the New York constitution on next month's ballot that would remove important budgetary powers from the Governor and give them to the legislature.
This is like waving packages of white powder in Needle Park. ...According to a recent analysis by Robert Ward of the Public Policy Institute, "history suggests that giving the legislature more influence
over the budget will lead to higher spending and taxes--thus making it even harder for New York to compete for the jobs we need." The state's
most recent budget, in which the legislature added $1.3 billion to Governor George Pataki's spending proposal, illustrates the point. Mr.
Ward notes that, "In the past 10 years, the legislature has added a total of more than $12 billion to the Governor's Executive Budget proposals.
In good times and in bad, in other words, the legislature always wants to spend more." ...Albany needs stronger protections against runaway spending. Proposal One would have the opposite effect.
Saturday, October 8, 2005 ~ 1:14 p.m., Dan Mitchell Wrote: The way tax law has usually developed in this country is that the IRS issues its point of view on a shelter, putting taxpayers who use it on
notice. If the IRS then takes the taxpayer to court over the shelter, he has the chance to respond before a judge, who makes a ruling and precedents are thus established. In this case, the IRS has called in the
prosecutors first. This in itself is striking. Despite some recent legal setbacks, the IRS has an excellent track record of obtaining favorable
rulings on tax shelters it dislikes. Yet no taxpayer has been brought to court over these shelters, and no judge has ruled on whether they
"work," in the jargon of the tax-shelter business. In America, last we checked, the accused are innocent until proven guilty. That gives this
KPMG trial an Alice-in-Wonderland quality; the accused are on trial for promoting a fraudulent tax shelter that has never been proved to be
fraudulent in the first place. ...The KPMG case attempts to short-circuit the messy business of proving that a tax shelter is illegal by using the
power of prosecution to target the tax advisers directly. And by cutting them off from the support of their firm through the threat of a death-sentence indictment of KPMG itself, the government seems intent
on compelling the accused to cop a plea or settle the case, and so deny them their day in court. Tax evasion is a serious matter, but so is a criminal indictment for conspiracy. KPMG's partners in this case
believed they were selling shelters that were entirely legal, and the underlying legality of those shelters has never been formally challenged. Yet the government has come down on those accountants and tax
lawyers as if they belonged to the mob. A case of curiouser and curiouser, said Alice.
Friday, October 7, 2005 ~ 10:48 a.m., Dan Mitchell Wrote: The failure of various forms of statism in the Third World, the bankruptcy of communism in the former Soviet bloc and China, and the
high long-term unemployment and relative stagnation in Western European countries with overregulated economies has forced a revision of the development paradigm in favor of the market and private
property -- in short, a more limited state. But the battle over ideas and policies is far from over. As a matter of fact, it will never end, as the
forces of statism regroup rather than capitulate. ...Countries that catch up with reforms tend to catch up with growth as well. Take Armenia, which has radically enlarged the scope of economic freedom and
brought its tax/GDP ratio to low levels, while strengthening fiscal discipline. Its GDP has grown 70% since 1996. This may be another indication that the low-tax model is more conducive to rapid economic
growth than are systems with the extensive budgetary redistribution typical of larger Eastern European countries. ...Market-oriented reforms may well fail -- if they are incomplete in critical ways. One example
would be introducing a fixed exchange rate regime without fiscal discipline. Argentina's recent collapse reminds us that fiscally irresponsible politics may undermine the results of genuine market
reforms. Market-oriented reforms may also fail to generate lasting convergence if some of their crucial elements are badly structured.
Friday, October 7, 2005 ~ 9:19 a.m., Dan Mitchell Wrote: So, you landed a big king salmon this summer? It can't compare to the colossal king Alaska Airlines plans to land this morning in Anchorage.
The Seattle-based carrier has painted nearly the full length of a Boeing 737-400 passenger jet as a wild Alaska king, or chinook, salmon. The
airline has dubbed its flying fish the "Salmon-Thirty-Salmon." ...A local nonprofit agency, the Alaska Fisheries Marketing Board, gave Alaska
Airlines a $500,000 grant to paint the jet. The money came out of about $29 million in federal funding U.S. Sen. Ted Stevens of Alaska and his congressional colleagues have appropriated to the marketing board...
The senator's son, state Sen. Ben Stevens, is chairman of the agency's board of directors.
Thursday, October 6, 2005 ~ 12:09 p.m., Dan Mitchell Wrote: President George W. Bush should choose someone who not only shares his low-tax, free-market economic philosophy, but who agrees with the
fundamental premise that supply-side economic growth does not cause inflation. As Milton Friedman postulated, inflation is caused by too much money chasing too few goods. In fact, rapid economic growth and
output dampens inflationary expectations because more goods are chasing the same quantity of money.
Thursday, October 6, 2005 ~ 11:25 a.m., Dan Mitchell Wrote: Many politicians want Americans to believe that we can't do anything individually without Washington's help. But Washington can't do
anything well. I'll pay you $100 if you can name one thing the government does more efficiently than the private sector. FEMA was only established in 1979, under President Carter. What did Americans
do before that? In 1871, when downtown Chicago was destroyed in a fire, private charity came to the rescue. The Chicago Aid and Relief Society coordinated assistance for a year and a half. According to the
Foundation for Economic Education, the charity workers strove to avoid giving more than minimal food and clothing to those who could earn their own way. They helped restart businesses, equipping medical
offices, stocking stores, and buying sewing machines. Government mainly stuck to keeping order.
Thursday, October 6, 2005 ~ 10:56 a.m., Dan Mitchell Wrote: ...across the struggling economies of Europe, momentum is building for flat taxes, or at the very least, lower and simpler taxes. Last week,
advisers to the Dutch Parliament recommended a flat tax on personal income to boost growth and get more people working. In Italy, weathering a public-debt crisis and a flailing economy, Prime Minister
Silvio Berlusconi's chief economic adviser advocates a flat tax to increase revenue and fight tax evasion by abolishing tricky exemptions and loopholes and reducing off-the-book employment that can result
when taxes are too high. Opposition parties in the Czech Republic and the United Kingdom are pushing similar ideas, while Spain and Greece have already offered plans to simplify and cut. "Tax competition is
clearly at play here," says Erik Nielsen, economist with Goldman Sachs in London, referring to the game of trying to lure businesses by setting
tax rates lower than neighboring countries. "But I also think the drive reflects a general shift in Europe towards less acceptance of high tax
rates." The flat-tax movement is led by Eastern European nations that are making the transition from communism and from the progressive tax system championed by Karl Marx, who in his 1848 Communist
Manifesto called for a person to pay taxes "according to his means." ...Before Marx's views took hold, taxes had been flat in the
industrializing world. ...Estonia was the first European nation to adopt a flat tax, in 1994, quickly followed by Latvia and Lithuania. Last year
Slovakia and this year Romania have adopted low flat-tax rates that are helping them grow quickly and undercut so-called Old Europe economies. Estonia's gross domestic product, for example, grew 6.3%
on average in the three years after it made the move, compared with shrinking 8.4% in the three years before. With many of these countries now in the European Union, it is putting pressure on the
more-established, more-sluggish western European economies to rethink their tax systems: even if it doesn't result in a full-fledged pure flat tax,
these countries are at least headed in this direction. ...Slovakia's stock index is up 170% over the last two years. Slovakia received kudos from
President Bush, as well as Japanese Prime Minister Junichiro Koizumi, who is struggling to enact his own reforms. The latest country to move
to a flat tax was Romania. Last month[September], Standard & Poor's raised the nation's credit rating from junk to investment grade, expressing confidence in the health of finances after the tax reform.
Thursday, October 6, 2005 ~ 10:34 a.m., Dan Mitchell Wrote: Maybe, slowly, possibly, Republicans are getting the message that runaway spending is lousy politics. At his press conference yesterday,
President Bush said he wants Congress to "pay for as much of the hurricane relief as possible by cutting spending." That's a first from this
White House. ...Meanwhile, over in the House, Republicans are mulling a much needed agency-wide cut in spending of 1% or 2%. New Majority Leader Roy Blunt says "we're considering every option, including an
across-the-board cut." GOP leaders have been prodded in this direction by such rank-and-file Members as Mike Pence of Indiana and Jeb Henserling of Texas. Federal spending climbed by more than $150
billion in the just completed 2005 fiscal year, not including any Katrina spending. Congress's approval ratings have plummeted this year in almost direct inverse proportion to the amount of money it is spending.
Maybe it's time for Republicans to regain the public's trust by honoring their pledge to make government smaller and smarter.
Thursday, October 6, 2005 ~ 9:16 a.m., Dan Mitchell Wrote: Japan decided Tuesday to cut about 33,230 jobs, or 10 percent of its current civilian work force, over the next five years. ...But the plan _
which involves cutting 5,549 civil servant jobs for fiscal 2005, and 27,681 jobs from fiscal 2006 to 2009 _ does not factor in separate personnel increases. Government ministries have asked for over 5,000
extra employees in next year's budget. Japanese daily Yomiuri Shimbun predicted these increases would mean less than a 2 percent fall in the net number of government employees. This falls far below the 5 percent
net decrease recommended by the Council on Economic and Fiscal Policy, Japan's top advisory council on economic matters, last week.
Thursday, October 6, 2005 ~ 8:05 a.m., Dan Mitchell Wrote: Call it the $20 million perk. Taxpayers ended up paying that much extra over a two-year period because NASA brass decided to use government
jets for routine travel rather than fly on commercial airliners, an investigation by the Government Accountability Office found. NASA's use of government-owned jets "cost taxpayers at least five times more
per passenger than flying on commercial airlines," the GAO said. The space agency's employees took at least 1,188 flights on NASA jets and
on other federal airplanes during fiscal 2003 and 2004. Seven out of eight of the flights were for routine business, which is "expressly
prohibited" by the Office of Management and Budget, the GAO said. ...According to the GAO, NASA owns 85 aircraft, valued at $362 million. Most are used to support space and research programs, but
seven are used to transport passengers. In fiscal 2004, the GAO said, the seven NASA planes carried 10,000 passengers and logged nearly 4 million passenger miles. ...In its report, GAO listed several examples of
what it called routine travel. They included a Dulles-to-Houston round trip for "budget reviews"; a trip to Japan and stop in Hawaii for NASA
officials to attend the Pearl Harbor 60th anniversary ceremony; and a trip from National to Burbank, Calif., to the Jet Propulsion Laboratory for the Cassini landing on Saturn.
Wednesday, October 5, 2005 ~ 8:23 a.m., Dan Mitchell Wrote: The government is paying contractors an average of $2,480 for less than two hours of work to cover each damaged roof -- and is giving
them endless supplies of blue sheeting for free. Knight Ridder has found that a lack of oversight, generous contracting deals and poor planning mean that government agencies are shelling out as much as 10 times
what the temporary fix would normally cost. "This is absolute highway robbery and it really does show that the agency doesn't have a clue in
getting real value of contracts," said Keith Ashdown, vice president for Taxpayers for Common Sense, adding he recently paid $3,500 for a new
permanent roof. "I've done the math in my head 100 times and I don't know how they computed this cost."
Wednesday, October 5, 2005 ~ 7:51 a.m., Dan Mitchell Wrote: Who should be held responsible for runaway government spending? ...the biggest responsibility lies not with any member of the legislature
but with Mr. Bush. Unlike senators and House members, the president represents the whole nation; he is supposed to defend the general interest against particularist claims. Moreover, he has the power to do
so. If Congress serves up wasteful bills, the president can veto them. Mr. Bush has been too cowardly to do that. He is the first president since
John Quincy Adams to have served a full term without once exercising his veto, and his second term has so far been no different. This summer Mr. Bush promised to veto the transportation bill if it cost more than
$256 billion. His threat brought the bill's size down quite a bit, but in the end he caved and signed a package that cost $295 billion. Why did he
blink? Doesn't his administration pride itself on defending the power and prerogatives of the presidency? Mr. Bush's father had the courage to veto 44 bills in four years, and President Ronald Reagan once vetoed
a transportation bill because it contained about 150 pork projects. But the bill that Mr. Bush just signed contained at least 6,000 pork projects.
Wednesday, October 5, 2005 ~ 7:19 a.m., Dan Mitchell Wrote: The issue of taxation had played a major part in the election campaign, with much attention focusing on the Civic Platform's plan to introduce a
15% flat tax, a system popular with other governments in central and eastern Europe, but not so popular, it would appear, with the Polish electorate. Now the tax debate is continuing as the two main parties
struggle to form a basis for a workable coalition. The Law and Justice Party has proposed replacing the current three band income tax system which taxes income at rates of between 19% and 40% with something
akin to the Civic Platform's flat tax, but not quite. This would entail a progressive scheme taxing the vast majority of Polish workers at 18%, and the wealthiest at 32%. Under this plan 99.5% of Polish workers
would fall under the 18% tax bracket.
Tuesday, October 4, 2005 ~ 11:30 a.m., Dan Mitchell Wrote: ...the fear of losing their majority has also begun leading them to behave more and more like the big-spending Democrats they unseated.
"Holding the majority used to be viewed as a means to an end--the end being promoting freedom and limited government," laments Rep. Jeff
Flake of Arizona. "Now, holding the majority seems to be an end in itself--holding onto power for the sake of holding onto power." ...the
GOP's love affair with big government has intensified. This summer Congress passed a $286 billion highway bill stuffed with 6,373 pork-barrel projects inserted by individual members, many so marginal
they have drawn national ridicule. All this was abetted or even led by a Bush White House that has yet to veto a single bill and whose officials
have apparently adapted the old New Deal slogan "tax and tax, and spend and spend, and elect and elect" into merely "spend and spend."
Tuesday, October 4, 2005 ~ 10:08 a.m., Dan Mitchell Wrote: Adopted by referendum in 1992, it is the nation's most stringent limit on a state legislature's freedom to tax and spend. It says that spending in a
given year cannot increase faster than population growth plus inflation -- if both are 2 percent, spending can increase only 4 percent. Furthermore, revenue exceeding permissible spending must be rebated
to taxpayers, who also must approve any tax increase. Tabor has been spectacularly successful. Per capita spending has increased slower than in almost all other states, and Colorado ranks 50th in state taxes
collected per $1,000 of personal income. Even though -- actually, because -- Gov. Bill Owens has cut taxes 41 times, revenues have surged, and in six of the last nine years taxpayers have received refunds,
a total of $3.2 billion, about $3,000 per household.
Monday, October 3, 2005 ~ 1:45 p.m., Andrew Quinlan Wrote: We applaud the direction given in your January 7th Executive Order, which ordered the Panel to develop options that "promote long-run
economic growth and job creation, and better encourage work effort, saving, and investment...." However, we have become deeply concerned that this directive is being undercut, and the work of the Panel
needlessly compromised, by the use of "static" estimates on reform alternatives. ... By failing to consider how the options affect economic
growth, such static estimates prevent the Panel from considering how well or how poorly policy options achieve the primary charge on which
the Panel's existence is based. ... The failure to take dynamic effects into consideration is welcomed by the adversaries of reform, because it supports political rather than scientific ends. Static estimates
overestimate revenue gains from tax regimes with steeply progressive rates that doubly and trebly tax savings and investment, and they artificially ensure high revenue neutral rates for the most pro-growth
reform alternatives. By systematically providing incorrect or inaccurate information to the Panel, such estimates will hamstring the Panel in its
efforts to develop reform proposals that truly benefit the American people. Link to this Blog Entry
Monday, October 3, 2005 ~ 12:28 p.m., Dan Mitchell Wrote: Foreign investment in Central and Eastern Europe jumped by 70 percent last year, new UN figures have revealed - while sluggish "old"
Europe experienced a decrease. The annual World Investment Report, issued by the UN economic think-tank UNCTAD on Thursday (29 September), shows that foreign direct investment in the EU as a whole
dropped by 36 percent to 216 billion dollars. ...The UNCTAD researchers state that there are "large differences" in investment trends
between the EU-15 (the "old" member states) and the new member countries that entered the bloc in April 2004. In the EU-15, FDI in 2004
dropped by 40 percent to 196 billion - the lowest level since 1998 - while foreign investment in the new states jumped by almost 70 percent.
Monday, October 3, 2005 ~ 11:54 a.m., Andrew Quinlan Wrote: U.S. Rep. Richard E. Neal, D-Springfield, yesterday filed for the third time a bill that would prohibit U.S. firms from relocating their corporate
addresses offshore to avoid paying federal income taxes. The U.S. taxes companies on their "worldwide" income. In addition to imposing high compliance costs, this system makes American-based
companies less competitive. A U.S. firm competing against a Dutch firm for business in Ireland, for instance, would have to pay a 35 percent tax
on its income - with the lion's share going to the IRS. The Dutch firm, by contrast, only pays the 10 percent Irish tax on its Irish-source income
because Holland has a "territorial" tax system (the common-sense notion that a government only taxes income earned inside a nation's
borders). ... In an effort to remain competitive and protect the interests of shareholders and workers, some U.S. companies are re-chartering in
low-tax jurisdictions. Bermuda is a popular choice because of its strong legal system and zero-tax environment. The Cayman Islands has attracted several companies for similar reasons. A company that
expatriates to one of these jurisdictions no longer has to pay U.S. tax on its overseas income. This enables the company - which still maintains
substantial U.S. operations and pays taxes to the U.S. government on all income earned in America - to compete on a level playing field with foreign competitors. Corporate executives are being criticized for bad decisions, some of which have crossed the line into criminal behavior. This heightened
attention has helped to create a political environment in which all corporate actions are suspect--including decisions by some companies to re-incorporate in low-tax jurisdictions (a step commonly known as
inversion or expatriation). At the very least, critics accuse these firms of being unpatriotic. In many cases, they have asserted that such companies are engaged in a questionable form of tax evasion. ... Such
claims are absurd. The decision to re-incorporate in a low-tax jurisdiction should be viewed as a prudent and responsible business reaction to a tax code that severely hinders the ability of U.S.-chartered
firms to compete in world markets. Expatriation allows a company to compete on a level playing field with foreign-based firms while maintaining its headquarters and jobs in America--a combination that
advances U.S. interests. And since the company continues to pay tax on all income earned in the United States, the evasion issue is a red herring. Link to this Blog Entry
Monday, October 3, 2005 ~ 9:00 a.m., Dan Mitchell Wrote: If you want to know why business takes such an interest in Washington, the answer can be found in your low-flow toilet, in the warning labels
adorning your cars, in your 8 zillion page tax returns. It can be found while you wait on hold trying to get a human to answer your questions about your health insurance. And the answer is most certainly
somewhere in your box of cereal, made with grains subsidized by Uncle Sam and coated in sugar that has no business being grown in the United States of America. Corporations meddle in Washington because
Washington meddles with them. It is simply naive to believe that a businessman will have no interest in politics when politicians have taken a great interest in him. And it is grotesquely unfair to assume that
businesspeople are corrupt simply because they want to support politicians less inclined to hurt them. Microsoft CEO Bill Gates used to brag that he barely spent a dime on lobbying - "I live in the other
Washington," he liked to say. But the very moment that government - federal and state - tried to tear apart his company, Gates abandoned his
view that the New Economy could ignore the Old Politics. Now D.C. is awash in Microsoft lobbyists. Wal-Mart is only now learning the same
lesson. If you don't get in the game, you might be regulated out of it. Of course, not all businesses that support politicians of either party are doing it out of self-protection. Some are merely rent-seeking
opportunists. Some are both. Sugar growers, for example, have ripped off taxpayers and consumers to the tune of billions. If government stopped protecting the industry from competition, it would mostly
disappear and stop gouging us at the same time.
Sunday, October 2, 2005 ~ 11:33 a.m., Dan Mitchell Wrote: Perhaps you've heard the one about the 700 firefighters from a variety of states who volunteered to do rescue work following Hurricane
Katrina? They sat in a hotel room in Atlanta for days getting sexual harassment training from FEMA officials. No joke. Note to Republicans eager to shovel new money at federal agencies: This is the way
government works. Now there's more news that ought to be, but isn't, a joke. Casting about for a place to temporarily house the people stuck in the Superdome and convention center in the days following Katrina,
FEMA contracted with a cruise line to provide three ships at a cost of $236 million. But as aides for Sen. Tom Coburn calculated and The Washington Post reported, this averaged out to a rate of $1,275 per
evacuee, per week. A quick glance at the newspaper would reveal that a seven-day western Caribbean cruise embarking from Galveston can go for as little as $599 per person. And that includes entertainment and the
cost of actually propelling the ship through the water. ...There is now a full-scale battle underway on Capitol Hill between the Republicans who still bravely soldier on for limited government and the Republican
leadership that has gone native. ...it is not the sheer volume of spending that is most dismaying. It is the complete cave-in by Republicans on the
proper role of the state. Suddenly we have Republicans accepting the premise that the government can build cities -- and should.
Sunday, October 2, 2005 ~ 10:51 a.m., Dan Mitchell Wrote: ...do stem-cell researchers really need the feds? Already there is nearly $4 billion in private and state monies committed to stem-cell research
over the next decade, with another three-quarters of a billion dollars under active consideration. ...In California, UCLA has established an
Institute for Stem Cell Biology and Medicine with $20 million in funding over the next five years. Stanford University created the Institute for
Cancer/Stem Cell Biology and Medicine, with $120 million in funding. An anonymous donor gave Johns Hopkins University a $58.5 million gift to launch an Institute for Cell Engineering. The University of
Minnesota has set up a Stem Cell Institute with a $15 million capital grant. A grateful patient pledged $25 million over the next 10 years to finance stem-cell research at the University of Texas Health Science
Center in Houston.
Saturday, October 1, 2005 ~ 7:20 p.m., Dan Mitchell Wrote: Mr. Oxley, the House Financial Services Chairman ...is pressing a "reform" for Fannie and its sibling, Freddie Mac, that fails to address
their core financial risks. His bill does nothing to reduce their huge portfolios of mortgage-backed securities (MBSs) and the derivatives they use to hedge those portfolios. Reducing their MBSs would dent their
profitability. But a meltdown in their black-box hedging operations could have far worse consequences, and the ramifications wouldn't be limited to Fan's and Fred's shareholders. Federal Reserve Chairman
Alan Greenspan refers to this as "systemic risk," a polite way of saying that the damage could spread throughout the U.S. financial system and
beyond. ...Mr. Greenspan points out that Fan and Fred don't need to hold the $1 trillion in MBSs in order to provide liquidity to the mortgage market or to lower borrowing costs. They hold them because they can
profit from the spread between the yield on those securities and their own (government-subsidized) cost of capital. ...Mr. Oxley knows all this but he punted on real reform to appease the homebuilders lobby that
has several wholly owned subsidiaries on his Committee. His proposals are worse than doing nothing because they give the appearance of reform while further entrenching Fan and Fred politically. They would
also make Republicans responsible for whatever economic and financial damage follows.
Saturday, October 1, 2005 ~ 3:15 p.m., Dan Mitchell Wrote: ...the more immediate and important question is whether Republicans can use their leadership turmoil as an opportunity to remember why
they were elected. In liberal Beltway mythology, the GOP took the House in 1994 because Newt Gingrich shrewdly used Jim Wright and Dan Rostenkowski to portray Democrats as corrupt. That's about
one-tenth of the story. The real reason Democrats were ousted is because they raised taxes after saying they wouldn't, and they promoted a liberal policy agenda (HillaryCare/gun control) that they couldn't find
the votes to pass. The Gingrich Republicans responded with the Contract for America of conservative proposals... The real danger for Republicans now isn't ethics; it is that, like those 1994 Democrats, they
seem to have grown more comfortable presiding over the government than changing it. ...The policy and intellectual fervor, such as it was, has
all but vanished. Nothing typified that more than Mr. DeLay's comments on September 13, when he declared post-Katrina that there was nothing left in the federal budget to cut. ...Here are the depressing facts.
Domestic discretionary nondefense spending is up 70% since 1994. Spending growth slowed in 1995 and 1996 as the Republican-controlled House pushed for a balanced budget. But spending began to rise rapidly
again in the later 1990s, as Republicans and Bill Clinton "compromised" by spending more on both of their priorities. And the gusher has
continued under President Bush, as Republicans have failed to trim domestic pork to pay for the necessary increases in defense. Except for the 2003 tax cuts, we can't think of a single recent major policy
accomplishment. ...The path back to public approval, and re-election next year, is to return to their principles. Respond to the economic damage of Katrina by making energy exploration and production less
burdensome. Help sustain the current expansion by making the Bush tax cuts permanent, repealing the death tax as they've promised for years
and taking a stab at larger tax reform. If Social Security is too daunting, then turn to health care, by passing free-market reforms that lower the
cost of insurance so employers can give larger wage increases instead of paying ever more for health care. ...We could go on. It's not as if the
agenda that Republicans ran on in 2004, or for that matter 1994, has been fulfilled. The question is whether Republicans still believe in that
agenda, or whether their main ambition now is simply to stay in power. Begin with the wimp factor. No president has looked this impotent this long when it comes to defending presidential powers and prerogatives.
Nearly 57 months into his administration, President Bush has yet to veto a single bill of any type. The only other presidents never to issue a veto
-- William Henry Harrison and James Garfield -- died within months of taking office. The budget has grown nearly 50 percent on his watch, and
he is vying to become the most free-spending president ever. To date, he has not asked Congress to rescind even a penny in profligate spending
(even Bill Clinton requested more than $8 billion in rescissions, and Ronald Reagan sought upward of $80 billion). When he drew a line in the sand earlier this year on transportation spending, Congress boldly
appropriated an additional $30 billion. He approved the bill, effectively placing a "kick me" sign on his backside. ...He surrendered meekly
when Democrats laid waste to his faith-based initiative, held hands with Sen. Edward Kennedy when Congress turned his educational reforms into an excuse to enlarge the federal government's role in local
education... This kind of behavior has given the impression that George W. Bush is more eager to please than lead, and that political opponents can get their way if they simply dig in their heels and behave like
petulant trust-fund brats, demanding money and favor -- now! |
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