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www.freedomandprosperity.org |
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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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Tuesday, October 31, 2006 ~ 1:11 p.m., Andrew Quinlan Wrote: ...for much of its history the OECD focused on collecting statistics and publishing innocuous studies. ...In the mid-1990s, the OECD abandoned its traditional mission and
launched a "harmful tax competition" project to make it easier for governments to impose high tax rates and to hinder the flow of capital from high-tax to low-tax nations. ...American policy makers
have expressed dissatisfaction with the OECD's project. ... Congress also has warned the OECD about its efforts to hinder tax competition ... Politicians from uncompetitive, high-tax welfare states do not like
the liberalizing impact of tax competition, but many U.S. officials are appropriately skeptical of "one-size-fits-all" harmonization schemes. ... Several Nobel Prize winners have commented specifically
on tax competition. James Buchanan points out that "...the intergovernmental competition that a genuinely federal structure offers may be constitutionally 'efficient'..." and that "...tax
competition among separate units...is an objective to be sought in its own right." Milton Friedman, meanwhile, writes, "Competition among national governments in the public services they provide
and in the taxes they impose is every bit as productive as competition among individuals or enterprises in the goods and services they offer for sale and the prices at which they offer them."
And Gary Becker observed that "...competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations." ...Interestingly, even OECD economists admit that tax competition is desirable, writing that "[T]he ability to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively." It does not try to scapegoat so-called tax havens. Instead, this bureaucracy says the real problem is bad tax policy. It explains that, "[I]llegal tax evasion can be contained by better enforcement of tax codes. But the root of the problem appears in many cases to be high tax rates." ...Talking points generated by the OECD, echoed by groups such as the United States Council for International Business, assert that the Paris-based bureaucracy somehow plays a crucial role in the enforcement of U.S. tax law. This is false, but irrelevant. The Senate-approved language does not restrict the OECD's benign work on issues such as tax treaties and transfer pricing. The Senate language merely restricts the OECD from using American tax dollars to interfere with tax competition and national sovereignty.
Additional information: October 27, 2006, NTU and ATR support appropriations language restricting OECD funding for international tax harmonization schemes. October 23, 2006, Paris-Based Bureaucracy may lose tax dollars because of anti-U.S. policies. October 19, 2006, Is the OECD using U.S. tax dollars to lobby American lawmakers for bigger government? October 5, 2006, As OECD Lobbies for More U.S. Tax Dollars, Senators Ask Paris-Based Bureaucracy to Clarify Misleading Claim About Taxes February 22, 2006, Time to cut wasteful spending at the OECD. February 2006, Coalition letter to Joshua Bolten on OECD funding:
Tuesday, October 31, 2006 ~ 12:04 p.m., Sven Larson Wrote: Much fanfare accompanied Sweden's recent election of a center-right government. Yet the center-right's success involved jettisoning proposals
to systematically reform Sweden's increasingly unaffordable welfare-state. In short, the Swedish center-right has morphed into a Social Democrat-lite movement. Likewise, the British Conservative
Party-Margaret Thatcher's party-has disassociated itself from proposals to seriously reduce state economic interventionism. Its leaders are, for
example, unwilling to commit a future Conservative government to tax cuts and recently praised Britain's fiscally-bankrupt National Health Service. In Italy, Romano Prodi's 2006 budget was characterized by
protectionist policies and higher taxes. This included reinstating death-taxes on the wealthy (defined by Italy's center-left government as anyone earning over 40,000 euros annually). To the north, Austria has
elected a Socialist-led government disinterested in continuing the outgoing Schüssel administration's extremely modest economic liberalization efforts. Turning to France, unemployment recently rose to
9 percent. Yet, with the possible exception of Nicholas Sarkozy, no major politician on the French right or left appears willing to contemplate major economic change. Across the border, Angela Merkel's
grand-coalition government has implemented some of Germany's highest-ever tax increases. Its only change to Germany's profligate welfare-system has been raising the pension-entry age from 65 to 67.
Then there is the subject no European politician likes discussing: Western Europe's hidden unemployment levels that, some estimate, double official
unemployment rates. Given, for example, Belgium's 13.9 percent official unemployment figure, is it any wonder politicians ignore this issue? ...An
example of Europeans' rethinking government's economic functions may be found in those thinkers whose work inspired West Germany's transformation from post-war rubble to a "miracle economy": the
Freiburg Ordo-Liberal school. Relatively unknown outside Germany, this school consisted of intellectuals associated with the University of Freiburg in the 1930s. Strongly anti-Nazi and anti-Communist, Freiburg
scholars wanted to define the essential institutional rules that promoted liberty and prosperity (hence, the phrase "ordo-liberal"). Drawing upon
Christian natural-law and Scottish Enlightenment insights, the ordo-liberals...asked what would constitute government's economic tasks if the objective were freedom and economic abundance for all. To this
end, they identified the state's economic responsibilities as upholding rule of law, property rights, and contractual freedom and liability; ensuring
open markets and competition; and, lastly, preventing inflation. Beyond these areas, ordo-liberals warned, governments should hesitate to tread economically.
Tuesday, October 31, 2006 ~ 8:49 a.m., Dan Mitchell Wrote: ...the Sarbanes-Oxley Act of 2002 was the most substantial securities legislation since the Securities Acts of 1933 and 1934. ...Since the new
regulatory mechanisms have been put in place, developments in the U.S. capital market have not been positive. In 2000, 90% of the funds raised
by foreign companies through new stock offerings were raised in the U.S. The "90% rule" held in 2005, too, but in reverse -- 90% of the funds
raised by foreign firms through new listings occurred in Europe and other non-U.S. markets. Last year, only two of the world's 25 largest
initial public offerings listed in the U.S. In the universe of global IPOs, the fraction of non-U.S. IPOs listed in the U.S. has fallen to under 10%
so far in 2006 from 37% in 2000. ...Concerns about listing in the U.S. relate to domestic firms too, as U.S. firms contemplate "going private"
or do not "go public" for regulatory and legal reasons. While global economic growth and a welcome trend toward financial reform have put
wind in the sails of overseas financial centers, could U.S. capital market regulation also be a factor in their increased competitiveness? There is
historical evidence that suggests it could be. In the 1960s, U.S. banks went to London and helped spur the growth of the Eurobond market because of interest-rate ceilings and reserve requirements at home. U.S.
regulators subsequently allowed international banking facilities with lower reserve requirements and abolished Regulation Q ceilings on interest rates, but the London market had already taken off. The
Eurobond market also drew sustenance from U.S. tax policy in the form of the interest equalization tax. Subsequent tax changes did not slow
down that market's development once started. ...subjecting regulation to rigorous cost-benefit analysis is surely right. Though much of the regulatory scrutiny will lie with the SEC and the PCAOB, we can also
harness the expertise within other departments and agencies represented in the President's Working Group on Financial Markets, which includes the Department of Treasury, Federal Reserve and the Commodity
Futures Trading Commission. Input from such institutions that have primary responsibility for investor protection will be necessary to prudently address broad tradeoffs between regulation and possible
consequences of lost competitiveness. America's capital markets have been an enviable model for job creation and increasing national wealth. But the efficiency and competitiveness of our markets cannot be taken
for granted.
Tuesday, October 31, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: Just when you thought that there weren't any small-government conservatives left in the Republican Party, along comes South Carolina
Gov. Mark Sanford, who may be the only politician in America this year under assault for governing as a fiscal tightwad. What's really unusual about Mr. Sanford's bid for re-election is that some of his most
formidable adversaries are the old bull politicians in his own party. The state's Republican Senate Finance Committee chairman Verne Smith, for example, has just cut a campaign ad for Tommy Moore, the Democrat
running against the governor. The ad slams Mr. Sanford for his attempts to squeeze too much grease from the state budget. ...He has vetoed hundreds of spending bills, including the entire budget in 2004 and 2006
-- although almost all of these vetoes were overridden by -- who else? -- the state Republican House and Senate. "If I weren't fighting the
legislature on overspending, I wouldn't be doing my job," he says about this intraparty squabbling. Then he adds: "Frankly, I wish there were
more of this budget strife in Washington." Words for George W. Bush to live by. Despite the turmoil Mr. Sanford has stirred up during the past
four years, he's racked up some pretty impressive accomplishments. Though his effort to phase out the state income tax was killed in the senate, he chopped the personal income tax rate on small businesses, to
5% from 7%, for the first time in South Carolina history. He took a state that was labeled a "judicial hell hole" and passed reforms, despised by
trial lawyers, that will penalize frivolous lawsuits. He even cut the average wait time to get a driver's license renewal to 15 minutes from over an hour. Mr. Sanford's real passion is school reform -- which is
urgently needed in a state that ranks 48th, 49th or 50th in almost all measures of student performance. He openly ridicules the "failed
monopoly" school system and for this the left has accused him of being virulently anti-public education (although school spending rose 20% in
his first term). He also persuaded the legislature to approve charter schools and a private school tax credit bill... with qualifications like his,
it is no wonder that a number of leading conservatives across the country, disgusted with GOP gorging on pork and deficit spending, are looking at Mr. Sanford as a potentially attractive new entrant into the
2008 presidential race.
Tuesday, October 31, 2006 ~ 8:32 a.m., Dan Mitchell Wrote: Federal spending, aside from interest, has grown 47 percent since 2001-a huge increase that has been widely critiqued. A related but unexamined
trend is the growth in the number of different federal programs. In recent years, the scope of federal control over society has widened as politicians
of both parties have favored nationalizing many formerly state, local, and private activities. ...A net 271 new programs have been added since 2000, which is the largest increase in programs since the 1960s.
Tuesday, October 31, 2006 ~ 6:22 a.m., Dan Mitchell Wrote: If you are fed up with paying taxes, you'll certainly like the idea of tax competition. It gives the opportunity to escape fiscal pressure from your
own government by eventually "voting with your feet" to other jurisdictions with more favourable tax regimes. And it gives strong incentives for governments elsewhere to lower their own taxes.
Luxembourg for example is considered as a "tax heaven" in the heart of Europe, benefiting not only European but also world taxpayers. But some
governments are trying, through the European Commission, to impose tax harmonisation across Europe. …The Commission has a very strange concept of free competition, with an absence of tax pressure defined as
"state aid". It is easy to grasp how public subsidies to business - which involves confiscating resources from some parties and giving them to
others - should be regarded as assistance that runs counter to free competition. But how can the fact that certain taxes are not levied be placed on the same footing? Tax relief indicates that government is
actually leaving wealth in the hands of its creators, without this constituting assistance. Does the fact that someone is not trying to trip you up mean that he is helping you walk? …Pursuing the harmonisation
moves undertaken by Brussels may result in greater tax pressures on everyone. If the Commission truly wished to promote free competition, it should have suggested having tax relief of the sort provided in
Luxembourg and Estonia apply all across the EU. Or it ought simply to let tax competition play out in Europe. This remains an unrivalled way of encouraging governments to reduce the tax pressure weighing down
taxpayers' purchasing power and European companies' competitiveness. It is also a means of creating greater economic prosperity.
Monday, October 30, 2006 ~ 8:58 a.m., Dan Mitchell Wrote: Financial regulators on both sides of the Atlantic may not be able to resolve policy disputes through co-operation and the creation of a global
regulator should be considered, according to Barney Frank, the senior Democratic congressman.
Monday, October 30, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: Where did the revolution go astray? How did we go from the big ideas and vision of 1994 to the cheap political point-scoring on meaningless
wedge issues of today -- from passing welfare reform and limited government to banning horsemeat and same-sex marriage? The answer is simple: Republican lawmakers forgot the party's principles, became
enamored with power and position, and began putting politics over policy. Now, the Democrats are reaping the rewards of our neglect -- and we have no one to blame but ourselves. ...Since the party won the
majority in 1994, the GOP Conference had been consistent in requiring offsetting spending cuts for any new spending initiatives. (In fact, during
the aftermath of a large Mississippi River flood, Rep. Jim Nussle even waited to find and approve offsets before moving the relief legislation for
his own state of Iowa.) But by the summer of 1997, the appropriators -- rightly called the "third party" of Congress -- had begun to pass
spending bills with Democrats. As soon as politics superseded policy and principle, the avalanche of earmarks that is crushing the party began.
Now spending is out of control. Rather than rolling back government, we have a new $1.2 trillion Medicare prescription drug benefit, and non-defense discretionary spending is growing twice as fast as it had in
the Clinton administration. ...How can the Republicans respond? The leadership must remember that the modern conservative movement is a fusion of social and fiscal conservatives united in their belief in limited
government. The party must keep both in the fold. Republicans also need to get back to being the party of big ideas. The greatest threat to American prosperity today is a catastrophic fiscal meltdown resulting
from long-term entitlements. Democrats have already lined up behind the solution of raising taxes and reducing benefits. But Americans want more
freedom and choice in education, health care and retirement security. Republicans -- too busy dreaming up wedge issues to score cheap points
against Democrats -- have lost sight of their broad national agenda. The likely Republican losses in next week's elections will not constitute a
repudiation of the conservative legacy that drove the Reagan presidency and created the Contract With America. To the contrary, it would represent a rejection of big government conservatism.
Monday, October 30, 2006 ~ 8:18 a.m., Dan Mitchell Wrote: Oil companies are subject to market forces. They may make big profits when the price of oil rises, but those profits invariably fall back down to
Earth when oil prices decline. This is also what happened in the 1990s, as oil crashed below $20 a barrel after the heights reached in the 1970s.
The companies and their shareholders swallowed those declines, as they should have. This cycle is typical of commodity markets, and is part of
the risk of doing business. The run-up in oil prices over the past couple of years was rooted in worries about supply related to hurricanes, Middle
East tensions and low stockpiles, as well as growing demand in a strong global economy and the Federal Reserve's easy money policy. As supply fears and demand have ebbed and the Fed has tightened, prices have
fallen back down, albeit still to higher levels than a decade ago. The recent price decline is also proof of the folly of a "windfall profits" tax or
similar punitive measures against Big Oil favored by so many politicians. Only this week, however, Democratic Leader Nancy Pelosi repeated her
pledge to soak the oil companies if her party takes over the House next month. Her policy seems to be that when oil prices decline, oil company
shareholders must absorb all the market risk and the lower profits. But when oil prices rise, the companies must hand over a cut of their profits
to Members of Congress to spend as they like. The only "windfall" is for the political class.
Monday, October 30, 2006 ~ 7:41 a.m., Dan Mitchell Wrote: EU monetary affairs commissioner Joaquin Almunia has said that Brussels could in theory take Sweden to Europe's top court for not
joining the euro despite meeting all the economic criteria - but he added that such action "is not necessary or desirable" for now. ...Sweden,
which entered the EU in 1995, is legally obliged to enter the eurozone, an obligation enshrined in its EU accession treaty as in the case of ten member states that joined the union in 2004.
Sunday, October 29, 2006 ~ 4:11 p.m., Dan Mitchell Wrote: Health care costs are not just soaring, they're reaching unaffordable levels, meaning that we'll have to look to managed care (again) or find a
government solution, a prescription for rationing. With spiraling costs projected to continue, thereby doubling spending in the next 8 years, that
choice will be made by 2014 unless we find a third option. What's the cure? Congress needs to administer a strong dose of capitalism. ...In the rest of the economy, we have moved away from regulations, price
controls, and overreaching government agencies. Yet in health care, we have distorted the tax code, bulked up the Medicaid rolls, and let a million regulations bloom. Medicare alone has more than 100,000 pages
of them. Price controls are endemic to Medicare and Medicaid. The result is a half-broken, semi-socialist system, low in satisfaction and high in cost. ...American health care is the most regulated sector in the
economy. The result? A health insurance policy for a 30-year old man costs four times more in New York than in neighboring Connecticut because of the multitude of regulations in the Empire State. Americans
can shop out-of-state for a mortgage; they should be able to do so for health insurance. ,,, Medicaid spending is spiraling up, now consuming
more dollars at the state level than K-12 education. Like the old Aid to Families with Dependent Children, part of the problem stems from the fact that the program is shared between both the federal and state
government -- and is thus owned by neither. Congress should fund Medicaid with block grants to the states, and let them innovate.
Sunday, October 29, 2006 ~ 11:54 a.m., Dan Mitchell Wrote: Two northeast Ohio counties are being ordered by the state to try to boost the number of Amish receiving food stamps. Geauga and Holmes
counties plan to start advertising campaigns to encourage Amish to enroll in the subsidy program. Holmes may use a billboard to get the message out. State officials said it's important that the Amish know the
benefit is available. But county officials question whether the effort is a waste of time and money. Amish oppose accepting government assistance. …a Spanish-language news report and television ad campaign have spurred thousands of immigrants in Orange County over the last several
weeks to contact a nonprofit organization that offers a Spanish-language class called "Food Stamps in Four Hours." The stream of immigrants
contrasts sharply with what was going on just a few months ago when only a handful of immigrants would attend the free course. The news report and ads were heard throughout Southern California, but those
who responded in Orange County were directed to a nonprofit organization. Most other callers to the toll-free number were directed to county offices. The Orange County strategy has been lauded throughout
the state as a way to reach immigrants who are reluctant to get help from the government. "They won't come on their own," said Jerry Sanders, food bank manager of the nonprofit Community Action
Partnership of Orange County in Garden Grove. "They come from countries where they think the government isn't to be trusted. They figure
there's a catch to free food." … "The Mexican man is macho. He doesn't want to come to this country and beg," said Alfonso Chavez, the
Community Action Partnership's outreach coordinator. "I tell them this is a program that will help the children. The kids are American-born, and
they have a right to this program." A Los Angeles County Department of Social Services task force is looking at ways to find eligible families to
enroll. County workers have signed up families at food banks with only minor success. "We recognize that people in Orange County are ahead of
us," said task force member Bruce Rankin, the executive director of the Westside Food Bank in Los Angeles. "The rest of us in the state are
looking at Orange County for ideas." Low participation, he said, "is a dilemma in the state." … In 2004, Department of Agriculture Food and
Nutrition Service and the Mexican Embassy agreed to jointly disseminate brochures and create the public service announcements. The agreement led Mexican Consul Luis Miguel Ortiz Haro to tout the food stamp
program on Univision's KMEX Channel 34 six weeks ago. The newscast included the partnership's phone number. More than 1,200 people called the partnership in the following days, Sanders said.
Sunday, October 29, 2006 ~ 10:29 a.m., Dan Mitchell Wrote: Nine years ago, I predicted that lawn mowers would one day fall victim to onerous and unnecessary EPA air pollution standards, despite Clinton
EPA administrator Carol Browner having stated in sworn testimony to Congress in 1997 that such regulations are "not about outdoor barbecues and lawn mowers." Frank O'Donnell, then-executive director
of the Clean Air Trust, called talk of regulating lawn mowers "crazed propaganda." Today, however, EPA openly seeks implementation of pollution standards for lawn mowers that would supposedly cut
smog-causing emissions by 35 percent. As for O'Donnell, he's now president of Clean Air Watch where he's working hard to implement that
"crazed propaganda." So what else is new? The EPA and green groups lie because they're on a mission: Where you might see a freshly-mowed
lawn, they see an opportunity to extend another regulatory tentacle. …Lawn-mower emissions comprise perhaps 3 percent of all EPA-monitored air pollutants, according to the agency's National
Emissions Inventory. Meanwhile those overall emissions are less than half of what they were in 1970. Thirty-five percent of 3 percent of 50
percent of what we breathed a generation ago is essentially equivalent to a hair on a flea's leg. A small flea.
Saturday, October 28, 2006 ~ 7:17 p.m., Dan Mitchell Wrote: Members of Hong Kong's Legislative Council last week supported a motion opposing the introduction of a Goods and Services Tax in the
territory. The motion, moved by Dr Hon Yeung Sum, stated: "That this Council opposes the introduction of a Goods and Services Tax." Commenting on the motion last Thursday, Financial Secretary, Henry
Tang told journalists that: ..."The income disparity issue is something that the Government must address and we will address in any future tax
system. We will not launch any tax system that is not fair and that would not address this income disparity issue."
Saturday, October 28, 2006 ~ 3:34 p.m., Dan Mitchell Wrote: The buzz phrase of the moment in Brussels is "better regulation." But to judge by the European Commission's approach to high tech, it's not
catching on. Look no further than the pending "modernization" of the bloc's laws for television. EU regulators today do nearly everything short
of personally picking the shows. A 1989 "Television Without Frontiers" directive dictates the way stations operate: how often they break for
commercials, what share of programs must be "European" and which "major events" (the World Cup, say, or a royal inauguration) are shown
free of charge. What's left for TV bosses to do? Worry, mainly, about the explosion of competition -- from YouTube to pay-per-view movies on iTunes to consumers who watch the tube on their cellphones. …This
highly dynamic industry is crying out for liberalization. Instead, Brussels, under the leadership of Commissioner Viviane Reding, has come up with
arbitrary rules that are little better than the current antiquated regime. The Media and Information Society department, which Ms. Reding heads,
starts by drawing up two sets of rules for advertising -- one for "linear" programming that follows a fixed transmission schedule, and another for
"nonlinear" or on-demand content. That's a distinction that exists only in a eurocrat's imagination. "Linear" programming already can be seen in
a number of "nonlinear" ways: Viewers can buy conventional TV programs on the Web, or in DVD form, or record them for later viewing,
skipping the ads. The effect of the proposed rules will be to tie the hands of broadcasters even as they face ever stiffer competition. Back when all
the rivals had similar business models, the advertising restrictions were at least even-handed, if not justifiable. Now, Brussels is boosting the
on-demand crowd at the expense of the old guard, rather than letting the market decide. Not that the newbies are getting off scot-free. On-demand
content will be subject to the EU's opinion of what might offend one party or another, even if its content, as the name implies, must be requested by the viewer. Providers will have to make an undefined effort
to "promote the production and distribution of European works and ... cultural diversity." How any of this will be enforced is anyone's guess.
Friday, October 27, 2006 ~ 12:30 p.m., Andrew Quinlan Wrote: Kristina Rasmussen, National Taxpayers Union: There is a clear need for this provision. American taxpayers provide roughly 25 percent of the
OECD's operating budget (around $85 million), and are supposed to receive in return a forum committed to the market economy along with international statistical reports. While NTU questions whether this is
worth such a large expense, it is clear that the OECD has repeatedly overstepped its mission by advocating for higher taxes within OECD member countries and against worldwide tax competition. Examples
include suggesting the U.S. adopt a value-added tax in October 2006 and endorsing the creation of a global taxation system in May 2005. ...As a
grassroots organization dedicated to lowering taxpayer liabilities, we find it particularly galling that Americans are forced to subsidize the very
international agencies that would add to citizens' tax bills here at home and make our country a less attractive place to set up shop. Grover Norquist, Americans for Tax Reform: I would highly encourage all senators to support your push for accountability at the OECD.
...American taxpayers provide about one-quarter of the OECD's budget. Despite this generous support, the Paris-based OECD has labeled the
United States and other low-tax nations as rogue regimes. Capital flows have sought to escape the high-tax regions of Western Europe to other,
more reasonably-taxing nations like the U.S. ...The OECD has taken it upon itself to move from an international financial think tank to being
the world investment police-and all at the expense of the U.S. taxpayer it denigrates. If we are going to pay for one-quarter of the OECD, we
should at least require that they not undermine American sovereignty on tax and financial issues. Monday, October 23, 2006, Paris-Based Bureaucracy may lose tax dollars because of anti-U.S. policies. Thursday, October 19, 2006, Is the OECD using U.S. tax dollars to lobby American lawmakers for bigger government? Friday, October 13, 2006, In major decisions that also damage OECD tax harmonization hopes, Hong Kong and Singapore reject expanded EU savings tax directive. Tuesday, October 3, 2006, OECD makes absurd claim about "harmful tax regimes" in member nations.
Friday, October 27, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: As a nation that has built a vibrant economy through market-driven innovation, the United States should not underestimate its diverse
network of profit-seeking research organizations. Even if the major oil companies truly are implacable foes of alternative fuels, as conspiracy
theorists contend, America has plenty of entrepreneurs with no vested interest in preserving the status quo. The failure thus far of market-driven efforts to produce a silver bullet for energy independence
does not necessarily prove that the profit motive is unequal to the task. Perhaps it merely underscores how formidable the challenge is.
Friday, October 27, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: Unlike its Continental counterparts, Britain has proved itself open to foreign investors time and again. So when Tata, based in India, moved
for Britain's largest steelmaker, the Blair government simply shrugged. "It's not a matter for the government but the companies concerned," the
head of a state trade agency explained. Contrast that with the histrionics from the leaders of France and Luxembourg earlier this year when Indian steel magnate Lakshmi Mittal made an unsolicited offer for
Arcelor. Their aux barricades! attitude looked silly when Arcelor's board and shareholders later agreed to the deal. In the past, Britain has met
foreign maneuvers for cell phone company O2, ports group P&O and other firms with nonchalance. That openness is a major reason the British economy has outperformed the large Continental economies.
Friday, October 27, 2006 ~ 7:00 a.m., Dan Mitchell Wrote: ...a new CNN poll conducted by Opinion Research Corporation...found an overwhelming number of Americans (78 percent) believes "our system
of government is broken." ...It isn't actually our "system" of government that is broken. The Constitution established an excellent system from
which contemporary leaders regularly seem to depart. ...Members of both parties have asked government to do for them what they should first be
doing for themselves. And instead of telling people about self-sufficiency, government has subsidized and encouraged self-indulgence. ...Instead of
government as a last resort, too many (Republicans included) turn to government as a first resource. Government was not designed to carry the burdens placed on it by the public, lawyers and lobbyists. The
Founders created a system of limited government. It is not functioning like one today because we now view government as unlimited. ...In his
book, "Demosclerosis," journalist Jonathan Rauch draws on the insights of economist Mancur Olson to argue (and Zakaria quotes him in his
book), "that the rise of interest groups has made American government utterly dysfunctional. Washington is unable to trim back - let alone
eliminate - virtually any government program, no matter how obsolete."
Friday, October 27, 2006 ~ 6:18 a.m., Dan Mitchell Wrote: Mr. Blackwell is trailing badly in the polls and not expected to win. And the reason has little to do with any alternative vision put forward by Mr.
Strickland. Indeed, Mr. Blackwell's real problem isn't his opponent so much as Ohio's disastrous GOP governor, Bob Taft, and a state party establishment that has self-destructed. The Democratic strategy in many
congressional races this year is essentially to run against George W. Bush by portraying the Republican candidate as a stand-in for the unpopular
president. In Ohio, however, Mr. Strickland has made his opponent a stand-in for Mr. Taft, who has lower job-approval numbers than even the current White House occupant. Between 1994 and 2004, Ohio's operating
budget grew by 71%, faster than any other state's. And on Mr. Taft's watch, Ohio's state and local tax burden has become the nation's third-highest. First elected in 1998, Mr. Taft has also come to embody
the corruption that now taints the state Republican Party. …Richard Vedder, an Ohio University economist and longtime follower of state politics, said there's something cruelly ironic about Mr. Blackwell paying
for the sins of an Ohio GOP that's lost its way. "Ken is the one good Republican in the state of Ohio," says Mr. Vedder. "He was the guy who
maintained Republican principles, who wanted moderate spending growth, wanted to use budget surpluses--when we had budget surpluses--to lower taxes, wanted to move to a flat-rate income tax at a
relatively low rate. This is the kind of thing Ken has been talking about for years." Mr. Blackwell is still talking about it today, and for good
reason: Ohio has lost 200,000 manufacturing jobs--a fifth of its total--in the past five years. The state's 5.7% jobless rate is more than a full percentage point above the national mean. Household incomes lag
behind the rest of the country, and mortgage foreclosures continue to rise. "Capital seeks the path of least resistance and greatest opportunity," said Mr. Blackwell, addressing a small crowd in Meigs
County. "We've put too many obstacles in the way of capital investment in Ohio. We have a confiscatory tax code that needs to be changed. We
have one of the toughest regulatory roads to navigate in the country."
Thursday, October 26, 2006 ~ 8:22 p.m., Dan Mitchell Wrote: …she "launched a one-woman campaign against four bills" that would have suspended the tariff. Her campaign succeeded. The suspension was
cancelled. The Post reported the story as a David-versus-Goliath tale." [T]ax breaks delivered to corporations in the form of tariff suspensions
have gone largely without public notice," said the Post. What? How can the removal of a tariff from a foreign company be a tax break for an American company? A tariff taxes foreign goods and helps domestic
manufactures charge higher prices than they could in a free market. By any definition, that's a special-interest privilege. Government interferes
with free trade to help favored businesses. But if a tariff is a privilege, how can suspension of a tariff also be a privilege? …The Post also
claimed that Congress's power to suspend tariffs "cost taxpayers hundreds of millions of dollars in lost revenue." But anyone who thinks
tariffs are good for taxpayers needs to wake up and smell the money. The only way a tariff can produce tax revenue is by forcing consumers to pay
more for things they want. So whatever taxpayers seem to gain through tariffs is cancelled out by what consumers lose in higher prices. Defenders of tariffs look at only one side of the ledger while pretending
that a dollar in your pocket is equivalent to a dollar in a government account. I'd rather have the dollar in my pocket. I am sympathetic with
those who dislike the influence-peddling involved in selective tariff suspensions. But there's an easy answer to that: Get rid of all tariffs permanently! A free and competitive economy -- meaning free trade and
no tariffs -- is the best deal for consumers. So let's get the politicians out of the way. If they have no privileges to dispense, no special interests will be lining up to influence them. Mr. Buchanan, my longtime friend, is right about a lot of things, but he's wrong about trade. First, he laments, "Europeans, Japanese, Canadians
and Chinese sell us so much more than they buy from us, because they have rigged the rules of world trade." But so what? I buy more from my
grocer than he buys from me. It wouldn't make a difference if I lived 2 feet south of the U.S.-Canadian border and my grocer lived 2 feet north of it. Like many, Buchanan worries about our foreign trade deficit,
pointing out that it's reaching an annual rate of $816 billion, and that means "dependency on foreigners." Actually, the foreign dependency is a
two-way street. I'll explain it, starting with the alleged trade deficit I run with my grocer. When I purchase $100 worth of groceries, my goods
account (groceries) rises by $100, but my capital account (money) falls by $100. That means there's really a balance in my trade account. By the
same token, my grocer's goods account (groceries) falls by $100 but his capital account (money) rises by $100, also a balance in his trade account. …Then there's Buchanan's worry about U.S. manufacturing job
loss. U.S. farming has a similar history. Farm employment peaked between 1840 and 1870. In 1900, 40 percent of American workers were employed in farming; today, it's less than two percent. Technological
advances made that possible. U.S. manufacturing employment reached its peak in 1950 and has been in decline ever since. This has more to do with technological innovation than outsourcing. It's a worldwide
phenomenon. Since 2000, China has lost 4.5 million manufacturing jobs compared to the loss of 3.1 million in the U.S. Nine of the top 10 manufacturing countries, who produce 75 percent of the world's
manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada, and Mexico), have lost manufacturing jobs, Italy being the exception. …I'm one of those whom Pat calls
"robotic free-traders." That might be another label for those of us who support peaceable, voluntary exchange, and I plead guilty. Buchanan,
like so many others, points to the government subsidies and tariff protections given to businesses in other countries, a practice from which
we can't plead complete innocence. Protectionists call for "free trade but fair trade." They call for a "level playing field." In effect, they're saying
that if other governments rip off their citizens with business subsidies and import duties, forcing them to pay higher prices, our government should
retaliate by using the same tools to rip off its citizens. The next time I see Pat, I might ask him what he would do if we both were at sea in a
rowboat and I shot a hole in my end of the boat. Would he retaliate by shooting a hole in his end?
Thursday, October 26, 2006 ~ 4:51 p.m., Sven Larson Wrote: Although the vast majority of Ohioans have access to high-speed Internet service, consultants, most recently those descending on the Columbus
suburb of Gahanna, still claim that government needs to step in. A look back at other government-backed technology ventures, however, shows
that these projects are not needed and will not deliver on the consultants' promises. The main pitch is that some towns in Ohio still don't have
access to high-speed Internet technology. Although upwards of ninety percent of Ohioans can get such service, apparently the consultants feel
this is inadequate. ... A similar story was told the same ten years ago. Consultants tried to sell towns on the idea that if they wanted the latest
cable television technology for their citizens, they needed to invest taxpayer money and provide it themselves. If cities did this, consultants
promised, citizens would see lower rates, governments would have a new source of revenue, and businesses would grow. That simply did not happen. As we can see today, the municipal cable television ventures
were a waste of taxpayer money and they did little to help consumers. ... For instance, in Butler County built a fiber optic system that only has a handful of users, at a cost of millions of dollars.
Thursday, October 26, 2006 ~ 1:39 p.m., Sven Larson Wrote: ...however useful, "aid" is not the solution. It is not sufficient and, in the long term, Southern countries can only overcome their dependency on
rich donors when their governments are able to mobilize enough domestic resources to guarantee universal access to reasonable quality essential public goods and services. New perspectives are needed. The
basic starting points for achieving this goal include, among others, an effective tax system that enables governments to raise the necessary
resources, and transparent and democratic ("participatory") budgets that focus on the financing of key development tasks. ... However, up to
now the mobilization of domestic resources and the strengthening of fiscal policies for the purposes of poverty eradication and social redistribution has been met by several internal and external obstacles.
Southern countries lose billions of dollars of potential income every year. Some of the main causes of those leaks are the following: Ineffective tax
systems fail to reach landowners, foreign corporations and wealthy individuals. This comes hand in hand with a corrupt financial administration that is not in a condition to actually stop tax revenue
from falling. Through tax cuts and frequent tax exemptions for foreign investors, developing countries forego revenues without ensuring the corresponding development benefits of the investments thus promoted.
This is particularly true in the more than 3,000 currently existing export processing zones (sometimes called "special economic zones"), where
workers' rights and environmental regulations are frequently abolished. The competition to attract foreign investment becomes a "race to the
bottom" in tax terms. Transnational corporations profit from this practice, but the local populations seldom see the benefits. The globalization of corporate activities allows firms with a transnational
presence to manipulate the prices of their internal transactions so that the profits are accounted for in the countries where the taxes are lower,
in a move known as "transfer pricing". While markets and production are globalized and money can circulate around the world in seconds, tax
policy is confined within national borders. Even countries with properly functioning tax systems lose billions of dollars every year due to capital
flight to tax havens. Finally, the pressure towards trade liberalization and tariff reduction deprives many countries in the South from vital
income. In Africa in particular, customs revenues provide an important percentage of government income. Dropping tariffs and providing no replacement leaves a gap in the budget. The resources that are actually
lost through capital flight, tax avoidance and tax fraud can only be estimated, as there are no official statistics on these phenomena.
Thursday, October 26, 2006 ~ 8:57 a.m., Dan Mitchell Wrote: Getting rid of the food tax has been on the conservative agenda for years... Now with the state enjoying a large surplus and Gov. Mike
Huckabee retiring, the stars are aligning to abolish the tax that brings in a mere $200 million a year. And it's Democrat Mike Beebe who is leading
in the polls with his promise to phase it out. ...There's a lesson here for the GOP. ...On taxes, Republicans win when they are unequivocally on
the side of paying less. And in the states where GOP lawmakers have waffled or, worse, raised taxes, the party tends to implode. In Tennessee, GOP Gov. Don Sundquist spent his last few years in office trying to
create a state income tax and voters rewarded his party in 2002 by sending Democrat Phil Bredesen to the governor's mansion. This year Gov. Bredesen will likely walk his way into a second term. In Colorado,
the Republican foundation has crumbled in the past few years. It shouldn't be lost on anyone on the right that two years ago GOP Gov. Bill Owens led the effort to suspend the state's Taxpayers' Bill of Rights to
allow for sharp increases in spending and a five-year suspension of rebates the state would otherwise have been forced to mail to taxpayers. Gov. Owens is on his way out now, and it should come as no surprise
that Republicans will almost certainly see Democrats capture the governor's mansion next month. Rocky Mountain Republicans are divided and disillusioned. Democrats are not. The unreported story this
election cycle is that while scandals and the war have dominated congressional races, on the state level conservative economic ideas are still winning elections. Voters continue to support promoting economic
growth by cutting taxes.
Thursday, October 26, 2006 ~ 8:46 a.m., Dan Mitchell Wrote:
Thursday, October 26, 2006 ~ 8:13 a.m., Dan Mitchell Wrote: Last week President Bush signed a law that will try to impede online gambling by prohibiting American banks from transferring money to
gambling sites. Most Americans probably didn't notice or care, but it may do significant political damage to the Republicans this fall and long-term
damage to Americans' respect for the law. So, a month before a major election, the Republicans have allied themselves with a scattering of voters who are upset by online gambling and have outraged the millions
who love it. Furthermore, judging from many hours of online chat with Internet poker players, I am willing to bet (if you'll pardon the expression) that the outraged millions are disproportionately electricians,
insurance agents, police officers, mid-level managers, truck drivers, small-business owners--that is, disproportionately Republicans and Reagan Democrats. … In the long term, something more ominous is at
work. If a free society is to work, the vast majority of citizens must reflexively obey the law not because they fear punishment, but because
they accept that the rule of law makes society possible. That reflexive law-abidingness is reinforced when the laws are limited to core objectives that enjoy consensus support, even though people may
disagree on means. Thus society is weakened every time a law is passed that large numbers of reasonable, responsible citizens think is stupid. Such laws invite good citizens to choose knowingly to break the law,
confident that they are doing nothing morally wrong. The reaction to Prohibition, the 20th century's stupidest law, is the archetypal case. But the radical expansion of government throughout the last century has
created many more. For example, all employers are confronted with rules and regulations from Occupational Safety and Health Administration and the Equal Employment Opportunity Commission that
they regard with contempt--not because they cut into profits, but because they are, simply, stupid. They impede employers yet provide no collateral
social benefit. And so employers treat the stupid regulations as obstructions to be fudged or ignored. When they have to comply, they do not see compliance as the right thing to do, but as placating an agency
that will hurt them otherwise. The same thing applies to lesser degrees to all of us who find ourselves doing things that we know are pointless
(think of various aspects of tax law) only because we fear attracting a bureaucracy's attention. For millions of Americans, our day-to-day
relationship with government is increasingly like paying protection to the Mafia--keeping it off our backs while we get on with our lives.
Wednesday, October 25, 2006 ~ 7:39 a.m., Dan Mitchell Wrote: ....a glance at the state of economic policy in the U.S. suggests that whoever wins in November would have an enormous opportunity to do
good. A list of the possibilities provides an interesting glimpse at what a new Contract with America might look like. ...The first step for the new
Congress should be a tax overhaul that moves the current system toward a progressive consumption tax. The economic literature suggests that a
well-designed system that maintains a distribution of tax burdens similar to today's could add 5 percent to 10 percent to gross domestic product
over a decade. A nice way to look at those estimates is to note that GDP might be about $1 trillion higher today if we had adopted such a reform
a decade ago. A new code could tax pollution more and capital less. It could lower the effective corporate tax rate significantly, and make the
U.S. a competitive location for investment again. ...government spending is $791 billion higher than it was when Bush took office. If the tax reform
levels the playing field by removing or capping costly items such as the mortgage-interest deduction, then it would be easy to concoct a package
of reduced spending and higher revenue that would balance the budget. ...The fourth step for the new Congress should be to roll back the Sarbanes-Oxley legislation that needlessly saddles America's companies
with excessive accounting costs. There are countless signs that these costs have had a large effect on America's competitiveness, with large
swaths of domestic capital escaping Sarbanes-Oxley by going private, or moving abroad. Our accounting rules should be rolled back to where they were before Sarbanes-Oxley. The fifth step should be to restore
balance to Social Security by reducing the growth rate of benefits and allowing a portion of each worker's payroll tax to be contributed to a personal account.
Wednesday, October 25, 2006 ~ 7:26 a.m., Dan Mitchell Wrote: …reforms did not go far enough. The business sector is overregulated and governments spend too much money. This fuels corruption and
public dissatisfaction with the democratic process. In general, Central Europe is a success story. The Czech and Slovak republics, Hungary and
Poland are free-market democracies. Formerly part of the Warsaw Pact, they are now members of the North Atlantic Treaty Organization and the European Union. Central Europeans have higher incomes, life
expectancies and school enrollments than ever before. Yet liberalism, the philosophy of political, civil and economic freedom that was instrumental
in bringing about those advances, is on the defensive. In Slovakia, a nationalist-socialist coalition defeated Mikulas Dzurinda's reformist government. In Poland, a coalition deal between conservatives and
nationalists kept the liberal Civic Platform out of power. In the Czech Republic, the liberal Civic Democratic Party won the elections but is too
weak to form a government. In Hungary, the populists were kept from gaining power -- but only by a whisker, and only because the ruling socialists lied about the real state of the economy. ...Many commentators
saw the poor performance of liberal parties in the elections as a sign of weakening public support for the free market. In fact, the most comprehensive survey in the EU accession countries, conducted by the
Gallup Organization in 2003, found most Central Europeans supported free competition and less government intervention in their lives. Similarly, many of Mr. Dzurinda's radical reforms, including the flat tax,
had the support of the majority of the Slovak public shortly before the 2006 elections. The rise of the populist parties in Central Europe is partly
attributable to their promise to wage a war on corruption. For example, Poland's rating in Transparency International's Corruption Perception
Index slumped to 3.4 in 2005 from 4.6 in 1998. The Czech rating fell to 4.3 from 4.8, Hungary's remained at 5, and Slovakia's rose to 4.3 from
3.9. In contrast, Iceland, which was the world's least corrupt country, received 9.7 points out of 10. Why does corruption remain such a big problem in Central Europe? Despite a dramatic rise in the region's
economic freedom since the end of communism, Central European economies remain overregulated. The World Bank found that Slovakia, the Czech Republic, Hungary and Poland were more heavily regulated
than most developed economies, including most EU member states. This means the armies of bureaucrats in these four countries have plenty of opportunities to extract bribes from private companies.
Wednesday, October 25, 2006 ~ 7:11 a.m., Dan Mitchell Wrote: Seeking stronger growth, the government is implementing a flat-tax of 12 per cent for both personal income and corporate profits from January
1, 2007 and will reduce both rates to 10 per cent from January 1, 2008, said Gruevski.
Wednesday, October 25, 2006 ~ 6:34 a.m., Dan Mitchell Wrote: Medicare is the fiscal equivalent of the Titanic, and its unfunded liability is the iceberg that lies ahead. Proposals to increase government's role in
funding health care amount to adding passengers to the Titanic. Until someone figures out how government is going to pay for its existing
promises in health care, it is not realistic to make new promises. For our health care finance system, pooling our spending on health care is the
problem, not the solution. Today, consumers are insulated from about 85 percent of the cost of their medical procedures. Instead, consumers ought
to be responsible for more like half the cost of their medical treatments, so that they take cost into account when making health care decisions. …
We need to rethink what it means to have health insurance for people under 65. The real need is for insurance against really expensive illnesses, of the kind that require tens of thousands of dollars of spending
over a period of years. Discretionary care and minor expenses ought not to be covered.
Tuesday, October 24, 2006 ~ 8:57 a.m., Dan Mitchell Wrote: ...what we have not fully considered is the extent to which globalized markets produce pressures for globalization of government policies. And
some policymakers and officials want to build dikes to prevent the regulatory policies of other countries from leaking into theirs. In Europe, the big worry is that what the European Union considers excessively
burdensome financial regulation will seep into Europe's financial markets. So Ed Balls, the new Economic secretary to the British Treasury, and the chancellor of the exchequer's principal ally, is assuring
the City that in the event of a takeover of the London Stock Exchange by NASDAQ, now deemed likely, the government will save the City from the dreaded heavy hand of American regulation, most especially the hated
Sarbanes-Oxley Act. Stock exchanges in America are facing such competitive pressure from London's less-heavily regulated exchanges that they are scrambling to lighten the regulatory load. Secretary of the
Treasury Hank Paulson and New York Mayor Mike Bloomberg, both intimately familiar with the working of financial markets, see the globalization process as a threat to the ability of New York to compete
with London in the competition for share listings. So they are each initiating studies of ways to make Wall Street less regulated, and therefore more competitive. Which in practice, means getting Congress
to modify Sarbanes-Oxley by exempting smaller firms from the act's requirements. ...More and more companies operating in high-tax venues are casting envious eyes on lower-tax Ireland and a variety of island tax
havens. Britain's chancellor Gordon Brown has always resisted calls of high-tax E.U. countries for "tax harmonization," fearing that meant
imposing on the United Kingdom the stultifying tax regime of the European Union. Now the shoe is on the other foot, and the market is attempting to impose on him the low-tax regime of countries that British
companies are beginning to consider as havens from the Inland Revenue's apparently insatiable desire for funds, and the intrusiveness of its 70,000 tax collectors. We are witnessing on an international scale the
sort of tax competition that has always existed among our states in their scramble to attract business.
Tuesday, October 24, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: ...last Friday the president signed into law Prohibition II. You almost have to admire the government's plucky refusal to heed history's
warnings about the probable futility of this adventure. This time the government is prohibiting Internet gambling by making it illegal for banks or credit-card companies to process payments to online gambling
operations on a list the government will prepare. ...The number of online American gamblers, although just one sixth the number of Americans
who visit real casinos annually, doubled in the last year. This competition alarms the nation's biggest gambling interests-state governments. It is an
iron law: When government uses laws, tariffs and regulations to restrict the choices of Americans, ostensibly for their own good, someone is going to make money from the paternalism. One of the big winners from
the government's action against online gambling will be the state governments that are America's most relentless promoters of gambling. ...Granted, some people gamble too much. And some people eat too
many cheeseburgers. But who wants to live in a society that protects the weak-willed by criminalizing cheeseburgers? ...Prohibition I was a
porous wall between Americans and their martinis, giving rise to bad gin supplied by bad people. Prohibition II will provoke imaginative evasions as the market supplies what gamblers will demand-payment methods
beyond the reach of Congress. But governments and sundry busybodies seem affronted by the Internet, as they are by any unregulated sphere of life. The speech police are itching to bring bloggers under
campaign-finance laws that control the quantity, content and timing of political discourse. And now, by banning a particular behavior-the entertainment some people choose, using their own money-government
has advanced its mother-hen agenda of putting a saddle and bridle on the Internet.
Tuesday, October 24, 2006 ~ 8:17 a.m., Dan Mitchell Wrote: The following features of extensive social safety nets are often found to have a negative impact on employment rates and GDP per capita:
Unemployment compensation systems offering high benefits and, in particular, entitlement of long or indefinite duration, have the potential to impede the adjustment of real wages to labour market conditions and
to create large supply distortions by reducing job-search intensity and lowering the opportunity costs of not working. …The interaction of social
protection benefits and taxes on labour can create unemployment or inactivity traps, especially for low-productivity workers who qualify for social benefits and have very little financial incentives to enter
employment. Eligibility criteria built into disability programmes to the extent these are unrelated to health offer early labour market exit routes.
As a result, the high numbers of disabled in several countries have less to do with their health situation than with their disability benefit coverage.
Retirement systems also offer early exit routes to workers, underpinned by powerful financial incentives. Promoting labour market exit of older
workers in the pursuit of low unemployment, while expensive, is likely to be ineffective: low participation of older workers typically goes along
with high unemployment. … Econometric panel studies carried out since the mid-1990s indeed generally confirm that social safety nets are potentially costly in terms of persistence of high unemployment and
below-par activity after an economy has been hit by an adverse shock. Many of the characteristics of social safety nets that affect ... persistence
overlap with those that impinge on potential output and employment levels. Accordingly, several empirical studies have found evidence that countries with low estimated output gap persistence include the group of
English-speaking countries and Nordic ones. By contrast, output gaps are found to be highly persistent in large continental European countries as well as in Japan.
Tuesday, October 24, 2006 ~ 8:15 a.m., Sven Larson Wrote: The firm's parent company EADS now says it needs to sell 420 A380s to break even, up from a previous estimate of 270 aircraft. To date, Airbus
has sold 159 A380s and the first plane is now due in October 2007 - two years behind schedule. ... The problems Airbus is having with its A380 have prompted the company to examine how it runs its businesses.
Earlier this month, the company warned of "painful" job losses as a result of the problems with the A380. That prompted France and
Germany, the biggest shareholders in Airbus-owner EADS, to call for the redundancies to be fairly shared. Trade unions have said they will fight to
preserve jobs and keep factories open. Airbus said on Thursday that it was ready to start addressing difficult social and political issues. The
co-chief executive of EADS Thomas Enders said that he believed in the success of the A380 and was sure that Airbus would recover its former strength.
Monday, October 23, 2006 ~ 1:36 p.m., Andrew Quinlan Wrote: Few Americans know much about the Organization for Economic Cooperation and Development (OECD), a Paris-based bureaucracy best
known for its dry studies, reams of economic statistics, and world-class wine cellar. But they should know more. After all, it receives about $400
million annually from 30 western democracies, including $85 million from American taxpayers, which covers much of its annual budget. ...What few know is that the OECD poses one of the greatest threats to
the enactment of pro-growth tax reforms in the United States and across the world. Remarkably, the U.S. contribution has underwritten mountains of studies full of Orwellian language that accord the highest
moral standing to those countries that impose the highest tax burdens on its citizens and demonize those that don't. It focuses on so-called
"problems" such as "the role of tax intermediaries (e.g., law and accounting firms, other tax advisors and financial institutions) in relation
to ... the promotion of unacceptable tax minimization arrangements." ...Distraught that our tax dollars are being used to further these inane
theories that threaten our sovereignty, Sen. Mitch McConnell (R.-Ky.) inserted a provision in this year's State Department spending bill that would bar the OECD from using the U.S. taxpayer contribution for
"activities or projects ... designed to hinder the flow of capital and jobs from high-tax jurisdictions to low-tax jurisdictions or to infringe on the
sovereign right of jurisdictions to determine their own domestic policies." In short: Don't use taxpayer dollars to advance economically dumb
policies. ...On cue, the all-hands-on-deck alarms sounded within the OECD bureaucracy and the campaign to delete McConnell's language commenced. Sandra Wilson, who heads OECD's Washington office,
struck first. She notified key Senate staff that McConnell's language would undermine OECD's efforts "to crack down on tax cheats." Senate Foreign Relations Committee Chairman Richard Lugar (R.-Ind.)
followed, informing McConnell that his provision threatens future tax agreements between the U.S. and our trading partners that include
"comprehensive exchange of information provisions." This is code for the OECD's ongoing effort to compel financial institutions in market-oriented nations to share our most confidential financial
information with tax authorities in the high-tax regimes. ...McConnell's House appropriations counterpart, retiring Rep. Jim Kolbe (R.-Ariz.),
who chairs the Appropriations Subcommittee on Foreign Operations, has opposed previous efforts to limit the OECD's work in this area, so there is a real risk the OECD's efforts may bear fruit.
Monday, October 23, 2006 ~ 8:51 a.m., Dan Mitchell Wrote: In an otherwise bad year for Republicans, one GOP incumbent doing well is Alabama Governor Bob Riley, in large part for the ironic reason that
he failed to raise taxes. Three years ago Mr. Riley told voters it was their "Christian duty" to approve a $1.2 billion tax hike he wanted to plug a
$675 million deficit. His crusade briefly became a national story, as the press played up a GOP tax-raiser. We chimed in that this seemed like a
bad idea and were chided by all sorts of Alabama Republicans who said we didn't understand the state. However, voters -- many of them even Christian -- opposed the tax hike by two-to-one in a special election,
forcing lawmakers to restrain spending instead. Mr. Riley is now running for re-election and it seems he has converted to supply-side economics.
Sitting on a $1 billion budget surplus and faced with an opportunity to hand his party control of the legislature for the first time in more than
130 years, the Governor is preaching tax cuts like a true believer. He has already pushed through an income tax cut that will kick in come January. And if given a second term, he promises another round of
income and property tax cuts that would eventually save residents about $250 million a year.
Monday, October 23, 2006 ~ 8:32 a.m., Dan Mitchell Wrote: Ageing populations in across Europe will result in "high risk" public finances in six member states with average EU debt set to reach 200
percent of GDP by 2050 if national governments do not push through structural and budgetary changes. … The six countries with the highest risk forecasts - the Czech republic, Greece, Cyprus, Portugal, Hungary
and Slovenia - face a combination of problems including high ageing costs, large state deficits and a high level of debt. … Overall, the EU executive is suggesting three types of measures to member states - fix
their public deficits, reform their pension and health systems to cut expenditure and boost employment, mainly of old workers – possibly by raising the retirement age.
Monday, October 23, 2006 ~ 8:00 a.m., Dan Mitchell Wrote: State and local governments have amassed large debts and unfunded obligations. Debt in the form of bonds has soared to $1.9 trillion. State
and local pension plans are underfunded by about $700 billion. Underfunded retiree health plans for government workers represent another large fiscal hole. On the basis of our review of data for 27
jurisdictions, we estimate that state and local retiree health benefits are underfunded by $1.4 trillion nationwide. … From a fairness perspective,
cutting benefits makes sense because state and local governments typically have much more generous benefit plans than those in the private sector. For example, while 65 percent of governments provide
retiree health benefits, only about one-quarter of large private businesses do. Also, federal data show that the average cost of health benefits
provided to state and local workers is $3.91 per hour worked, which compares to an average of just $1.72 in the U.S. private sector. In sum, excessively generous pension and health plans for state and local
workers have created a roughly $2 trillion fiscal hole. To plug that hole, policymakers should cut back health benefits and transition to savings-based retirement systems for their workers.
Monday, October 23, 2006 ~ 7:17 a.m., Dan Mitchell Wrote: Members of Congress and their staffs are barred from using their positions for personal profit. But their spouses and other relatives can —
and often do — cash in when lawmakers spend taxpayer dollars. Lobbying groups employed 30 family members last year to influence spending bills that their relatives with ties to the House and Senate
appropriations committees oversaw or helped write, a USA TODAY investigation found. Combined, they generated millions of dollars in fees for themselves or their firms. The connections are so pervasive that, in
2005 alone, appropriations bills contained about $750 million for projects championed by lobbyists whose relatives were involved in writing the spending bills. …Neither lawmakers nor lobbyists must report
if they are related to each other, so USA TODAY reviewed thousands of pages of financial disclosures and lobbyist registrations, property records, marriage announcements and other public documents to identify
which lawmakers and staffers had relatives in the lobbying business. The newspaper found 53 cases in which relatives of lawmakers or their top
aides worked at lobbying firms last year. In 30 instances, those relatives, or firms in which they are principals, sought money in the appropriations
bills their family members or their family members' bosses helped write. Of those 30 relatives, 22 succeeded in getting specific language inserted
in the bills that guaranteed money for their clients, USA TODAY found. …Unlike Congress, the judicial and executive branches have strict guidelines on nepotism and contacts with lobbyists and business interests,
said Ronald Utt, a budget expert at the conservative Heritage Foundation think tank. For example, laws bar executive branch employees from taking action affecting the financial interests of their
spouses or minor children. Federal judges are required to remove themselves from cases affecting the financial interests of their spouses or
minor children, or when lawyers or parties to the case are related to the judge. "It's particularly troublesome, because (Congress is) in an environment that has very limited, formal ethical standards to begin
with," Utt said. "The ethics of it are terrible," he said of the newspaper's findings. "It's getting to the point where no one bothers to hide what
appear to be raging conflicts of interest." Utt said it's "both impossible and preposterous" to believe that relatives who are lobbyists don't influence their family members.
Sunday, October 22, 2006 ~ 4:59 p.m., Dan Mitchell Wrote: Everyone complains about the rising cost of healthcare. And now is the season when politicians and pundits propose solutions. Unfortunately,
too many of these proposals spring from the wrongheaded notion that healthcare is, as a recent New York Times letter-writer asserted, "a human right and a universal entitlement." Sounds noble. But not
everything that is highly desirable is a right. Most rights simply oblige us to respect one another's freedoms; they do not oblige us to pay for others
to exercise these freedoms. Respecting rights such as freedom of speech and of worship does not impose huge demands upon taxpayers. … imagine if government tried to supply food as a universally available
"right." To satisfy this right, government would raise taxes to meet all anticipated food needs. Store shelves across the land would then be
stocked. Citizens would have the right to enter these storehouses to get "free" food. Does anyone believe that such a system would effectively
supply food? It's clear that with free access to food, too many people would take too much food, leaving many others with no food at all. Government would soon realize that food storehouses are emptying
faster than expected. In response, it might hike taxes even higher to produce more food - raising the price that society pays for nutrition. Stocking stores with more food, though, won't solve the problem. With
food free at the point of delivery, consumers would take all that they can carry. People would quickly learn that if they don't grab as much food as
possible today, the store might run out of the foods that their families need tomorrow. This creates a vicious cycle of moral hazard that unwittingly pits neighbor against neighbor. … Despite these difficulties,
many Americans demand that government do more to guarantee access to healthcare. Although their concern is understandable, those who make such demands forget that government intervention itself is a major cause
of today's high and rising healthcare costs. Indeed, this intervention has created a situation akin to what would happen if government supplied
our food for "free." Medicare, Medicaid, and tax-deductibility of employer-provided health insurance created a system in which patients at
the point of delivery now pay only a small fraction of their medical bills out of pocket. This situation leads to monstrously inefficient consumption
of healthcare. Some people consume too much, while many others with more pressing needs do without. Because the wasteful consumption caused by heavily subsidized access drives up healthcare costs, taxpayers
must pay more and more to fund Medicare and Medicaid, while private insurers must continually raise premiums. The sad and perverse result is that increasing numbers of people go without health insurance. The
solution is less, not more, government involvement in healthcare. Market forces have consistently lowered the cost and improved the quality and
accessibility of food - which is at least as important to human survival as is healthcare. There's no reason markets can't do the same for healthcare.
Saturday, October 21, 2006 ~ 2:44 p.m., Dan Mitchell Wrote: France should tax businesses that move jobs outside of the country, and then tax their products when they are imported back into the country,
French presidential election frontrunner Ségolène Royal said in an interview published in The Times on Friday. Speaking from the town of Poitiers, western France, in the Poitou-Charentes regional council where
she is the socialist head, Royal told the newspaper: "We have to prevent this wildcat outsourcing." "The workers have no power. We need to tax
businesses who want to move out jobs and tax their products when they re-import them," she said. "The capitalists have to be frightened ... There
is no alternative. They can't just dispose of people as they wish. They have to be held accountable."
Friday, October 20, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: In the last decade alone, dozens of nations have enacted the best policy recommendations of our brightest minds. The trend started in the 1970s,
when Dr. Friedman and the "Chicago Boys" successfully began exporting the ideas of individual ownership and Personal Retirement Accounts (PRAs) to Latin America. The young Chilean labor minister
Jose Pinera boldly ran with the Chicago vision in 1981 and the results can be seen and felt in the streets of Santiago today. Compared to our
negative national savings rate, Chile has a national savings rate of 21 percent. Following the passage of their reform, their economy soared past their South American neighbors. Encouraged by Dr. Pinera, the
PRA revolution spreads unabated, with more than 30 countries having replaced their failed defined benefit pension systems with some level of
individual ownership and control, including left leaning nations such as Denmark, Sweden, and even Bolivia. Former communist nations of Eastern Europe are also enacting pro-growth, pro-market policies and
watching their economies set the pace for world economic growth. Knowing that simple, non-intrusive tax code encourage people to work and expand economic activity, reformers in Lithuania, Estonia, and
Latvia have all enacted flat taxes and seen growth rates consistently in the six to eight percent range in the past few years. In total, according to
Flat Tax draftsman and evangelist Alvin Rabushka, nine countries have adopted some form of his proposal, including Estonia, Russia, Ukraine and Romania.
Friday, October 20, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: American companies often function at a competitive disadvantage in the global economy. They pay one of the highest corporate tax rates of any
of the industrialized countries. The top federal rate on corporate income is 35 percent, and states with punitive tax systems cause companies to be
even less competitive globally. The modern market is characterized by mobile capital and labor. Therefore, companies will locate where they have the greatest competitive advantage. States with the best tax
systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth. Although the market is now global, the Department of Labor reports that most
mass job relocations are from one U.S. state to another rather than to an overseas location. Certainly job creation is rapid overseas, as previously
underdeveloped nations enter the world economy. So state lawmakers are right to be concerned about how their states rank in the global competition for jobs and capital, but they need to be more concerned
with companies moving from Indianapolis, IN to Ithaca, NY, rather than from Indianapolis to India. This means that state lawmakers must be aware of how their states' business climates match up to their immediate
neighbors and to other states within their regions. Examples of companies choosing states due to favorable tax systems are plentiful. A recent example, from 2005, is Intel's decision to build a multi-billion
dollar chip-making facility in Arizona due to its favorable corporate income tax system. California struggles to retain businesses within its
borders because Nevada provides a low-tax alternative. … States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in
some way change a state's competitive position relative to its immediate neighbors, its geographic region, and even globally. Ultimately it will
affect the state's national standing as a place to live and to do business. Entrepreneurial states can take advantage of the tax increases of their
neighbors to lure businesses out of high-tax states. … Tax competition is an unpleasant reality for state revenue and budget officials, but it is an
effective restraint on state and local taxes. It also helps to more efficiently allocate resources because businesses can locate in the states
where they receive the services they need at the lowest cost. When a state imposes higher taxes than a neighboring state, businesses will cross the
border to some extent. … the absence of a major tax is a dominant factor in vaulting these ten states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but
there are several states that do without either a corporate tax, an individual income tax, or a sales tax. Wyoming, Nevada and South Dakota have no corporate or individual income tax; Alaska has no
individual income or state-level sales tax; Florida and Texas have no individual income tax; and New Hampshire, Delaware, Oregon and Montana have no sales tax. The lesson is simple; a state that raises
sufficient revenue without one of the major taxes will, all things being equal, out-compete those states that levy every tax in the state tax collector's arsenal. … the highest-tax states, such as Minnesota,
Wisconsin, and New York, have acknowledged that high taxes may be responsible for the low rates of job creation in those states.
Friday, October 20, 2006 ~ 7:54 a.m., Dan Mitchell Wrote: In the Ohio governor's race, Ken Blackwell is trailing his Democratic competitor, Ted Strickland, by double digits. Save a last-minute miracle,
Mr. Blackwell will lose the governor's mansion, and so end 16 years of GOP dominance. ... In the Florida governor's race, Charlie Crist is leading his Democratic competitor, Jim Davis, by double digits. Save a
last-minute misstep, Mr. Crist is set to give the state GOP a third term in the governor's mansion, overseeing a strong Republican legislative
majority. Their respective failure and success is not ideological: Messrs. Blackwell and Crist are both running on the same agenda of tax cuts,
fiscal responsibility and broad government reform. This, instead, is a story of the state parties behind them. In Florida, Republicans have spent
the past eight years keeping their promises to voters; in Ohio the GOP forgot what "promise" meant somewhere in the '90s. The tale of these
two GOPs offers broader lessons for congressional Republicans, who are facing a rout this fall. That this election is a referendum on the entire
Republican philosophy is the standard line so far this year. Democrats from Nancy Pelosi to Chuck Schumer argue that voters who vote blue
are sending a message that they are tired of Republicans' "extreme" views on national security, taxes or social policy. Quite the opposite,
really. If voters are unhappy with Republicans, it's because the party hasn't lived up to its own principles. In the Capitol, in Ohio, and in plenty
of places between and beyond, the party that promised to reform government has become the party of government. Take Ohio. Republicans have practiced one-party rule in the state since 1994--more
than enough time to lose one's principles. Former Gov. George Voinovich set the standard in 1992 by breaking his word and signing tax hikes. His successor, Bob Taft, with the help of the GOP legislature, in
2003 broke pledges not to raise taxes without voter permission. Some $3 billion in tax increases later, Ohio jumped to fourth place in the rankings
for state and local tax burdens. (It was 23rd in 1994, when the GOP took over.) Over their first 10 years in power, Republicans increased Ohio's
general operating budget by 71%--the highest increase in the nation. The Taft and Spend strategy socked it to the Ohio economy. Its gross state product grew a measly 1% between 2004 and 2005, while Ohio lost
150,000 jobs between 2000 and 2005. Unemployment levels have hovered above the national average. If corruption is the product of big, unconstrained government, it was no surprise to watch the GOP
engulfed by scandals that swept up everyone from Mr. Taft to Congressman Bob Ney. By November of last year, Mr. Taft's approval rating was 6.5%; if anyone had been keeping track, the legislature may
have scored even lower. Mr. Blackwell didn't sign onto any of this. While the rest of his party was riding down the big-government river, the
secretary of state was pushing a voter initiative to create a constitutional limit on spending. He's been running this year on tax cuts, charter
schools and privatizing the Ohio Turnpike. He hasn't been touched by the scandals. …If congressional Republicans are facing a rout come November, it's in no small part because they've been headed down the
Ohio highway. A few Supreme Court appointments and tax cuts aside, Republicans have largely abandoned the reform agenda that swept them to power in 1994. Their zeal has instead been directed at retaining
power, which explains the earmarking epidemic and the Abramoff corruption that followed. Reform of Medicare and Social Security, the death tax, immigration, health care--all fell off the map.
Thursday, October 19, 2006 ~ 1:39 p.m., Andrew Quinlan Wrote: Over the years there have been many cases of government agencies lobbying Congress for more funds and/or higher taxes. As a result of
earlier abuses, Congress prohibited this misuse of taxpayer money but, unfortunately, the practice has not gone away. ... The OECD is the international bureaucracy in Paris representing developed nations. It was
set up to foster economic growth and provide statistical information, both of which it did during its early years. However, as I have previously
reported, it has been engaged in extensive "mission creep" at the behest of some of its European members. Rather than promoting economic
growth, some OECD divisions are fighting pro-growth tax competition and free capital flows among nations. ...The U.S. provides about a quarter of the almost $400 million OECD budget. Concerned about the
OECD's move away from pro-growth free-market principles and at the urging of the Center for Freedom and Prosperity and other public policy organizations, the Senate decided to include a provision in the Foreign
Operations appropriations bill barring the OECD from pursuing anti-tax competition policies. ...Under the provision, funds appropriated for the OECD may not be used for activities designed to hinder the flow of
capital and jobs from high-tax jurisdictions to low-tax jurisdictions or to infringe on jurisdictions' rights to determine domestic policies. The
senators acted, in part, because the OECD has recommended the U.S. adopt a Value Added Tax (VAT) and increase at least a dozen other taxes. ...The head of the OECD's Washington office, Sandra Wilson, then
wrote (on Sept. 28) to U.S. Senate and administration officials requesting "that this language be removed from the bill." Here we have a case of a
representative of an international organization directly lobbying for both increased U.S. government spending and increased taxes on U.S.
citizens, using, in part, U.S. taxpayer dollars to do so. ...Ms. Wilson also claims the OECD does not have a Washington lobbyist -- hmmm, perhaps she also does not have a mirror. OECD funding language (FY 2007): Conference Report 109-272 (FY 2006) ~ goto page 198:
Thursday, October 19, 2006 ~ 12:17 p.m., Sven Larson Wrote: If the winds blew funny last Friday, don't blame the weather. That was the collective sigh of relief from U.S. expatriate workers, many of whom
received some double-taxation relief that day, courtesy of the Treasury. ...[But] at root, Notice 2006-87 is only a partial fix for a poorly conceived tax grab.
Thursday, October 19, 2006 ~ 9:00 a.m., Dan Mitchell Wrote: The Asian city-state has adapted Switzerland's banking secrecy laws, much of its tax and trust policy and regulatory framework in a recent
drive to reinvent itself. Reeling from the Asian market collapse of the late-1990s, Singapore convened the Economic Review Committee (ERC) in December 2001. That committee was made up of government,
economic and urban planning advisors charged with revitalising the financial marketplace. The ERC looked at other countries and liked what it saw in Switzerland, according to Roman Scott, a private banking
expert with Boston Consulting Group in Singapore and an advisor to the committee. "They looked at everything from banking secrecy laws,
taxation both on interest bearing accounts and capital gains, taxation in terms of residency and trust policy," he told swissinfo. … One of the first
changes was to beef up the banking confidentiality laws by imposing a sentence of $78,000 (SFr98,000) or three years in prison for disclosing information. In 2004 Singapore amended its trust laws to allow
foreigners to sidestep state interference in many European countries that dictates how inheritance is carved up. That same year Singapore scrapped taxes on foreign investments earned abroad and reduced the
corporate tax burden, like many Swiss cantons, to attract more businesses. Tax evasion, as in Switzerland, is not a criminal offence in Singapore unless proof of sharp practice is found.
Thursday, October 19, 2006 ~ 8:46 a.m., Dan Mitchell Wrote: Flat taxes fail to boost revenues, as their advocates claim, and are likely to be abandoned by the countries that have introduced them, according
to research published by the International Monetary Fund. 'The question is not so much whether more countries will adopt a flat tax, as whether
those that have will move away from it,' the study says, after examining the experience of eight economies that have introduced the policy since
the mid-Nineties. Sweeping away variable tax bands and replacing them with a single rate has long been a dream of right-wing economists. Since a number of Eastern European governments introduced flat taxes,
support for them has grown in the UK, and shadow Chancellor George Osborne has flirted with the idea. But the IMF analysts who carried out the research cast doubt on the main advantage claimed for flat taxes:
that they increase revenues by allowing people to pocket more of their hard-earned cash, and thus persuade them to work harder. This is the
so-called 'Laffer effect' named after US economist Arthur Laffer. But the authors say: 'In no case does there appear to have been a Laffer effect:
these reforms have not set off effects strong enough for them to pay for themselves.'
Thursday, October 19, 2006 ~ 8:33 a.m., Dan Mitchell Wrote: Among Mr. Phelps's other contributions, two stand out, both of which were highlighted on the Nobel Web site. The first is on optimal tax policy:
He showed, like 1996 Nobel Laureate James Mirrlees before him, that the marginal tax rate should be close to zero for the highest earners. The
basic idea is that the government should not much reduce the incentive of the most productive people in society to work those additional few hours. The second is on population. In 1968, long before Julian Simon
popularized the idea that population growth is good, Mr. Phelps made the same argument: The more people there are, the more ideas are developed, and ideas, once developed, can be transferred to others at
almost no cost. He wrote: "One can hardly imagine, I think, how poor we would be today were it not for the rapid population growth of the past to
which we owe the enormous number of technological advances enjoyed today. . . . If I could re-do the history of the world, halving population
size each year from the beginning of time on some random basis, I would not do it for fear of losing Mozart in the process." Thomas Alva Edison is an even better example, but the point is clear.
Wednesday, October 18, 2006 ~ 9:12 p.m., Dan Mitchell Wrote: If Republicans lose control of Congress next month, one big reason will be their record of overspending, especially on earmarks. What explains
this GOP fiscal performance? One answer comes from a new analysis by the Cato Institute on the Capitol Hill culture of spending under Republican rule. Examining hearings of 14 Congressional committees,
political scientist James Payne found that 1,014 witnesses argued in favor of greater spending while only seven advocated less, an imbalance
of 145 to 1. This is worse that a Cuban election. In the same hearings, federal programs were described as "effective" or "efficient" 50 times
more often than they were described as "ineffective" or "inefficient." Federal agencies were praised as "helpful" or "beneficial" in 990
instances, but they were scorned as causing "harm" or "hurt" only a dozen times. These are many of the same federal agencies that the U.S.
General Accountability Office has found often can't pass the most basic financial audit. …In sum, Congressional hearings have degenerated into
a lobbying process in which advocates sing the praises of the spending that their livelihoods depend on, while stroking the egos of the politicians
as constructive philanthropists. Members of Congress begin to believe their own stacked juries. It's amazing they stopped spending at $2.7 trillion this year. Spending restraint is sound policy but awful politics. That's the conventional wisdom among a Republican congressional majority that,
haunted by memories of the 1995 government shutdown and the demonization of former Speaker Newt Gingrich, views the electorate as various special interests selling their votes to whichever party offers the
largest subsidies. As former Republican Party chairman Ed Gillespie once reportedly told the Manchester Union Leader, the American people want big government and the Republican Party has decided to provide it.
Accordingly, since 2001 federal spending has surged by 45 percent. GOP press releases exclaim "largest federal funding increase in history" for
this or that program. And GOP Hill leaders -- in addition to criticizing Democrats for not spending enough -- distribute briefing packets urging lawmakers to brag about all the spending they bring home. Each
budget-busting bill -- from education and farm subsidies to Medicare drugs and highways -- is sold as the final guarantor of a permanent GOP majority. … Which begs the question: If runaway government spending is
supposed to buy popularity, why has Congress' approval rating sank to a 12-year low of 24 percent? Why do so many pro-spending incumbents face uphill re-election battles? Lawmakers have remarkably little
political benefit to show for one of the largest spending sprees in American history. They increased education spending by a staggering 137 percent since 2001 in hope of buying the "soccer mom" vote.
Instead, the percentage of Americans preferring the GOP on education actually dropped from 41 percent to 33 percent. Then, lawmakers created an $8.1 trillion Medicare drug entitlement in hope of buying
enough senior votes to cement a permanent Republican majority. Instead, President Bush received only 976,000 more senior votes in 2004 than in 2000. That translates into $8.3 million in future taxes for every
new vote gained. And new polls show that seniors feel, at best, ambivalent about the drug entitlement in its current form. … That strategy failed to acknowledge that Democrats can always woo those
voters by promising even larger spending increases. Democrats still accuse the GOP of shortchanging education despite the 137 percent increase. Sen. Ted Kennedy of Massachusetts promised that "when we
get [the Medicare drug entitlement] as a down payment, we're going to come back again and again and again." Even record anti-poverty spending levels haven't stopped the media from stereotypically
portraying the GOP majority as mean-spirited budget cutters. Republican spenders can never outbid Democrats for the votes of big-government advocates, and any futile attempt to do so merely
demoralizes small-government advocates. This may explain why even two-thirds of conservative voters disapprove of the free-spending GOP Congress. Yet lawmakers continue to tout spending as political gold
because most of their contacts are with lobbyists and a vocal minority of constituents demanding more money for their pet issues. Polls consistently show that a silent majority of Americans prefer a small
government with lower taxes and fewer services over a larger one with higher taxes and more services. One recent poll revealed that, by a two-to-one ratio, Americans prefer spending restraint even if it means
less pork and federal funds coming home.
Wednesday, October 18, 2006 ~ 7:32 p.m., Dan Mitchell Wrote: Sofia- Bulgaria has lowered the corporate tax rate from 15 to 10 per cent starting in 2007, when the country joins the European Union
membership, the parliament decided Thursday. While the 30-per-cent cut would create a 290 million leva (185 million dollars) hole in the state
budget, it is also expected to generate revenue by luring new investments and draw a part of the grey economy into the open.
Wednesday, October 18, 2006 ~ 6:34 p.m., Dan Mitchell Wrote: European Commission president Jose Manuel Barroso is set to urge the UK's political leaders to think twice on whether they want Britain to be
at the heart of the EU's decision-making strata or to "sulk in the periphery" instead. In his speech at Chatham House in London on
Monday (16 October), Mr Barroso will argue "If the UK wants to tackle climate change, if it wants to fight poverty in Africa, if it wants to deliver
greater external security, if it wants to have an open, competitive environment, then the UK needs the EU," according to UK daily Guardian. …Mr Barroso will argue on Monday that while the UK will
undoubtedly "always have influence in Europe" due to its size and economic power, "the question is does the UK want to shape a positive
agenda, which reflects its own agenda, or be dragged along as a reluctant partner?" "Do you want to drive from the centre or sulk from
the periphery?" Mr Barroso is expected to ask in a speech dubbed "Seeing through the Hallucinations: Britain and Europe in the 21st century."
Wednesday, October 18, 2006 ~ 5:34 p.m., Dan Mitchell Wrote: Germany is to seek ways to breathe life into the European social model during its six month stint at the helm of the EU beginning in January.
According to an outline of the programme for its EU presidency, obtained by Reuters, Berlin will concentrate on creating more jobs, as this is one of the main concerns of citizens and will also try and make the
bloc's social model more relevant. It plans to host a ministerial conference that makes clear that the economy, employment and social affairs do not contradict one another and wants to make sure that the
social effects of European laws are taken more strongly into account.
Wednesday, October 18, 2006 ~ 11:51 a.m., Sven Larson Wrote: [Lamy] called on the EU to help revive the Doha Development Round which came unstuck before the summer mainly due to Brussels and
Washington disagreeing on domestic aid to farmers. "The negotiations can resume, mainly because most of the work has already been done,"
said Mr Lamy sounding an optimistic note. "We need to make these last few steps and I think it is feasible." EU trade commissioner Peter
Mandelson has continuously said that the global trade pact is still his priority but that the bilateral deals Brussels is now overtly pushing for
are needed for tackling issues that are not ready for multilateral discussion such as agriculture. Last week, the EU and India agreed to go
ahead next year with negotiations for a bilateral deal and the 25-member bloc is also interested in open trade deals with other countries such as Russia and South Korea, should the Doha round fail.
Tuesday, October 17, 2006 ~ 5:16 p.m., Sven Larson Wrote: Tax revenues, measured as the ratio of tax to Gross Domestic Product (GDP), are rising in many OECD countries despite deep cuts in tax rates,
according to a new OECD report, reflecting both the effects of stronger economic growth, which has led to higher corporate profits, and moves
in some countries to offset the effects of cuts in tax rates by broadening the tax base and improving tax compliance. ... Recent increases in income tax revenues - both personal and corporate - have come despite
the fact that statutory rates of corporate and personal income taxes remain stable or are falling in many OECD countries. There were no increases in personal or corporate tax rates in the three countries with
the largest tax ratio increase: Iceland, the United Kingdom and the United States. That suggests that the higher tax ratios are a result of stronger economic growth in these countries, and more generally across
the OECD. Stronger growth increases both the profitability of companies and the level of personal incomes, leading to an increase in the level of taxes that they pay.
Tuesday, October 17, 2006 ~ 8:34 a.m., Dan Mitchell Wrote: There are two economic systems in the West. Several nations--including the U.S., Canada and the U.K.--have a private-ownership system marked
by great openness to the implementation of new commercial ideas coming from entrepreneurs, and by a pluralism of views among the financiers who select the ideas to nurture by providing the capital and
incentives necessary for their development. Although much innovation comes from established companies, as in pharmaceuticals, much comes from start-ups, particularly the most novel innovations. This is free
enterprise, a k a capitalism. The other system--in Western Continental Europe--though also based on private ownership, has been modified by the introduction of institutions aimed at protecting the interests of
"stakeholders" and "social partners." The system's institutions include big employer confederations, big unions and monopolistic banks. Since
World War II, a great deal of liberalization has taken place. But new corporatist institutions have sprung up: Co-determination (cogestion, or
Mitbestimmung) has brought "worker councils" (Betriebsrat); and in Germany, a union representative sits on the investment committee of
corporations. …So different is this system that it has its own name: the "social market economy" in Germany, "social democracy" in France
and "concertazione" in Italy. …Do we find evidence of greater benefits of dynamism in the relatively capitalist economies than in the
Continental economies as currently structured? In the Continent's Big Three, hourly labor productivity is lower than in the U.S. Labor-force participation is also generally lower. And here is new evidence: The
World Values Survey indicates that the Continent's workers find less job satisfaction and derive less pride from the work they do in their job.
…What would be the consequence, from this Rawlsian point of view, of releasing entrepreneurs onto the economy? In the classic case to which Rawls devoted his attention, the lowest score is always that of workers
with the lowest wage, whom he called the "least advantaged": Their self-realization lies mostly in marrying, raising children and participating
in the community, and it will be greater the higher their wage. So if the increased dynamism created by liberating private entrepreneurs and
financiers tends to raise productivity, as I argue--and if that in turn pulls up those bottom wages, or at any rate does not lower them--it is not
unjust. Does anyone doubt that the past two centuries of commercial innovations have pulled up wage rates at the low end and everywhere else in the distribution?
Tuesday, October 17, 2006 ~ 7:16 a.m., Dan Mitchell Wrote: I am also convinced that Europe must change its rules on unanimous decision-making. …I have already suggested the idea of a
"super-qualified" majority voting system of 70 or 80 per cent support for particularly sensitive policy areas. …EU expenditure must be financed by
EU-raised taxes, just as local taxes finance local spending. Financial reform will be an important issue for the coming French EU presidency.
Monday, October 16, 2006 ~ 2:32 p.m., Sven Larson Wrote: "...it is important for people to know that social spending will rise, as will pensions." Lithuanian Prime Minister Gediminas Kirkilas told Lithuanian
radio on Oct. 10. Indeed higher public sector wages are planned in both the Lithuanian and Latvian budgets. In his Oct. 10 radio interview, Lithuanian Prime Minister Gediminas Kirkilas said that next year will
see a rise in pay for those in the health and education sector, more money for social protection, and compensation for heating. In Latvia, more
spending is planned also to raise teacher and police salaries, and to provide relief to farmers hit with low crop yields from this year's particularly dry summer. Estonia and Latvia are both expecting budget
surpluses. But with Lithuania's situation a little tighter, the government's spending priorities more under fire. Critics came out on Oct. 10 with a
harsh assessment of Lithuania's 2007 budget plans. Policymakers assign millions for salaries, cents for the raising of country's competitiveness
and postpone reforms again, the Verslo Zinios business daily reported today. "The revenues of next year's budget, which are expected to be
collected on the back of strong economic development will be used to meet the commitments assumed by the government and the parliament in
2005 and 2006, mostly in the social sector, health care and education," he said. "It is to be regretted that the government does not put the need
to boost Lithuania's competitiveness, which would require the cutting of taxes, among the priority tasks." Remigijus Simasius, President of
Lithuanian Free Market Institute said earlier in the week. "The authorities follow the well-known path - to consider the reduction of taxes and postpone the actual measure as much as possible while
simultaneously raising expenditures considerably," Simasius commented.
Monday, October 16, 2006 ~ 8:50 a.m., Dan Mitchell Wrote: At the Pinitos Learning Center in Boca Raton, Fla., disaster workers dressed as "Windy Biggie" and "Sunny" teach 30 preschoolers a song
about how the wind is good, even during a hurricane… This is FEMA tax money at work. It's also paying for Hurricane Bingo, puppet shows,
"salsa for seniors" and yoga on the beach. Last year, the Federal Emergency Management Agency awarded Florida $22.6 million for
"crisis counseling" for victims of hurricanes Wilma and Katrina. Florida's program, called Project H.O.P.E.--Helping Our People in
Emergencies--is still in operation with about 450 workers across the state who spend much of their time leading games and performing shows for groups of residents--regardless of whether they're in crisis or even
experienced the storms, the South Florida Sun-Sentinel has found. …But Project H.O.P.E. officials say they've had trouble locating victims because FEMA refuses to provide names or addresses of those who have
sought disaster aid, citing confidentiality. Workers have searched for Wilma victims by driving around and looking for blue tarps on roofs. The Katrina team, whose mission is to help Gulf Coast evacuees who have
moved to Florida, have scoured hotels and festivals, sometimes finding only one or two "survivors" a week. …Counselors regularly attend
"stress management" sessions that have included collecting shells on the beach, "silly string and art therapy," and "the toilet paper game."
…Doris O'Neal was a Project H.O.P.E. Wilma counselor in Palm Beach County from December through July, when she left because of illness. "I
think it's a waste of taxpayers' money," she told the Sun-Sentinel. "I mean, puppet shows? What is that doing? I felt guilty a lot of days going
to work and earning a paycheck." …Other Project H.O.P.E. creations have included "yoga relaxation on the beach," the Un-electric Cooking
Show with Chef Sunshine, and a workshop called "Planting for Inner Peace." …To alleviate storm stress, Project H.O.P.E. conducts
"self-care" activities for team members that have included dancing on the beach, collecting shells and engaging in "water pistol battles."
They've enjoyed "a day at the theatre," free massages and a hurricane recipe challenge, Project H.O.P.E. reports say. The South Florida
Katrina team organized a picnic in April in Fort Lauderdale that "was fun when staff and survivors were able to interact, play games and enjoy
activities," says one report. Three days later, Project H.O.P.E. managers treated 29 team members to lunch at Benihana "to alleviate stress after
the team had worked so diligently on the Katrina Picnic."
Sunday, October 15, 2006 ~ 11:11 a.m., Dan Mitchell Wrote: [A] judge has given the green light to a lawsuit against McDonald's by two teenaged girls who claim the popular fast-food chain tricked them
into eating food that made them fat and sick. …Who knows what a jury will do when the lawyers play on its sympathy for the overweight girls. Whether McDonald's wins after a lengthy legal battle or loses and gets
hit with a big damage award, you and I will pay through higher prices. Our choice of foods could even be limited if fast-food chains decide it's
the only way to avoid future lawsuits. Au revoir, French fries? Are we a nation of responsible adults or children? I don't want government to be my Daddy any more than I want it to be my Big Brother. Whatever
happened to self-responsibility? Sure, McDonald's commercials put the best spin on its products. All advertisers do that. Individuals should
exercise caution, and parents should teach their kids a little skepticism. … anyone whose health was harmed by eating at McDonald's only has himself or herself to blame. To bloat himself up an individual has to
choose to enter the restaurant on a regular basis, overeat an unbalanced diet, and fail to exercise. Should that person be able to pin his health
problems on McDonald's? If so, where does it stop? You can get fat eating Girl Scout cookies or dining at expensive restaurants. Should we sue someone whenever we don't like the results of what we do?
Sunday, October 15, 2006 ~ 10:30 a.m., Sven Larson Wrote: If a teacher doesn't measure up, should he or she jump over other applicants for a job at a different school? Not anymore, at least not in
California's neediest schools. A new state law bars school districts from forcing principals at low-scoring schools to hire teachers who transfer
from elsewhere in the district. In a move watched by educators across the nation, California's Legislature and Gov. Arnold Schwarzenegger (R)
concluded that the preference system had allowed transferring teachers, often with weak records, to bump newer teachers from schools that needed them most, even when the principal preferred the newer teacher.
Schools that got stuck tended to be urban, poor schools with less job competition than those in affluent neighborhoods. They had to accept teachers transferred by administrators who -- rather than issue a
negative evaluation -- simply took the easier option "to gently push the person out the door," said state Sen. Jack Scott, a Pasadena Democrat
who passed the reform over opposition from powerful teachers' unions. If the teacher didn't succeed at the new school either, he or she transferred
to yet another post - "the dance of the lemons," critics called it.
Saturday, October 14, 2006 ~ 7:12 p.m., Dan Mitchell Wrote: In May of last year Congress passed the Real ID Act…intended to thwart illegal immigration by denying drivers' licenses to undocumented aliens.
…Under Real ID, all 245 million existing holders of drivers' licenses must apply -- in person -- for new, standardized identification cards. The
report says that state motor vehicle department staffs will need to be more than doubled, and workers will have to be trained to verify copies
of original birth certificates, Social Security cards and the like. Misplaced your Social Security card? Have fun getting a new one. We're pretty sure
that voters don't elect Republicans to increase the size of their already bloated state bureaucracies. And yes, you can expect longer lines at the
DMV in the future. "Real ID will reduce efficiencies and increase wait times," according to the report. "Real ID will also effectively reverse
state practices designed to ease an applicant's interaction with motor vehicle agencies (e.g., Internet, mail in renewal, over-the-counter issuance)." The deadline for compliance is May 2008. After that,
identification from states that don't meet the new national requirements won't be accepted at federal agencies. Proponents claim that standardizing drivers' licenses is essential to fighting terrorism on the
domestic front. Mr. Sensenbrenner has said that Real ID will stop the next Mohamed Atta. But the 9/11 hijackers entered the country legally,
which means they qualified for valid drivers' licenses. Nothing in the new law changes that reality, or the fact that you still don't need a driver's
license to board a plane. Other forms of ID, such as a passport, will continue to suffice. …State agencies put the total cost of standardizing drivers' licenses at upwards of $11 billion; Congress has so far
appropriated all of $40 million. Again, this is from a Republican Congress that made its first legislation upon taking power in 1995 a bill
against imposing "unfunded mandates." It included a pledge not to impose any burden on the states that wasn't fully financed from Washington. Now comes Real ID, transforming state departments of
motor vehicles back into everyone's worst nightmare. Some accomplishment.
Friday, October 13, 2006 ~ 3:03 p.m., Dan Mitchell Wrote: Hong Kong warned the European Union on Thursday that it was extremely unlikely to agree to demands to provide information on the
finances of foreigners suspected of trying to avoid tax. The EU last month identified the territory and Singapore as likely destinations for European tax avoiders. Singapore has refused to discuss the issue,
according to Benita Ferrero-Waldner, the EUs commissioner for external relations. Laszlo Kovacs, the EU tax commissioner, wants to bring both Hong Kong and Singapore into Europes tax net by persuading them to
apply the July 2005 Savings Directive, which aims to tax the interest on European citizens offshore savings. …Martin Glass, Hong Kongs deputy
secretary for financial services and the treasury, argued that the territory was legally and constitutionally constrained in its ability to share
information with other tax authorities, including China. The powers of the [Hong Kong] government and the commissioner of inland revenue are relatively limited and extend only to information which is required
for our own tax purposes, Mr Glass said at a conference, organised by the Society of Trust and Estate Practitioners.There might be huge ramifications that compliance with such a savings directive would have
for our future as an international financial centre, which is also guaranteed under the Basic Law [Hong Kongs mini-constitution]. Even if we were so minded, we would need to enact legislation which would be
a significant departure from our existing tax legislation, he added. For that reason I would rate chances of us being included in the Savings
Directive in the near future as being exceedingly small. The Hong Kong government cherishes the territorys reputation as a low-tax oasis, which it considers fundamental to its competitiveness as an international
financial centre. …Singapore shares Hong Kongs concerns. Ms Ferrero-Waldner told the Financial Times that the EU wanted to include the Savings Directive in wider ranging negotiations with the city-state
over a potential economic partnership and co-operation pact. But she said Singapore had refused to include the issue on the agenda. EU ambassadors yesterday gave the European Commission a mandate to
start formal exploratory talks on the savings tax with Hong Kong, Singapore and Macao.
Friday, October 13, 2006 ~ 2:09 p.m., Sven Larson Wrote: The Estate Tax Does Not Add Much to Federal Revenues. The estate tax generates little revenue for the federal government. Federal budget data
indicates that the estate tax will raise $28 billion this year, accounting for only 1.2 percent of total federal revenues. Furthermore, it is
estimated that the estate tax costs the private sector one dollar to comply for every dollar in revenue. This means that the true cost of the estate tax to the economy this year is at least $56 billion.
Friday, October 13, 2006 ~ 11:32 a.m., Sven Larson Wrote: The State of New Mexico forbids individuals who practice interior design from calling themselves interior designers unless they first obtain an
expensive and increasingly difficult-to-secure government license. New Mexico law does not prevent anyone from working as an interior designer. Instead, the law achieves its anti-competitive purpose by
dictating who may call themselves "interior designers" or use the term "interior design" to describe what they do. Such "titling laws" are part
of a larger effort by certain members of the interior design community to suppress competition by suffocating would-be competitors with government regulations. On September 7, 2006, the Institute for Justice,
a national public interest law firm that defends free speech and the rights of entrepreneurs, filed suit in the U.S. District Court for the District of
New Mexico on behalf of two entrepreneurs challenging the New Mexico Interior Design Board's censorship law as a violation of free speech
rights protected by the First Amendment to the U.S. Constitution. "The government has no business preventing interior designers from providing
truthful information about their services to potential customers," said Jennifer Perkins, an Institute for Justice staff attorney. "The way to
make sure consumers understand the services and qualifications they're getting is through more truthful speech, not less." Clark Neily, an
Institute for Justice senior attorney, added, "This law is simply the first step in an attempt by industry insiders to impose one-size-fits-all licensing
requirements on a harmless occupation for no good reason whatsoever."
Thursday, October 12, 2006 ~ 10:29 a.m., Sven Larson Wrote: In a few months, the tumultuous 2005-06 session of the Pennsylvania General Assembly will come to a close-and will likely do so without
further action on the "Taxpayer Fairness Act," a bill designed to place a common-sense limit on how much state General Fund expenditures can
increase each year. The effort to enact a spending limitation seemed promising, as it first passed the House and then the Senate (where amendments improved it) in November 2005. It has since languished in
committee at the mercy of House leadership. To add insult to injury-as well as a dose of hypocrisy-nine state senators and 41 representatives
who voted for spending limits last November proceeded to "vote against them" in July 2006 by approving a General Fund budget that increased
spending at a rate more than twice the limit embodied in the "Taxpayer Fairness Act." The difficulty in maneuvering a spending limitation
through Pennsylvania's legislative minefield is disappointing, but not surprising. The opposition to even a hint of spending restraint by the vast
array of interest groups who depend on a steady flow of taxpayer dollars is strong and well funded (in many cases, by those same taxpayer
dollars). And politicians from both parties can't shake their proclivity to spend every dollar that flows into Harrisburg. Many of the opponents of
spending limits argue that Pennsylvanians are not overtaxed, and that any attempt to slow the growth of government will require eliminating vital public services upon which many state residents depend. They also
spread the myth that similar measures in other states have caused fiscal and economic catastrophes. Link to this Blog Entry
Thursday, October 12, 2006 ~ 8:51 a.m., Dan Mitchell Wrote: A report published this week by the Institute for Fiscal Studies has suggested that the government's tax credit system and benefit reforms
have weakened the incentive for those on lower incomes to work, as they may often find themselves relatively speaking worse off once in paid employment. The report, funded by the Joseph Rowntree Foundation,
suggested that on average, tax and benefit changes since 1997 mean that someone choosing to work harder gets to keep 2½p less of each extra GBP1 they earn. The Institute explained that the trend has not been
universal, as reforms have strengthened incentives for lone parents to work at all, and have strengthened incentives to earn more for some groups previously facing the weakest incentives. However, the weakest
work incentives are now faced by people on low incomes who may have their means-tested benefits or tax credits withdrawn if they increase their
income. The IFS observed that: "Such disincentives are much greater than those imposed on high-income people through higher rates of income tax. Over two million workers in Britain stand to lose more than
half of any increase in earnings to taxes and reduced benefits. Some 160,000 would keep less than 10p of each extra GBP1 they earned." Link to this Blog Entry
Wednesday, October 11, 2006 ~ 8:56 a.m., Dan Mitchell Wrote: It had to happen. Hong Kong's policy of "positive noninterventionism" was too good to last. It went against all the instincts of government
officials, paid to spend other people's money and meddle in other people's affairs. That's why it was sadly unsurprising to see Hong Kong's current
leader, Donald Tsang, last month declare the death of the policy on which the territory's prosperity was built. The really amazing phenomenon is that, for half a century, his predecessors resisted the
temptation to tax and meddle. Though a colony of socialist Britain, Hong Kong followed a laissez-faire capitalist policy, thanks largely to a British
civil servant, John Cowperthwaite. Assigned to handle Hong Kong's financial affairs in 1945, he rose through the ranks to become the territory's financial secretary from 1961-71. Cowperthwaite, who died on
Jan. 21 this year, was so famously laissez-faire that he refused to collect economic statistics for fear this would only give government officials an
excuse for more meddling. His successor, Sir Philip Haddon-Cave, coined the term "positive noninterventionism" to describe Cowperthwaite's
approach. The results of his policy were remarkable. At the end of World War II, Hong Kong was a dirt-poor island with a per-capita income about one-quarter that of Britain's. By 1997, when sovereignty was
transferred to China, its per-capita income was roughly equal to that of the departing colonial power, even though Britain had experienced sizable growth over the same period. That was a striking demonstration
of the productivity of freedom, of what people can do when they are left free to pursue their own interests. ... Mr. Tsang insists that he only wants
the government to act "when there are obvious imperfections in the operation of the market mechanism." That ignores the reality that if
there are any "obvious imperfections," the market will eliminate them long before Mr. Tsang gets around to it. Much more important are the
"imperfections"--obvious and not so obvious--that will be introduced by overactive government.
Wednesday, October 11, 2006 ~ 8:17 a.m., Sven Larson Wrote: As Medicaid continues to expand across the state's budget, Ohio politicians are being forced to develop ideas on how to deal with this
growth. Both Congressman Ted Strickland and Secretary of State Ken Blackwell have put forth ideas that would change the state's Medicaid system. Unfortunately, Representative Strickland's plans will only make
the budget situation worse. On the other hand, Secretary Blackwell's ideas are a good first step to move Medicaid in Ohio down the right path.
...Spending more on Medicaid is not the way to fix the program. As the Commission to Reform Medicaid pointed out, the growth rate for Medicaid is already unsustainable. Increasing this growth rate will only
increase the threat to both the viability of the program and funding for other state programs. Secretary Blackwell, in contrast, seems to understand this. His Medicaid proposals were developed from ideas
presented by the Commission to Reform Medicaid and would lead Ohio in the right direction for reform. The most important part of his plan is his
call to move towards a more consumer-directed care model for Medicaid delivery. The current system is more focused on service providers than consumers and as such it is wasteful and unresponsive to the needs of
Medicaid recipients. Moving towards more consumer-directed care has the potential to better contain costs while also improving service for
recipients. Reshaping the program along these lines is a good first step.
Tuesday, October 10, 2006 ~ 9:18 p.m., Dan Mitchell Wrote: Congress keeps breaking the Beltway Book of World Records for spending money, but the government will soon report that the federal
budget deficit for the just-completed 2006 fiscal year fell to about $260 billion. What's the secret of this deficit success that you aren't reading
much about this election year? It isn't spending restraint. The federal budget expanded to $2.7 trillion last year, a 9% increase, or three times
the inflation rate. Over the past six years the federal budget has increased by 49.2%. The main cause of the deficit decline -- 90% of it, says White House budget director Rob Portman -- is a tidal wave of tax
revenue. Tax collections have increased by $521 billion in the last two fiscal years, the largest two-year revenue increase -- even after adjusting
for inflation -- in American history. If you're surprised to hear that, it's probably because inside Washington this is treated as the only secret no
one wants to print. ... Personal income tax payments are up by 30.3% since 2004 too, despite the fact that the highest tax rate is down to 35%
from 39.6%. The IRS tax-return data just released last month indicates that a near-record 37% of those income tax payments are received from
the top 1% of earners -- "the rich," who are derided regularly in Washington for not paying their "fair share." More good news is that
dividend-tax payments appear to be up as well, even though the tax rate was lowered to 15% from as high as 39.6%. A National Bureau of Economic Research study found that "after a continuous decline in
dividend payments over more than two decades, total regular dividends have grown by nearly 20%" and that this reversal happened at "precisely
the point at which the lower tax rate was proposed and subsequently applied retroactively." There hasn't been a purer validation of the Laffer Curve since Ronald Reagan rode off into the sunset.
Tuesday, October 10, 2006 ~ 6:45 p.m., Dan Mitchell Wrote: It took Romano Prodi only a few months to dash hopes that his center-left government would be a reformist one. After a good start in
deregulating some of Italy's service sectors and moving to lower government expenditures, the prime minister is back on traditional ground, pushing higher taxes and economic protectionism. ... Rome will
bank on a mix of tax increases, creative accounting and wishful thinking. Spending cuts play only a small role. Among the tax victims are the
"rich," who in Mr. Prodi's definition includes everybody who makes more than EUR40,000 a year; inheritors, thanks to the reintroduction of the
death tax; and you, dear reader, should you plan a trip to bella Italia, where towns can now tax tourists up to EUR5 per day. The "rich" will
pay an additional EUR10 billion into the state coffers -- or so the government hopes. The truly rich and mobile may decide to look for
saner tax administrations or simply work less -- at least officially. Italians are notoriously good at avoiding taxes, and raising them is only bound to
make them more creative. Italy's main problem is that the country "stopped growing from the mid-1990s," Finance Minister Tommaso Padoa-Schioppa said Tuesday. He didn't say how punishing the
successful is part of the solution.
Monday, October 9, 2006 ~ 12:57 p.m., Dan Mitchell Wrote: In 2001, Gallup started measuring the public image of "business sectors," including the federal government. In each survey since then,
views of the federal government have grown more negative. In an August poll, 25 percent of respondents had a positive view of the federal government and 50 percent had a negative view. ... Gallup reports that
with the exception of the judicial branch, "Americans' reported trust is at or near the lows for what Gallup measured over the decade." The
questions were asked three times in the 1970s and have been asked regularly since 1997.
Monday, October 9, 2006 ~ 10:30 a.m., Dan Mitchell Wrote: As the Bush Administration makes the turn to its final two years, it has overseen the most significant increase in recent history in the largely
hidden workforce of contractors and grantees who work for the federal government. Fueled by nearly $400 billion in contracts in 2005 and another $100 billion in grants, the true size of the federal government
now stands at 14.6 million employees, which includes civil servants, postal workers, military personnel, contractors, and grantees. The total is
up from 12.1 million in 2002, and just 11 million in 1999. ... By 1999, the true size of government was at its smallest level since the end of the cold
war. When all the numbers are added up, the true size of the federal workforce was approximately 11 million, including 1.8 million civil servants, 870,000 postal workers, 1.4 million military personnel, 4.4
million contractors, and 2.5 million grantees. Nevertheless, the ratio of contractors and grantees actually increased-the civil service was shrinking much faster than the hidden workforce. ... By 2005, the true
size of government reached 14.6 million employees in 2005, including 1.9 million civil servants, 770,000 postal workers, 1.44 million military personnel, 7.6 million contractors, and 2.9 million grantees.
Sunday, October 8, 2006 ~ 3:16 p.m., Dan Mitchell Wrote: Work on the EU constitution is to begin again in an informal manner when a "wise" group of politicians and officials from across Europe meet
this weekend to see if they can come up with solutions to pull Europe out of its institutional impasse. …Supported by the European Commission which is sending two commissioners - Danuta Hubner (regional policy)
and Margot Wallstom (communications) - the group also includes British ex-commissioner Chris Patten, former French foreign minister Michel Barnier, ex-German justice minister Otto Schily, former prime ministers
Paavo Lipponen and Wim Kok of Finland and the Netherlands.
Saturday, October 7, 2006 ~ 4:14 p.m., Dan Mitchell Wrote: Europe is already far ahead of the U.S., where no one talks seriously about ending the U.S. Postal Service's monopoly. Recent postal reform
bills on Capitol Hill didn't demand privatization or competition, and never passed anyway. Now, the European Commission can widen this trans-Atlantic gap further -- and put Europe on a path like Japan's,
where the hallmark liberalization of former Prime Minister Junichiro Koizumi was the the break-up and privatization of giant Japan Post. There's no logic to keeping postal monopolies in place. For one thing,
business now accounts for some 80% of all letters delivered in Europe. Subsidizing postal operators, while defended as a service to ordinary citizens, amounts to a taxpayer subsidy of business. More important,
though, the private sector delivers the mail more efficiently than the old state-owned companies. In Britain, where full postal competition came
into effect at the beginning of this year, business mailers are already seeing cheaper and better service. A study published last year by Ecorys
Research and Consulting found that with postal liberalization in Europe, the price for delivering bulk mail in urban areas could drop by as much as 20% to 25%.
Friday, October 6, 2006 ~ 8:37 a.m., Dan Mitchell Wrote: Suspicious of big government promises and irresponsible spending, pocketbook conservatives feel the real pain of taxes. They don't want
bureaucrats to pick winners and losers in the market, and they resent the power of special interests seeking favors at the expense of everyone else.
Pocketbook conservatives are concerned with their family's personal finances and about the health of the American economy as a whole. They
value thrift, hard work, ownership and individual responsibility -- both in their personal lives and in their elected officials. They expect the same
from their neighbors, and generally respect the work ethic and economic contributions of new immigrants. Ronald Reagan was the first Republican
of my generation to effectively reach out to pocketbook conservatives -- Republicans, Democrats and independents alike -- who instinctively believed that little good could come from Washington. He energized
voters who wanted government to leave people alone to work, worship and provide for their families as they saw fit. In 1980, Reagan won the White House in part because he had a positive, serious economic agenda
that reflected these values, believing that "all great change in America begins at the dinner table." George H.W. Bush lost the pocketbook
conservatives when he broke his promise and raised taxes. Higher taxes and new spending delayed the economic recovery, further ballooned the
deficit and created a political window for Ross Perot. In 1994, one of the major factors in the Republican's dramatic takeover of Congress, for the
first time in 40 years, was the willingness to commit to a serious economic agenda. The Contract with America directly connected with pocketbook conservatives. It was a clear vision promoting economic
liberty, personal freedom and a commitment to reducing the size of a bloated government. Republicans realigned with the Reagan legacy, and stood in stark contrast to the Clinton administration's agenda of higher
taxes and government health-care schemes. In that election, a record nine million new voters turned up for Republicans. Today, the pocketbook conservative is up for grabs once again. Since 2002, federal
spending has increased by 47%, earmarking abuse is rampant, and the new Medicare prescription-drug benefit has created $18.2 trillion in new unfunded liabilities on future taxpayers. …if Republicans hope to
maintain the political support of a voting majority in the future, they will need to rediscover their fiscally conservative roots, and govern accordingly.
Friday, October 6, 2006 ~ 8:13 a.m., Dan Mitchell Wrote: Together President Bush and congressional Republicans have brought about record increases in discretionary spending (much of it completely
unrelated to the war on terror), an enlarged federal role in education and the biggest new entitlement since LBJ ushered in the Great Society.
Conservative compassion has ended up having a price tag comparable to the liberal variety. …Ronald Reagan's presidency disappointed small-government conservatives. …Yet the 40th president's fiscal-policy
record was vastly superior to that of today's GOP. In addition to achieving lasting reductions in marginal income tax rates and significant deregulation, real non-entitlement spending was $27 billion lower in
1989 than when Reagan took the oath. The federal budget declined as a percentage of GDP and the budgets of eight Cabinet agencies grew at less than the rate of inflation for eight years. Republicans didn't make
another serious attempt to rein in federal expenditures until after the 1994 elections. …congressional Republicans did initially cut real non-defense discretionary spending. They abolished a number of small
government programs and briefly looked like they were going to change the culture in Washington. And while Bill Clinton easily outmaneuvered them during the 1995-96 government shutdown impasse, they worked
together to reform welfare and trim the capital-gains tax rate.
Friday, October 6, 2006 ~ 7:47 a.m., Dan Mitchell Wrote: As compilers with the Heritage Foundation of the annual Index of Economic Freedom, we think an index can usefully highlight policy
successes and shortcomings. But the conclusions depend on the assumptions. In WEF's "Global Competitiveness Report," a key assumption is that balancing the national budget is itself a great good, no
matter how it's done. According to the WEF, this is America's biggest shortcoming: "With potentially open-ended expenditure commitments
linked to defense and homeland security, ongoing plans to further lower taxes, as well as other longer-term potential claims on the budget" --
here the authors speculate about global warming -- "the prospects for sustained fiscal adjustment do not seem bright." They also throw in a low
national savings rate and the trade deficit to justify the demotion. This notion that economies rotate on the axis of fiscal deficits is a familiar
idea straight from the crypt of the International Monetary Fund. On this reasoning Sweden has a stronger economy than the U.S. Sweden is number three on the WEF list, despite 17% hidden unemployment and a
fraction of America's growth in the past decade. The Nordic countries have improved in recent years, but their prosperity is the result of
free-market reforms. And they're not finished: Swedish voters just elected a center-right government that plans to, yes, cut taxes and loosen labor-market regulations. That might cost the Swedes in the next
"Global Competitiveness Report," but we'll leave it to them to decide whether the gains from faster growth and fewer jobless -- criteria not
considered by the WEF green-eyeshade crowd -- are worth it. …Speaking of fiscal discipline, who does the WEF consider star performers? Meet the Algerian Tiger. By the WEF's methodology, this poor Maghreb
country that lost 200,000 lives in a 1990s civil war is tops in terms of budget surplus, national savings, public debt, inflation, interest-rate
spread and real effective exchange rate. Hearing this, the millions of Algerians struggling to build better lives in Europe will surely rush home.
The Davos crowd would also, apparently, prefer Canadian and British hospitals over American ones. The U.S. ranks below them in the health-care table, which relied on HIV infection, life expectancy and
infant mortality measures. Tell that to the Canadians fleeing south of the border to escape the long lines and poor services offered by their socialized medical system.
Friday, October 6, 2006 ~ 7:41 a.m., Dan Mitchell Wrote: One benefit of looking at consumption is that it accounts for all of the other complicated things that are going on with income, such as taxes or
black-market income. It also accounts for fluctuation of income over time. Consumption is generally smoothed over time by people to match their expected income. A person's consumption provides a much more
accurate read on how he's doing than does his before-tax income. o how have the consumption numbers been doing? Just as GDP has been rising, so has aggregate consumption. Between 2001 and the second quarter of
this year, the consumption of Americans grew 17.24 percent. But the populists' claims are specifically about "the middle class." To find out
how they are doing, we need to dig deeper into the source data. The Department of Labor's Consumer Expenditure Survey provides detailed consumption data on a cross section of Americans; we can use this to
estimate how much of our aggregate consumption went to each income group in recent years. These data reveal that the middle class has been
doing pretty well for itself. Breaking the income distribution up into five quintiles, we tracked the consumption experience of the middle quintile
(or middle class) in recent years. The data tell a striking story: Consumption has increased solidly for the middle class. Paul Krugman has claimed that people are worse off today than they were in 2000
because "once you adjust for inflation, you find that the income of a typical household headed by a college graduate was lower in 2005 than
in 2000." But if the measure of income he chooses is a good measure of welfare, then consumption should stagnate as well--and, in fact, the
opposite has happened. Adjusting for inflation, we estimate that the real growth rate of consumption for the middle class between 2000 and 2005
was about 7.5 percent. So the welfare of the middle is improving, and unambiguously. There is nothing to debate. The strong economy is lifting all boats.
Thursday, October 5, 2006 ~ 6:15 p.m., Dan Mitchell Wrote: Italian Premier Romano Prodi unveiled a 'bash-the-rich' budget last week that was warmly welcomed by trade unions but dismissed as 'theft' by
businesses and the right wing. …income taxes are raised immediately by EUR33.4bn, mostly through an increase in the top rate of tax from 41% to 43%, and lowering the floor for the top rate from EUR100,000 to
EUR75,000. …This amounts to a savage attack on the middle classes, and is presumably exactly the opposite of what needs to be done if Italians' notorious under-declaration of tax is to be brought under
control. Prodi announced measures to punish professionals who don't declare all their income; but successive governments have totally failed
in this endeavour and there's no reason to think that the new one will be any more successful. "It's what we had asked for," Guglielmo Epifani,
the secretary-general of Italy's largest union, CGIL, told Corriere della Sera. Outgoing economy minister Giulio Tremonti said: "The entire thing
is made of taxes, and no one has ever seen growth spurred by taxes. …Employers' association Confindustria particularly criticized a plan to take some of the funds that employers set aside for severance pay and
shift them to the state pension system. "This is robbery," vice-chairman Andrea Pininfarina told La Repubblica.
Thursday, October 5, 2006 ~ 6:00 p.m., Dan Mitchell Wrote: In Queens, the median income among black households, nearing $52,000 a year, has surpassed that of whites in 2005, an analysis of new census
data shows. No other county in the country with a population over 65,000 can make that claim. The gains among blacks in Queens, the city's quintessential middle-class borough, were driven largely by the
growth of two-parent families and the successes of immigrants from the West Indies. … Despite the economic progress among blacks in Queens, income gaps still endure within the borough's black community, where
immigrants, mostly from the Caribbean, are generally doing better than American-born blacks. … Mr. Vernon, the lawyer from Jamaica, said: "It's just that the people who left the Caribbean to come here are
self-starters. It only stands to reason they would be more aggressive in pursuing their goals. And that creates a separation." …Immigrants helped propel the gains among blacks. The median income of
foreign-born black households was $61,151, compared with $45,864 for American-born blacks. The disparity was even more pronounced among black married couples. The median for married black immigrants was
$84,338, nearly as much as for native-born white couples. For married American-born blacks, it was $70,324.
Wednesday, October 4, 2006 ~ 7:45 a.m., Sven Larson Wrote: On the surface, it would appear that workers should be in open revolt. According to the Bureau of Labor Statistics, the average worker is no
better off today than he was seven years ago in real terms. In August 2006, his average weekly earnings were $275.49. In August 1999, they
were $275.61. (Both statistics are in constant 1982 dollars.) ...the rising cost of health benefits is a key reason for the flatness of average worker
wages. From the point of view of employers, total labor costs have risen sharply. But all of the increase has gone into benefits, leaving nothing left
over to raise wages. Workers may not like this fact, but they accept its reality. According to the BLS, wages and salaries have fallen from 72.6
percent of total compensation in 2000 to 70 percent in June of this year. At the same time, health benefits have risen from 5.9 percent of compensation to 7.7 percent. ...Finally, despite wage and income
stagnation at the macro level, people continue to move out of the working class into the middle and upper classes. According to the Census Bureau, the percentage of all households with an income below $25,000
per year (in 2005 dollars) fell to 27.1 percent last year from 27.6 percent in 2004. In 1995, 28.9 percent fell into this income class. In 1985, the
percentage was 30.5 percent and in 1975 it was 33.1 percent. At the same time, the percentage of households that are considered well-to-do - those with an income above $75,000 (in 2005 dollars) - rose to 28.3
percent last year from 27.9 percent in 2004. In 1995, only 24.4 percent of households had that much income, up from 20.2 percent in 1985 and 14 percent in 1975.
Tuesday, October 3, 2006 ~ 8:52 a.m., Dan Mitchell Wrote: The Organisation for Economic Cooperation and Development (OECD) claims to have made significant progress in persuading its members to
abolish harmful tax regimes since the publication of its 2000 report on global tax cooperation. In its 2006 progress report, which follows on from a similar report published in 2004, the OECD said that of the 47
preferential tax regimes identified in 2000 as being "potentially harmful," 19 regimes have been abolished, 14 have been amended to
remove their potentially harmful features, and 13 were found not to be harmful. Only one was still considered harmful, which was part of Luxembourg's 1929 holding company regime. … Paolo Ciocca, Chair of
the OECD's Committee on Fiscal Affairs, said that the latest progress report shows how the group has made "real progress" in it mission to
stamp out harmful tax practices on a global scale. "OECD countries embarked on a difficult challenge when we commenced our work on countering harmful tax practices and this report reflects the success we
have had in bringing about change," he commented. However, he indicated that the OECD does not yet consider its mission complete. "Further work is required to fully implement the standards we have set
so that national tax laws in countries large and small can be fairly and effectively enforced. I look forward to more rapid progress in this area," he stated. Tax authority bosses from the world's richest countries have banded together to fight international tax avoidance caused by the abuse of
increasingly liberal capital movement and trading laws. Tax collectors from more than 30 countries – mostly members of the Organisation for Economic Cooperation and Development (OECD) – met in Seoul, South
Korea to plot against such tax manoeuvres. At a meeting staged by the OECD's forum on tax administration, taxmen agreed to conduct a joint study by 2007 into how accountants, lawyers and tax advisors were
promoting illegal tax evasion and 'unacceptable tax minimisation arrangements'. They also agreed to complete 'a directory of aggressive tax planning schemes so as to identify trends and measures to counter
such schemes.' And they promised cooperation on training tax officials regarding international taxation issues, while expanding OECD corporate governance guidelines to remind companies that paying tax is
inevitably linked to good governance.
Tuesday, October 3, 2006 ~ 8:41 a.m., Dan Mitchell Wrote: Once we peel away the sentimental rhetoric and cut through the doublespeak, compassionate conservatism's moral and political teaching
boils down to this: first, that needs—the needs of others—constitute a moral claim on your life; second, that you—you the taxpayer, you the private individual—have a "duty" to support—nay, to love and
support—the poor; and finally, that the federal government must coerce your love and compassion by taking your wealth and giving it to "private" organizations that will use it to serve "those whom prosperity
has left behind." …How would compassionate conservatives respond to a Hillary Clinton administration that might call for Americans to sacrifice three or four years of their lives to community service or that
might demand a massive tax increase to support the poor? What could they say? What possible moral argument could they offer to oppose political programs that are simply more consistent applications of their
own moral principles? There is only one possible "free-market" solution to the problem of poverty that is consistent with individual rights: to
abolish the welfare state. But given the moral code of the compassionate conservatives, no steps will be taken toward this goal on their watch.
…Former Trotskyists in the 1930s and 40s and then liberals in the 50s and 60s, the neocons have never abandoned their deepest moral commitments (as we shall see), and their cavalier acceptance of, and
support for, the growth of the state remains unabated. The real problem with traditional conservatives and Republicans, according to the neocons, is that they are too beholden to that old-fashioned Jeffersonian
idea that the government that rules best, rules least. Irving Kristol and David Brooks believe that 19th-century ideas, such as natural rights,
individualism, limited government, and laissez-faire capitalism, were historical "eccentricities"—ideas better forgotten than defended. …Given the moral premises and methodologies of compassionate
conservatism and neoconservatism, and given their prevalence today, it comes as no surprise that a Republican-dominated government has ushered in a new era of big government. …If the American principles of
limited government and capitalism are to survive and serve our lives and the lives of our loved ones, they must be defended uncompromisingly as
moral, just, and true. This means that proponents of these principles must find a philosophic alternative to the conservatives' stale bromides
and folksy speeches. It is not enough to defend limited government on the grounds that it works in practice; one must also defend it on the more fundamental grounds that it is moral in theory.
Monday, October 2, 2006 ~ 11:12 p.m., Dan Mitchell Wrote: Unveiling the government's budget for 2007, Villepin pledged more than EUR7 billion in tax cuts and rebates and promised that the deficit, at
2.7% of gross domestic product, would be at its lowest level for six years and well within parameters set by the European Union. A major part of
the tax package will be a reduction in the number of tax brackets to four from seven, while the government will also set a 60% ceiling for the total
tax take on an individual, helping indirectly to curb the wealth tax. In total, French households can expect almost EUR6 billion in tax relief through various measures aimed towards putting more money into the
taxpayer's pocket and boosting consumer spending. The Prime Minister also plans to reduce company costs by EUR1.1 billion, and has already announced that payroll taxes for workers earning the minimum wage at
small companies will be eliminated next year, in an effort to reduce the constraints that hinder job creation.
Monday, October 2, 2006 ~ 10:30 p.m., Sven Larson Wrote: The European Commission on Tuesday (26 September) backed Hungary's programme of austerity measures to try and get its economy back on
track, but said that it wants "rigorous implementation" of the plans. "After repeatedly warning about large budgetary slippages, the
commission takes note of the commitment by the Hungarian government to bring its public finances back on a sound footing," EU monetary
affairs commissioner Joaquin Almunia said. "We will continue to closely monitor the situation to verify that the announced measures are fully
implemented and that the government decisively carries out its agenda for structural reform and expenditure control," he added. But despite the
tough words, Brussels extended a deadline by one year for Budapest to bring its finances in order. Hungary now has until 2009 to bring its budget deficit down from 10.1 per cent of GDP to the three percent
threshold allowed under EU rules.
Sunday, October 1, 2006 ~ 5:45 p.m., Sven Larson Wrote: Starting Strong II provides a comparative analysis of policy developments and issues, highlighting innovative approaches and
proposing policy options that can be adapted to different national contexts. Among other things, it notes...governments must invest in and regulate early childhood education and care; a trend towards integrating
early childhood policy and administration under one ministry, often education; moves towards greater contact between early childhood centres and schools, and growing use of national curricular frameworks
in the early childhood sector; the provision of at least two years of kindergarten before children enter compulsory schooling; growing, but
still insufficient, government investment in services...[and] an increase in university chairs in early childhood education and care policy. |
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