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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 Cato Institute, 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, July 31, 2007 ~ 8:14 p.m., Dan Mitchell Wrote: The new European Union Treaty has been designed to "keep the advances" of the old constitution "that we would not have dared present directly", a senior
Brussels figure has admitted. Hans-Gert Poettering, president of the European Parliament and a close ally of the German Chancellor Angela Merkel, made the admission in a letter to Valéry Giscard d'Estaing, the
architect of the discarded EU Constitution.
Tuesday, July 31, 2007 ~ 5:38 p.m., Dan Mitchell Wrote: The reason we missed our flight is that nearly 50 minutes of our time after landing was consumed by waiting in a long and slow-moving line
to clear passport control. At that terminal on Friday evening, the TSA had only three agents to service the line of U.S. citizens returning from
abroad. Three. That's it. Most of the passport-control-agent booths stood empty.
Monday, July 30, 2007 ~ 1:27 p.m., Dan Mitchell Wrote: Doggett's proposal drags foreign companies with extensive operations in the US, such as Bermuda-based Accenture Ltd., Tyco International
Ltd. and Transocean Inc. into a broader battle between the Democratic-controlled Congress and the Republican White House over a $300 billion farm bill that will be considered by the House of
Representatives later this week. His legislation aims to stop an accounting technique known as "earnings stripping" in which foreign
companies make high-interest loans to their American subsidiaries, who are able to deduct interest. Debt service payments are routed to another
unit of the corporation that is based in countries with no corporate tax rate, such as the Cayman Islands. ...Doggett's measure would require companies to pay US withholding taxes when a transaction would
produce a lower tax burden if made through a subsidiary based in a tax haven than through the parent company. ...Nancy McLernon, senior vice president of the Organization for International Investment, a
Washington trade association of overseas companies with US subsidiaries, said the legislation would abrogate tax treaties. "Treaties that are negotiated by our Treasury and approved by the Senate would
be thrown in the trash," she said. ...Doggett's measure also drew criticism from Louisiana Representative Jim McCrery, the top Republican on the House Ways and Means Committee. "This proposal
will raise taxes on many businesses operating in the United States," McCrery said on Wednesday. "It will hurt our competitiveness and our
standing in the world by carelessly violating a host of treaties."
Monday, July 30, 2007 ~ 12:32 p.m., Dan Mitchell Wrote: Mr. Schwab describes the Bush administration's capital gains and dividend tax cuts as exactly the right prescription for the ailing stock
market after the dot-com crash in 2000-2001. Those tax cuts, of course, are under constant assault by Democratic presidential hopefuls and the Democratic majorities in Congress. What would be the stock market
response to repealing them? "Oh, I think it would probably cost the market 5% to 10%," he predicts. "That may not happen on a single day.
But it will certainly suppress prices. And the market is already anticipating these higher tax rates," he assures me, which means stock
prices are already being suppressed by tax uncertainty. "I would say we're probably in the neighborhood of $10 trillion of unrealized capital
gains" Mr. Schwab says of the present economic situation. "If you put a 100% tax on it, of course, the government's going to get none of that. If
you're at zero, you would get none. With the 15% rate for capital gains, we're probably at the optimum rate." Then he adds something that House Ways and Means Committee chairman Charlie Rangel should
take to heart: "Bear in mind that the higher [capital gains] tax is principally directed toward individual investors. Not foundations or pension funds. It will be the individual who takes the hit."
Monday, July 30, 2007 ~ 10:10 a.m., Dan Mitchell Wrote: At an operative cabinet meeting Sunday attended by the top brass from the three parties it was decided to retire the current three-bracket
personal income tax rate system and replace it with a flat rate of 10%. ...The government also decided on a 10% pension increase from October 2007, enabled by a 20% budget revenue overperformance by end-July,
and a 3% cut in the social security burden.
Sunday, July 29, 2007 ~ 2:08 p.m., Dan Mitchell Wrote: It's been a bloody week so far for financial markets, as a credit scare and rising oil prices have battered investor confidence. Would it be too
much to ask Washington to heed the warning and swear off its bearish policies? ...A bipartisan cast of Senators wants to raise taxes on "carried interest," which means on hedge funds and private equity
partnerships. With this new element of political risk, no one should be surprised to see buyout deals such as the Cerberus purchase of Chrysler
harder to finance. If Congress wants to dry up capital for mergers, keep it up. Meantime, Congressman Lloyd Doggett (D., Texas) has introduced a $7.5 billion hike on foreign investment into the U.S. The
proposal is aimed at U.S. subsidiaries of companies based abroad, and amounts to a tax on capital invested to create jobs in America. His proposal came out of the blue this week, and as we write was scheduled
for a vote as part of the House farm bill. Foreign investors would have another reason to put their capital somewhere else. ...At a time of
market volatility and nervous investors, it doesn't take much to trigger a larger financial panic. We recall 1987, when a tax increase out of House
Ways and Means and a U.S.-Germany currency scrap triggered Black Monday. The global economy is now in its fifth year of a remarkable spurt of growth. Washington should help to keep it going, not turn a
case of credit jitters into a rout.
Saturday, July 28, 2007 ~ 1:23 p.m., Dan Mitchell Wrote: Government researchers now note that more than 1.5 million Ontarians (or 12% of that province's population) can't find family physicians.
Health officials in one Nova Scotia community actually resorted to a lottery to determine who'd get a doctor's appointment. These problems are not unique to Canada - they characterize all government-run health
care systems. Consider the recent British controversy over a cancer patient who tried to get an appointment with a specialist, only to have it
canceled - 48 times. More than 1 million Britons must wait for some type of care, with 200,000 in line for longer than six months. In France, the
supply of doctors is so limited that during an August 2003 heat wave - when many doctors were on vacation and hospitals were stretched beyond capacity - 15,000 elderly citizens died. ...One often-heard
argument, voiced by the New York Times' Paul Krugman and others, is that America lags behind other countries in crude health outcomes. But such outcomes reflect a mosaic of factors, such as diet, lifestyle, drug
use and cultural values. It pains me as a doctor to say this, but health care is just one factor in health. Americans live 75.3 years on average,
fewer than Canadians (77.3) or the French (76.6) or the citizens of any Western European nation save Portugal. Health care influences life
expectancy, of course. But a life can end because of a murder, a fall or a car accident. Such factors aren't academic - homicide rates in the U.S.
are much higher than in other countries. In The Business of Health, Robert Ohsfeldt and John Schneider factor out intentional and unintentional injuries from life-expectancy statistics and find that
Americans who don't die in car crashes or homicides outlive people in any other Western country.
Friday, July 27, 2007 ~ 3:12 p.m., Dan Mitchell Wrote: But if the Laffer Curve is an absurd notion, why did the World Bank (http://www.doingbusiness.org/documents/DB_Paying_Taxes.pdf) -- hardly a bastion of supply-side thinking -- report that "high tax rates do not always lead to high tax revenues. Between 1982 and 1999 the average corporate income tax rate worldwide fell from 46% to 33%, while corporate income tax collection rose from 2.1% to 2.4% of national income. ...A better way to meet revenue targets is to encourage tax compliance by keeping rates moderate." And if the Laffer Curve is discredited, someone needs to tell the European Commission (http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/econo mic_analysis/tax_structures/Structures2007.pdf), a bureaucracy infamous for trying to harmonize corporate rates at high levels), which recently admitted that "it is quite striking that the decline in the corporate income tax rates has not resulted, so far, in marked reductions in tax revenue, both the euro area and the EU-25 average actually increasing slightly from the 1995 level." Or, shifting from corporate taxes to broader measures, how about new research from two German economists (neither of whom are known as supply-siders), which reported that, "We find that for the US model 19% of a labor tax cut and 47% of a capital tax cut are self-financing in the steady state. In the EU-15 economy 54% of a labor tax cut and 85% of a capital tax cut are self-financing." (http://ideas.repec.org/p/cpr/ceprdp/5657.html) Or what about the experience of Ireland? Would critics deny that that there has been a Laffer Curve effect in Ireland, where corporate tax revenues have jumped from less than 2 percent of GDP to more than 3 percent of GDP (a result that is all the more impressive considering the rapid growth of GDP in the Emerald Isle)? And are they really willing to categorically deny any supply-side response following the Reagan tax rate reductions? The 1997 capital gains tax cut? The 2003 tax rate reductions? Tax-cut advocates should be careful not to over-state the revenue feedback caused by tax cuts - especially for tax cuts that are poorly designed (such as the Keynesian rebates and credits adopted in 2001). But opponents of lower tax rates are equally misguided (or disingenuous) if they blindly assert that changes in tax policy never impact economic performance, and thus never cause revenues to rise or fall compared to static estimates. Unfortunately, revenue estimating today is based on the absurd notion that tax policy does not impact macroeconomic performance. During 12 years of GOP rule in Congress, Republicans failed to modernize the revenue-estimating process at the Joint Committee on Taxation. No wonder they deserved to lose.
Friday, July 27, 2007 ~ 2:37 p.m., Dan Mitchell Wrote: ...other than providing for the common defense and an orderly civil society with a sound currency and banking system, it is hard to explain
how our government in Washington is making us better off. It taxes, spends and regulates, but it creates no wealth. Free-market capitalism
pays the bills... Paying federal taxes does not make us better off. We are poorer by the amount of tax we pay. And because taxes damage the economy, impeding its growth, our pretax incomes are also smaller.
...the real federal tax burden in America is each year about double what the government tells us. In 2007, it is an astonishing $5 trillion, broken
down as follows: The first $2.5 trillion is the amount of tax the government collects from us - money we originally had that the government now has and will spend. The next $2.5 trillion is money that
the private economy would have produced but (because of the damage done by the tax) does not.
Friday, July 27, 2007 ~ 11:18 a.m., Dan Mitchell Wrote: ...the suggestion that we'd be better served with more government control doesn't even pass a simple smell test. Do we want the
government employees who run the troubled Walter Reed Army Medical Center to be in charge of our entire health care system? Or, would you
like the people who deliver our mail to also deliver health care services? How would you like the people who run the motor vehicles department, the government education system, foreign intelligence and other
government agencies to also run our health care system? ...There's absolutely no mystery why our greatest complaints are in the arena of government-delivered services and the fewest in market-delivered
services. In the market, there are the ruthless forces of profit, loss and bankruptcy that make producers accountable to us. In the arena of government-delivered services, there's no such accountability. For
example, government schools can go for decades delivering low-quality services, and what's the result? The people who manage it earn higher
pay. It's nearly impossible to fire the incompetents. And, taxpayers, who support the service, are given higher tax bills. Our health care system is
hampered by government intervention, and the solution is not more government intervention but less. The tax treatment of health insurance, where premiums are deducted from employees' pre-tax income, explains
why so many of us rely on our employers to select and pay for health insurance. Since there is a third-party payer, we have little incentive to shop around and wisely use health services.
Thursday, July 26, 2007 ~ 4:02 p.m., Dan Mitchell Wrote: ...the tax may be borne not entirely (or even principally) by owners of capital, but by workers. Globalization plays a role. In an open economy,
with mobile capital, a source-based tax like the corporate tax will lead to a capital outflow, reducing investment and productivity and wages.
...In other research assuming that the world-wide capital stock is fixed, William Randolph of the Congressional Budget Office finds that labor bears about 70% of the corporate tax. ...A recent paper by Kevin
Hassett and Aparna Mathur of the American Enterprise Institute analyzes data across countries and over time, concluding that for countries that are part of the Organization for Economic Cooperation
and Development (OECD), a 1% increase in corporate tax rates results in a 0.8% decrease in manufacturing wage rates. ...A recent survey and study by KPMG shows, for example, that competition for investment
continues to drive down tax rates around the globe, with further cuts in the pipeline from China, Germany, Singapore and Britain, among others. The desire for these cuts comes in part from the significant
responsiveness both of real investment and taxable income to corporate tax rates. ...Recent research by Michael Devereux of the University of Warwick suggests, though, that the revenue-maximizing corporate tax
rate in OECD countries is likely less than 30%. That is, higher corporate investment (and subsequent corporate profits and corporate tax revenue) and shifts in taxable income by multinational firms will
substantially reduce the revenue "cost" of a corporate rate cut from the present 35% to, say, 30%. Cutting the corporate tax rate would be
positive for investment, productivity and economic growth. It would also reduce a tax burden now borne in large part (or even entirely) by
labor, bolstering wages. And business responses to the tax cut will offset much of the "static" revenue cost.
Thursday, July 26, 2007 ~ 3:26 p.m., Dan Mitchell Wrote: To understand why the luxury tax on cigars is a terrible idea, we need to revisit the history of the luxury tax of the early 1990s--a history that
congressional members' severe amnesia is preventing them from remembering. ...Congress never bothered to consider that increasing the tax on these items, and thereby increasing the price of those items,
might change the behavior of said rich people. (Indeed, many members of Congress stubbornly refuse ever to acknowledge that taxes ever affect behavior.) But said rich people had other ideas. If the price of
jewelry, furs and yachts suddenly increased, then maybe purchasing a winter home in Florida seemed like a much better deal. Or maybe those rich people would take a shopping trip to other parts of the world,
where the prices of jewelry, furs and yachts were now much more competitive thanks to the U.S. Congress. And if members of Congress never considered that the luxury tax would discourage rich people from
buying luxury items in the U.S., then they surely never considered that such an effect might not be so good for the Joe Six-Packs who worked in the industries producing luxury items. A Joint Economic Committee
study later found that 330 jobs in the jewelry industry and 7,600 jobs in the yacht industry were lost thanks to the luxury tax. Perhaps the
greatest irony was that in 1991 the federal government paid out over $7 million more in unemployment benefits to those workers than it collected in luxury tax revenues. ...The current tax on cigars is a
maximum 4.8 cents a cigar. The new proposed luxury tax on cigars is 53.13%, up to a maximum tax of $10 a cigar. Thus, if you like cigars worth $20, you'd be facing a staggering tax increase of 20,733%. By
comparison, the luxury tax of 1990 was an increase of only 10%. ...thousands of cigar employees face a fate similar to workers in the yacht and jewelry industries in 1990.
Wednesday, July 25, 2007 ~ 5:39 p.m., Dan Mitchell Wrote: For a lesson in pro-growth tax policy, may we suggest gazing east, to Albania. This small Balkan country is about to halve its personal
income-tax rate, starting August 1, to a flat 10%. The corporate rate is slated to drop to 10% in early 2008. Albania's flat tax is the latest sally in the intramural tax competition fueling growth in the former
communist bloc. It began with Estonia in 1994 -- then-Prime Minister Mart Laar had read Milton Friedman's "Free to Choose" -- and has
since extended to a dozen nations. Political leaders, such as Albanian Prime Minister Sali Berisha, are aware of the example they're setting. When Parliament approved the most recent tax cut -- made in response
to lowered rates in neighboring Macedonia -- Mr. Berisha cheered that "the fiscal revolution" will proceed even "faster than forecasted."
Indeed it may: The Czech government has announced that a flat 15% tax next year is "a certainty." And Montenegro plans to reduce both income and corporate taxes to a flat 9% by 2010.
Tuesday, July 24, 2007 ~ 3:43 p.m., Dan Mitchell Wrote: The tax breaks have helped to attract some of the world's best footballers to Britain, but also mean that, despite their
multi-million-pound earnings, many of them are paying lower rates of tax than their supporters. In total, 302 footballers or managers have "non-domiciled" status in Britain and a further 67 claim they are "not
resident", according to Treasury documents released under the Freedom of Information Act. …David Beckham's spokesman said that he was non-resident in Britain for tax purposes but would pay tax on his
earnings in America. …Accountants and lawyers have devised sophisticated ways for Premiership stars to benefit from the loophole. The non-domiciled players must be born abroad or have parents born
abroad. They typically sign multiple contracts for their services. …British tax is typically paid only for money earned on the first contract, with money earned on the other contracts paid tax-free to an
offshore tax haven. …Mike Warburton, a tax partner at Grant Thornton, the accountants, said: "It is definitely an important draw for foreign players and these rules have certainly been a factor in the
Premiership becoming the top league in the world." A football agent who represents several household names said: "I have heard of people flying in and out of the country for training sessions and matches –
particularly managers. It is a game now staying one step ahead of the tax authorities."
Tuesday, July 24, 2007 ~ 3:38 p.m., Dan Mitchell Wrote: In proposing a tax-cut law last week, Finance Minister Christine Lagarde bluntly advised the French people to abandon their "old
national habit." …Citing Alexis de Tocqueville's "Democracy in America," she said the French should work harder, earn more and be
rewarded with lower taxes if they get rich. …The government's call to work is key to its ambitious campaign to revitalize the French economy by increasing both employment and consumer buying power. Somehow
it hopes to persuade the French that it is in their interest to abandon what some commentators call a nationwide "laziness" and to work
longer and harder, and maybe even get rich. France's legally mandated 35-hour workweek gives workers a lot of leisure time but not necessarily the means to enjoy it. Taxes on high-wage earners are so burdensome
that hordes have fled abroad. (Sarkozy cites the case of one of his stepdaughters, who works in an investment banking firm in London.) In her National Assembly speech, Lagarde said that there should be no
shame in personal wealth and that the country needed tax breaks to lure back the rich. "All these French bankers" working in London and "all
these fiscal exiles" taking refuge from French taxes in Belgium "want one thing: to come back to France," she said. "To them, as well as to all
our compatriots who are looking for the keys to fiscal paradise, we open our doors."
Monday, July 23, 2007 ~ 3:33 p.m., Dan Mitchell Wrote: Congress is about to propose new regulations for hedge funds. German Chancellor Angela Merkel has the same bad idea, meanwhile the British
Financial Service Authority, currently worrying about excessive debt issued to finance acquisitions by private-equity firms, may be next in line. But whatever the perceived problem, more regulation is not the
answer. It is far better to change some incentives for excessive risk-taking. The old saying is true: Capitalism without failure is like
religion without sin. The answer to excessive risk-taking is "let 'em fail." History has taught us that not only do regulations not rein in excessive
risk-taking, but they often do more harm than good. More than 50 years passed before Congress and the regulators repealed mistaken legislation such as the Glass-Steagall Act that prohibited banks from doing
business across state lines, or Regulation Q that restricted interest payments on bank deposits. The damage done by the most recent big blunder -- Sarbanes-Oxley -- has proved no less difficult to remove.
...The responsibility of financial market regulators is to the market, not to financial firms. Sometimes risk-takers have to be allowed to fail. At
the same time, announcement of policy -- and acting in accordance -- has great advantages. Financial firms can understand the rule: no bailouts, period. That will induce firms to hold more relatively safe
assets and to take fewer risks. Incentives achieve what regulation cannot. They focus a manager's attention on the firm's self-interest.
Monday, July 23, 2007 ~ 11:48 a.m., Dan Mitchell Wrote: Many American public schools historically have been and still are racially segregated, with racial concentrations often higher than 90
percent. ...Jay Greene and Marcus Winters's evaluation of the first year of the Washington, D.C., voucher program showed that voucher students, 94 percent of whom are black, attended private schools that
are more racially integrated than the District's public schools. ...Research on Cleveland's voucher program similarly indicates greater racial integration of voucher users. The Cleveland Scholarship Program
began in the 1996-97 school year and provides up to $2,250 per student to attend one of 51 private schools. Greene found that nearly one-fifth
(19 percent) of voucher students attended a racially integrated school, compared with only 5.2 percent of Cleveland public school students. ...Milwaukee's voucher-accepting religious schools are now better
integrated than the city's public schools. ...Claims that vouchers would disadvantage poor and minority children, or children with special educational needs, or lead to greater segregation, are unsupported by
the research on existing voucher programs. All the research instead points to the overwhelmingly positive effects. Voucher parents choose schools mainly for academic reasons, and are generally much more
satisfied with their schools' services than are public-school parents. Parents also report that voucher schools provide safer, more secure environments for their children. Since the Supreme Court is forcing
cities to rethink how they deal with segregated schools, this would be a great time to incorporate vouchers into their solution.
Sunday, July 22, 2007 ~ 2:45 p.m., Dan Mitchell Wrote: Consider the illogic of federal dairy policies. They jack up milk prices for millions of families at the same time that other programs, such as
food stamps, aim to reduce food costs. And although federal law generally prohibits cartels, a federal dairy cartel enforces high milk prices. If Coke and Pepsi got together and agreed to hike prices, they
would be prosecuted. But with milk, raising prices is official government policy. The trouble started in 1930s with "marketing order" regulations.
Those rules set minimum prices that dairy processors must pay to dairy farmers in 10 regions of the country. Today, about two-thirds of milk is produced under federal marketing orders, and most of the rest is
produced under similar state schemes. ...entrepreneurs are not allowed to supply milk at less than the government prices. The system also restricts milk from lower-cost regions, such as the Midwest, from
gaining market share in higher-cost regions, such as the Southeast. Government data show that residents of Cincinnati paid an average $2.68 for a gallon of milk in 2006, while those in New Orleans paid
$4.10 and government policy is largely to blame. On top of marketing orders, Congress added a dairy price support program in 1949. This program helps to keep prices high by guaranteeing that the government
will purchase any amount of cheese, butter, and dry milk from processors at a set minimum price. In 2002, Congress added an income support program for dairy farmers, which distributes cash payments
whenever prices fall below target levels. Perversely, this program causes overproduction and thus downward pressure on prices -- in direct opposition to the price support program, which tries to raise milk
prices. ...The Organization for Economic Cooperation and Development found that US. policies create a 26 percent "implicit tax" on milk
consumers. That "milk tax" is regressive, meaning that it harms low-income families the most.
Sunday, July 22, 2007 ~ 12:16 p.m., Dan Mitchell Wrote: If federal Conservatives such as Finance Minister Jim Flaherty ever get serious about reducing taxes, they might take lessons from eastern and
central European nations, which have flattened their personal tax rates and chopped corporate levies. ...Estonia was the first European country to introduce a single tax rate regime in 1994. Since then, Georgia,
Iceland, Kyrgyzstan, Latvia, Lithuania, Macedonia, Mongolia, Montenegro, Romania, Russia, Slovakia and Ukraine have all been added to the list. ...in a 2005 briefing document prepared for Britain's
then-chancellor of the exchequer, Gordon Brown, and obtained by the Daily Telegraph, the analysis noted the benefits of flat taxes, even for
government: "The lack of credits and exemptions in a flat tax regime should lead to a significant reduction in avoidance and evasion as potential loopholes are eliminated." The document then noted the
benefits for taxpayers: "A flat rate also increases economic efficiency by reducing policy-induced distortions and allowing the market to function
more naturally, improving the overall allocation of resources and encouraging labour supply." Britain has not yet adopted the flat tax.
...flat-tax fever has broken out in Europe and corporate rates are being slashed there and in Canadian provinces. The notable exception is Canada's federal government, this with an ostensible taxpayer- and
business-friendly finance minister. ...Serious efforts are being made around the world to simplify and dramatically reduce personal and business taxes. Moreover, on business taxes, even provinces whose
governments are supposed to disdain entrepreneurs and business are cutting corporate rates. But so far, Canada's federal government is missing in action on both tax reform and on significant tax reductions.
Saturday, July 21, 2007 ~ 5:36 p.m., Dan Mitchell Wrote: ...it is not economic inequality that frustrates Americans. Rather, it is a perceived lack of opportunity. To focus our policies on inequality,
instead of opportunity, is to make a serious error -- one that will worsen the very problem we seek to solve and make us generally unhappier. The
egalitarian argument against inequality starts with the claim that income is all relative: Above a basic subsistence level, they say, we care more about our financial position relative to others than about our
absolute income. ... economic mobility -- not equality -- is associated with happiness. The GSS asked respondents, "The way things are in America, people like me and my family have a good chance of
improving our standard of living -- do you agree or disagree?" The two-thirds of the population who agreed were 44% more likely than the
others to say they were "very happy," 40% less likely to say that they felt "no good at all" at times, and 20% less likely to say that they felt
like failures. In other words, those who don't believe in economic mobility -- for themselves or for others -- are not as happy as those who
do. ...Does economic mobility actually exist in America today? It does. The U.S. Census Bureau, the Urban Institute and the Federal Reserve
have all pointed out that, as a general rule, about a fifth of the people in the lowest income quintile will climb to a higher quintile within a year,
and that about half will rise within a decade. True, a significant proportion of people will fall over the same period. But the studies nevertheless put paid to the claim that economic mobility is in any way
unusual. Millions and millions of poor Americans climb out of the ranks of poverty every year. Those who don't rise will probably not become happier if we redistribute more income. Indeed, the effect may be just
the opposite. Redistributionist policies tend to reduce incentives to create wealth, which means less economic growth and fewer jobs, and
less charitable giving -- all to the detriment of those lower on the income scale. But more important, redistribution can, as the American welfare system has shown, turn beneficiaries into demoralized long-term
dependents.
Friday, July 20, 2007 ~ 12:07 p.m., Dan Mitchell Wrote: ...the U.S. is once again a high corporate tax country. We now have, on average, the second-highest statutory corporate tax rate (including state
corporate taxes), 39%, compared with an average rate of 31% for our top competitors... Ireland, for example, has engineered its own economic miracle, in large part due to a reform program that cut
corporate tax rates to a level one-third that of the U.S. And the trend continues. Germany will reduce its total rate from 38% to 30% in 2008. France, Japan and the United Kingdom have signaled they may also
lower their corporate rates. ...Business tax policy levers, such as the corporate tax rate, depreciation rates and investor taxes, as well as the
taxes levied on small businesses through the individual income tax, should strive towards a similar purpose: to encourage economic growth by reducing the tax burden on additional investments. Yet, the current
tax code distorts capital flows, hurting productivity, job creation and our global competitiveness. Take just a few examples. Taxes on capital
income raise the price of future consumption and discourage saving and capital formation. Reduced capital formation gives labor less capital to work with and lowers labor productivity, reducing real wages and
income. ...Over the past two decades, while U.S. tax law has grown more complicated and our statutory corporate income tax rate has increased, other nations have been reducing their rates to replicate our
miracle. A study by Treasury economists estimated that a country with a tax rate one percentage point lower than another country's attracts 3%
more capital. It's not surprising then, that average OECD corporate tax rates have trended steadily downward.
Friday, July 20, 2007 ~ 10:41 a.m., Dan Mitchell Wrote: When the Justice Department sat down with KPMG in February 2004 to inform the accounting and consulting firm that it was in deep trouble
over its tax-shelter marketing, it raised one question right away: Will you pay legal fees for employees accused of wrongdoing? KPMG's lawyers, perhaps sensing the danger, responded with a question: Well,
what's your view on the matter? Assistant U.S. Attorney Justin Weddle responded with the now famous threat that prosecutors would look at a
decision to pay the legal costs of employees "under a microscope." Two years later, Mr. Weddle would stand up in court and deny that the
government had attempted to influence KPMG's decision. At the same time, he said repeatedly in that courtroom that it was the government's
policy to consider whether a company that is suspected of a crime (or, in Mr. Weddle's words "has committed a crime") was "protecting
wrongdoers." Paying those wrongdoers' legal fees, in Mr. Weddle's view, seemed to qualify as "protecting" them, a view also reflected in
his "microscope" comment, which was not public knowledge at the time. Two weeks ago, Judge Kaplan, referring to Mr. Weddle's performance at that March 2006 hearing, said he'd seen people
convicted of false statement for less. So to sum up: In the view of the prosecutor in this case, a company under investigation, but not charged,
can be considered to have "committed a crime." The employees suspected of participating in the crime are "wrongdoers" undeserving of
the "protection" of getting legal assistance for actions taken as part of their jobs. With this as their framework, the government made it
perfectly clear to KPMG that paying for their employees' lawyers could contribute to an indictment of the entire firm. On a related note, another
assistant U.S. attorney, John Hillebrecht, stood up in court two weeks ago and made a casual reference to KPMG's "unlimited resources." The
irony is that the only party in this case with unlimited resources is the government. And the government went to considerable lengths to limit
the resources of those that it wanted to charge in the case. ...The KPMG case was founded from the beginning on an aggressive and unprecedented legal theory -- namely, that individuals could be
criminally liable for selling legal tax shelters. An aggressive legal theory led in its turn to aggressive legal tactics, which have now been found to
have infringed citizens' constitutional rights in a manner that "shocks the conscience," according to Judge Kaplan. An appeal by the
government now, with the hardship and additional cost it would entail, would only add to the prosecutorial misconduct.
Friday, July 20, 2007 ~ 9:29 a.m., Dan Mitchell Wrote: The European Commission is calling on Europe's menfolk to help out more at home as a first step to improving women's career prospects and
ending the gender pay gap across the bloc. ...EU employment commissioner Vladimír Spidla said, addressing a press conference in Brussels on Wednesday [that] "It is not possible to reduce the gender
pay gap if we do not help out more at home." ...In the communication the Commission sets out ways in which the EU can bridge the gender pay gap. It wants the 27 member states to set objectives and deadlines
to eradicate the gap, and will also push for equal pay to be made a condition for winning public contracts. ...Danish socialist MEP Britta Thomsen is pleased about the new commission move. "The big pay gap
between men and women is completely unfair. Especially when considering that women today extend their studies and are often better educated than their male colleagues," she said.
Thursday, July 19, 2007 ~ 11:59 a.m., Dan Mitchell Wrote: Free markets are simply millions upon millions of individual decision-makers, engaged in peaceable, voluntary exchange pursuing
what they see in their best interests. People who denounce the free market and voluntary exchange, and are for control and coercion, believe they have more intelligence and superior wisdom to the masses.
What's more, they believe they've been ordained to forcibly impose that wisdom on the rest of us. Of course, they have what they consider good reasons for doing so, but every tyrant that has ever existed has had
what he believed were good reasons for restricting the liberty of others. …Economic planning is nothing more than the forcible superseding of
other people's plans by the powerful elite. For example, I might plan to purchase a car, a shirt or apples from a foreign producer because I see
it in my best interest. The powerful elite might supersede my plan, through import tariffs and quotas, because they think I should make the purchases from a domestic producer. My daughter might plan to work
for the hardware guy down the street for $4 an hour. She agrees; he agrees; her mother says it's OK, and I say it's OK. The powerful elite say, "We're going to supersede that plan because it's not being
transacted at the price we think it ought be -- the minimum wage."
Thursday, July 19, 2007 ~ 10:26 a.m., Dan Mitchell Wrote: Norwegians are among the most heavily taxed people in the world, and that in turn has made Norway one of the most expensive countries in
which to live. ...growing numbers are publicly complaining about sky-high taxes on everything from cars to fuel to consumer goods. ...They're what causes a glass of house wine at an Oslo restaurant to
cost the equivalent of nearly USD 16, or a gallon of gas to cost nearly USD 9 at current exchange rates. ..67 percent of the population think Norway's inheritance taxes are too high, while 63 percent think fuel
taxes are too high. Norway's hefty 25 percent VAT (like a sales tax) on nearly all consumer items is considered too high by 53 percent of the population.
Wednesday, July 18, 2007 ~ 11:51 a.m., Dan Mitchell Wrote: The Bush Administration wants to increase the $25 billion Schip budget by $5 billion over the next five years; Democrats want to bump it up by
$60 billion and make it easier to cover even many affluent families. This is HillaryCare on the installment plan, and Senate Democrats have scheduled a truncated debate to whip it through with little public
attention. Many Republicans, meanwhile, seem oblivious or too afraid to oppose a program sold in the name of "children." They're falling into
the traditional, pre-Reagan GOP trap of proposing a somewhat cheaper version of what Democrats want. This mentality was on display last week at the Senate Finance Committee, where Chuck Grassley and
other Republicans agreed to an increase of 61 cents per pack in the cigarette tax to pay for a $35 billion Schip expansion. They also rigged
the funding to conceal an additional $30 billion in Schip spending. These Republicans are prepared to settle once again for being tax collectors
for the welfare state. What the Senate, and the country, need instead is a bigger debate over whether Americans really want this stealthy, slow-motion socialism.
Wednesday, July 18, 2007 ~ 11:04 a.m., Dan Mitchell Wrote: When the position of surgeon general, then called supervising surgeon, was first created in 1781, the appointee actually had something tangible
to do. ...Since then, the duties of the surgeon general have been demoted so many times he'd barely be a buck private if his title kept up with the changes. In 1968 President Lyndon Johnson took away the
responsibility of overseeing the PHS and made the position of surgeon general into one of a glorified adviser who is answerable to the assistant
secretary to the secretary of Health and Human Services. ...The position of surgeon general today has become mostly one of a bully pulpit to
serve as a federally funded advocate for various health causes... Today, the office has a budget of $3 million and the surgeon general is paid
close to $200,000 annually. However they have little or no authority to coordinate the federal government's public health activities. This coordination is already being done by more than 50 different federal
offices. ...to save the taxpayers' money, to eliminate yet another unneeded voice in the health-care cacophony, to free up a uniform for the local high school's Pirates of Penzance performance and to save
C-SPAN viewers from any more surgeon-general alumni reunion tours like last week's hearings - eliminate the Office of Surgeon General today.
Tuesday, July 17, 2007 ~ 4:30 p.m., Dan Mitchell Wrote: Though one of the IMF's key purposes is to promote global exchange stability, the financing of its own operations is somewhat paradoxically
dependent on the existence of instability, economic crises and exchange turbulence. This curious or even perverse motivation is due to the fact
that the Fund's current income consists mainly of interest income on loans and other credit granted to distressed countries. This lending is
financed from quotas, or "membership fees," paid by the 185 countries that currently belong to the IMF, giving the Fund roughly $315 billion
at its disposal at the moment. The interest income rises with the number of loans the IMF makes. At quiet times, the Fund's main source of income runs dry. And that is what is happening now. …The IMF's
number of staff and operating budget have risen significantly over the past decade as its activities have expanded. The Fund currently employs around 2,700…very expensive employees. The number of IMF staff
members increased by more than 35% from 1995-2005. …Continuing quiet on the global financial market is bound to widen the IMF deficit. The deficit has already reached some $106 million as of this April and
might triple between now and 2010 unless measures are taken on the income or expenditure side. …A report by Sir Andrew Crockett, former head of the Bank of England and the Bank for International Settlements,
which the IMF commissioned this year, says the deficit problem must be urgently addressed. …neither the report nor the Fund's own management has publicly commented on how the IMF's expenses might
be cut. No suggestions for reducing its work force and administrative expenses have been voiced so far.
Monday, July 16, 2007 ~ 1:53 p.m., Dan Mitchell Wrote: Norway's center-left government coalition has made an issue of battling offshore tax havens. Both Finance Minister Kristin Halvorsen and the
minister in charge of foreign aid, Erik Solheim, have harshly criticized companies, both Norwegian- and foreign-owned, that avoid taxes by registering themselves in countries with low or non-existent tax
obligations. At the same time, however, the state's massive pension fund that's fueled by Norway's oil revenues has been investing billions in companies that are registered in tax havens. This includes companies
"based" in places like the Cayman Islands, Bermuda and Cyprus. ... Finance Minister Halvorsen has characterized Norwegians who invest in
tax havens as a "provocation against Norwegian taxpayers." She's not demanding, though, that the state pension fund blacklist tax haven investments.
Monday, July 16, 2007 ~ 12:12 p.m., Dan Mitchell Wrote: At least 25 developed nations have adopted Reaganite corporate income tax rate cuts since 2001. The U.S. is conspicuously not one of them. …
Even in France, of all places, new President Nicolas Sarkozy has proposed reducing the corporate tax rate to 25% from 34.4%. What do politicians in these countries understand that the U.S. Congress doesn't?
Perhaps they've read "International Competitiveness for Dummies." In each of the countries that have cut corporate tax rates this year, the
motivation has been the same -- to boost the nation's attractiveness as a location for international investment. Germany's overall rate will fall to
29.8% by 2008 from 38.7%. Remarkably, at the start of this decade Germany's corporate tax rate was 52%. All of which means that the U.S. now has the unflattering distinction of having the developed
world's highest corporate tax rate of 39.3% (35% federal plus a state average of 4.3%), according to the Tax Foundation. …Lower corporate tax rates with fewer loopholes can lead to more, not less, tax revenue
from business. …Tax receipts tend to fall below their optimum potential when corporate tax rates are so high that they lead to the creation of loopholes and the incentive to move income to countries with a lower
tax rate. Ireland is the classic case of a nation on the "correct side" of this curve. It has a 12.5% corporate rate, nearly the lowest in the world,
and yet collects 3.6% of GDP in corporate revenues, well above the international average. The U.S., by contrast, with its near 40% rate has been averaging less than 2.5% of GDP in corporate receipts. …most
economists understand that corporations don't ultimately pay any taxes. They merely serve as a collection agent, passing along the cost of those
taxes in some combination of lower returns for shareholders, higher prices for customers, or lower compensation for employees. In other words, America's high corporate tax rates are an indirect, but still
damaging, tax on average American workers.
Monday, July 16, 2007 ~ 10:29 a.m., Dan Mitchell Wrote: The new EU reform treaty text was deliberately made unreadable for citizens to avoid calls for referendum, one of the central figures in the
treaty drafting process has said. Speaking at a meeting of the Centre for European Reform in London on Thursday (12 July) former Italian prime
minister Giuliano Amato said: "They [EU leaders] decided that the document should be unreadable. If it is unreadable, it is not constitutional, that was the sort of perception". …Mr Amato, who is
now minister of the interior in Italy, has been a central figure in all stages of the year-long process of writing a new constitution for Europe.
He was vice-president and leader of the socialists in the Convention, the body that wrote the first constitution-draft in 2002-2003 under the leadership of former French president Giscard d'Estaing. …Following
two years of 'reflection' Mr Amato headed the 16-strong group of politicians which prepared a simplified version of the document. Unofficially known as the "Amato Group" the group stripped the
rejected constitution of its constitutional elements - including the article on the EU's symbols. But the main elements of the original constitution
were kept in. …"This is an extraordinary admission from someone who has been close to the negotiations on the EU treaty", said Open Europe
director Neil O'Brien. "The idea of just changing the name of the Constitution and pretending that it is just another complex treaty shows a total contempt for voters."
Sunday, July 15, 2007 ~ 7:43 p.m., Dan Mitchell Wrote: The new Congress has quietly pushed a series of tax hikes - often without really saying as much - that would raise the cost of capital in
the U.S. and make it more expensive to hire labor. They'd also boost the tax bill of the average household by an average $2,000. This is a nightmare not only for American business, but also for workers. Over
time, it will lead to European-style stagnation, with slow growth and high unemployment. ...They argue that most, if not all, these taxes will be levied on corporations and the so-called rich. They have a point:
Today, some 60 million adults either pay no taxes at all or don't have to file. The rich pay most of our taxes. But those taxes are really a tax on
the entire economy. For the "rich" make up the bulk of entrepreneurs and creators in our society. Targeting them hits the rest of us harder than we think.
Sunday, July 15, 2007 ~ 6:15 p.m., Dan Mitchell Wrote: It is the latest ruse on the roads of France: drivers are avoiding disqualification by trading licence points on the internet. Complete
strangers are taking the rap for speeding offences in return for up to €1,500 (£1,000), and police admit they are powerless to intervene. Even
pensioners who have not driven for many years are getting in on the act. The online scam is also popular in Spain and other European countries,
and authorities believe it may soon be introduced in Britain. It threatens to make a mockery of a French crackdown on road safety and embarrass President Sarkozy… The technique is simple. In return for
money, the seller provides his or her name and licence number in response to the speed camera ticket. The notice that is automatically sent to the owner of the offending vehicle includes a form for identifying
another driver. Checks are extremely rare. The black market, which the authorities admit they are unable to prevent, is an unintended consequence of stronger enforcement of the highway code and
especially of an exploding number of speeding tickets since automatic radar was installed on French roads on 2003. …It has become routine in
families of all classes for repeat offenders to ask friends and relatives with clean licences to lend their names. This explains an apparently
steep rise in bad driving by older citizens. The rate of offences by drivers over 65 jumped 38 per cent from 2003-05, when the speed cameras began to bite. …Polls show many believe that les radars have been
installed as an unfair ploy to make money for the state. Dozens of installations on motorways and major roads have been vandalised. Eighty per cent of offences are for under 20 km/h excess speed, yet each
eats two points from the licence. …One internet user in Spain listed his grandmother's licence points for €250 each, plus the cost of any traffic
fines. "I have persuaded the poor woman to renew her licence, with the sole objective of having more points," he said.
Saturday, July 14, 2007 ~ 3:40 p.m., Dan Mitchell Wrote: A "fat tax" on salty, sugary and fatty foods could save thousands of lives each year, according to a study published on Thursday.
Researchers at Oxford University say that charging Value Added Tax (VAT) at 17.5 percent on foods deemed to be unhealthy would cut consumer demand and reduce the number of heart attacks and strokes.
The purchase tax is already levied on a small number of products such as potato crisps, ice cream, confectionery and chocolate biscuits, but most food is exempt. The move could save an estimated 3,200 lives in
Britain each year, according to the study in the Journal of Epidemiology and Community Health. …Any "fat tax" might be seen as an attack on
personal freedom and would weigh more heavily on poorer families, the study warned. A food tax would raise average weekly household bills by 4.6 percent or 67 pence per person. Former Prime Minister Tony Blair
has previously rejected the idea as an example of the "nanny state" that might push people away from healthy food.
Friday, July 13, 2007 ~ 4:15 p.m., Dan Mitchell Wrote: French Finance Minister Christine Lagarde has presented an EUR13.6 billion package of tax cuts to the national assembly... The measures,
which will cost up to EUR11 billion in 2008 alone, include the removal of taxes on overtime, reducing taxes on inheritances, capping income tax at 50% and the introduction of tax deductibility on some mortgages.
...The package places much emphasis on reducing taxes on the wealthy, a measure sure to spark debate that the government is putting the interests of the rich before looking after its more vulnerable citizens.
Lagarde however, argued that such measures are vital if France is to be a place of wealth creation. "All you have to do is go to Gare du Nord on
Friday night to Eurostar and Thalys arrivals to understand that these French bankers, who have gone to work in the City, those tax exiles in
Belgium, want one thing, to come back to France," she told lawmakers. ...However, it remains unclear from the government's plans whether some or all of the cost of the tax cuts will be recouped with tax
increases or spending cuts elsewhere. The proposals could also raise eyebrows in Brussels with the European Commission and national finance ministers expressing concern over the French budget deficit,
which Sarkozy estimates will touch 2.4% of GDP this year.
Friday, July 13, 2007 ~ 2:29 p.m., Dan Mitchell Wrote: ... driving a sports car anywhere but on a racetrack might be relegated to history's dustbin. Fast, powerful cars within a few years may be
outlawed in Europe, an idea that has been raised ostensibly because Ferraris and Porsches produce too much carbon dioxide. ... Chris Davies, a British member of the European Parliament, is proposing one
of the most-extreme measures -- a prohibition on any car that goes faster than 162 kilometers (101 miles) an hour, a speed that everything from the humble Honda Civic on up can exceed. ... The folks against
sports cars in Europe and big sport utility vehicles in the U.S. often are same ones who hate McMansion-sized homes, corporate jets, jumbo freezers, yachts, 60-inch flat-screens TVs, overnight-delivery services
and other trappings of Western-style wealth and energy use. ... Outside of a handful of command economies, few today would agree that a central authority ought to regulate who owns what. ... Calls for limits on
carbon dioxide ignore a basic point. People are likely to be better judges of the benefits of fast cars, TVs, air conditioners, and jets than
government planners. Besides, the brunt of government limits on energy use may well fall on the world's poorest nations, which need more energy -- thus generating more carbon dioxide -- to provide lighting,
refrigeration, harvesting, water purification and transportation. What right do environmentalists in rich countries have to deny residents of poorer ones the benefits of higher living standards?
Thursday, July 12, 2007 ~ 1:46 p.m., Dan Mitchell Wrote: German lawmakers have given their approval to a key corporate tax reform that will reduce the overall corporate tax burden on companies
in Germany by almost 10%, placing the country in the middle of the European corporate tax league table. ...In urging the lawmakers to approve the bill, Peer Steinbrueck, German Finance Minister, argued
that the tax cut represents "an investment in Germany as a business location", making domestic and foreign investments more attractive.
...Germany currently has one of the highest corporate tax burdens in the world, and the business community has long called for rates to be reduced to help breathe life into Germany's stagnating economy. The
new law effectively cuts the corporate tax rate from the current 38.65% to 29.83%. ...The ruling coalition parties have also agreed to introduce
a 25% capital gains tax from January 1, 2009. This will replace the current system, whereby capital gains are subject to personal income tax, which can be as high as 42%. This will apply to income from earned
interest and dividends, and private investors' share sales.
All it means is that the libertarian refuses to sanction the use of physical force (which is what government is) to help others. Peaceful methods --
like voluntary charity -- are the only morally consistent methods. I give about a quarter of my income to charities because I've seen that private
charity helps the needy far better than government does ...when people are ordered by the government to be charitable, it's not virtuous; it's
compelled. Why would anyone get into heaven because he pays taxes under threat of imprisonment? Moral action is freely chosen action.
Thursday, July 12, 2007 ~ 9:39 a.m., Dan Mitchell Wrote: Almost 200,000 Britons have shopped their friends, family and colleagues to the tax man in the year since HM Revenue and Customs
set up a confidential hotline for taxpayers to inform on those they suspect of dodging their taxes. …However, it is difficult to gauge the effectiveness of the HMRC initiative, as the Treasury reportedly refused
to divulge to the Times how many successful prosecutions had resulted from such informants, nor how much extra tax had been brought in. …informants in the UK receive no monetary rewards for shopping tax
evaders. …HMRC has said that it needs additional powers and deterrents to extract money from non-payers, in order to reduce the cost and effort of pursuing around 200,000 people through the court system
every year.
Wednesday, July 11, 2007 ~ 5:44 p.m., Dan Mitchell Wrote: The KPMG prosecution was supposed to illustrate the Bush Justice Department's post-Enron efforts to be tough on white-collar crime.
Instead, it has become a symbol of how ambitious prosecutors can exploit an anti-business political climate to bring a dubious case, and then abuse due process to browbeat the defendants into submission. The
history is worth recounting as a cautionary tale to prosecutors and business alike. …The case made for such good headlines that it went largely unnoticed, at first, that the tax shelters in question had never
been challenged in court by the IRS. This is an extraordinary and troubling precedent. The U.S. tax code is full of loopholes written by Congress, and while tax evasion is a crime, tax avoidance can be
entirely legal. Just as a person is innocent until proven guilty, a tax-reduction strategy has long been understood to be legal until proven otherwise. This is a principle of law, but also of fairness. Taxpayers
deserve notice that they are exposing themselves to potential criminal liability for engaging in certain forms of tax avoidance. …In exchange for adopting the government's view of the case, [KPMG] was spared
indictment. Or, to put it another way, KPMG sold out the employees now on trial rather than run the risk of an indictment that might have meant (a la Andersen) the end of the firm. …the government has been
caught trying to interfere with the right of the accused to choose their own counsel and mount a defense. Seen in its proper context, the legal
fees issue is a proxy for what has been wrong with this case from the beginning. Prosecutors hoped to starve the defendants of support, compelling some or all to cop a plea to avoid financial ruin. The fees
business was only one element of a plan to set the defendants against each other, just as it had set KPMG against its former employees. In this way, the prosecutors hoped to get their scalps without the messy
business of proving a dubious legal theory to a jury. This case has been shot through with prosecutorial overreach from the first, and the U.S.
Attorney's office pushed the boundaries of the law to win it. Due process is the sine qua non of a just system of criminal law. When those entrusted with upholding it instead trample on it, they have surrendered
any claim to be acting in the public interest.
Wednesday, July 11, 2007 ~ 5:11 p.m., Dan Mitchell Wrote: Why do aid organizations and their celebrity backers want to make African successes look like failures? One can only speculate, but it
certainly helps aid agencies get more publicity and more money if problems seem greater than they are. As for the stars - well, could Africa be saving celebrity careers more than celebrities are saving
Africa? In truth, Africans are and will be escaping poverty the same way everybody else did: through the efforts of resourceful entrepreneurs, democratic reformers and ordinary citizens at home, not through PR
extravaganzas of ill-informed outsiders. The real Africa needs increased trade from the West more than it needs more aid handouts. A respected Ugandan journalist, Andrew Mwenda, made this point at a recent
African conference despite the fact that the world's most famous celebrity activist - Bono - was attempting to shout him down. Mwenda was suffering from too much reality for Bono's taste: "What man or
nation has ever become rich by holding out a begging bowl?" asked Mwenda. Perhaps Bono was grouchy because his celebrity-laden "Red" campaign to promote Western brands to finance begging bowls for
Africa has spent $100 million on marketing and generated sales of only $18 million, according to a recent report. But the fact remains that the
West shows a lot more interest in begging bowls than in, say, letting African cotton growers compete fairly in Western markets (see the recent collapse of world trade talks).
Tuesday, July 10, 2007 ~ 1:54 p.m., Dan Mitchell Wrote: Complying with anti-money laundering laws has been much more expensive than banks anticipated, and some still aren't meeting all
requirements, a new survey says. …Among the six regions surveyed, North American banks saw the highest percentage cost increase, with costs rising 71 percent over the last three years. …Many governments
require that banks take steps to prevent money laundering. Money laundering involves making certain financial transactions to hide the source, nature or destination of illegal funds. The United States has the
Bank Secrecy Act, which was passed in 1970 and amended by the USA Patriot Act of Oct. 26, 2001. It has since been used increasingly to stop the flow of financing to terrorist organizations.
Tuesday, July 10, 2007 ~ 1:00 p.m., Dan Mitchell Wrote: London, the great global financial centre, has another claim to fame: it has become the fastest growing destination for international tax
avoiders. The world's super-rich and an elite cadre of financiers working in the Square Mile are increasingly using non-domicile tax status to
sidestep paying tax on their fortunes. ...Those benefiting from non-dom status have rocketed over the last five years. The Treasury...confirmed that 112,000 individuals indicated non-dom status in their
self-assessment returns in the tax year to April 2005. This is a 74 per cent increase over 2002's figures. ...Unlike UK citizens, non-doms escape tax on income from property or capital gains. It is not only the
international jet set who claim non-dom status; it is also available to some of the most powerful figures in the City. ...Non-domicile status is
self-assessed. Forms are easy to download from the web and there are just 19 questions. One tax expert says it is easy to convince the Revenue
that a claimant is based overseas, whether it is through a relative or a series of overseas investments. In addition, the Revenue makes very few checks on status. Many senior City figures qualify for non-dom tax
exemptions, including Dominic Murphy, the UK boss of private equity giant KKR. And it is widely thought that the Chancellor's City adviser Sir Ronald Cohen and a large collection of Labour Party donors do too.
...Earlier this week, new Chancellor Alistair Darling made it clear that nothing must harm the international pre-eminence of the City and he warned against 'knee jerk' reactions to calls to amend the regulation.
Tuesday, July 10, 2007 ~ 11:36 a.m., Dan Mitchell Wrote: …we don't favor a carbon tax. In theory, such a tax might make sense if it were offset by lower taxes on income tax rates and capital
investment--which would be a net plus for economic growth. However, there's not a chance in melting Greenland that the current Congress would offset any new carbon taxes; it would merely pocket the extra
revenue to permanently increase the government's share of GDP.
Monday, July 9, 2007 ~ 3:32 p.m., Dan Mitchell Wrote: The Securities and Exchange Commission recently rolled out a new section of its Web site that effectively "names and shames" companies
doing business in countries that are on the State Department's terror watch list. ...The SEC got it wrong. ...the SEC simply compiles a list of
companies with the words "Sudan," "Iran," "North Korea," "Syria" or "Cuba" in their annual reports without regard to context. The SEC's
tool could easily mislead investors. For example, Baker Hughes, a company on the SEC's Sudan page, states in its 2006 annual report that
its subsidiaries will "prohibit any business activity that directly or indirectly involves or facilitates transactions in Iran, Sudan or with their
governments, including government-controlled companies operating outside of these countries." In other words, Baker Hughes withdrew from Sudan nearly two years ago. Another company on the SEC's Sudan
page, Immtech Pharmaceuticals, appears because it conducted clinical studies for the treatment of first-stage African sleeping sickness in Sudan. We hope this isn't the sort of corporate behavior the SEC would
define as "subsidizing a terrorist haven or genocidal state."
Monday, July 9, 2007 ~ 2:22 p.m., Dan Mitchell Wrote: Franklin Roosevelt's success was in altering the practice of American politics. This transformation was actually assisted by the misguided
policies -- including government-created uncertainties that paralyzed investors -- that prolonged the Depression. This seemed to validate the notion that the crisis was permanent, so government must be forever
hyperactive. ...Roosevelt, however, made interest-group politics systematic and routine. New Deal policies were calculated to create many constituencies -- labor, retirees, farmers, union members -- to be
dependent on government. ...Roosevelt implemented the theory that (in her words) "spending promoted growth, if government was big enough
to spend enough." In only 12 months, just one Roosevelt improvisation, the National Recovery Administration, "generated more paper than the
entire legislative output of the federal government since 1789." Before Roosevelt, the federal government was unimpressive relative to the private sector. Under Calvin Coolidge, the last pre-Depression
president, its revenue averaged 4 percent of gross domestic product, compared with 18.6 percent today. ...In 1936, for the first time in peacetime history, federal spending exceeded that of the states and
localities combined. ...as Roosevelt demonstrated and Shlaes reminds us, compassion, understood as making the "insecure" securely dependent, also makes the state flourish. The Forgotten Man: A New History of the Great Depression
Monday, July 9, 2007 ~ 12:39 p.m., Dan Mitchell Wrote: ...criticism of Sarkozy's interventionist language...is mounting. The question that Eurocrats, central bankers and fellow politicians are
asking is the same they asked three years ago: Is the man who wants to shake up France's labor market and ignite economic growth with a flurry of tax cuts the liberal European he claims? Or is he an old-style
Gaullist in modern disguise? ..."Institutions, procedures, directives and rules are not ends in themselves," Sarkozy declared in Strasbourg,
calling for a Europe "that does not submit itself to the pseudo-dictatorship of the market... Sarkozy has shown little willingness to abandon certain nationalist instincts of past French leaders. He has
defended EU agricultural subsidies against demands for greater trade liberalization. He has shown little inclination to withdraw from France's
aim of creating national champions, particularly in the energy sector. On Thursday, he debated the future of the state-controlled gas company
Gaz de France with his prime minister and finance minister. And rather than encouraging globalization, he has appeared to reinforce French fears of unfettered capitalism - for example, by fighting to remove a
largely symbolic affirmation of EU competition policy from the revamped treaty agreed last month in Brussels. "Sarkozy talks right but
rules left. Portrayals of him as a French Thatcher who will shake things up are vastly exaggerated," said one EU official in reference to the
former British prime minister Margaret Thatcher. "He is, after all, French."
Sunday, July 8, 2007 ~ 1:01 p.m., Dan Mitchell Wrote: EU economic and monetary affairs commissioner Joaquin Almunia has mooted the idea of minimum wages being introduced in each of the 27
member states across the European Union. "Every country in the EU should have a minimum wage," Mr Almunia told the German weekly Die Zeit in an interview. ...only 20 EU member states currently have a
set level of minimum wages... Germany...is one of the few major world economies without a minimum wage.
Saturday, July 7, 2007 ~ 12:19 p.m., Dan Mitchell Wrote: Farmers have been pocketing about $20 billion a year in taxpayer handouts, even as they enjoy record crop prices. Thanks to the ethanol
subsidy boom, corn has hit as high as $4 a bushel, more than double the 2005 price. Yet almost half of all farm subsidies go to corn growers, thanks to the clout of Midwest and Plains-state Senators. The USDA
reports that prices for wheat, soybeans and sugar are also at "near-historic highs." Farm incomes are now about 30% higher than the average for all workers. And thanks to a surge in land values, the
average net worth of a full time farmer is $830,000. The (temporarily) historic Freedom to Farm Act, enacted in the mid-1990s, was intended to phase out federal subsidies by the year 2002. But Congress couldn't
resist the pressure for annual farm bailouts, and farm payments increased to $23 billion in 2001 from $7 billion in 1996. Then in 2002 Congress reinstated price supports to end these annual bailouts. That
didn't work either. Farmers have received price supports and an annual "emergency" payout every year since 2001. In 2003, drought assistance
went to farmers in hundreds of counties where investigators later discovered there was no drought. Farmers in Washington state received earthquake assistance even when their crops weren't damaged. Yet the
farm lobby continues to push $7 billion in new "emergency" payouts this year for livestock, milk, fisheries and rural development aid. ...The
Kind-Flake bill would steer tax dollars away from the wealthiest agribusinesses, while funding a safety net for moderate-income farmers facing real financial strain due to bad weather, low prices, or crop
failure. Only farmers with gross incomes of less than $200,000 would be eligible for aid.
Friday, July 6, 2007 ~ 4:24 p.m., Dan Mitchell Wrote: When the Salvation Army asks you for a donation, you are free to say no, and you suffer no consequences. When the U.S. government
demands a tax return and a check on April 15, you can't say no and go about your business. You comply or face fines or imprisonment. Yes, you
get to vote for candidates periodically. But having an infinitesimal say in who will coerce you doesn't change that fact that they are using force.
...the private sector -- whether nonprofit or a greedy business -- must work through persuasion and consent. No matter how rich Bill Gates gets, he cannot force us to buy his software. Outside government,
actions are voluntary, and voluntary is better because it reflects the free judgment of creative, productive people. ...Thomas Jefferson said, "The
natural progress of things is for liberty to yield and government to gain ground." Was he ever right! Liberty yields as well-intentioned
busybodies try to "fix" the world by stopping you from using gasoline or forcing you to finance antipoverty programs.
Friday, July 6, 2007 ~ 3:15 p.m., Dan Mitchell Wrote: Parliament in Pridnestrovskaia Moldavskaia Respublica approved new lower tax rates for the emerging but unrecognized country. Previously,
the nation taxed incomes for physical persons at 15%, but starting next month the rate will be just 10% flat. ...Since its declaration of independence on 2 September 1990, Pridnestrovie has gradually
transformed itself from a post-Soviet system to a free, Western-style market based economy. In the process, it has found that a flat tax provides the best incentives for citizens and investors alike. Hoover
Institution political scientist Alvin Rabushka points to a number of different countries in the former Soviet bloc that have adopted some
form of flat tax in recent years. In addition to Russia, Pridnestrovie and Slovakia, they are Romania, Georgia, Estonia, Latvia, Serbia and Ukraine. Not surprisingly, the flat tax is having a positive impact. The Tiraspol Times now reports that tax revenues have more than tripled and lawmakers understand that lower tax rates can lead to more revenue - just as the Laffer Curve illustrates: Thanks to reform in the tax code, and a lowering of rates, income from taxes has gone up three and a half times in Pridnestrovie says the
parliamentary press service. ...Tax revenues went from 63.4 million dollars in 2001 to a whopping 221.6 million dollars in 2006, the last full
year for which the numbers are available. ...Key to the reform package were measures which makes filing simpler, as well as a comprehensive program of tax relief. Five taxes which existed before 2001 have now
been abolished and instead replaced with a single, simple tax. ...With both personal and corporate tax rates well below those of Ireland, the
growth in Pridnestrovie's tax income is even more impressive. As taxes have been simplified and rates have been lowered, revenues have gone up three and a half times - proof, says an MP, that the Laffer curve is
alive and well in Tiraspol.
Thursday, July 5, 2007 ~ 11:57 a.m., Dan Mitchell Wrote: The European Union needs a ``level playing field'' in areas including tax competition...if there is to be greater integration among member states,
German Finance Minister Peer Steinbrueck said. A ``race to the bottom'' regarding...taxes, social and environmental standards risks discrediting the idea of a more united Europe among the continent's
citizens, Steinbrueck said in a speech prepared for delivery today in Frankfurt an der Oder, on the eastern German border with Poland. ...The average corporate tax rate in Europe shouldn't fall below the
threshold of just under 30 percent, which will go into effect in Germany next year, Steinbrueck said. Eastern European governments...can't finance the infrastructure demanded by their citizens if taxes are
lowered too much, he said.
Thursday, July 5, 2007 ~ 11:03 a.m., Dan Mitchell Wrote: Congress recently raised the federal minimum wage to $7.25 an hour by 2009, in the name of helping low-income families escape poverty. But a
sobering new report from the New York City-based Center for an Urban Future shows how minimum-wage laws are already hurting the unskilled and inexperienced. The "Summer Help" study assesses New
York City's publicly funded Summer Youth Employment Program (SYEP), which each year matches tens of thousands of young people between the ages of 14 and 21 with employers ranging from the local
library to investment banks. New York's teen employment rate is 16.9%, the lowest of any big city and half of the 34.6% national average. The program provides these young people with a valuable introduction to
the labor market, not to mention some spending money and less idle time to make mischief. Today, however, the New York program serves 20% fewer young adults than it did in 1999, and last year it turned away
30,000 mostly black and Latino applicants. The report cites minimum wage-increases in the Empire State -- one of 30 states that mandates a minimum higher than the federal floor -- as a factor in the program's
decline.
Wednesday, July 4, 2007 ~ 6:41 p.m., Dan Mitchell Wrote:
Wednesday, July 4, 2007 ~ 4:22 p.m., Dan Mitchell Wrote: The European Union is spending £3.8 billion a year on "propaganda" to win over its sceptical citizens… As well as publishing a plethora of
pamphlets and employing an army of public relations staff, the EU has spent hundreds of millions of pounds on teaching aids, school trips and even cartoons. According to Lee Rotherham, the author of a new book
which examines the EU's spending on its image, such initiatives are an "outrageous and cynical attempt to brainwash the young". …Let's Explore Europe Together, an online teaching aid aimed at nine to
12-year-olds, describes the EU as a "really good plan that had never been tried before". …In Italy, reports Mr Rotherham, children have been
confronted by Camillo e l'Euro in Europa, a cartoon that champions the single currency. …Europe's Best Successes, a 51-page pamphlet to
celebrate the 50th anniversary of the EU, features lines such as "if you are lucky enough to be a citizen of the EU", and "young people have
really benefited from the development of a borderless Europe". Mr Rotherham also details extensive spending on umbrellas, mouse mats,
pencils and other items branded with the EU logo - part of a £2.4 billion budget for European Commission "projects". He also reveals big grants
to think-tanks and EU-funded trips to the European Parliament. The U.S. government wastes money in similar ways, of course, including propaganda campaigns on behalf of the new Medicare prescription drug entitlement and the President's no-bureaucrat-left-behind education scheme. But the Europeans seem to have more creativity when it comes to wasting taxpayer money. The UK-based Times reports that part of the European Union's self-promotion budget was used to produce a sex video. In the understatement of the year, a bureaucrat admitted that the EU is not quite ready to compete with Paris Hilton: The latest promotional video from Brussels shows European citizens engaged in enthusiastic congress, but it is not the sort of union the
founding fathers had in mind. The film, available on the European commission's space on YouTube (http://www.youtube.com/watch?v
Tuesday, July 3, 2007 ~ 1:16 p.m., Dan Mitchell Wrote: Plans have been drawn up for an international taskforce to crack down on tax haven abuses orchestrated in large part by bankers, accountants
and lawyers in London. As authoritative evidence suggests that $1 trillion of illicit funds flow to secretive havens managed by financiers based in London, New York and Dubai, the Norwegian government is
forming a global coalition to 'facilitate the recovery of assets illicitly stacked away in tax havens'. Several countries are set to join, but Britain, recently classed as an offshore financial centre by the
International Monetary Fund, is not among them. ...The imminent formation of an international tax haven taskforce comes as the World Bank, headed by Robert Zoellick, is coming under pressure to establish
its first forensic study into the illicit cash flowing out of developing nations. ...Exactly 10 times the $100bn spent on aid and debt write-offs by rich countries is siphoned out of developing countries, with
corporations responsible for 60 per cent of that figure through a web of trusts, nominee accounts and the flagrant mispricing of goods to escape
tax. ...Cracking down on tax havens and the evasion of taxes by some of the world's biggest companies is seen as the 'missing link' in the poverty alleviation agenda. Investigators and lawyers at a conference
on the Movement of Illicit Funds in Washington last Thursday confirmed it was corporations and not corrupt politicians in the developing world that accounted for most tax evasion.
Tuesday, July 3, 2007 ~ 12:03 p.m., Dan Mitchell Wrote: ...lucrative tax breaks and fabled financial secrecy have made this British territory a magnet for hedge fund managers. "All of the offshore
jurisdictions are competing against each other to provide the most hospitable regulatory landscape, and the Caymans are really coming on
strong," Mr. Grayson says. ...In as little as two weeks, and for about $35,000 in fees, hedge funds can set up shop in the Caymans - just a
fraction of the time and up to one-tenth the price of incorporating a fund in drearier climes like Delaware. While speed and bargain prices are big attractions, the real draw, say analysts and Congressional
investigators, are perfectly legal Caymans-based corporations and partnerships that allow major investors to avoid taxes of up to 35 percent that the Internal Revenue Service levies on unearned business
income. Cayman tax laws also help American fund managers legally defer domestic taxes on their personal profits by channeling them offshore through their funds. ...it is the corporate home for what the
Cayman Islands Monetary Authority estimates to be three out of every four of the world's hedge funds - more than anywhere else - thanks to its friendly tax and regulatory regimes, as well as an army of foreign
bankers, tax lawyers, accountants and fund administrators who make it all work. ...foreign individual investors and tax-exempt American investors - like pension plans, hospitals and university endowments - are
allowed to put their money into another section of the fund that is registered offshore, in the Caymans. The American institutions have that option because, while they are tax-exempt under American tax law,
a United States tax on unearned business income would apply if they invested in a domestic fund. ...Some 8,500 investment funds are registered in the Cayman Islands, according to the agency - a
near-tripling since 2001.
Tuesday, July 3, 2007 ~ 9:48 a.m., Dan Mitchell Wrote: The Bush administration is urging the Senate to consent this summer to the Convention on the Law of the Sea, the complex and sprawling treaty
that governs shipping, navigation, mining, fishing and other ocean activities. This is a major departure from the administration's usual stance toward international organizations that have the capacity to
restrain U.S. sovereignty. And it comes in a surprising context, since the convention has disturbing implications for our fight against terrorists.
...Supporters note that many of the treaty's "freedom of the seas" provisions favor U.S. interests. But the United States already receives
the benefits of these provisions because, as Negroponte and England acknowledged, they are "already widely accepted in practice." They maintain that ratifying the convention would nonetheless provide
"welcome legal certainty." In recent years, however, the United States has not received much legal certainty from international tribunals
dominated by non-American judges, and what it has received has not been very welcome. There is little reason to expect different results from
these tribunals. President Bush invokes a different rationale for ratifying the convention, arguing that it would "give the United States a seat at
the table when the rights that are vital to our interests are debated and interpreted." What this really means is that American views of the law
of the sea, even on issues related to national security, could be outvoted by a majority in an international forum.
Monday, July 2, 2007 ~ 11:47 p.m., Dan Mitchell Wrote: A longtime Democrat, Buffett has advocated tax hikes in the past, using his party's class-warfare rhetoric of "fairness." Other billionaires have
done the same - including George Soros and Bill Gates Sr. (the father of Microsoft founder Bill Gates). Seems that a lot of people are seized by
guilt over their wealth. These men, in their own way, are brilliant businessmen, but as tax economists they leave a lot to be desired. Higher taxes, they should know, lead inevitably to slower economic
growth. Which leads to fewer jobs, lower incomes and declining standards of living. Most economists employed outside the Democratic Party agree on this. As Nobel prize winner Edward Prescott recently
wrote: "To raise tax rates and thereby dampen economic activity seems a perverse way to improve our economic situation. . . . Let's not keep
trying to trick our citizens into accepting one tax one day, and another tax the next. Let's not try to tax our way to prosperity." ...What
perplexes us is that Buffett seems to want higher taxes on the very people - entrepreneurs - who create the jobs, increase the wealth and stimulate the growth that make America's economy the marvel that it is.
Doesn't he realize that when you tax something, you always get less of it?
Monday, July 2, 2007 ~ 8:44 p.m., Dan Mitchell Wrote: Tallinn today is simply shining. There are many new buildings, the Old Town has been renovated, there are restaurants everywhere, people
look happy, technology is abundant, and there seems to be activity wherever you look. ...Last year, growth in Estonia was 11 percent. Average income has risen by 120 percent during the last ten years.
Incomes for the poorest ten percent of the population have risen by 160 per cent. ...Under the leadership of Mart Laar, Estonia chose a swift exit from the collapsing centrally-planned economy. There were
privatizations, zero tariffs, de-regulations, tax cuts and e-government. In 1994, Estonia introduced a flat tax, 26 per cent tax for everyone regardless of income. Mart Laar was told that a flat tax would be
impossible. It was not. Tax revenues have increased every year since 1994 - despite reductions in the tax rate to 20 percent, soon to be 18 percent. The aim of the current government is to drop it even lower, to
12 percent. The "impossible" flat tax is now a reality in 16 countries, four of which - Iceland, Macedonia, Kyrgyzstan and Mongolia - have
just introduced it this year. Four more are thinking about it. Of course there are lessons to learn for other countries. Free market reforms unleash innovators, investors, entrepreneurs, traders and working
people in general. ...At current growth rates, Estonia will, before too long, have the same GDP per capita as my home country Sweden, which has also enjoyed solid growth in recent years. Of course there are
threats to further success, such as plans for EU tax harmonization.
Monday, July 2, 2007 ~ 8:31 p.m., Dan Mitchell Wrote: During what passed for Labour's leadership campaign, Mr Brown was asked why he would not raise the top rate of income tax. His reply was
instructive. 'When we came to power, the richest 10 per cent paid 40 per cent of income tax,' he said. 'Now it is 52 per cent.' The richest are
shouldering a greater share of the burden, he was saying - and that's precisely because their tax rate has not risen. If you want them to pay more, incentivise them to earn more. It was a direct echo of Nigel
Lawson's 1988 Budget, and the Conservative doctrine - the so-called 'Laffer curve' - from which modern Tories now shy away. This takes us straight to the heart of the Brown paradox. It is precisely his addiction
to tax revenues that has led him to the conclusion that he cannot raise the top rate of tax: higher tax rates, he has finally grasped, mean smaller revenues. This is very different indeed to what he believed
before 1997, when he was keen on a new top rate of 50 per cent. But ten years in the Treasury has turned him into that rare thing: a redistributionist Prime Minister who understands and relishes the
dynamics of the Laffer curve. ...More money is now managed in St James's, the hedge-fund district, than the whole of Frankfurt. Canary Wharf has become a capitalist Babel, with Chinese, Indians, French and
Americans working together in a globalised mix that even Wall Street cannot rival. All this is a deliberate strategy by Mr Brown to keep regulation light and help London take on the world. His trick has been
to turn a blind eye to those issued with non-domicile tax status - a perk which has no equivalent in America or Europe. London is packed with such non-doms (many holding British passports) who pay about 25 per
cent tax rather than 40 per cent.
Sunday, July 1, 2007 ~ 7:08 p.m., Dan Mitchell Wrote: The EU is wasting money by negotiating construction deals behind closed doors instead of using open tenders and by renting instead of
buying many of its own buildings, a fresh Court of Auditors report says. ...The survey also complained that "detailed information on the number
of staff and surface areas" used by the EU was "imprecise" in a budgetary area that accounts for EUR345 million a year of spending.
The so-called "court" has no powers to enforce its recommendations and does not tackle fraud - its regular critiques over lax accounting of
the total EUR100 billion a year EU budget have come and gone without much impact for the past 12 years. ...In April, the European Commission
said EUR44 million of cleaning contracts "may have been executed in an irregular manner" after Belgian press alleged EU officials were
skimming cash paid out for cleaning work that had never been done. In April last year, MEPs discovered Strasbourg authorities had overcharged rent by over EUR2 million a year for 25 years. "I do not
know anybody in this building, in our wonderful European Parliament, who knows what is going on," German deputy Markus Ferber said at the time.
Sunday, July 1, 2007 ~ 5:37 p.m., Dan Mitchell Wrote: The failure of the last proposed European Constitution was that citizens see the EU as an elitist construction. And what did the elites do last
week? They preserved the bulk of the labyrinthine constitution they were supposed to scrap but called it a "treaty," making it easy for governments to avoid putting the issue to a vote. This was also
supposed to be the event in which the new generation of leaders shed the protectionist ways of Europe, turning the awkward pachyderm into a nimble feline capable of outrunning the U.S. and Asia. Fat chance!
French President Nicolas Sarkozy's "feat" was to persuade his colleagues to drop "free and undistorted competition" as one of the
aims of the treaty. In case anyone takes this to mean that Mr. Sarkozy wants to get rid of antitrust bodies that often undermine successful companies by accusing them of monopoly activity, the president
explained that he believes in "promoting national champions" -- i.e., pouring corporate welfare into industries that the government wants to
boost. Instead of free markets, the new treaty upheld interventionist policies responsible for the fact that Europe's unemployment rate is nearly double that of the U.S.
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