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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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Friday, August 31, 2007 ~ 7:16 p.m., Dan Mitchell Wrote: The government of Albania has agreed on a standard tax rate (flat tax) of 10 percent aimed at outdoing its East European rivals and attracting international investors. The
government in Tirana is determined to transform the impoverished Balkan state into a haven for multinational companies and western speculators. From the start of next year, corporate taxes will be reduced from
20 to just 10 percent. The basic rate of income tax, which amounted to 5 percent for average incomes and a maximum of 25 percent for top earners, had already been changed to a uniform rate of 10 percent for all
incomes on August 1. ... Measures aimed at massive tax relief for business and the rich are not specific to Albania. It is the result of a vicious competition between states in both the East and West of Europe
aimed at creating the best possible conditions for foreign speculators and the wealthy. In the so-called "first round" in the 1990s, the Baltic states began to drastically lower company and income
taxes, introducing tax rates of between 25 and 29 percent. These states-with the exception of some "Special Economic Zones"-suffered a loss of interest from foreign enterprises concerned that tax rates
were still too high. The "second round" of cuts was initiated by Russia in 2001. Serbia followed in 2003 with the introduction of a flat tax of 14 percent. In 2005 Ukraine, Slovakia, Georgia, and
Romania followed suit. The "new round" has now begun with tax reductions in the Czech Republic and Albania. Plans for further radical tax reductions are currently in discussion in Bulgaria, Croatia,
and other states.
Friday, August 31, 2007 ~ 6:11 p.m., Dan Mitchell Wrote: This is bad history. America's most famous rugged entrepreneurs, especially men such as Rockefeller and Ford, the wealthiest men of their
eras, reached mass markets by producing quality products -- kerosene and cars -- at low prices. More recently, Sam Walton did the same thing
in retailing. Mr. Slim, by contrast, is better characterized as a "political entrepreneur," who relied more on manipulating Mexico's bureaucracy
than on satisfying consumers in a competitive arena. In the great heyday of late-19th century American capitalism, successful businessmen had to innovate and compete as they helped create mass
markets. Government was limited, property rights and contracts were protected, and, except for tariffs and occasional subsidies, government could not play favorites. Whoever satisfied the most customers would
have the largest businesses. Only when Rockefeller sold cheap kerosene to tens of millions of Americans did he become the nation's first
billionaire. "We must ever remember," Rockefeller told his partner, "we are refining oil for the poor man and he must have it cheap and good."
Ironically, the price of Rockefeller's kerosene dropped to eight cents a gallon in 1885 from 26 cents in 1870 -- all the while he was viciously
pilloried as a monopolist by the press, Congress and his competitors. Ford, Walton and Mr. Gates also had to sell widely to masses of Americans at competitive rates before they rose to the top. Putting a
car in every garage, not just the garages of the rich, was Ford's working motto. In serving the most customers, he reaped the largest reward. So did Bill Gates with computers. When America did deviate
from free markets -- for example, by granting government subsidies to the Union Pacific and Central Pacific Railroads -- the economy suffered
instabilities. But it recovered from the experience and learned a lesson. James J. Hill built the Great Northern Railroad with no federal subsidy -- and outperformed all other transcontinentals.
Thursday, August 30, 2007 ~ 4:11 p.m., Dan Mitchell Wrote: So far this year the blue dogs have been almost all bark when it comes to fiscal restraint and debt reduction. Thirty of the 48 have voted for
every one of the non-defense spending bills their committee chairman have sent them. ...28 of the 48 blue dogs voted "no" on each of the 27
amendments that Republicans proposed to cut the costs of these bills. ...Voting records from recent years confirm that the blue dogs are less than consistent spending hawks. The National Taxpayers Union did
some checking and found that the blue dogs had an average fiscal score of 24 out of 100, earning them a grade of D as a group. It also found that last year the blue dogs sponsored $145 of new spending for every
dollar of budget reductions, for a net spending increase per member of more than $140 billion. The blue dogs are consistent on one fiscal issue:
stopping tax cuts. As a group they opposed the Bush tax cuts and the extension of those tax cuts, and a super-majority vote requirement to raise taxes--all in the name of easing the debt burden on future
generations. But those concerns evaporated when all but nine in the blue dog coalition voted to expand the Schip health-care program to include many middle-class families, at a cost of $132.6 billion over the
2008-2017 period.
Thursday, August 30, 2007 ~ 3:56 p.m., Dan Mitchell Wrote: In the old days, financial institutions that refused to lend to people with low incomes or imperfect credit were accused of victimizing the needy.
Today, financial institutions that make many loans to those same people are found guilty of the same crime. ..."Subprime" is a vile epithet to
Schumer. But the very existence of this market is an achievement, since it offers funding to people who once were shut out of homebuying. Today, according to the Center for Responsible Lending, most
mortgages provided to blacks, and 40 percent of those going to Hispanics, are of the subprime variety. In the past, these customers wouldn't have had to worry about foreclosure, because they would have
been stuck renting. As it happens, the overwhelming majority of subprime customers handle their obligations just fine. At last count, fewer than 14 percent of them were delinquent, meaning 86 percent
were not. ... recent study for the National Bureau of Economic Research found that thanks to improvements in the mortgage market over the past 35 years, "households are now more able to buy homes whose
values are consistent with their long-term income prospects."
Wednesday, August 29, 2007 ~ 5:04 p.m., Dan Mitchell Wrote:
Wednesday, August 29, 2007 ~ 4:44 p.m., Eugene Slaven Wrote: Charlie McCreevy was recently accused of the ultimate sin for an EU Commissioner - looking after the interests of his native country instead
of those of the EU. What makes this accusation different, though, is that it comes from a fellow-Commissioner; in this case the Taxation Commissioner Laszio Kovacs. Such a public row between two
Commissioners is most unusual, but then the stakes are high…The issue is changes to the corporation tax regime in the EU. …most calculations suggest Ireland could be one of the biggest losers from the
proposals…The French and German governments have long been unhappy about tax competition in the EU, especially since the arrival of the eastern members, but Mr Sarkozy is likely to increase the pressure
to have something done…Mr McCreevy has always made clear he prefers things to be done on a national basis, unless there is a very clear case for doing them EU-wide…In this case, a telling point is that most
tax systems require constant amendment to keep the tax lawyers at bay, and this would be a nightmare to negotiate among 27 member states…All of which suggests that Ireland has little to fear and that
nothing is likely to happen.
Wednesday, August 29, 2007 ~ 3:17 p.m., Eugene Slaven Wrote: Austrian analysts have been rather cautious in their assessment of the public finance reform the Czech Chamber of Deputies passed Tuesday,
while a German expert speaks of pressure the old EU countries might have to react to…Peter Havlik, analyst from The Vienna Institute for International Economic Studies (WIIW), said the Czechs present their
new package of bills as very ambitious... Raiffeisen bank expert Peter Brezinschek...assessed as positive the lowering of corporate tax that he said should help boost further growth of the Czech economy…Hubert
Gabrisch from the German Institute for Economic Research in Halle (IWH) said he considers it crucial in the broad European context whether the new Czech reform bills will strengthen or weaken tax
competition in the EU…He said some new EU countries have very favourable tax rules with which they can attract foreign investments. The old countries have to adapt themselves to this pressure, Gabrisch
said, giving Austria as an example…He said Germany, too, will enter the year 2008 with a corporate tax reform aimed to improve the local companies' position and competitiveness.
Tuesday, August 28, 2007 ~ 9:33 p.m., Dan Mitchell Wrote: Both large and small Norwegian companies hide money that they don't report to Norwegian tax authorities in foreign bank accounts... Use of
offshore accounts has long been suspected of being widespread in the shipping and oil industries because of their international nature. ...Net worth is subject to taxation in Norway, through the country's
controversial "fortune tax" called formueskatt. "This (hiding funds in foreign accounts) is much more widespread than people think,"
Grimstad told Aftenposten. "It's not unusual to have money in a tax haven, linked to a credit card...Twenty years ago it was mostly just
shipowners who did this, but today it's everyone." ...Some argue that if Norwegian tax laws were less onerous, the temptation to stash funds overseas would be greatly diminished.
Tuesday, August 28, 2007 ~ 9:19 p.m., Dan Mitchell Wrote: ...at least a dozen states have rushed in to heighten underwriting standards and forbid "above market" interest rates and other bad
practices. ...Requiring underwriters to qualify borrowers at their "full" interest rate, rather than the teaser rate they might have been offered
for the first couple of years, means many of those borrowers won't qualify for the loan in the first place. Well and good, you might say, if that means they won't get a mortgage they can't afford over the long
term. But then it makes no sense to argue that the federal government needs to keep these people in their homes. Likewise, passing laws
against "above-market" interest rates is another way of saying that if you are a risky credit, it would be better not to lend to you at all.
Monday, August 27, 2007 ~ 6:03 p.m., Dan Mitchell Wrote: Since the Bush tax cuts of 2003, the budget deficit has fallen by $217 billion mostly because of a continuing torrid pace of revenue growth.
...For the Bush tax cuts to have been a give-away to the rich, people paying the higher marginal tax rates would have to be carrying a smaller share of the income tax load. But the IRS data indicate that they
are not paying less. Instead, they are paying more -- lots more. More surprisingly, the richest 1%, 5% and 10% of the taxpayers are shouldering a larger percentage of the income tax burden at the federal
level than the tax estimators said they would had the Bush tax cuts never materialized. ...The amount of tax paid by those earning more than $1 million a year increased to $236 billion in 2005, up from $132
billion in 2003, the year of the tax cut. This was a 78% increase in taxes paid by millionaire households. ...lower tax rates on capital gains and
dividends also caused a huge jump in reported income. The National Bureau of Economic Research found an "unprecedented surge in regular dividend payments after the 2003" Bush tax cut. Likewise, the
lowering of the capital gains tax was followed by a 150% increase in the amount of capital gains unlocked by the 15% tax rate. Lower tax rates expanded the tax base. ...The supply-side revenue effects on the
rich are remarkable: Tax rates on higher incomes have been halved, but the federal tax share of the top 1% has nearly doubled.
Monday, August 27, 2007 ~ 2:31 p.m., Dan Mitchell Wrote: In reality, the FairTax rate is not 23%. Messrs. Linder and Chambliss get this figure by calculating the tax as if it were already incorporated
into the price of goods and services. (This is known as the tax-inclusive rate.) Calculating it the conventional way that every other sales tax is
calculated, with the tax on top of the price, yields a rate of 30%. (This is called the tax-exclusive rate.) The distinction is confusing, but think of
it this way. If a product costs $1 at retail, the FairTax adds 30%, for a total of $1.30. Since the 30-cent tax is 23% of $1.30, FairTax supporters say the rate is 23% rather than 30%. ...professional revenue
estimators have always concluded that a national retail sales tax would have to be much, much higher than 23%. A 2000 estimate by Congress's Joint Committee on Taxation found the tax-inclusive rate would have
to be 36% and the tax-exclusive rate would be 57%. In 2005, the U.S. Treasury Department calculated that a tax-exclusive rate of 34% would be needed just to replace the income tax, leaving the payroll tax in
place. But if evasion were high then the rate might have to rise to 49%. If the FairTax were only able to cover the limited sales tax base of a typical state, then a rate of 64% would be required (89% with high
evasion).
Sunday, August 26, 2007 ~ 11:15 p.m., Dan Mitchell Wrote: France said Wednesday that the recent turmoil in credit markets had strengthened its case for tougher regulation of global financial markets
and that it would press ahead with proposals at a fall meeting of Group of 7 finance ministers. ...Lagarde said during an interview that she had
not yet discussed the initiative with the United States or Britain, members of the G-7 who have been reluctant to ponder any regulation of financial markets in the past. But she said that France and Germany,
two countries she described as being "at the heart" of the initiative, were determined to use the current crisis as a catalyst for a stricter
global rule book. ..."There is a growing case for better state involvement on a coordinated basis in various areas, one of which is stock markets and financial markets," Lagarde added. ...Economists
and investors expressed skepticism as to how governments could enforce more transparency in markets that trade in such a vast variety of financial products, arguing that the correction in markets was a
more effective way of forcing banks and investors to reassess and reprice the risk in their portfolios. ...Lagarde...has blamed the crisis on
the "typical excesses" of American capitalism. She said that a gambling culture in the markets was simply more widespread on the other side of the Atlantic.
Sunday, August 26, 2007 ~ 10:56 p.m., Dan Mitchell Wrote: The UK Conservative Party's economic review group has suggested that a future Tory government should make deep cuts in corporate tax
for both large and small firms, pointing to the success of similar policies in other countries, such as Ireland. The review group, headed by former
Cabinet minister John Redwood and Simon Wolfson, the chief executive of retail group Next, has proposed that the headline rate of corporation
tax should fall to 25%. ..."The evidence in favour of lower marginal rates of tax on income and profits is overwhelming," the report argued.
"Countries with very low corporation tax rates have seen businesses grow especially quickly. Far from sacrificing revenue, a substantial
marginal tax rate cut can, as a result of business and economic growth, lead to an increase in overall revenue after a year or so."
Saturday, August 25, 2007 ~ 1:15 p.m., Dan Mitchell Wrote: The Danish government has announced its intention to cut taxes by DKK10 billion (EUR1.34 billion) per year in 2008 and 2009 in a bid to
stimulate the labour market, and improve incentives to work. Under the proposed reforms, announced by the government on Tuesday, the income ceiling for the middle and top income tax brackets will be raised
to DKK353,000 per year from DKK304,100, and to DKK381,300 per year from DKK365,000, respectively. ...In the same announcement, the Danish government also promised that a broad economic plan for the
next eight years would not raise any taxes between now and 2015. The economic package also promises DKK50 billion in extra spending to improve Denmark's welfare system between 2009 and 2018. ...To help
offset the tax cuts, the government also announced that green taxes on energy consumption would increase from 2008 to match inflation. This would increase taxes on heating, water and electricity.
Friday, August 24, 2007 ~ 1:15 p.m., Dan Mitchell Wrote: An academic study has concluded that plans by the US Congress to tax carried interest earned by private equity fund partners at higher rates of
tax would lead to a negligible rise in tax revenues for the Treasury. ...according to Knoll, even if such legislation is enacted, private equity
and venture capital firms will simply restructure certain aspects of their business to effectively cancel out the tax increase. Knoll wrote that this
could be done, for example, by funds charging higher fees to their clients who in turn could legitimately deduct them for tax purposes, thereby negating the tax hike and producing little or nothing for the
government in the way of revenues. Buyout firms could also shift the burden of the tax increase onto their portfolio companies, in the form of a contingent fee in exchange for assistance in restructuring the
business, which could then be deducted as a normal business expense, he speculated.
Friday, August 24, 2007 ~ 12:27 p.m., Dan Mitchell Wrote: A major tax row blew up in Italy on Wednesday after the government said it would push ahead with an election pledge to hike the tax rate on
financial investments. ...The government said on Tuesday that it planned to lift the tax rate on capital gains and bond yields from 12.5%
to 20%... "It isn't enough for Prodi that fiscal pressure in Italy is much higher than the European average and that Italians pay at least 50
different types of taxes. Now he wants to hit the savings of Italian families and company investments," Forza Italia heavyweight Isabella Bertolini said. The rightist National Alliance argued that the move
would drive away foreign investors. The protests were swelled by the devolutionist Northern League, a Berlusconi ally which has already called for a 'tax strike' to protest against taxation levels... The
government's ratings have fallen sharply since the 2007 budget, a 34.7-billion-euro package which contained extensive tax hikes and spending cuts. The budget extended the highest income tax rate of 43%
to all those earning 75,000 euros per year or more. At the same time, those earning between 55,000 and 75,000 euros annually saw their tax rate lifted from 39% to 41%. ...tax dodging remains rampant in Italy.
More than 270 billion euros of taxes go unpaid each year - the equivalent of almost 20% of GDP, the tax office says. Of the country's 40 million taxpayers, 95% claim to earn less than 40,000. A quarter
declare an annual income of less than 6,000 euros. The figures contrast with consumer spending indicators, which show disposable income at significantly higher levels. The government has pledged to crack down
on the tax cheats, saying that tax rates can only come down if everyone pays their taxes. But the opposition argues that there would be less evasion if taxes were lower.
Friday, August 24, 2007 ~ 10:44 a.m., Dan Mitchell Wrote: ...we offer yet another set of illuminating examples, starting with the story of a baby born in the restroom of a British hospital. We don't want
to make light of the mother's suffering. It was enough that she had to give birth in the "lavatory of a flagship hospital because there were no
trained midwives available," the Daily Mail reports. But the fact her premature son "died in her arms minutes" after she had to give birth
with only her mother to assist speaks volumes. "I still can't believe the hospital had no trained staff who could help me," Catherine Brown
said. ...On Aug. 12, Karen Jepp gave birth to identical quadruplets in Great Falls, Mont. The mother of this one-in-13 million event isn't a Montana resident, however. She's a Canadian. She and her husband
were sent from Calgary, Alberta (population 1 million-plus), to Great Falls (pop. 71,000) to deliver the children because, the Calgary Herald
reports, "no Canadian hospital had enough neonatal intensive-care beds for all four babies." From the fifth-largest metropolitan area in Canada to a smallish American city. This speaks well of Canadian
health care? Jepp is the fifth Alberta mother who had to travel to the U.S. this year to give birth because of the neonatal shortages in Calgary. Incidentally, all four daughters are alive and healthy -
uncommon in multiple births. We shudder to think how they'd have fared in Canada or Great Britain, let alone Cuba. ...According to a recent report in London's Telegraph, cancer survival rates aren't the
highest in England, Scotland, Canada or - here it is again - Cuba. They're the highest in the U.S.
Friday, August 24, 2007 ~ 10:16 a.m., Dan Mitchell Wrote: An East Valley eighth-grader was suspended this week after he turned in homework with a sketch that school officials said resembled a gun...
But parents of the 13-year-old, who attends Payne Junior High School in the Chandler Unified School District, said the drawing was a harmless doodle of a fake laser, and school officials overreacted.
...Payne Junior High officials did not allow the Tribune to view the drawing. The Mostellers said the drawing did not depict blood, injuries, bullets or any human targets. They said it was just a drawing that
resembled a gun. ...The boy said...he was just drawing because he finished an assignment early.
Thursday, August 23, 2007 ~ 2:22 p.m., Dan Mitchell Wrote: The cabinet's package of public-finance reforms passed the final vote in the Chamber of Deputies yesterday thanks to two unaffiliated
opposition MPs who voted with the governing coalition. ... Starting next year, the legislation will gradually reduce corporate and personal-income taxes, cut social spending and introduce cash fees for
health care. It still requires Senate approval and President Václav Klaus's signature, but no resistance is expected from either. …The reform package will gradually lower the corporate tax rate from today's
24 percent to 21 percent next year, 20 percent in 2009 and 19 percent in 2010. The existing progressive taxation of personal income at 12 to 32 percent will be replaced by a flat tax of 15 percent in 2008 and
12.5% in 2009. The personal income tax will be calculated from super-gross income, including social and health insurance contributions paid by the employee and the employer. This means effective taxation
will be 23.1 percent of gross income in 2008 and 19.4 percent in 2009.
Thursday, August 23, 2007 ~ 2:00 p.m., Dan Mitchell Wrote: ...the U.S. medical system has serious problems. But the problems stem from departures from free-market principles. The system is riddled with
tax manipulation, costly insurance mandates and bureaucratic interference. Most important, six out of seven health-care dollars are spent by third parties, which means that most consumers exercise no
cost-consciousness. ...So what's wrong with the WHO and Commonwealth Fund studies? Let me count the ways. The WHO judged a country's quality of health on life expectancy. But that's a lousy
measure of a health-care system. Many things that cause premature death have nothing do with medical care. We have far more fatal transportation accidents than other countries. That's not a health-care
problem. ...Similarly, our homicide rate is 10 times higher than in the U.K., eight times higher than in France, and five times greater than in
Canada. When you adjust for these "fatal injury" rates, U.S. life expectancy is actually higher than in nearly every other industrialized
nation. ...The WHO judged countries not on the absolute quality of health care, but on how "fairly" health care of any quality is "distributed."
Thursday, August 23, 2007 ~ 12:38 p.m., Dan Mitchell Wrote: The problem is that development and long-run growth are less about resources than about the environment for generating and sustaining
private sector investment. Two key aspects of this environment are decent public institutions or governance -- the essential "software" for
running a market economy, for creating rule of law and protecting property rights -- and incentives that encourage the private sector to export, especially manufactured products. Aid, especially in large
amounts, can damage governance and make an economy uncompetitive. Like revenues from natural resources, it is manna from heaven for governments. When governments receive large oil revenues
or aid, they have less incentive to be accountable to their citizens, and governance suffers. ...Aid can also have adverse effects on an economy's competitiveness. When foreign resources come pouring in
and are spent domestically, wages tend to rise, especially for those in scarce supply such as managers, supervisors and entrepreneurs. Factories that export will find themselves becoming uncompetitive and
go out of business. In research with Raghuram Rajan, we find that in countries that received more aid, exportable industries systematically underperformed. And exporting manufactured goods has been the mode
of escape from underdevelopment in many of the East Asian successes. ...Giving aid is like looking for the lost key under the lamppost because
that is the easiest thing to do. But it is not obviously the most effective way that outsiders can help.
Thursday, August 23, 2007 ~ 10:47 a.m., Dan Mitchell Wrote: The European Union has strongly criticised death penalties carried out in Texas, calling on its authorities to halt the 400th execution in the US
state. In a statement released on Tuesday (21 August), the Portuguese EU presidency said the bloc viewed with "great regret" the upcoming executions and urged Texas Governor Rick Perry to halt them and
consider a moratorium on the death penalty. ..." Commenting on the EU's appeal to call off his death sentence, Governor Perry replied that
it would be a "just and appropriate" punishment for the murderer. "Texans long ago decided the death penalty is a just and appropriate punishment for the most horrible crimes committed against our
citizens," his spokesman told the BBC. "Two hundred and thirty years ago, our forefathers fought a war to throw off the yoke of a European
monarch and gain the freedom of self-determination," he pointed out, adding "While we respect our friends in Europe, Texans are doing just fine governing Texas."
Thursday, August 23, 2007 ~ 10:01 a.m., Dan Mitchell Wrote: A wise man once noted that a rising tide lifts all boats. So why are booming Asian countries so worried about income inequality? Such talk
is hardly cheap. If these fears spur bad economic policies, it could end up costing Asia dearly. ..."fixing" inequality won't fix poverty. As even
the ADB recognizes, inequality can be a symptom of economic growth. Not everyone can experience equal income growth simultaneously. China's rising inequality, for example, is fueled by growing numbers of
people transitioning to higher-paying manufacturing and construction jobs from low-income agricultural work. A policy of allowing successful
people to keep their gains -- by not subjecting them to redistributive tax policies -- rewards risk takers and creates incentives for others to try to
emulate them. Likewise, not all inequality is, well, equal. While inequality of outcome can be a good thing, inequality of opportunity is another matter. A caste system or corrupt government can contribute to
the kind of "structural inequality" that hinders development by making it harder for entrepreneurial people to get ahead. ...The danger is that
all this talk of "inequality" will lead to policies that, in the name of redistributing income, reduce economic growth and thus make it harder for Asia's poor to join the middle class.
Wednesday, August 22, 2007 ~ 12:51 p.m., Dan Mitchell Wrote: Multinational companies with US subsidiaries could face huge new tax bills under a law passing through the US Congress, diplomats and
business groups have warned. The new measure, known as the Doggett law after the Texas Democrat who proposed it, aims to prevent international companies avoiding US tax when they transfer funds from
the US to parent groups via countries with favourable tax treaties, such as the UK and the Netherlands. ...The measure would potentially hit Japanese carmakers with big US operations. Nissan said that, besides
making cars, it ran a consumer finance business and needed to be incorporated in a number of countries to access capital markets and maintain a tax-efficient structure. ...An executive at a global company
with US factories said: "This is another signal that the US is not a friendly place to do business. We do not need this. We can go to Canada or Mexico."
Wednesday, August 22, 2007 ~ 11:45 a.m., Dan Mitchell Wrote: Monetary policy makes an easy scapegoat because printing money (like drinking a cup of coffee) is an easy way to give an economy a
temporary boost. But if what ails the economy or markets was not caused by tight money in the first place, a temporary boost will not help. It may cover up the symptoms temporarily, but in the end it does not
solve the underlying issue... In fact, easy money always leads to greater problems down the road -- either rising inflation, or a reduced
sensitivity to risk, as markets come to expect rate cuts to bail them out. ...the current turmoil in the financial markets has nothing to do with a
lack of liquidity. More importantly, there is little hope that any liquidity the Fed would inject into the banking system would actually get to the
sectors of the market where only sporadic, fire-sale pricing of securities is taking place. ...subprime lending is just 9% of the $10.4 trillion dollar
mortgage market, and delinquencies are running at about 18%. ...Even though many, including Alan Greenspan, continue to argue that the excessively easy monetary policy of 2001-2004 was necessary, it was
this policy stance that caused the problems we face today. The current financial market stress is a result of absurdly low interest rates in the
past, not high interest rates today. In fact, current interest rates are still low on both a nominal and real basis. Cutting them again causes a
further misallocation of resources, and makes the Fed an enabler of the highly leveraged. ...Providing enough liquidity to allow markets to
function, while keeping consumer prices as stable as possible, is the best the Fed can do. It should be all we really ask.
Wednesday, August 22, 2007 ~ 9:24 a.m., Dan Mitchell Wrote: In Bulgaria, flat taxes are no longer the exclusive domain of free market dreamers. Fresh from introducing a flat 10 percent tax on
corporate profits, Bulgaria's socialist-led coalition government now wants to do the same for personal income. Besides switching to a flat tax, the Bulgarian government also wants to cut social insurance
contributions by 3 percent... The Czech Republic is launching major economic reforms to try and get its deficit under control. Part of its reform package includes a flat tax. ...Coalition leaders agreed to adopt
a 15 percent personal income tax last week. The rate would drop further to 12.5 percent in 2009. The income tax currently maxes out at 32 percent. The government also wants to decrease the corporate tax
rate to 21 percent in 2008 and down to 19 percent by 2010. A vote on the reform package is expected in the next week.
Tuesday, August 21, 2007 ~ 10:15 p.m., Dan Mitchell Wrote: Despite dire predictions from the National Hurricane Center, no hurricanes hit the U.S. last year. ...private weather forecasting
companies predicted the threat to New Orleans well before the National Weather Service. In fact, AccuWeather issued a forecast that the hurricane would hit New Orleans 12 hours earlier than the government
service. ...It is not just for hurricanes that private forecasting comes out on top. A new study by Forecast Watch, a company that keeps track of
past forecasts, found that from Oct. 1, 2006, through June 30, 2007, the government's National Weather Service did very poorly in predicting the probability of rain or snow. Comparing the National Weather
Service to The Weather Channel, CustomWeather, and DTN Meteorlogix, Forecast Watch found that the government's next-day forecast had a 21 percent greater error rate between predicted
probability of precipitation and the rate that precipitation actually occurred. In looking at predicting snow fall from December 2006 through February 2007, the National Weather Service's average error
was 24 percent greater. "All private forecasting companies did much better than the National Weather Service," the report concludes.
Tuesday, August 21, 2007 ~ 7:53 p.m., Dan Mitchell Wrote: A Conservative government should abolish inheritance tax because it penalises too many middle-income families, a policy group recommends.
...Led by former Cabinet minister John Redwood, the Competitive Challenge working group says the government has introduced many "stealth taxes" since Labour came to power 10 years ago. ...Mr
Redwood told BBC Radio 4's Today programme his proposals would not require cuts in public services because they would help the economy grow. ..."Any reductions in specific taxes will have to be balanced by
tax increases elsewhere, most notably green taxes," [Shadow Chancellor George Osborne] added. A bitter war of words has broken out over Tory proposals for £21 billion in targeted tax cuts. Labour warned that the plans, put forward
by former Cabinet minister John Redwood, would require "crippling" increases in fuel duty and other charges for homeowners, businesses, holidaymakers and motorists.
Tuesday, August 21, 2007 ~ 6:22 p.m., Dan Mitchell Wrote: .... federal tax breaks designed to spur rebuilding are flowing hundreds of miles inland to investors who are buying up luxury condos near the
University of Alabama's football stadium. About 10 condominium projects are going up in and around Tuscaloosa, and builders are asking up to $1 million for units with granite countertops, king-size
bathtubs and 'Bama decor, including crimson couches and Bear Bryant wall art. ...And they intend to take full advantage of the generous tax benefits available to investors under the Gulf Opportunity Zone Act of
2005, or GO Zone, according to Associated Press interviews with buyers and real estate officials. ...The GO Zone was drawn to include the Tuscaloosa area even though it is about 200 miles from the coast
and got only heavy rain and scattered wind damage from Katrina. ...The GO Zone investor tax breaks are credited with contributing to the condo boom in Tuscaloosa.
Monday, August 20, 2007 ~ 6:16 p.m., Dan Mitchell Wrote: Our current subprime-lending crisis seems to have initiated the latest credit-tightening drive. Is it a coincidence that both of these tightening
periods in the credit cycle were set off by mortgage lending issues? I posit no, and lay the blame at the feet of Fannie Mae and Freddie Mac (and their congressional cronies), whose unchecked growth into second
mortgages, subprime loans and many other assets -- not to mention their continued creep into the upper echelons of the home-mortgage industry through their current lending limit of $417,000 -- has pushed
other mortgage-market participants further out on the risk spectrum in search of a livelihood. ...Fannie Mae recently petitioned Congress to
increase its approved lending limit so that it can "better help the market during this period of distress." Not only should this offer be summarily
rejected, these entities also need to be shrunk considerably and through proper regulation be returned to serving their original purpose. ...In the
free market, those that made bad credit decisions must be allowed to pay the price, and only by paying dearly can lessons truly be learned. Borrowers who were unwitting and took on too much debt must learn
that there are consequences for their actions. Homebuilders that built too many homes or overpaid for land need to face the consequences.
Wall Street firms that provided credit to all of these activities with too much laxity must also pay a price. This is all part of a healthy correction. When you go beyond the demagoguery and look at the economics, it is clear the mortgage market is correcting itself and that a government
bailout would only make matters worse. ...The real threat to the economy is not the foreclosure rate, but that government will overreact, especially if the motives are driven by impulsive populist politics.
Chances are, by the time hearings are held and legislation is passed, the market correction will be over. Unfortunately the new regulations would be permanent. A short-term market correction could lead to
long-term anti-competitive regulations and slower economic growth. ...It is not the proper place for government to bail out lenders who made wrong bets or homeowners who made investments they could not maintain.
Monday, August 20, 2007 ~ 5:00 p.m., Dan Mitchell Wrote: The tax code needs major reform to become fairer, simpler, and more efficient. The Fair Tax is one instantiation of those goals, but its
political impracticality makes it fatally flawed. If conservatives force a choice between a Fair Tax and no tax reform at all, the latter is what
they are likely to get. ...The great, undeniably attractive selling point of the Fair Tax is that it would allow the country to dispense with the IRS.
But the sad truth is that if the federal government is going to collect as much money as it currently does-which the Fair Taxers say their system
would-its methods of tax collection will inevitably be intrusive. ...every country that has ever tried to impose retail sales taxes this high has quickly moved to a Value Added Tax levied at every stage of
production. Consumers rarely see or keep track of these taxes, and they seem to be fairly easy for governments to raise. ...A candidate who ran
on the national sales tax would be able to run on nothing else. He would have to spend all of his time defending the idea. Off the top of our heads, we can think of three devastating lines of attack an opponent
could use in television ads. One ad could argue that getting rid of the mortgage deduction would send home prices into free fall (something that voters are going to find especially worrisome now). Another could
ask why senior citizens, having paid taxes all their lives as they made income, should have to spend their retirements paying taxes on everything they use that money to buy. A third could simply ask voters if
they look forward to paying a brand new tax. ... There are answers to each attack. But no Republican candidate, especially in the daunting environment of 2008, is going to want to have to make them.
Republicans cannot win a national election without the tax issue. If they ran on the national sales tax, Republicans would be taking one of their natural strengths and making it into a liability.
Sunday, August 19, 2007 ~ 7:47 p.m., Dan Mitchell Wrote: James Oberstar, the Minnesota Democrat who runs the House Transportation and Infrastructure Committee, recently stood beside the
wreckage and recommended an increase in the 18.4-cent-a-gallon federal gas tax, as a way to prevent future bridge collapses. His wing man, Alaska Republican and former Transportation Chairman Don
Young, agrees wholeheartedly. As it happens, these are the same men who played the lead role in the $286 billion 2005 federal highway bill. That's the bill that diverted billions of dollars of gas tax money away
from urgent road and bridge projects toward Member earmarks for bike paths, nature trails and inefficient urban transit systems. ...As recently as July 25, Mr. Oberstar sent out a press release boasting that
he had "secured more than $12 million in funding" for his state in a recent federal transportation and housing bill. But $10 million of that
was dedicated to a commuter rail line, $250,000 for the "Isanti Bike/Walk Trail," $200,000 to bus services in Duluth, and $150,000 for
the Mesabi Academy of Kidspeace in Buhl. None of it went for bridge repair. Minnesota's state budget is also hardly short of tax revenue. The
state spends $25 billion a year, twice what it did 10 years ago. The Tax Foundation reports that Minnesota has the seventh highest personal
income tax rates among all states, the third highest corporate tax rates, and the 10th highest taxes on workers. The Legislature started the year
with a record $2 billion budget surplus, and the economy threw off another $149 million of unexpected revenue. Where did all that money go? Not to roads and bridges. The Taxpayers League of Minnesota says
the politicians chose to pour those tax dollars into more spending for health care, art centers, sports stadiums and welfare benefits. Even transportation dollars aren't scarce. Minnesota spends $1.6 billion a
year on transportation--enough to build a new bridge over the Mississippi River every four months. But nearly $1 billion of that has been diverted from road and bridge repair to the state's light rail
network that has a negligible impact on traffic congestion. Last year part of a sales tax revenue stream that is supposed to be dedicated for road and bridge construction was re-routed to mass transit.
Sunday, August 19, 2007 ~ 5:14 p.m., Dan Mitchell Wrote: A small South Carolina parts supplier collected about $20.5 million over six years from the Pentagon for fraudulent shipping costs,
including $998,798 for sending two 19-cent washers to an Army base in Texas, U.S. officials said. The company also billed and was paid $455,009 to ship three machine screws costing $1.31 each to Marines in
Habbaniyah, Iraq, and $293,451 to ship an 89-cent split washer to Patrick Air Force Base in Cape Canaveral, Florida, Pentagon records show. ...The scheme unraveled in September after a purchasing agent
noticed a bill for shipping two more 19-cent washers: $969,000. That order was rejected and a review turned up the $998,798 payment earlier that month for shipping two 19-cent washers to Fort Bliss,
Texas, Stroot said.
Saturday, August 18, 2007 ~ 8:18 p.m., Dan Mitchell Wrote: Portland's public transit has done nothing to relieve the region's growing congestion; its high cost has sparked a taxpayer revolt; the developments
along the rail lines were themselves heavily subsidized; and those subsidies led a crafty cabal of ex-politicians and developers to milk the system for their
own gain. How do Portland-area residents feel about local light-rail projects? They voted against raising taxes to build more light-rail in 1998. In 2002,
they voted against a ballot measure increasing neighborhood densities -- as transit-oriented developments do. In 2004, they supported a property-rights measure that challenged the very foundations of
Oregon's land-use planning system. Planners have ignored all these votes and are building light rail with tax-increment financing and other
hidden tax increases. … since Portland began building rail transit in the 1980s, transit's market share of commuting has actually declined from
9.8 percent to 7.6 percent, mainly because the high cost of rail in a few corridors forced the transit agency to reduce bus service in some parts of the region and prevented improvements in others. Remember last
year's high gas prices that led some transit agencies to record 15 to 20 percent gains in ridership? Oregon had some of the highest gas prices in
the nation, yet Portland transit ridership only grew by 0.1 percent. So much for Portland being "the city that loves transit." Light rail and
streetcars may be cute, but they are S-L-O-W. Portland's fastest light-rail line averages 22 miles per hour. Portland's streetcar goes about 7 miles per hour.
Friday, August 17, 2007 ~ 2:53 p.m., Eugene Slaven Wrote: But the financial disorder this August has brought few public appearances and only general reassurances on economic fundamentals
from Mr. Paulson, who has left it to the Federal Reserve to act. There has been no talk of bailouts, policy changes, new federal regulations or other Treasury actions to stem the contagion in global markets…"I
don't believe that more regulation of private pools of capital, or more regulations or laws in general, would insulate investors from losses or would be effective," Mr. Paulson said in an interview with The New
York Times on Thursday. …"The markets are resilient. They can absorb those losses. We've gone through challenging times in the markets, and we will rise to the challenge."…The market instability is nonetheless
certain to prompt debate in Washington over whether the Bush administration has been right to resist more regulation of American capital markets, on the ground that regulations have made them less
competitive with those in Europe… Mr. Paulson said that, in principle, he also believed that regulators should try to eliminate fraud and market manipulation. He also said that it was inadvisable for them to
try to eliminate risk in the economy, or for the government to bail out institutions that took unwise risks, unless the system itself were in peril…"The genius of our system is that it recognizes that if you're
going to give entrepreneurs and investors the chance to succeed and reap the benefits of their risk-taking, they also need the freedom to fail," he said.
Friday, August 17, 2007 ~ 1:42 p.m., Dan Mitchell Wrote: Friends of Manchester broadcaster Anthony Wilson are helping pay for his £3,500-a-month kidney cancer treatment after the NHS refused to
fund it. …He was turned down by the NHS, while patients being treated alongside him at The Christie Hospital and living just a few miles away
in Cheshire are receiving funding for the therapy. … "I've never paid for private healthcare because I'm a socialist. Now I find you can get
tummy tucks and cosmetic surgery on the NHS but not the drugs I need to stay alive. It is a scandal."
Friday, August 17, 2007 ~ 10:16 a.m., Dan Mitchell Wrote: From 1999 through 2005, the USDA "paid $1.1 billion in farm payments in the names of 172,801 deceased individuals. ... 40 percent
went to those who had been dead for three or more years, and 19 percent to those dead for seven or more years." One dead farmer got more than $400,000 during those years. … Defending the USDA, the
GAO adds, "The complex nature of some farming operations -- such as entities embedded within other entities -- can make it difficult for USDA
to avoid making payments to deceased individuals." Exactly. The agricultural section of the U.S. code is nearly 1,800 pages. There's an
easy way to avoid such absurdities: Abolish all farm subsidies. Why are taxpayers forced to pay farmers $25 billion a year? …most crops are
not subsidized. Yet we have no shortages of fruits, vegetables, livestock and poultry. America has plenty of peaches, plums, peas, green beans, etc., and farmers who grow those crops do fine. What makes wheat,
cotton, corn, soybeans and rice different? Last week, the New York Times reported that dairy farmers in New Zealand get along perfectly well without subsidies: "[E]ver since a liberal but free-market
government swept to power in 1984 and essentially canceled handouts to farmers -- something that just about every other government in an advanced industrial nation has considered both politically and
economically impossible. ... [O]utput has soared." … The farm program is repulsive welfare for the rich. The average farmer earns much more than the average American. And even rich nonfarmers have received
subsidies -- among them the late Ken Lay of Enron; Ted Turner, founder of CNN; my ABC colleague Sam Donaldson; and banker David Rockefeller.
Thursday, August 16, 2007 ~ 4:38 p.m., Dan Mitchell Wrote: The Alliance began pushing for access to investigational drugs for terminal patients after its founding in mid-2001 upon the death of
Abigail Burroughs, who was denied an investigational drug (Erbitux) that an early trial showed might have helped her. She and her doctor were right, but she never got the drug. Over the past five years, the
Alliance has pushed for access to 12 exceptionally promising investigational cancer drugs which have subsequently been approved by the FDA and now represent standard care. At the time we began our
advocacy, each of the drugs had cleared at least preliminary Phase 1 testing, and in some cases more-advanced Phase 2 or Phase 3 trials. In other words, they obviously worked for some patients. ...In sum, these
12 drugs -- had they been available to people denied entry to clinical trials -- might have helped more than one million mothers, fathers, sons
and daughters live longer, better lives. We have actually underestimated the number of "life-years" lost at more than 520,000, because we have
not included other safe and effective uses of these drugs that the FDA has yet to approve. ...The American Cancer Society reports that some 550,000 cancer patients die annually, making the number of cancer
deaths from 1997 to 2005 about 4.8 million. Over that same period, the FDA reports granting individual access to an investigational drug to not more than 650 people per year for all diseases and drugs -- a
pathetic, even cruel, pittance. A few thousand more patients managed to gain access by enrolling in relatively small clinical trials or exceedingly rare expanded access programs. The other 4.7 plus million
cancer patients, not to mention millions more with other diseases, were abandoned to die, denied access to progress by their own FDA when they needed it most.
Wednesday, August 15, 2007 ~ 12:23 p.m., Dan Mitchell Wrote: Despite the apparent prosperity of American families over the past several decades and the presence of two regular incomes, American
households, on this view, are in a more precarious situation than ever before. The argument is developed in the book, "The Two Income Trap:
Why Middle Class Mothers and Fathers are Going Broke," by Harvard Law School Professor Elizabeth Warren and her daughter Amelia Tyagi. In fact, using their own numbers, it is evident that they have
overlooked the most important contributor to the purported household budget crunch -- taxes. ...In fact, for the typical 1970s family, paying 24% of its income in taxes works out to be $9,288. And for the 2000s
family, paying 33% of its income is $22,374. Although income only rose 75%, and expenditures for the mortgage, car and health insurance rose
by even less than that, the tax bill increased by $13,086 -- a whopping 140% increase. The percentage of family income dedicated to health insurance, mortgage and automobiles actually declined between the two
periods. During this period, the figures used by Ms. Warren and Ms. Tyagi indicate that annual mortgage obligations increased by $3,690, automobile obligations by $2,860 and health insurance payments by
$620 (a total increase of $7,170). Those increases are not trivial -- but they are swamped by the increase in tax obligations. ...This suggests
that the most important change in the balance sheets of middle-class households over the past three decades is a dramatically higher tax burden caused by the progressive nature of the American tax system. In
turn it follows that the most effective way of alleviating the household budget crunch would be to adopt lower and flatter tax rates that would reduce the government's take.
Wednesday, August 15, 2007 ~ 10:52 a.m., Dan Mitchell Wrote: ...it looks like Congress is planning to tax our way to energy insecurity with provisions that put American energy companies at a global
disadvantage. These bills fall short in many ways, but the most striking provision is the repeal of the foreign income tax credit, which singles
out American companies to be double-taxed. These taxes will place U.S. companies at a serious disadvantage when virtually every energy projection by every credible group indicates that by 2030 U.S. and
world energy demand will increase by 40%-50%, even as gasoline demand moderates and energy efficiency increases. ...Almost every prospective offshore area around the country (and many onshore areas
as well) have been placed out of bounds over the past 25 years. U.S. companies, denied access here, must drill overseas. But House and Senate leaders are seeking to punish U.S. oil companies with
single-industry tax increases. Here's how it works: U.S. energy companies pay income taxes to countries where they operate and earn profits. Under U.S. law they deduct those payments from U.S. income
taxes (so would you and I if we lived here but worked in Canada; so do American drill-rig crew members overseas). Both energy bills would repeal U.S. tax law provisions that allow the oil companies to take
those deductions.
Tuesday, August 14, 2007 ~ 1:57 p.m., Dan Mitchell Wrote: There is a need for an agency to establish rules to govern cross border taxation issues, and given its mandate, the United Nations (UN) is
perhaps best able to perform this role, according to the Prime Minister of Barbados, Owen Arthur. This view was expressed by Arthur during a courtesy call from UN Secretary General, Ban Ki-moon, at the
Barbados Government Headquarters on August 8. Mr Arthur said that cross border taxation issues were becoming more important, and had increased validity as countries moved towards a global economy. He
acknowledged the existence of a committee at the level of the UN, but argued that its work should now be at the level of an agency.
Tuesday, August 14, 2007 ~ 12:10 p.m., Dan Mitchell Wrote: The International Monetary Fund (IMF) last week published the conclusions reached by its assessment team during the recently
completed Article IV consultation with Japan. …The Article IV report continued: "Most Directors considered that given the size of the task at
hand, additional revenue measures will be needed, including for base broadening. They indicated that revenue measures could be best identified in the context of a broad reform of the tax system that
addresses the challenges posed by Japan's aging society and globalization. Among possible measures, increasing the consumption tax has the benefit of being less detrimental to growth and equitable
across generations. Some Directors, however, viewed the authorities' focus on expenditure adjustments as broadly appropriate at this juncture." This story, which is so similar to hundreds of other reports on IMF-endorsed tax hikes, raises an interesting question: Does anybody know if the IMF has ever recommended that a country reduce its tax burden?
Monday, August 13, 2007 ~ 2:36 p.m., Dan Mitchell Wrote: Outside the world of James Bond, people with secret plans rarely brag about them in advance. …This is as you would expect: if you have a
sneaky plot, is it a good idea to boast about it? This simple analogy brings home just how odd it is that so many leading politicians have been standing up recently to declare that the European Union's big new
idea is to hoodwink the voters. Specifically, ever more bigwigs have stated that the EU's new treaty was deliberately made as unintelligible
as possible so as to make it easier to win new powers for Brussels. …last week, the other convention vice-chairman, Jean-Luc Dehaene, a former
Belgian prime minister, offered a broader conclusion. In an interview with Le Soir, Mr Dehaene declared it "dangerous talk" to want too much "transparency and clarity" in the EU. …Working by stealth is a
bad habit if you believe in good governance. Telling voters you are being stealthy to avoid consulting them is disrespectful. It is also hubristic. The Bond films offer another lesson here. Whenever the evil
genius gloats "you have interfered with my plans for the last time, Mr Bond," viewers know that a painful come-uppance is on its way. Filmgoers like hubris to be swiftly punished. EU leaders should take note. Previous Blogs: Tuesday, July 31, 2007, Cynicism, European Political Elites, and the EU Constitution/Treaty. Monday, July 16, 2007, A Perverse Burst of Honesty from Europe. Wednesday, June 27, 2007, Column in Financial Times Slams New Constitution. Friday, June 22, 2007, Harsh Criticism for the Re-Packaged EU Constitution from a British Newspaper. Thursday, June 21, 2007, Brutal and Well-Deserved Condemnation of Both the Process and Substance of the EU Constitution. Wednesday, June 20, 2007, The Dishonest Campaign for the EU Constitution.
Monday, August 13, 2007 ~ 12:41 p.m., Dan Mitchell Wrote: In his second encyclical – the most authoritative statement a pope can issue – the pontiff will denounce the use of "tax havens" and offshore
bank accounts by wealthy individuals, since this reduces tax revenues for the benefit of society as a whole. …In it the pontiff focused on "those peoples who are striving to escape from hunger, misery, endemic
diseases and ignorance and are looking for a wider share in the benefits of civilisation". He called on the West to promote an equitable world
economic system based on social justice rather than profit. …[Italian Prime Minister] Mr Prodi asked, adding: "If memory serves, St Paul exhorted the faithful to obey authority."
Sunday, August 12, 2007 ~ 3:03 p.m., Dan Mitchell Wrote: Don't hike the capital gains tax rate. Don't lower it, either. Eliminate the capital gains tax entirely. How can tax revenues be increased by
eliminating a tax? It's simple, when the tax in question is on capital gains. Capital itself exerts a multiplier effect that benefits the entire
economy. Investment in new plant, equipment, business processes and whole companies creates new and higher paying jobs, and higher levels of economic activity, all of which generate additional tax revenues far
in excess of what government would lose by foregoing cap-gains taxes. This idea has broad theoretical support. Former Clinton Treasury Secretary Lawrence H. Summers has written, "the elimination of capital
income taxation would have very substantial economic effects" which "might raise steady-state output by as much as 18%." Economist Jack
L. Treynor has shown that "the level of taxation on capital that is 'fairest' -- i.e., most beneficial -- to labor is zero." And Nobel
Prize-winning economist Robert E. Lucas, Jr., has concluded, "neither capital gains nor any of the income from capital should be taxed at all."
…While eliminating the cap-gains tax may well induce companies like Microsoft to generate additional taxable activity, there's a more important opportunity here. Eliminating the cap-gains tax will cause the
economy to generate more innovators like Microsoft.
Sunday, August 12, 2007 ~ 11:24 a.m., Dan Mitchell Wrote: The government knows what it spends on travel but not how. The General Services Administration estimates agencies spend $11 billion to
$13 billion a year on business trips, but lacks the ability to say exactly where the money goes.
Saturday, August 11, 2007 ~ 12:38 p.m., Dan Mitchell Wrote: Schip was supposed to help children from low-income families, but Democrats are now using the program to expand government control of health care and undermine private insurance. ...Schip was supposed to help the uninsured; the House plan is consciously designed to "crowd out" private coverage and replace it with federal welfare. The bill goes so far as to offer increasing "bonus payments" to states as they enroll more people in their Schip programs. To grease the way, the bill re-labels "children" as anyone under 25, and "low income" as up to 400% above the poverty level, or $82,600 for a family of four. As if this all weren't blunt enough, the House's Schip bill also includes a new tax on private insurance policies. Assessed at $375 million in its first year and increasing thereafter, this so-called "fair-share" tax will fund a new government agency... The good news here is that the House legislation is so egregious that it barely passed 225-204, and President Bush has promised to veto a major expansion of the Schip program. ...Democrats think they have a political winner in the guise of helping "children," but the House bill shows that their higher priority is expanding government. http://online.wsj.com/article/SB118662306308792513.html?mod=opinion& ojcontent=otep (subscription required)
Friday, August 10, 2007 ~ 3:10 p.m., Dan Mitchell Wrote: There has been much hew and cry about corporations moving out of the U.S., but what should be of even greater concern is that new companies
increasingly are not incorporating or going public here. The U.S. is losing global corporate market share because of both its higher tax burden and its excessive regulations (such as the Sarbanes-Oxley Act).
European Union countries now have an average corporate tax rate of less than 25 percent. Ireland is at 12½ percent, and some of the newer EU members have rates as low as 10 percent, while the U.S. corporate
rate (federal and average state) is 39 percent. ...The bizarre result of the U.S. noncompetitive tax rate is that the government gets far less
revenue than it would if it lowered the rate. ...despite this evidence of the harm caused by high U.S. corporate tax rates, the reaction by many in Congress is to increase corporate taxes even more. Treasury Secretary Henry Paulson last month noted that "special corporate tax provisions narrow the corporate tax base by roughly
25%." It suggested that "if the tax base were broadened by removing these special provisions, the top corporate tax rate of 35% could be
reduced to 27%" with little if any change in revenue collections. ...the U.S. suffers from having the second-highest corporate income tax rate,
pegged at 39%, of all 30 nations in the Organization for Economic Cooperation and Development.
Friday, August 10, 2007 ~ 2:40 p.m., Dan Mitchell Wrote: Pop quiz. Which has been most important in reducing poverty over time: a) taxes, b) economic growth, c) international trade, or d)
government regulation? We know what our readers would say. But lest you think American young people are slouching toward serfdom, you'll be pleased to know that 53% of U.S. high school seniors also answered
"b." The latest version of the National Assessment of Educational Progress (NAEP) asked this question, among others on economics, and
the results will not please members of the Socialist International, or for that matter the Senate Finance Committee. …The test also included more technical questions on price floors, opportunity cost, and the
supply curve. One question asked what would happen if government mandated a high price floor for chocolate. A plurality deftly analyzed a graph to choose the correct answer: There would be a surplus of
chocolate. Presumably the test could have asked about a minimum wage, too, and students would have arrived at a similar conclusion. Maybe Congress should make this test, or one like it, mandatory for all Members.
Friday, August 10, 2007 ~ 11:18 a.m., Dan Mitchell Wrote: As Congress weighs the biggest federal cigarette tax hike in history, a USA TODAY analysis finds that higher state taxes on smokers have
produced sharp declines in consumption. The amount of decline in smoking is directly tied to the size of the tax increase, the analysis shows. Cigarette sales fell 18% in North Carolina last year after the tax
was raised in two steps to 35 cents from a nickel. The tobacco-growing state resisted higher cigarette taxes until 2005. Elsewhere: Connecticut
has increased its tax to $1.51 from 50 cents per pack in 2002. Since then, per capita consumption of cigarettes has fallen 37%. New Jersey raised its tax to $2.40 from 80 cents in 2002. Smoking has dropped
35%. …Thomas Briant, executive director of the National Association of Tobacco Outlets, agrees that consumption will fall about 6% if a $1 federal tax is imposed but says the high tax will have negative effects.
State governments will suffer a sharp decline in revenue, and black-market sales and thefts will increase to avoid the draconian tax, he says.
Thursday, August 9, 2007 ~ 8:30 p.m., Dan Mitchell Wrote: Wisconsin's state Senate passed "Healthy Wisconsin", which will give health insurance to every person in the state. ...the plan is "openly
hostile to market incentives that contain costs" and that the "Cheesehead nation could expect to attract health-care free-riders
while losing productive workers who leave for less-taxing climes." In addition, as the Journal put it, "Wow, is 'free' health care expensive.
The plan would cost an estimated $15.2 billion, or $3 billion more than the state currently collects in all income, sales and corporate income
taxes." ...As usual, most of the new taxes will be imposed on employers. Progressives believe money taken from them doesn't cost anything.
...But taxes on business are often paid by workers, stockholders and consumers. Businesses that can't pass the taxes on to someone else will
close or move out of state. But progressives are oblivious to this fact. They see Wisconsin becoming a fairyland of health happiness supervised
by the 16-person "authority" that will oversee the plan. Socialism will work this time because the "right" people will be in charge. Does it
never occur to the progressives that the legislature's intrusion into private contracts is one reason health care and health insurance are expensive now? ...Want to buy insurance from another state, like
nearby Michigan, where an average policy costs less? Too bad. It's against the law to buy across state lines. Your state's Big Brother knows
best. ...America needs "Healthy Wisconsin." The fall of the Soviet Union deprived us of the biggest example of how socialism works. We need
laboratories of failure to demonstrate what socialism is like. All we have now is Cuba, Venezuela, North Korea, the U.S. Post Office, and state motor-vehicle departments. It's not enough. Wisconsin can show
the other 49 states what "universal" coverage is like.
Thursday, August 9, 2007 ~ 7:56 p.m., Dan Mitchell Wrote: To boost a long-suffering economy, Northern Ireland's new government wants its corporate tax rate slashed to the 12.5% levied down south in
the fast-growing Republic of Ireland. Let's hope British Prime Minister Gordon Brown seizes this opportunity to add economic dash to Ulster's newfound political stability. The idea has picked up momentum in
recent weeks. More than 50 politicians and business leaders addressed a letter in support to Sir David Varney, whom Mr. Brown appointed to review Northern Ireland's tax regime. The push for a low, island-wide
business levy surfaced before Catholics and Protestants agreed to a power-sharing deal in March. Even the socialists of Sinn Fein acknowledge that tax cuts have played a major role in Ireland's
economic success and could have the same effect in the North. Mr. Brown is said to be hesitant to allow tax differentiation within the U.K., where corporate rates are set to fall to 28% from 30% next spring. Yet
using fiscal policy to create growth, rather than continue to restrain it, would be a more effective and less expensive way of helping Northern Ireland -- and Scotland and Wales, for that matter -- than pumping
more state money into those economically laggard regions. A study last year by the Center for Economics and Business Research found that public spending accounted for more than half of Scotland's GDP, nearly
two-thirds of Wales's and some three-quarters of Northern Ireland's. That's far above the 43% for all of Britain, and money wasted by Westminster.
Wednesday, August 8, 2007 ~ 2:14 p.m., Dan Mitchell Wrote: Chief among Sarkozy's reforms are measures creating more exemptions to France's wealth tax, which has often been cited as a key reason why
France lags behind its competitors in terms of investment and economic growth, and a 50% cap on individual income tax, down from 60%. The reforms would also cut tax on overtime - encouraging more French
workers to work beyond the previously politically sacred 35 hour week, part of plans to make the domestic labour market more flexible and business-friendly - and tax cuts on mortgage interest payments. …It is
hoped that Sarkozy's tax and economic reforms will tempt back the hundreds of thousands of French citizens who have left the country seeking less punitive tax regimes. Popular destinations for the estimated
500,000 French tax exiles include Belgium, Switzerland, the UK and the US. …studies show that it is not just the rich and famous who have seemingly grown weary with France's high taxes, with families and
investors fleeing in increasing numbers. Research by French Senator Philippe Marini, cited by Bloomberg, claims that households fleeing the fortune tax have climbed to a record 649 in 2005 from 370 in 1997.
Another study by the Economic Analysis Council concluded that approximately 10,000 business directors have fled France in the past 15 years, taking as much as US$137 billion in capital to invest elsewhere.
Wednesday, August 8, 2007 ~ 2:00 p.m., Dan Mitchell Wrote: Some people claim that the problem is how much money it would take to properly maintain bridges, highways, dams and other infrastructure.
But money is found for other things, including things far less urgent and some things that are even counterproductive. The real problem is that
the political incentives are to spend the taxpayers' money on things that will enhance politicians' chances of getting re-elected. …When money is
spent building a new community center, a golf course, or anything that will be newsworthy, there will be ribbon-cutting ceremonies and the politicians who cut the ribbons can expect to see their pictures in the
newspapers and on TV. All that keeps their name before the public in a positive role and therefore enhances their prospects of being re-elected. But there are no ribbon-cutting ceremonies when bridges are being
repaired or pot-holes are being filled in. These latter activities may be more valuable than a community center or a golf course, but they are
not nearly as photogenic. …While most bridges in the United States are owned and operated by government agencies, there are times and places where bridges have been owned and operated by private
companies, just as numerous other goods and services are provided through the marketplace.
Wednesday, August 8, 2007 ~ 12:50 p.m., Dan Mitchell Wrote: State investment companies are all the rage these days; the logic being that bureaucrats can make better investment decisions than private
actors. For a short-term litmus test of that idea look no further than Singapore and China. Singapore's Temasek Holdings, an investment firm 100% owned by the city-state's Ministry of Finance, reported
Thursday a 29% fall in group net profit for the fiscal year ending March. The decline was attributed to "lower divestment gains" and an
undisclosed "impairment charge" taken for Temasek's investment in Thailand's Shin Corp., a controversial deal that Bangkok's military
government is investigating. These results come in a bull market where many of the countries in which Temasek invests saw double-digit returns. ...China's new state-owned investment company isn't doing
much better. Before it was formally incorporated, the yet-to-be-named government investment company spent $3 billion to buy a small stake in
Blackstone, a U.S. private equity firm. The investment criteria weren't disclosed, nor was it clear who ultimately sanctioned the investment decision for the Chinese government. Since Beijing bought Blackstone
at $31 a share in May, the stock has sagged to $24.39. You do the math. In both cases, the ultimate shareholders of these fund -- Chinese and Singaporean taxpayers -- have very little say over where, why and how
their money is invested. Temasek's management at least tries to provide some guidance, but this, too can be muddled. For example, Temasek often notes that it doesn't participate in the management in the
companies in which it invests. Which begs the question: How does it add value?
Tuesday, August 7, 2007 ~ 11:00 a.m., Dan Mitchell Wrote: ...the first time the federal government taxed capital gains at all was during the Civil War, when a short-lived income tax was in effect. After
the war a case came before the Supreme Court, Gray v. Darlington (1872), in which it was argued that capital gains were not income. The Court concluded that the sale of some bonds for more than their
purchase price did not constitute taxable income because the interest was the income and it was taxed. Said the Court, "The mere fact that
property has advanced in value between the date of its acquisition and sale does not authorize the imposition of the tax on the amount of the advance. Mere advance in value in no sense constitutes the gains,
profits, or income specified by the statute. It constitutes and can be treated merely as increase of capital." Repeal of the Civil War income
tax essentially made this case moot. And when a permanent federal income tax was instituted in 1913, the Internal Revenue Service ignored Gray v. Darlington, taxing capital gains along with everything else it
could lay its hands on. When another capital gains case reached the Supreme Court, its first reaction was to uphold its earlier decision that capital gains were not income. In Lynch v. Turrish (1918), the Court
said that realizing a capital gain simply constituted an asset conversion into cash, not the creation of income that did not previously exist:
"[S]uch advance in value is not income at all, but merely increase of capital and not subject to a tax as income." ...The great economist
Irving Fisher came up with an analogy that precisely delineates the basic difference between income and capital. Think of a fruit-bearing
tree. The tree both grows and yields fruit on an annual basis. The tree is effectively a capital asset, the fruit is the income, and growth of the size
of the tree -- which will yield more fruit in the future -- is like a capital gain. The fruit can be taxed without hurting the tree or diminishing its
capital -- its ability to grow and bear more fruit in the future. But taxing a capital gain is like sawing off limbs of the tree. That diminishes its
capital value and inhibits the tree's ability to produce fruit; that is to say, future income. ...Since the 1920s, Congress has basically split the
difference by leaving unrealized gains untaxed and generally taxing realized gains at reduced rates. However, a strong case can still be made that capital gains really shouldn't be taxed at all. The right rate
for capital gains might be zero.
Tuesday, August 7, 2007 ~ 10:22 a.m., Dan Mitchell Wrote: Corporate tax rates among industrialized nations have been declining steadily since the mid 1980s. Theories of globalization, capital mobility
and tax competition have been proposed to explain these changes. Less attention has been paid to the changes in corporate tax receipts during this period and their relationship to tax rates. … strong statistical
evidence of a Laffer curve in the international corporate tax data. This conclusion remains even when significant potential outlier countries, such as Ireland, Switzerland and Norway, are excluded from the
sample. We extend her work by exploring the time variation in the revenue maximizing corporate income tax rate from 1980 to 2005. We find robust evidence that a Laffer curve has existed in the corporate tax
sphere throughout most of our sample period. It is not merely a recent phenomenon. We also find that the revenue maximizing corporate tax rate was about 34 percent in the late 1980s, and that this rate has
declined steadily to about 26 percent for the most recent period. … In addition, the shape of the curve has changed over time, becoming steeper. This suggests that the penalty for being above the peak of the
Laffer curve has increased, an observation consistent with increased capital mobility.
Tuesday, August 7, 2007 ~ 9:31 a.m., Dan Mitchell Wrote: Former senator and current Democratic presidential candidate Edwards, eager to distinguish himself from front-runners Hillary
Clinton and Barack Obama, and appeal to the class warriors in the Democratic Party's base, has proposed nearly doubling the capital gains tax from its current 15% rate up to 28% for those making $250,000 or
more. Edwards says he'll use the supposed waterfall of revenue from such a tax increase to hand out all kinds of goodies to the "Other America" he's always talking about. … in the past 26 years, every
reduction in the capital gains tax rate has been met by a corresponding spike in investment activity resulting in an increase in federal tax
revenues. On the other hand, Miller noted, "the one time the tax rate has been hiked in recent years, revenues actually declined by 44% over
the next three years." So much for Edwards' plans to pass candy out in the form of narrowly targeted tax credits. If history is any guide, the money he is counting on won't materialize as higher government
revenues, especially after a big capital gains increase hits the economy and punishes investors.
Monday, August 6, 2007 ~ 11:21 a.m., Dan Mitchell Wrote: The gathering of tax experts, business leaders and other heavy-hitters, including Alan Greenspan, former chairman of the Federal Reserve,
agreed with Mr Paulson that Uncle Sam was "undermining the competitiveness of American workers" with high corporate tax rates. ...America's competitiveness problem has been a constant theme of Mr
Paulson's time at the Treasury, which he joined a year ago after running Goldman Sachs. As well as taxes, he is worried that America's capital markets are struggling to hold their own against resurgent
financial centres such as London and Hong Kong. ...countries from Ireland (with a rate of 13%) to China—which recently passed a law cutting the rate to 25%—have continued to lower corporate taxes,
American rates have edged back up, to 35%, in 1993. Adding state taxes to federal ones gives an overall rate of 39%. That is the second highest in the OECD... Companies can avoid this double taxation either
by setting themselves up as partnerships, or by becoming an "S corporation", a unique creation of America's tax code which gives a business limited liability without incorporating. An S corporation's
profits are taxed just once, as the income of its shareholders. The number of these entities has soared in recent years, and they now account for about half of the income earned by American businesses.
This is business voting with its feet on a grand scale—but many of America's largest and most internationally mobile firms are unable to become S corporations, which have tight rules, not least being limited to
a handful of shareholders.
Monday, August 6, 2007 ~ 9:20 a.m., Dan Mitchell Wrote: Here's a suggestion: Many government departments, agencies and offices should be closed for good. ...In 1800, the government needed a
mere 3,000 employees and $1 million a year to do its job. In those days, lawmakers knew well the meaning of "limited." Today, federal civilian
employees number nearly 2 million. Another 10 million or more are federal contractors or grant recipients. The yearly budget of this runaway train is soaring toward $3 trillion. ...Start with the Education
Department, created in 1979 by the Carter administration despite the fact there is no constitutional authorization for its existence. In addition
to its meddling, the department is spending nearly $70 billion a year in taxpayers' dollars. By all accounts, public education in this country is
worse off than it was when the Education Department opened. It's hard to make an argument that those 5,000 employees are contributing anything. Next on the block should be the Energy Department, another
monster wrought by Jimmy Carter, this one in 1977. There's no real job this department... Like food, shelter and clothing, energy is a commodity that can and should be traded on an open market. There is
no need to make a federal case out of it, particularly one that employees 17,000 people. All Cabinet-level departments — even Defense, which
could cut waste — should at least have their budgets drained of excess. On a smaller scale, the National Endowment for the Arts and the National Endowment for the Humanities should go. Funding for the
Corporation for Public Broadcasting should be zeroed out.
Monday, August 6, 2007 ~ 9:06 a.m., Dan Mitchell Wrote: Back in the hot summer of 1990, Senate Majority Leader George Mitchell proudly engineered the infamous "luxury tax," a nasty little
tithe on everything from furs to jewelry to yachts. Democrats were proud: Not only were they throwing new dollars at the Treasury, they'd done it by socking it to the rich. The wealthy, in the words of
then-House Majority Leader Dick Gephardt, would finally pay "their fair share." Within a year, Mr. Mitchell was back in the Senate passionately demanding an end to the same dreaded luxury tax. The
levy had devastated his home state of Maine's boat-building business, throwing yard workers, managers and salesmen out of jobs. The luxury tax was repealed by 1993... Tax hikes are flying out of House and
Senate committees, though what they all share in common is that each is laser-targeted on some rich or disreputable industry. The carried-interest tax would soak greedy hedge-fund managers. The
"Blackstone tax" would hit wealthy private equity partnerships. A new farm-bill tax would siphon dollars from the U.S. subsidiaries of big
foreign corporations. A repeal of a domestic deduction would suck money out of dirty oil companies. The tobacco tax needs no explanation. ...Their problem is that, at least for now, a substantial
number of their own party doesn't see what they mean. And it's why, despite months of hearings and wrangling and arm-twisting, few of these tax proposals have seen the legislative light of day. For every
liberal who fondly recalls Mr. Mitchell's initial demagoguery of the rich, it seems there's another Democrat who remembers Mr. Mitchell's tattered, lifeless boat industry. Many understand that taxes on the
"rich" have a way of spreading their pain around to everyone, and they don't want their own district to be next. ...This isn't to suggest some of
these bad taxes won't go through; they will. But it's encouraging to know that, even amid this latest round of Democratic class-warfarism, the party harbors a minority who understands that taxes do have
economic consequences. You can almost hear the ghost of the luxury tax past rasping away in the background.
Sunday, August 5, 2007 ~ 2:22 p.m., Dan Mitchell Wrote: Historical trends suggest that countries do not set their tax rates independently. The top statutory corporate tax rate has declined
significantly for most OECD and non-OECD countries since the early 1980s... the median tax rate among the OECD economies declined from about 50 percent in 1982 to 34 percent by 2003. ...While a part of this
may be driven by international tax competition, it could also partially be attributed to their potential realization that lower tax rates have resulted in higher levels of investment, higher wages and employment
for their labor force and higher GDP growth. Our results suggest the presence of both 'strategic' factors i.e. lowering tax rates in response to
other countries and 'learning' factors i.e. a country's realization from its own experience that lower corporate taxes are beneficial for investment, wages and economic growth. ...a 10 percent decrease in the
neighbor's corporate tax rate leads to a 4.6 percent decrease in a country's corporate tax rate. ...Our results suggest that more open economies are less likely to raise rates, or more likely to have lower
rates. ...Countries with some experience of lowering rates, especially those that experienced economic growth subsequent to the tax reform are significantly less likely to have high rates of corporate taxes.
...Greater levels of openness as captured by higher trade to GDP ratios and more capital mobility imply that countries are more likely to lower
rates. This is especially true when capital is freely mobile since the mobility of capital leads to greater competition among countries. Capital flows from high tax to low tax jurisdictions.
Sunday, August 5, 2007 ~ 12:40 p.m., Dan Mitchell Wrote: One of the kings of doling out freebies at the Capitol isn't some smooth-talking lobbyist for the utilities, doctors, developers or drug
companies. It's a bespectacled, unassuming guy who works for Georgia's taxpayer-supported universities. Over the past 2 1/2 years, Tom Daniel, senior vice chancellor for external affairs with the
University System of Georgia, has reported spending about $139,000 on lawmakers, according to documents filed with the State Ethics Commission. Daniel was far and away the top spender among lobbyists
in 2006 and was third biggest spender during the 2007 session, records show. He stands a good chance of regaining his top status during the second half of the year, when the system typically hands out thousands
of dollars in football tickets to University of Georgia and Georgia Tech games. ...some of it went for meals with groups of lawmakers, including House Appropriations Chairman Ben Harbin (R-Evans) and his Senate
counterpart, Jack Hill (R-Reidsville), two men who play a major role in writing the budget. System lobbyists also gave out basketball tickets to
lawmakers. ...Some of the most important schmoozing is yet to come. Last year, the system doled out almost $14,000 in football tickets, according to Daniel's disclosures. One of the top recipients was House
Higher Education Chairman Bill Hembree (R-Winston). Disclosures show Hembree received about $1,300 in tickets during the football season. He got tickets for five Georgia Tech games as well as the
UGA-Tech game and the Chick-fil-A Bowl.
Sunday, August 5, 2007 ~ 7:55 a.m., Dan Mitchell Wrote: Sen. Hillary Clinton says she wants to establish a national academy that will train public servants. Why do re-education camps come to mind? …
Somehow we doubt there will be many lectures in making government smaller, deregulating business, cutting taxes or increasing individual
freedom. Is there a chance that this "new generation" attending the academy will hear a single voice that isn't hailing the glories of the
nanny state? Will students being groomed for public service ever hear the names Hayek, von Mises or Friedman during their studies? … Government at all levels is already overflowing with bureaucrats who
suck up taxpayers' money and produce little, if anything, of economic value. More often, the bureaucracy actually gets in the way of economic progress.
Saturday, August 4, 2007 ~ 8:18 p.m., Dan Mitchell Wrote: Thou shalt not steal -- from the state. That's the message Italy's prime minister wants Catholic priests to preach from their pulpits to help him
stamp out rampant tax evasion robbing the state of sorely needed cash. "A third of Italians heavily evade taxes," Romano Prodi lamented in an
interview with Italy's prominent Catholic magazine… One Catholic leader said that while the Church strongly encouraged citizens to pay taxes, Italy's government also needed to prove to taxpayers that their
money was being well spent if it wanted more cooperation.
Friday, August 3, 2007 ~ 2:17 p.m., Dan Mitchell Wrote: Karl Marx might be shocked to see who's doing what with tax systems in Central and Eastern Europe these days. After all, it's the capitalist
West that won't abandon progressive tax systems, which Marx championed in The Communist Manifesto, while the former Soviet bloc countries are lining up to buck their old ideological fountainhead by
moving to a…single tax rate for nearly all earners, regardless of income. Nowhere has this flat tax caught on more swiftly than in Central and Eastern Europe, where nine of world's 13 countries to have
adopted the system are located. It's a reform movement that started in 1994 with Estonia, gained momentum when Russia saw a 25-percent increase in state revenue from personal income tax after implementing
a 13-percent flat tax in 2001, and culminated with Slovakia's much-lauded adoption of a single 19-percent rate on income, corporate, and valued added tax three years later. … Few, if any, of the reforms in
Central and Eastern Europe meet the definition of a true flat tax because they include deductions, exemptions, and other exceptions. … Several Western European leaders complain that the lower tax
rates…give the newer European Union states an unfair advantage in attracting business.
Friday, August 3, 2007 ~ 10:51 a.m., Dan Mitchell Wrote: Japanese Prime Minister Shinzo Abe's plans for fiscal and tax reform have been dealt a blow after the opposition Democratic Party, which
opposes a hike in consumption tax, won a substantial majority in Upper House parliamentary elections on Sunday. While the Democrat Party's victory does not give it control over the government, analysts expect
their influence in the upper house to raise a barrier to an early rise in consumption tax - thought to be central to the ruling Liberal Democrat's plans to raise the revenue it needs to meet growing
spending requirements and balance the budget. It was thought the government would legislate to increase the tax in 2008, with the hike going into effect in 2009, but this is now an increasingly distant
prospect. ... However, despite the electoral setback, Abe resolved to forge ahead with fiscal reforms.
Thursday, August 2, 2007 ~ 3:33 p.m., Dan Mitchell Wrote: Nicolas Sarkozy is rolling out the welcome mat for thousands of rich French people who fled one of Europe's most onerous tax regimes. Few
may heed his call. In his first economic act as president, Sarkozy is pushing a tax law to lure back exiles such as rock star Johnny Hallyday, 64, and members of the Mulliez clan, who control the French retailer
Groupe Auchan SA. The measure will increase exemptions on the ``fortune'' tax -- the bete noire of rich expatriates -- and cap the total individual tax rate at 50 percent of income. Sarkozy, 52, needs these
wealth-creators to help rekindle an economy that's lagging behind its neighbors and to sustain future growth. … ``In France, to earn a lot of
money is to be seen as a little bit criminal,'' says author Anne-Marie Mitterrand, who moved to Belgium in 1997. … ``The Right to Laziness,'' a 19th century book by Paul Lafargue, Karl Marx's son-in-law, advised
against working more than three hours a day. And French author Honore de Balzac famously said, ``Behind every great fortune lies a crime.'' This prejudice drove French citizens to Switzerland, Belgium,
the U.K. and the U.S., where at least 500,000 of them reside, either to make more or keep more of what they have. London and the U.S. are preferred refuges for younger people. Switzerland, with about 200,000
French residents, attracts the retired and stars like Hallyday. … Households fleeing the fortune tax climbed to a record 649 in 2005 from 370 in 1997, according to a study by French Senator Philippe
Marini. Another study by the Economic Analysis Council, which advises the government, says about 10,000 business directors fled in the last 15
years, taking 70 billion to 100 billion euros ($137 billion) in capital to invest elsewhere. … Francois Micheloud, a Lausanne lawyer who helps
clients settle in Switzerland, says he doubts French exiles will return anytime soon because they distrust government tax policies.
Thursday, August 2, 2007 ~ 2:17 p.m., Dan Mitchell Wrote: Bulgaria plans to introduce a 10 percent flat tax on personal income in 2008, the government announced Tuesday. The plan is part of a wider
reform agenda which also includes reforms of the social insurance and pension systems. ..."The introduction of the flat tax is expected to
generate bigger financial resources for the budget and "bring to light" the incomes," Prime Minister Sergei Stanishev said. Currently, the tax
rate ranges from 20 to 24 percent, depending on the income. ...Last year, EU newcomer Bulgaria lowered its corporate tax by five points to 10 percent, in a bid to improve the business environment and attract
more foreign investment. The government is scheduled to introduce the tax reform, together with a reform of the welfare system, in parliament by the end of September. Stanishev said that the proposed reforms
would pass smoothly through parliament where his social-liberal coalition government has a comfortable majority. The ruling coalition's decision at the weekend to introduce a flat tax of 10% starting next year came out of the blue, with precious little
previous debate on the issue. The Socialists talked about it last month, albeit half-heartedly, and the "yuppie lobby" in the ex-king's party has
lent its voice in favour of the measure, but that's about it. Economists have long debated the benefits and drawbacks of the flat tax, as well as the multitude of economic and social implications. Certainly, the
measure has a fair number of supporters and detractors, but even the staunchest advocate of flat tax will agree that it is not a magic wand
that will solve all the problems in an economy. If properly applied, flat tax could go a long way to achieve that goal, but no matter how low
you push the taxation rate, it will not attract too many new investors if it is not coupled with measures to fight corruption.
Wednesday, August 1, 2007 ~ 3:03 p.m., Dan Mitchell Wrote: Under current law, individual partners in an investment partnership such as a hedge fund or private equity fund are taxed based on what the
underlying partnership income is; if the income comes from a capital gain, it is taxed at the capital gains rate. Ordinary income is taxed at ordinary income tax rates. This tax treatment is consistent with the
rationale for a lower capital gains tax rate -- to alleviate the double taxation of corporate-source income and to encourage risk taking, entrepreneurship and capital formation. The legislation Congress is
considering ends those protections, saying in effect that it doesn't matter if the income is a clear-cut capital gain, such as proceeds from
the sale of corporate stock. What matters is who receives the income, in this case politically unpopular rich guys. All investors should be on notice that if the capital gains tax is considered a loophole for
investment partnerships, it can't be long before the capital gains tax is raised for everyone else. Some leading Democrats, including Oregon Sen. Ron Wyden and presidential candidate John Edwards, are already
calling to do just that.
Wednesday, August 1, 2007 ~ 2:22 p.m., Dan Mitchell Wrote: A 108-year-old woman has been told she must wait at least 18 months before she receives a new hearing aid. ...Mrs Beal, a former piano
teacher who was involved in the suffragette movement, would be 110 by the time she gets her new hearing aid. "I could be dead by then," she
said yesterday. ... A spokesman for the Royal National Institute for the Deaf said: "I am afraid this is a common problem. In some parts of the
country there are over two year waiting lists, which is shocking."
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