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www.freedomandprosperity.org |
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The views expressed by Andrew Quinlan and Dan Mitchell on this weblog are solely their own and are not necessarily those of their employers, The Center for Freedom and Prosperity Foundation and The 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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Thursday, July 31, 2008 ~ 5:06 p.m., Dan Mitchell Wrote Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on
who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax
payments by the rich in American history. ...the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those
earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record
low 2.9% of all income taxes, while the top 50% paid 97.1%. ...We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is
rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the
subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long. The most amazing part of this story is the leap in the number of
Americans who declared adjusted gross income of more than $1 million from 2003 to 2006. The ranks of U.S. millionaires nearly doubled to 354,000 from 181,000 in a mere three years after the tax cuts. This is
precisely what supply-siders predicted would happen with lower tax rates on capital gains, dividends and income. ...If Mr. Obama does succeed in raising tax rates on the rich, we'd also wager that the rich share
of tax payments would fall. The last time tax rates were as high as the Senator wants them -- the Carter years -- the rich paid only 19% of all income taxes, half of the 40% share they pay today. Why? Because
they either worked less, earned less, or they found ways to shelter income from taxes so it was never reported to the IRS as income. The way to soak the rich is with low tax rates, and last week's IRS data
provide more powerful validation of that proposition.
Thursday, July 31, 2008 ~ 3:17 p.m., Dan Mitchell Wrote The idea that bringing home federal dollars is integral to a politician's job and essential to getting re-elected is a favorite of Republicans and
Democrats alike. ...There is just one problem with this theory. It is dead wrong. The Club for Growth recently conducted a nationwide poll on
government spending, and the results were exactly the opposite of what most politicians have been saying for years. ...Voters across the board have finally found something they can agree on even if their elected
officials can't: It's time to cut the fat, even if that means fewer projects for their own districts. Conducted in late June, the poll surveyed 800
voters and had a margin of error of plus or minus 3.46%. Likely voters were asked the following question: "All things being equal, for whom
would you be more likely to vote for the U.S. Congress: 1) A candidate who wants to cut overall federal spending, even if that includes cutting some money that would come to your district or 2) A candidate who
wants to increase overall spending on federal programs, as long as more federal spending and projects come to your district?" The results were
unambiguous. Fifty-four percent of general election voters chose the frugal candidate, compared with only 29% who chose the profligate candidate. Republicans overwhelming favor less federal spending, 72% to
17%, with independents close behind at 61%. Only Democrats prefer more federal spending, but only by a plurality. Thirty-six percent of Democrats chose the more fiscally conservative candidate, with 42%
choosing the alternative.
Thursday, July 31, 2008 ~ 2:22 p.m., Dan Mitchell Wrote Mr. Brown is not above using coercion to create the demographic patterns he wants. In recent months, he has threatened to file suit against
municipalities that shun high-density housing in favor of building new suburban singe-family homes, on the grounds that they will pollute the
environment. He is also backing controversial legislation -- Senate bill 375 -- moving through the state legislature that would restrict state
highway funds to communities that refuse to adopt "smart growth" development plans. "We have to get the people from the suburbs to start
coming back" to the cities, Mr. Brown told planning experts in March. The problem is, that's not what Californians want. For two generations,
residents have been moving to the suburbs. They are attracted to the prospect, although not always the reality, of good schools, low crime rates and the chance to buy a home. A 2002 Public Policy Institute of
California poll found that 80% of Californians prefer single-family homes over apartment living. ...There is also little punch behind the science used
to justify the drive to resettling the cities -- and plenty of power behind the argument that suburbs are better for Mother Earth. Several prominent scholars -- including University of Maryland atmospheric
scientist Konstanin Vinnikov, University of Georgia meterologist J. Marshall Shepard and Brookings Institution research analyst Andrea Sarzynski -- have found there is little evidence linking suburbanization to
global warming, pointing out that density itself can produce increased auto congestion and pollution. The antisuburbanites also ignore evidence
that packing people together in cities produces "heat islands." Temperatures in downtown Los Angeles sometimes reach as much as three degrees centigrade higher than outlying areas. Recent studies in
Australia have shown that multistoried housing generates higher carbon emissions than either townhomes or single-family residences because of
the energy consumed by common areas, elevators and parking structures, as well as the lack of tree cover. ...voters aren't likely to appreciate being
castigated as ecological evildoers, especially by people who generally house themselves in spacious splendor. A report by the Los Angeles
Weekly's Dave Zahniser -- entitled "Do as We Say, Not as We Do" -- found that a lot of prominent "smart growth" advocates in Los Angeles
live in large single-family homes, some of them long hikes from mass transit. Mr. Brown himself, not long ago, moved from a loft in crime-ridden downtown Oakland to a bucolic setting in the Oakland Hills.
Wednesday, July 30, 2008 ~ 4:17 p.m., Dan Mitchell Wrote Atlantic premiers may be watching as New Brunswick's Liberal government attempts to jump out ahead of the pack on taxation, but they
are not necessarily prepared to follow its act. Newfoundland and Labrador Premier Danny Williams cut taxes significantly over the past two years, and committed to keeping personal income taxes in his
province the lowest in Atlantic Canada during his last election campaign. However, Williams said he may not be willing to compete with New
Brunswick if it goes ahead with one of the two proposed options currently being studied, which would either deliver an across-the-board rate of 10
per cent or a two-rate system that would see income under $35,000 taxed at nine per cent, while anything above that amount would be taxed at 12 per cent. ...Premier Shawn Graham says other provinces are taking
notice of New Brunswick's plans to overhaul its tax system as a means of stimulating economic growth. "I have to say there was a great deal of
interest amongst my colleagues on the position paper that New Brunswick has submitted to the people of our province on how we can use the tax
system to grow a bigger pie," he said. "We looked at Alberta which has a flat tax system. We recognized today that four personal income tax rates
is restrictive to growth, that's why we suggested looking at progressive rate with two brackets, or looking at a flat tax. All options are on the
table, the bottom line is personal income tax rates will be coming down." Charles Cirtwill, of the Atlantic Institute for Market Studies, ...said tax
competition may be the best way to improve the tax climate in the entire region, and he says New Brunswick can lead the charge.
Wednesday, July 30, 2008 ~ 3:31 p.m., Dan Mitchell Wrote How did the government help create the current financial mess? Let me count the ways. In addition to federal laws that pressure lenders to lend
to people they would not otherwise lend to, and in places where they would otherwise not invest, state and local governments have in various parts of the country so severely restricted building as to lead to
skyrocketing housing prices, which in turn have led many people to resort to "creative financing" in order to buy these artificially more expensive
homes. Meanwhile, the Federal Reserve System brought interest rates down to such low levels that "creative financing" with interest-only mortgage loans enabled people to buy houses that they could not
otherwise afford. But there is no free lunch. Interest-only loans do not continue indefinitely. After a few years, such mortgage loans typically
require the borrower to begin paying back some of the principal, which means that the monthly mortgage payments will begin to rise. ...government laws and policies at federal, state and local levels have had
the net effect of putting both borrowers and lenders way out on a limb. ...government laws and policies at federal, state and local levels have had
the net effect of putting both borrowers and lenders way out on a limb. ...Markets were also blamed for the Great Depression of the 1930s and New Deal politicians were credited with getting us out of it. But
increasing numbers of economists and historians have concluded that it was government intervention which prolonged the Great Depression beyond that of other depressions where the government did nothing.
Tuesday, July 29, 2008 ~ 10:51 p.m., Dan Mitchell Wrote ...there is genuine (if incremental) "change" budding in European politics - most of it an attempt to turn back the kinds of stifling economic controls
and regulations that the presumptive Democratic nominee seems to support here at home. Obama will visit Germany, France and England this week. It just happens that those Western European nations have
turned to right-of-center coalitions to remedy corrosive welfare systems, never-ending entitlements, unchecked union power and overregulation of
industry. ...while Democrats at home are stoking populist anger over those wicked corporations - better known as your employer - Europe is learning a truism: Corporations don't pay taxes; people pay taxes. Since
1995, nearly 30 European nations have cut their corporate tax rates to spur growth. Yet, the U.S. boasts one of the highest corporate rates in the
world. (Unless, of course, you happen to be an unsuccessful corporation. Then Republicans will send you tax dollars!) In the past decade or so, 25
European nations have also turned to a low flat tax - typically around 10 to 20 percent - rather than our extensive and complicated "progressive"
taxation which penalizes success and is rife with fraud. Many of these nations have witnessed dividends in increased jobs, population and growth. Estonia's free-market model, for instance, often offers a zero
corporate tax rate to lure foreign investment and capital. Both Germany and Finland have grumbled that the small Baltic nation is stealing their jobs. While lower tax rates clearly are an important signal, a column in the Wall Street Journal explains that other free-market reforms also are being implemented in Europe. Sweden seems especially impressive, with both school choice and a partially-privatized Social Security system: ...the Europe Mr. Obama will visit is quite different from the one Americans often hear about. Over the last decade, much of Europe has
very quietly embraced market-based reforms that either draw inspiration from American successes or -- on issues like retirement security -- are
even more market-oriented than many U.S. Republicans support. ...The cutting of corporate income- tax rates is an excellent example of European market-friendly bipartisanship. Germany's right-left coalition
of Christian and Social Democrats implemented a large rate cut earlier this year, reducing the top marginal corporate rate to about 30% from 39%. Spain's Socialist and Britain's Labor governments have followed
suit, reducing their countries' top corporate rates. These traditionally left-of-center parties understand that in a globalized economy, wealth and
investment are mobile, flowing to those countries that provide hospitable investment climates. As part of a European Union where center-right governments in Greece, Denmark, Ireland and Eastern Europe have
dramatically reduced corporate tax rates, they understand that they cannot help workers if they drive away the capital that employs and pays them. Many European countries are also ahead of America when it comes
to pension reform. Mr. Obama's main solution to the looming Social Security bankruptcy is to raise taxes on the well-off. To date, he has eschewed other solutions such as raising the retirement age or creating
private Social Security accounts. But European center-left parties have no such reservations. Take Sweden, for example. In the 1990s, a series of
center-right and Social Democratic governments reached agreement on wide ranging pension reforms that include a private account option not too different than the one proposed by President George W. Bush. Under
the Swedish plan, workers can put aside up to 2.5% of their salary into one or more of nearly 800 competing private-sector accounts. Swedish
workers own these accounts and direct their investment options, earning the rewards if their investment choices increase faster than do average wages.
Monday, July 28, 2008 ~ 5:15 p.m., Dan Mitchell Wrote In one of those front-page editorials disguised as "news" stories, the New York Times blames "the lucrative lending practices" of banks and other
financial institutions for helping create the current financial crisis of millions of borrowers and of the financial system in general. It must take
either a willful determination to believe whatever they want to believe or a cynical desire to propagandize their readers for the New York Times to
call "lucrative" the lending practices that have caused many lenders to lose millions of dollars, some to lose billions and some to go bankrupt
themselves. ...it may be useful to look back at what got us into this mess in the first place. It was not that many years ago when there was moral
outrage ringing throughout the media because lenders were reluctant to lend in certain neighborhoods and because banks did not approve mortgage loan applications from blacks as often as they approved
mortgage loan applications from whites. ...The practice of not lending in some neighborhoods was demonized as "redlining" and the fact that
minority applicants were approved for mortgages only 72% of the time, while whites were approved 89%, was called "overwhelming" evidence of
discrimination by the Washington Post. ...As for racial differences in mortgage loan application approval rates, that does not tell you much if
you are comparing apples and oranges. Income, credit history and net worth are just some of the things that are very different from one group to another. More important, in the same ways that blacks differ from
whites, whites differ from Asian Americans. The fact that whites are turned down for conventional mortgage loans, and resort to subprime
loans, more often than Asian Americans do is seldom reported in "news" stories about lending practices, even though such data are readily
available. Shocking as it may be to some, lenders are in the business of making money, and they don't much care whose money it is, so long as
they get paid. ...The Community Reinvestment Act forced them to lend in places where they didn't want to send money, and where neither they nor
politicians wanted to walk. Now that this whole situation has blown up in everybody's face, the government intervention that brought on this disaster in is supposed to save the day.
Sunday, July 27, 2008 ~ 11:00 p.m., Dan Mitchell Wrote Washington is losing it. The most vivid illustration comes from the Securities and Exchange Commission, which first failed to oversee the
financial institutions under its purview -- and now wants to stop the markets from doing their part. Starting today, the SEC is clamping down on short selling, which is a way for market watchdogs to telegraph
trouble. Short sellers dig around in company balance sheets. When they come across a problem, they borrow shares in the offending company and
sell them. This pushes down the share price, alerting others to trouble. ...Despite popular myth, the strength of the American economy does not lie in boundless optimism. It lies in optimism spiked with honesty.
Optimism drives entrepreneurs to start new companies. Honesty allows venture capitalists to filter out crackpots. Economies need a balance of
boosters and skeptics to be healthy. When the boosters take over, you get frauds like Enron, farces like the dot-com bubble and tragedies like
families who can't afford their home payments. ...Wall Street is already tense; it needs gratuitous disruption like a hole in the head. Cox's unconsidered populism has forced dealers to recode complex trading
systems on virtually no notice. If the machinery misfires this week, we know whom to blame. But the really scary thing is what this promises for
later. We are a long way from the end of this financial crisis. What will Washington do next?
Saturday, July 26, 2008 ~ 1:28 p.m., Dan Mitchell Wrote Thousands of "welfare tourists" will be unable to claim Incapacity Benefit until they have worked in the UK for six months. Under current
rules, they need to work for only four weeks. ...The six-month rule will also apply to Jobseekers' Allowance. Officials are aware of growing numbers of mainly Eastern Europeans cashing in on benefits. Mr Purnell
wants to stop EU arrivals landing a spurious job for a month then going "on the sick" with a doctor's note. ...Those who refuse to look or train
for work will lose dole after three months. Junkies who fail to seek treatment will lose their entitlement. ...It is hoped to get up to 2million of the 2.7million who claim Incapacity Benefit off "the sick".
Friday, July 25, 2008 ~ 4:39 p.m., Dan Mitchell Wrote The committee hosting the Democratic National Convention has used the city's gas pumps to fill up and apparently avoided paying state and
federal fuel taxes. The practice, which began four months ago, may have ended hours after its disclosure. An aide to Mayor John Hickenlooper released a statement Tuesday evening saying that Denver 2008 Host
Committee members would pay market prices for fuel and would also be liable for all applicable taxes. However, Public Works spokeswoman Christine Downs told City Council members just hours before that host
committee members were fueling up at the city pumps. …"There's something there that just doesn't seem right to me because, in a sense,
you're saying then that the officials who pass the laws are not willing to live by them," said Councilwoman Jeanne Faatz. Hickenlooper said the
practice isn't unique to Denver. "I do know for a fact that they're doing the same exact thing in Minneapolis," Hickenlooper said, referring to the
city that along with St. Paul is hosting the Republican National Convention. But Teresa McFarland, a spokeswoman for the Minneapolis-St. Paul host committee, said its members are getting their
gas at public pumps. …The host committee, which is responsible for raising money to put on the convention, is using the city's pumps "for safety and security reasons," Lopez said.
Thursday, July 24, 2008 ~ 4:05 p.m., Dan Mitchell Wrote When travelers go to the airport, they know what kind of security to expect: luggage searches, metal detectors and shoe inspections.
…thousands of travelers have complained that some of these screenings can become abusive and even x-rated. For arguing with a TSA agent,
Robin Kassner wound up being slammed to the floor. She's filed a lawsuit. "I kept begging them over and over again get off of me ... and they
wouldn't stop," Kassner said. And it wasn't enough for another woman to show TSA agents nipple rings that set off a metal detector. The agents
forced her to take them out. …In Chicago, people like Robert Perry are subjected to exhaustive security checks. He was patted down, his wheel
chair was examined and his hands were swabbed, all in public view in a see-through room at the security checkpoint. Perry, 71, is not alone "It's
humiliation," Perry said. Perry was also taken to a see-through room by a TSA agent when his artificial knee set off the metal detector. "He yelled
at me to get the belt off. 'I told you to get the belt off.' So I took the belt off. He ran his hands down over and pulled the pants down, they went
down around my ankle," Perry said. At that point, Perry was standing in his underwear in public view. He asked to see a supervisor. That made
things worse. "She was yelling 'I have power, I have power, I have power," Perry said. …16-year old Michael Angone…frequently flies as a
member of the Chicago Children's Choir. "I've had to completely take my pants off and show them like my entire leg," Angone said. As a baby,
Angone was diagnosed with cancer. Her parents, both Chicago police officers, had to have her leg amputated. She said she always warns TSA
security agents that her prosthetic leg will set off the metal detector, but many insist on doing an embarrassing full body pat-down. "I feel like I'm being felt up in public," Angone said.
Wednesday, July 23, 2008 ~ 3:23 p.m., Dan Mitchell Wrote
Tuesday, July 22, 2008 ~ 6:00 p.m., Dan Mitchell Wrote Outspoken French President Nicolas Sarkozy was last night accused of putting his foot in it after he declared that Ireland would have to hold a
second Lisbon Treaty referendum. His reported remark that "the Irish will have to vote again" prompted a storm of criticism from within the
'Yes' and 'No' camps. ...Labour leader Eamon Gilmore said if the comments made by Mr Sarkozy in a private meeting with his UMP party were correct, then he had "seriously put his foot in it". ...On the
anti-treaty side, Sinn Fein's Aengus O Snodaigh said Mr Sarkozy's comments were "deeply insulting" to the Irish people. "In the month since
the Irish people voted overwhelmingly to reject the Lisbon Treaty we have listened to a succession of EU leaders lining up to try and bully and
coerce us into doing what they want," he said. Libertas leader Declan Ganley argued that if there was a future second referendum in Ireland, then France and the Netherlands, which voted against the European
Constitution, should also be compelled to hold a second vote. This was echoed by Labour's Joe Costello, who said the French president would be
"well-advised" to reflect on the French experience of 2005. "It is unthinkable that Ireland should be compelled to conduct a rerun of the
Lisbon Treaty after such a strong electoral turnout in the recent Referendum and the fairly significant 'No' vote," he said.
Monday, July 21, 2008 ~ 5:33 p.m., Dan Mitchell Wrote Paulson is a Republican, but as head of the Goldman Sachs investment bank he had close ties with Democratic-dominated Fannie Mae. After
prominent Democrat James A. Johnson's departure from Fannie following eight years as chairman and chief executive, and after Johnson joined the ZymoGenetics biopharmaceutical firm, he was named head of
Goldman Sachs's compensation committee, helping to set Paulson's abundant salary there. That connection was not enough for Paulson to recuse himself from dealing with the crisis threatening Fannie, Freddie
and the whole American economy. He structured the bailout and was on the phone last weekend encouraging leading investment bankers to buy Freddie Mac bonds. Financial consultant Lawrence Lindsey, President
Bush's former national economic director, told clients on Sunday, "Surely things are somewhat amiss when a country's finance minister plays bond
salesman for a supposedly privately owned company." ...Paulson is not unique in paying tardy attention to the mortgage companies. The only senior executive branch officials who expressed alarm about
overextended Fannie and Freddie were former Federal Reserve chairman Alan Greenspan and Treasury secretary Lawrence Summers, and their warnings were shrugged off. ...The powerhouse Democratic overseers of
the banking committees -- Rep. Barney Frank, Sen. Christopher Dodd and Sen. Chuck Schumer -- protected Fannie and Freddie. Tuesday's hearing was more than an hour old when Hagel became the first senator to ask
whether the well-paid officials and directors of the mortgage companies should be held accountable for the crisis. "I'm not looking for
scapegoats," Paulson replied. ...Many of Paulson's non-scapegoats have traveled a familiar path from modest net worth to sudden wealth at the
mortgage companies, especially Fannie Mae. Most have been Democrats, but token Republicans also have enjoyed the profitable ride. It is an old
story, well described in "Crony Capitalism: American Style" by financial affairs reporter Owen Ullman in the July-August 1999 issue of the
International Economy magazine. ...Wall Street tycoon Hank Paulson was the Treasury secretary that Bush had long sought and finally found on his third try. Now, grumbling has begun inside the Senate Republican
Conference. The grumblers are asking whether Paulson will prove more than a crony in this crisis.
Monday, July 21, 2008 ~ 4:03 p.m., Dan Mitchell Wrote Over the past few months, George W. Bush's administration, which consciously modeled itself after Reagan's, has repeatedly been compelled
to bail out private or semi-private financial institutions, re-regulate markets, and rescue beleaguered homeowners. Government, it turns out,
is indeed a solution -- at times, the only solution -- for large-scale market failure, a problem not foreseen in the gospel according to Reagan. ...The
ritual extolling of markets and denigration of government make no sense at a moment when a conservative Republican administration is rushing to save the markets through governmental intervention.
Sunday, July 20, 2008 ~ 3:19 p.m., Dan Mitchell Wrote Only in the weird world of Washington are mistakes rewarded with major new responsibilities. After mismanaging both housing loans and the
dot-com mess, the Federal Reserve may now become responsible for supervising investment banks. The proposal by Treasury Secretary Hank Paulson to do so could lead investment banks to accept more risk,
because they will be able to hide some of their mistakes by borrowing from Federal Reserve banks. This is cause for concern in itself. What's more, most of the proposal is unnecessary. ...History shows that the
Federal Reserve is a poor supervisor and regulator. The Fed's Board ignored warnings about the risky housing loans that banks were keeping off their balance sheets. This costly mistake is only the most recent of
many supervisory failures. During the 1960s and '70s, Fed governors discussed the problems caused by the combination of Regulation Q – which restricted the interest rate that banks and thrifts could pay
depositors – and inflation. To escape the ceiling rates mandated by regulators, businesses moved some of their borrowing abroad, and consumers moved deposits from regulated banks and thrifts to
unregulated money-market funds. The Fed watched. Its board discussed the issue many times, but always found a reason to delay. As a result, taxpayers later paid $150 billion to cover the losses, and most of the
savings-and-loan industry disappeared. During the 1980s Latin American debt crisis, the Fed worked with the International Monetary Fund to hide losses to banks. This mistaken policy continued until management at
Citicorp chose to write off its losses. Other banks followed. Later the Treasury negotiated a reduction in the debt and an end to the crisis. ...So
what can taxpayers expect from an increase in the Fed's discretionary authority over investment banks? The likely answer is rescues, delays and
lax supervision – followed by taxpayer-financed bailouts. Throughout its postwar history, the Fed has responded to the interests of large banks and Congress, not the public.
Sunday, July 20, 2008 ~ 3:00 p.m., Dan Mitchell Wrote Under Medicaid, the federal government reimburses between 50 and 77 percent of a state's qualifying expenditures, depending on the state's
wealth. Put differently, a state can purchase a dollar's worth of Medicaid health services at a cost of less than fifty cents to itself. Less happily, it
cannot cut a dollar from its domestic budget without "losing" federal transfers. ...Medicaid is an uncapped entitlement program, meaning that
total as well as federal costs are unconstrained by any federal fiscal limit. Federal programmatic controls are likewise weak. While Medicaid mandates the coverage of certain services and populations, the lion's
share of expenses is incurred for "optional" services for beneficiaries (especially the elderly), which the states may, but need not, provide as a
condition of federal funding. Throughout the Bill Clinton and George W. Bush administrations, the federal government has readily granted the states waivers from Medicaid mandates and limitations. Some states now
cover families with incomes of up to 275 percent of the poverty level. Almost all provide long-term care for the poor and low-income elderly. In
a few states, one-third of the population is now on Medicaid. In Arizona, about one-fifth of the population receives health care coverage through AHCCCS. ...Unsurprisingly, Medicaid expenditures constitute an
ever-growing share of state expenditures. In 1987, that share amounted to slightly more than 10 percent. In 1992, the number was 17.8 percent;
in 2006, 22.2 percent. ...It is tempting but wrong to view Medicaid's stupendous, irresistible growth trends and its effects on state budgets as accidents. Medicaid is designed to be fiscally unsustainable--but
politically self-sustaining. Health insurance and health care are the subjects of an intense debate between proponents of government-provided health care and advocates of more consumer
choice and competition. In that fight over inches of political territory, Medicaid hands a decisive advantage to the government health care camp. First, the program expands inexorably when Congress does what it
does best, which is nothing. Second, Medicaid effectively enlists the intergovernmental lobby--the National Governors Association, the National Conference of State Legislatures, and their sister
organizations--in a campaign for government-provided health care. In principle, everyone knows how to make Medicaid fiscally sustainable, both for the federal government and the states: cap the program at some
level and perhaps recategorize the populations and services that qualify under the program. All states, however, regardless of party and fiscal condition, unanimously denounce even rhetorical gestures in that
direction. Opposition to the state lobby's "give us more money" demands--the very root of the states' financial troubles--looks like an
ideological crusade rather than a rational policy response to a real problem. Hence, it fails. Medicaid has created a political wonderland: to a man and woman, public officials who know the program to be ruinous
to their states nonetheless clamor for more of the same. There is no will or incentive in Washington for a call to reality--not among Democrats,
who rightly view Medicaid (and SCHIP) as HillaryCare on a bicycle, and not among Republicans, who are receptive to the intergovernmental
lobby's call for "states' rights" and its clamor against "unfunded mandates" (and never mind that Medicaid is neither).
Saturday, July 19, 2008 ~ 5:41 p.m., Dan Mitchell Wrote Much of what the Federal Reserve and Treasury said to prop up Fannie Mae and Freddie Mac over the weekend was redundant. For the Treasury
to offer them a potentially unlimited line of credit was redundant: Fannie and Freddie already have full possession of the federal credit card, a fact
of which their creditors (including Asian and Middle Eastern central banks) and politicians never were in doubt. Opening up the Fed's discount
window was likewise redundant—at least up until the point where Uncle Sam's own credit is shot and the Fed starts printing money to make good
on its commitments. We're not there yet—but that's where all this may be heading: to the Federal Reserve "monetizing" all kinds of bad public and
private debt, from mortgages to student loans to the unfunded liabilities of Social Security and Medicare. ...The third element of the Treasury's
weekend heroics, the suggestion that it might use taxpayer money to inject new equity into Fannie and Freddie, was not redundant. It was a terrible idea. Putting taxpayers in bed with Fannie and Freddie's
shareholders would only ratchet up the stakes. Congress would insist on showing a "profit" from this adventure. The game with the federal credit
card would start anew. The obvious solution is to nationalize Fannie and Freddie and break them up. Sell off their regional underwriting offices to
private investors. Don't heed any guff about how Fannie and Freddie are "vital to the functioning of the U.S. housing market." Houses would still
need to be financed, and the private sector would jump at a chance to get the solid, triple-A business that Fannie and Freddie now monopolize.
...worth noting is how much this "crisis" is a crisis of the commanding heights of the economy, of the Wall Street-Washington axis, and not a
crisis of Main Street, which has proved remarkably resilient so far. But then we'd never have today's precious opportunity to solve the Fannie
and Freddie problem once and for all. As this column noted five years ago, Yale's Jonathan Koppell aptly concluded a study with the observation that while in theory Freddie and Fannie aren't beyond
political control, in practice they are. When all else fails, they threaten havoc in the home-financing market if anyone challenges their privileges.
Now, for once, it may be possible to move against them. We'd be fools not to do it. With Fannie and Freddie on the ropes politically, let's put them
on a path to privatization and liquidation. Treasury's Henry Paulson and Fed Chairman Bernanke are still talking as if restoring the status quo is desirable, with tweaks.
Friday, July 18, 2008 ~ 4:20 p.m., Dan Mitchell Wrote Federal regulators should consider revoking the US banking license of the giant Swiss Bank UBS because of its role in helping wealthy
Americans evade billions of dollars in taxes, Sen. Carl Levin (D-MI) told ABC News today. ...UBS's role in arranging "undeclared" accounts for an
estimated 19,000 US citizens was one focus of a hearing by the Senate Permanent Subcommittee on Investigations, chaired by Levin today. The role of the LGT bank, owned by the royal family of Liechtenstein, was
also investigated. ...A UBS executive, Mark Branson, said the bank will no longer provide "undeclared" accounts to US citizens and is "winding
down" its business involving already existing accounts. ...Levin called for passage of new laws to end tax haven abuses. "Tax havens," said Levin,
"are engaged in economic warfare against the United States and honest, hardworking American taxpayers." Additional Information on Tax Havens: CF&P Foundation Prosperitas, Tax Havens: Myth Versus Reality CF&P Foundation Prosperitas, "Tax Havens, Tax Competition and Economic Performance," The Liberal Institute of the Friedrich Naumann Foundation, The Moral Case for Tax Havens CF&P Foundation Prosperitas, The Adverse Impact of Tax Harmonization and Information Exchange on the U.S. Economy
Thursday, July 17, 2008 ~ 5:11 p.m., Dan Mitchell Wrote The story of Fannie and Freddie is a cautionary tale about the moral hazard created by government support for private institutions -- a tale we
saw played out in the S&L debacle less than 20 years ago, and one we may be about to inflict on ourselves again. …because the U.S. government will not allow Fannie and Freddie to default, they should be
able to survive. If housing prices turn up again and their losses are stanched (or if they can raise more capital to cover the losses they will
suffer in the future), these two companies will get through this period. This is by far the most likely outcome of the current period of stress. But
their survival will not be unalloyed good news. It will chase the wolf from the door only temporarily. Their embedded losses -- made worse by the
risky commitments they are probably now making in order to recover their profitability or hide their losses -- will, as in the case of the S&Ls,
eventually have to be paid. And of course, if Fannie and Freddie actually become insolvent, the U.S. government is now ready to step up. Considering that these two companies now have something like $5.3
trillion in liabilities, this is no small step. …Worse still are indications that no lessons have been learned. In the same week when it became apparent
that implicit government backing has made the U.S. hostage to the health of two companies that grew out of control, Messrs. Bernanke and Paulson told Congress that they wanted a new regulatory structure for
investment banks like Bear Stearns. In this plan, the Fed would have supervisory authority over these companies and oversee a formal system
for their "orderly liquidation." The only reason the Fed might want to regulate the investment banks is that it believes itself to be somehow at
risk. The markets, ever clear-eyed, will read this for what it is -- potential Fed backing if the big investment banks get into trouble. In other words,
we are now proposing to introduce a government-created moral hazard into investment banking. The resulting loss of market discipline will replicate the experience with the S&Ls and Fannie and Freddie.
According to reports, not an eye blinked in the House Financial Services Committee when the Fed's bid for more power was laid on the table last
Thursday. This is fully consistent with the past willingness of Congress to condone -- and even encourage -- unimpeded growth at Fannie and Freddie. Meanwhile, David Frum explains how Fannie and Freddie are examples of crony capitalism, involving unearned riches for the political elite while ordinary Americans bear the cost: The two institutions have long been run not by bankers but by retired political figures, predominantly Democrats. These figures have paid
themselves impressive private-sector salaries--sometimes more than U.S.$20-million per year. Yet the companies never had to meet the discipline of the private marketplace. They paid no taxes, and they had
access to a line of credit at the Treasury department. More ominously for today's crisis: They were not required to provide anything like the level of
information about their internal operations expected of a privately owned company. This non-transparency allowed Fannie Mae to engage in serious accounting fraud, overstating its earnings
considerably--overstatements that, incidentally, justified the company's lavish compensation packages. The loss of confidence that struck the markets this week has been gathering for years. It is the natural
by-product of the bad practice of merging private business with government power. As so often happens with large scandals, the cost will fall on everyone except the responsible parties. In 2006, federal
regulators sued Fannie Mae executives to recover U.S.$115-million of compensation. The case was settled for U.S.$3-million, plus the surrender of some (now probably valueless) stock options and other contingent
benefits. The U.S.$3-million was paid from Fannie Mae's own insurance.
Wednesday, July 16, 2008 ~ 3:16 p.m., Dan Mitchell Wrote The EU's already relatively high overall tax burden increased in 2006, with figures released today showing that tax amounted to 39.9% of the
bloc's total gross domestic product (GDP). … Figures for two of the EU's major economic competitors – the US and Japan – are some 12 points lower. The figure in the 15-member eurozone was 40.5%, up from
39.8% in 2005. The difference between the EU and eurozone figures in part reflects the fact that all the countries with the lowest rates – Romania (28.6%), Slovakia (29.3%) and Lithuania (29.7%) – are not
members of the eurozone. … The tax burden in Slovakia lightened from 39.4% in 1996 to 29.3% in 2006, with Estonia's dropping from 35.1% to 31.0%. … taxes on capital rose quite sharply in 2006, from 26.8% in 2005
to 29% The range was large, from just 8.4% in Estonia and 14.1% in Lithuania to over 40% in Ireland (42.5%), France (41.5%) and Denmark (40.9%). … Scandinavian members of the EU were consistently at or near
the top of the various tax tables.
Tuesday, July 15, 2008 ~ 11:28 a.m., Dan Mitchell Wrote U.S. brewer Anheuser-Busch Cos Inc agreed to a $50 billion takeover by Belgium-based InBev NV, a source familiar with the situation said on Sunday, creating the world's largest beer maker. ...The deal brings an amicable resolution to a month-long saga that was becoming increasingly hostile as the two companies sued each other and InBev set the stage to try to replace Anheuser's board of directors. ...A takeover of iconic U.S. company Anheuser has sparked an outcry from some politicians, including Democratic presidential candidate Barack Obama. http://biz.yahoo.com/rb/080713/anheuser_inbev.html?.v=1 But rather than engage in demagoguery against foreign investment, maybe Senator Obama and his colleagues should fix the tax code so that US companies are not
disadvantaged in global markets (http://www.heritage.org/Research/Taxes/
Monday, July 14, 2008 ~ 7:11 p.m., Dan Mitchell Wrote Since the Reagan years, free-market cliches have passed for sophisticated economic analysis. But in the current crisis, these ideas are falling, one by one, as even conservatives recognize that capitalism is ailing. ...The old script is in rewrite. "We are in a worldwide crisis now because of excessive deregulation," Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, said in an interview. ...While Frank is a liberal, the same cannot be said of Ben Bernanke, the chairman of the Federal Reserve. ...Bernanke sounded like a born-again New Dealer in calling for "a more robust framework for the prudential supervision of investment banks and other large securities dealers. Wait a minute. Perhaps Dionne is writing a serious column. He quotes Irwin Stelzer of the Hudson Institute, who reasonably can be considered a conservative. What's striking is that conservatives who revere capitalism are offering their own criticisms of the way the system is working. Irwin Stelzer,
director of the Center for Economic Policy Studies at the Hudson Institute, says the subprime crisis arose in part because lenders quickly sold their mortgages to others and bore no risk if the loans went bad.
"You have to have the person who's writing the risk bearing the risk," he says. "That means a whole host of regulations. There's no way around that." Dionne seems impressed that Stelzer says that markets don't work perfectly. But that is a reflection of Dionne's unfamiliarity with economics. After all, failure, like success, is a part of the market process. Dionne does note, however, that Stelzer is endorsing more regulation, so there is a tiny shred of evidence for his hypothesis that conservatives want more government intervention. But if this is the evidentiary bar that has to be cleared by such assertions, I'm going to write a column saying that all socialists now support a flat tax. And I won't even have to find one left-leaning writer to "prove" my point. I can just point to the various socialist-led governments in Eastern Europe that have adopted single-rate tax systems. Before signing off, I feel compelled to point out that Stelzer has a fair diagnosis but a misguided prescription. Yes, hindsight shows that lenders were cavalier about loans since they knew other investors would be the ones bearing the risk. But after absorbing billions in losses, investors obviously have a huge incentive to avoid the same mistake. Indeed, that is why failure plays a crucial role in a market economy; people learn from mistakes. Addtional government regulation, by contrast, is at best a case of closing the barn door after the horse has escaped. In the vast majority of cases, however, regulations throw sand in the gears and/or distort incentives for the efficient allocation of resources.
Sunday, July 13, 2008 ~ 9:01 p.m., Dan Mitchell Wrote Barack Obama worries that "unregulated energy speculators may be distorting the market." John McCain complains that "while a few
reckless speculators are counting their paper profits, most Americans are coming up on the short end." On Thursday a measure demanding a
clampdown on oil trading passed the House 402 to 19. So it's time for a quick refresher: Richard Nixon's early-1970s price controls were a disaster. Administering the controls on energy alone took an estimated 5
million man-hours per year and punished motorists with gas lines. Repeating this experiment by clamping down on oil trading is like burning your hand on a gas stove and then sitting on a barbecue. Would-be
Nixons argue that hedge funds and their ilk are piling into oil futures, driving prices above "reasonable" levels. … The most basic problem with
this claim is that a speculator can buy paper oil only if someone else sells to him. For every trader who bets on a price rise, there must be another
who bets the opposite. So an increase in the number of speculative players does not show whether prices will move up or down. … to the limited extent that speculators' influence is real, this is probably a good
thing. If speculators see that oil suppliers are headed for trouble and that oil demand is trending up, they express their expectation of a higher price
via the futures market. This can deliver a valuable message: Governments and consumers had better adjust before shortages get even nastier. Just as in Nixon's day, government's response to runaway prices
would have unintended consequences. The most popular proposals would limit how many contracts a speculator can buy or sell on a futures exchange, and prevent trading with mostly borrowed money. But the
more you restrict trading on U.S. exchanges, the more you drive trading into the shadowy world of the unregulated swaps market or onto offshore
rivals. In the 1980s, Japan tried to prevent futures traders in Osaka from speculating on the Nikkei stock index. Nikkei futures trading thrived -- in Singapore. Most fundamentally, Nixon's heirs forget that the
"speculators" they attack are often trying to reduce risk, not embrace it.
Saturday, July 12, 2008 ~ 7:08 p.m., Dan Mitchell Wrote …with Barack Obama promising to lift rates to French-like levels, this taxman-cometh policy could turn Americans into the world's foremost
fiscal prisoners. And make no mistake, taxes under a President Obama could be truly à la française. The top marginal tax rate, including federal, state and local levies, could approach 60% for self-employed New
Yorkers and Californians. Not even France's taxes are that high now that President Nicolas Sarkozy has capped the total that high-earning Frenchmen like Mr. Ducasse can pay in income, social and wealth taxes
at 50% of earnings. Mr. Sarkozy set this "fiscal shield" because he knows that tax rates affect behavior. When he visited London this year, he
observed that the British capital is now home to so many French bankers and other professionals seeking tax relief that it's the seventh-largest French city.
Friday, July 11, 2008 ~ 4:40 p.m., Dan Mitchell Wrote Despite billions in subsidies for breakwaters, flood barriers, relief, and flood insurance, there's little hope of solving America's flooding problem
anytime soon. Unless the nation wants to go on risking massive loss of life from flooding every decade, we need a fundamentally different policy
based on one simple principle: the government should not subsidize any new development in areas likely to flood. …To begin with, using tax dollars to build new breakwaters — a practice many conservatives show
a strange attraction for — is almost always a bad idea. Environmentalists are mostly right when they say that wetlands do a better job controlling
floods than government-built rock-piles. And longstanding Army Corps of Engineers policies — beginning with 1936's National Flood Control Act
— have encouraged plenty of development in places that probably should have been left wild. In a few cases, cities might well follow the example of
Grand Forks, North Dakota (inundated in 1997's Red River Floods) and use some likely-to-flood areas as parkland, golf courses, or wilderness. …The real problem — the truly enormous subsidy for building in
flood-prone areas — lies with the National Flood Insurance Program (NFIP) that provides individual coverage for homes and small businesses. Although changes that both houses of Congress have passed will correct
its most obvious absurdities — insuring second homes against flood and rebuilding properties dozens of times — NFIP remains deeply troubled. Each year, it requires massive subsidies. Indeed, Congress had little
choice but as to forgive the $18 billion in debt that it has run up since 1999 (both houses of Congress have voted to do that). …the United
States needs a strategy that will result in private, self-sustaining flood insurance. Among other things, creating a viable private flood insurance
market will require efforts to improve the quality of flood maps and encourage property owners to strengthen their own homes. Individuals who wish to live in flood-prone areas and developers who wish to build
there shouldn't face undo restrictions on using their own property. But they shouldn't expect a dime for subsidized insurance, roads, breakwaters, schools, or anything else that taxpayers will pay for rebuilding.
Thursday, July 10, 2008 ~ 5:30 p.m., Dan Mitchell Wrote France will ban prime-time advertising on public television as of Jan. 1 and plans to tax Internet, phone and commercial broadcasting companies
to replace the lost funding, President Nicolas Sarkozy said Wednesday. Phone and Internet companies will pay a tax of 0.9 percent of sales to
finance public television, Sarkozy said in a speech. Private television companies will pay a tax of 3 percent on advertising revenues to raise
€80 million, or $121 million, for the state-owned France Télévisions, he said. …"By suppressing advertising, we want to give our public television
the means of a greater freedom," Sarkozy said in the speech at Élysée Palace.
Thursday, July 10, 2008 ~ 4:21 p.m., Dan Mitchell Wrote The Federal Housing Administration – the very agency the Bush Administration and Congress trumpet as the solution to the mortgage
crisis – has announced that it suffered a $4.6 billion loss last year. This is one of the worst financial performances ever for the government's
multibillion-dollar mortgage insurer. We'd hope this news might cause Congress to reconsider its plans to turn over some $300 billion of troubled loans to an agency already in financial distress. No such luck. A
bill passed by the House and now being debated on the Senate floor would expand the FHA portfolio to about 1.5 million mostly high-risk subprime mortgages. So at the very time private lenders and investors are
fleeing subprime markets, Congress wants taxpayers to dive in. …The biggest reason the FHA lost so much money was a scam called the "downpayment assistance program." Under this program, builders or
mortgage originators make a loan to low-income homebuyers, and then arrange for a third party to pay the downpayment, so the loan qualifies for FHA insurance. This means borrowers have no skin in the game, and
in many cases have negative equity because the value of the homes are often inflated. Borrowers could bet on the upside of the market at no cost
to them. And thanks to the 100% FHA insurance against default, lenders were guaranteed full repayment whether or not the loan is ever repaid.
Until recently, lenders even got a tax write-off for their "charitable contribution." Everyone won – except the taxpayer. …One lesson from
the debacle is what happens with low or zero downpayment FHA loans: They go bust. The Government Accountability Office finds that default rates are about three times higher than on conventional loans. So why in
the world is Congress promoting a new FHA bill to lower downpayments to 3% and in some cases even to zero? …The most reckless provision now on the Senate floor would allow the FHA to take over risky subprime
loans from private banks. When FHA Commissioner Brian Montgomery announced the agency's losses last week, he warned that Congress's subprime loan bailout could plunge FHA deeper into the red. Senate
Banking staffers tell us that lenders have all but admitted that, if the bailout becomes law, they will dump their worst loans onto the FHA. Among the likely dumpers: Countrywide Financial, which gave Senate
Banking Chairman Chris Dodd a bargain mortgage. The Congressional Budget Office predicted this month that 35% of these loans could go sour.
Wednesday, July 9, 2008 ~ 4:27 p.m., Dan Mitchell Wrote A defiant Paul Hogan had a typically plain-spoken and blunt message for the Australian Taxation Office yesterday: "Come and get me, you
miserable bastards." As the ATO enlisted the help of the Internal Revenue Service in the US to pursue the actor for allegedly undisclosed tax
liabilities, a bemused Hogan insisted he had paid more than enough tax - a figure he estimated to be in excess of $100million - in Australia. …"I'd
like to make a deal with the tax office that I'll give them every cent I made, both me and (partner John "Strop") Cornell, if they give me every
cent they made out of my movies. As a guy who brought millions into Australia, they should build a statue at the tax office to me and send me a
Christmas card. I lived in America and still paid tax in Australia for 4 1/2 years when I could have paid tax in America, and it would have been cheaper, because I thought we needed the money back home more than
they needed it here." …Hogan railed against Operation Wickenby, a taskforce headed by the Australian Taxation Office, working in conjunction with other agencies such as the Australian Crime
Commission. "If you become a victim or a target for the ACC, the crime commission, you're not allowed to say you are, you're not allowed to say
anything they said to you or that you've even been questioned, or you can go to jail," Hogan said. "If the ACC interrogated me, then I couldn't tell
you what they asked me or I can't even admit they did because I could go to jail, but the ACC has some dickhead who can leak information to the
press and anyone else who's interested." Hogan said he was being targeted only because he was "high-profile and because I've got money".
Wednesday, July 9, 2008 ~ 3:03 p.m., Dan Mitchell Wrote The Democratic National Convention host committee guidelines for caterers suggest serving mostly organic fare or Colorado products, and
avoiding fried foods. The guidelines even suggest color schemes on plates. "This is the food police," groused Denver City Councilman Charlie
Brown on Monday. "These people stood in line too long at the Aspen Food and Wine Festival." …DNC host committee meal guidelines
Tuesday, July 8, 2008 ~ 5:55 p.m., Dan Mitchell Wrote Max P. Sanders, 19, was charged with a felony Thursday in Hennepin County District Court after allegedly asking for a minimum of $10 in
exchange for voting for the bidder's preferred candidate. "Good luck!" …Sanders was charged with one count of bribery, treating and soliciting
under an 1893 state law that makes it a crime to offer to buy or sell a vote. According to a criminal complaint, the Minnesota Secretary of State's Office learned about the offering on the Web site and told
prosecutors. Investigators sent a subpoena to eBay and got information that led to Sanders. "We take it very seriously. Fundamentally, we believe
it is wrong to sell your vote," said John Aiken, a spokesman for the office. "There are people that have died for this country for our right to vote, and to take something that lightly, to say, 'I can be bought.'
Monday, July 7, 2008 ~ 4:08 p.m., Dan Mitchell Wrote A new commission appointed by Norway will investigate ways of putting a stop to the huge flows of money into tax havens. Tax evasion and
corruption are believed to cost poor countries at least 50 billion dollars a year. The commission, launched last week, includes Eva Joly, a special
advisor on corruption for the Norwegian development agency Norad... Among the areas that have been labelled as tax havens are Andorra, Monaco, Gibraltar, Jersey, the Cayman Islands, Luxembourg, the
Netherlands, as well as some parts of the financial system in London. "I am very proud of this commission and I think it is very important that it
has been appointed, because there is quite a high level of confusion surrounding the damaging effects of tax havens," Joly, who is also part of an anti-corruption working group at the World Bank, told IPS.
...According to a 2000 estimate by Oxfam International, tax havens rob developing countries of at least 50 billion dollars a year in revenues. An amusing aspect of this story is that Norway's pension fund is a big investor in tax havens: Finance Minister Kristin Halvorsen and the minister in charge of foreign aid, Erik Solheim, have harshly criticized companies, both Norwegian-
and foreign-owned, that avoid taxes by registering themselves in countries with low or non-existent tax obligations. At the same time, however, the state's massive pension fund that's fueled by Norway's oil
revenues has been investing billions in companies that are registered in tax havens. This includes companies "based" in places like the Cayman Islands, Bermuda and Cyprus. The moral of the story, of course, is that politicians are in favor of anything that gives them more money. That enables them to buy votes and provide unearned wealth to their supporters. But taxpayers (the ones who generate the wealth) should not be allowed to protect themselves and their families by utilizing jurisdictions with better tax law.
Monday, July 7, 2008 ~ 3:57 p.m., Dan Mitchell Wrote Most people think of cities as dense concentrations of people. They are that, of course. But they are also dense concentrations of capital – homes,
offices, factories, theaters and roads. All of these assets are attractive to people because, when they are in close proximity to each other, they offer
the chance of a more prosperous life. The problem is that once capital is built, it can become a target for tax-and-spend politicians who bank on
the fact that physical capital will continue to draw people, even as it is taxed more heavily. This is what has happened in Baltimore. The city has
waged a war on capital for more than 50 years, raising property taxes an astonishing 21 times from 1950 to 1985. But what politicians don't seem
to understand is that the target may be degraded or destroyed in the process. There are now at least 30,000 housing units in Baltimore that are abandoned and waiting to be demolished, while even old, upper-crust
neighborhoods now have a seedy look. Property taxes are so high – as well as the strong likelihood they will soar even higher in the future – that
even maintenance, no less capital improvements, are a losing proposition. Renovations or upgrades may add less value to a house than it will cost in
taxes on that house with a higher assessed value. Politicians, in short, reason that because physical capital cannot typically be picked up and moved, it is immutable. Wrong. It depreciates. Fail to replenish or
improve it, and it decays to uselessness. Moreover, while physical capital may not be mobile, financial and human capital are. Property tax rates in
Baltimore County (outside the city) are less than half of those inside the city (1.1% versus 2.268%). The suburbs are thriving even with the center
city decaying. In the 1990s, private-sector employment shrank 12.7% (a loss of 46,800 jobs) in Baltimore. From 2000 to 2007 it shrank again, this
time by 10.4% (33,600 jobs). By contrast, employment in the rest of the metro area grew by 25.1% in the 1990s, and by another 13.9% since 2000.
Sunday, July 6, 2008 ~ 11:52 a.m., Dan Mitchell Wrote Alain Lamassoure MEP tells Jamie Smyth , European Correspondent, Ireland was wrong to hold a referendum, which is 'a tool for dictators'.
..."We are paralysed by the unanimity rule and we pass legislation through undemocratic procedures . . . we have a duty to grant our citizens more power," he said. Link to this Blog Entry
Saturday, July 5, 2008 ~ 8:12 a.m., Dan Mitchell Wrote The Justice Department, in an unprecedented move against a foreign bank, is seeking to force UBS AG to turn over the names of wealthy U.S.
clients who allegedly used the giant Swiss bank to avoid taxes. …U.S. authorities have been holding discussions for several weeks with UBS and
Swiss banking authorities to identify the U.S. account holders. People familiar with the talks say UBS officials floated the possibility that the
U.S. could obtain the names through a request to Swiss regulators. Monday's federal court filing instead puts the bank in direct conflict with
the U.S. government. …The filing is the first against a non-U.S. bank by the Justice Department using what it calls a "John Doe summons," a
maneuver typically used to investigate tax fraud by people whose identities are unknown. The move could spark a major legal battle because the Justice Department is essentially gambling that courts will
bless the move when it's directed at a company with extensive U.S. operations but that isn't based in the U.S.
Friday, July 4, 2008 ~ 7:45 a.m., Dan Mitchell Wrote …the 2004 American Jobs Creation Act…gave American companies a one-year window in 2005 to repatriate earnings from foreign subsidiaries to the
United States at a 5.25% tax rate. Normally companies must pay the 35% U.S. corporate tax rate, minus a credit for whatever foreign taxes they paid on
those earnings. The IRS examined the results from this tax cutting experiment and found that the money came back in a flood. More than 800 U.S.
corporations repatriated $362 billion from foreign operations. Congress's Joint Committee on Taxation had predicted closer to $200 billion. These dollars are
now being invested in the U.S., rather than remaining in Europe or China. This capital infusion may be one reason that U.S. business investment rose 9.6% in
2005 – the highest rate in more than a decade. …The Joint Tax Committee estimators also blundered again by predicting a mere $2.8 billion in revenue
gains in the first year and then big losses after 2005. As always, they underestimated how tax reductions change behavior. The tax incentive raised
$18 billion in 2005, and revenues have continued to exceed estimates. Instead of getting 35% of nothing, as U.S. companies kept their cash abroad, the
Treasury took in 5.25% of the hundreds of billions the companies brought home. …Over the past decade the U.S. has gone from a below-the-average
corporate tax nation to the second highest rate in the industrial world. …America's tax laws are repelling capital at the same time the rest of the world
is inviting these dollars and the jobs and growth that inevitably follow. House Ways and Means Chairman Charlie Rangel wants to dig the ditch deeper by
taxing American companies on their foreign earnings whether or not they bring the money back to the U.S. …The best response going forward would be for
Congress and the next Administration to reduce sharply the corporate tax rate so it is competitive with falling rates around the world. John McCain is
proposing to cut it to 25%. If Barack Obama really wanted to "run to the center," he'd see that and cut it even further.
Thursday, July 3, 2008 ~ 5:29 p.m., Dan Mitchell Wrote The citizens of Whitehaven try, really they do. They separate out their cans, their paper, their cardboard and their glass, and they recycle them
all. They compost. They jump up and down on their trash to cram it into their government-issued garbage cans, and they put the trash out for collection at exactly 7 a.m., twice a month. …Across Europe, residents
are struggling to adjust to a new era of garbage rules. Britain, particularly, is in the midst of a trash crisis, with dwindling landfill space
and one of Europe's poorest recycling records. Threatened with steep fines if they dump too much trash, local governments around the country
are imposing strict regimens to force residents to produce less and recycle more. Many now collect trash every other week, instead of every week.
They restrict households to a limited amount of garbage, and refuse to pick up more. They require that garbage be put out only at strict times,
reject whole boxes of recyclables that contain the odd nonrecyclable item and employ enforcement officers who issue warnings and impose fines for failure to comply. …Britons do not like being told what to do.
Encouraged by anti-government newspapers, they particularly resent government meddling, as they see it, in such intimate matters as the contents of their garbage cans. As regulations get more stringent and
enforcement more robust, there have been reports across the country of incensed residents shouting and throwing trash at garbage collectors, illegally dumping and burning excess garbage, and even surreptitiously
tossing trash in — or stealing — their neighbors' garbage cans. "It's like something out of 'Mad Max,' " Paul Nicholls, a resident of Cannock,
near Birmingham, told the newspaper The Guardian recently, describing the free-for-all in his town at garbage-collection time. "Every man for himself, scavenging for an extra bin." …a 62-year-old Whitehaven
resident…is engaged in a running battle with the garbage collectors. Once he put an extra bag of trash on top of his bin; they refused to pick it
up and left the garbage from the now-ripped bag sprawled on the street. Once, when he failed to close his lid properly, he received a "nasty note
saying it was overloaded," he said. The note was followed by a sticker of shame affixed to the bin announcing that he was violating local garbage
laws. The man, who spoke on the condition of anonymity because he is afraid of running afoul of the authorities, says he now regularly takes his extra trash out to an empty field and burns it.
Wednesday, July 2, 2008 ~ 8:41 p.m., Dan Mitchell Wrote John Conyers' Credit Card Fair Fee Act, soon to be marked up in the House of Representatives, is falsely advertized as being all about
populism and stopping greedy bankers from squeezing the last dime out of the shopkeepers of Bedford Falls. Washington would force MasterCard
and Visa to negotiate directly with convenience stores, gas stations and other merchants on the "interchange" fees of 1% or 2% they charge per
transaction. These amount to tens of billions of dollars that retailers would pass on to consumers in the prices of their products. If the price
negotiations became deadlocked, a panel of three "expert" judges appointed by the anti-trust division of the Justice Department and the
Federal Trade Commission would settle things. …it's Conyers' bill that would shortchange working Americans. Too bad over a dozen House Republicans are too cowardly to explain this to their constituents, or don't
understand it themselves. Rep. Walter Jones, for example, told the Hill newspaper, "I think the banks make a great deal of money" and "I think
the fees and penalties they are charging are just too high." We all think practically every price is too high. But is that a good reason to appoint
judges to set, say, the price of your cable-TV bill or a gallon of milk? No, because socialism doesn't work. In 2003, Australia began making
MasterCard and Visa cut interchange fees by half. As a result, a study by the CRA International economic consulting firm found, card issuers were
forced to recoup the lost revenues. Consequently, Australian cardholders are paying hundreds of millions of dollars more in fees, with no
discernible reduction in prices by merchants to offset those extra charges.
Tuesday, July 1, 2008 ~ 10:03 p.m., Dan Mitchell Wrote A specialist lawyer in the field of money laundering and financial service regulation has this week questioned the validity of the European Union's
'White List' of countries whose money laundering controls are considered to be equal to the EU Member States. Stephen Platt, English barrister and chairman of BakerPlatt Group, questioned why countries such as
Russia, Argentina and Mexico can justifiably make the list and pointed out that Australia and Canada, also on the list, are regarded as less than
25% compliant by the standards set by the Financial Action TaskForce (FATF) into money laundering controls. The White List countries are seen
as having a higher level of control compared to leading offshore finance jurisdictions including the British Crown Dependencies, a conclusion Mr
Platt described as bewildering. "Having researched the background to some of the countries included, we question why countries that fall behind
recognised international standards are on the list, whilst finance centres such as Jersey, the Bahamas and the Cayman are not," commented Mr
Platt, who advises Governments and regulators on the implementation of effective regulatory and anti-money laundering rules. In conjunction with
its alliance partner in London, Seven Bedford Row, BakerPlatt, which is a Jersey based law firm, has produced an analysis of the countries included
on the White List. "Australia and Canada's staggering level of non-compliance with FATF recommendations makes it difficult for the EU to justify their inclusion on the White List on the grounds of
"equivalence," Platt added, going on to conclude: "Given that the EU recently announced that it is to pursue infringement measures against 15
of its member states for failing to implement the Third Money Laundering Directive into national law, the EU would perhaps be better placed to
give a jurisdiction such as Jersey the recognition it deserves, and the role model some of its member states appear to need, as the leader in the field of anti money laundering."
Tuesday, July 1, 2008 ~ 9:34 p.m., Dan Mitchell Wrote …given a choice about how government should address the numerous economic difficulties facing today's consumer, Americans overwhelmingly
-- by 84% to 13% -- prefer that the government focus on improving overall economic conditions and the jobs situation in the United States as opposed to taking steps to distribute wealth more evenly among
Americans. … Americans' lack of support for redistributing wealth to fix the economy spans political parties: Republicans (by 90% to 9%) prefer
that the government focus on improving the economy, as do independents (by 85% to 13%) and Democrats (by 77% to 19%). This sentiment also extends across income groups: upper-income Americans prefer that the
government focus on improving the economy and jobs by 88% to 10%, concurring with middle-income (83% to 16%) and lower-income (78% to 17%) Americans. … In sum, free-market advocates can take considerable
solace in Americans' overwhelming belief that the government should not focus on redistributing income and wealth, but on improving the overall economy. And, to a lesser degree, Americans also believe government
continues to do too much -- not too little -- to solve the nation's problems. |
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