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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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Friday, October 31, 2008 ~ 5:04 p.m., Dan Mitchell Wrote: Less than a week after Peer Steinbrück provoked a row with Bern by saying Switzerland should be on the blacklist of "uncooperative" tax havens, he told journalists
he was "astonished" by the reaction to his words. "No country should offer conditions which might encourage tax payers from a neighbouring state to indulge in tax evasion or tax fraud," he
said. He said Germany was simply trying to contribute to ensuring a fair system of tax competition in Europe. "I have every respect for Swiss sovereignty, but Germany's sovereignty in tax matters must also
be respected," he said.
Friday, October 31, 2008 ~ 3:33 p.m., Dan Mitchell Wrote: The election-winning Homeland Union wants to slash government spending and drop exemptions from the value-added tax rate, while
cutting personal income tax to soften the blow of the expected economic crisis.
Thursday, October 30, 2008 ~ 6:28 p.m., Dan Mitchell Wrote: In response, Dan Mitchell emphasizes that pro-growth policies don't punish the entrepreneurs and investors. This means more growth and more jobs for the society. He points to reports from the OECD and IMF that state the best way to fight tax evasion is to lower tax rates. Finally, Mitchell points out that low-tax jurisdictions enable citizens living under corrupt or incompetent or oppressive governments to protect their assets.
Wednesday, October 29, 2008 ~ 8:31 p.m., Dan Mitchell Wrote: Obama has described his plan to hike taxes as "neighborliness," "patriotism" and "justice." In fact, it's the widest-ranging assault on
capital - and those who create it - in at least a generation, possibly longer. Look at just a few of the things he and congressional Democrats
have in mind: Higher taxes on successful entrepreneurs (anyone earning over $250,000), higher taxes on capital gains, higher taxes on dividends,
a possible raid on Americans' 401(k)s, a takeover of America's private health care industry, strict new limits on what CEOs can make, and the
reimposition of the death tax. Add it up, and Obama will usher in a new era in America - one where capital, the engine of our economic growth
and success, is punished severely through the tax code. ...This should worry all Americans. A 2005 study found 57 million U.S. households - 60% of the total - owned stocks, bonds or mutual funds. Average people
don't realize they'll take a direct hit. Higher taxes lower returns on capital. This means everything - wages, stock prices, real estate - will have to decline further as Obama's tax hikes take hold. That means
fewer jobs. This reverses what has always been America's recipe for success: an economy built on low taxes, few regulations, free trade and, in general, letting markets decide winners and losers.
Tuesday, October 28, 2008 ~ 7:14 p.m., Dan Mitchell Wrote: When markets are free, asset values are supposed to go up and down, and competition opens up opportunities for profits and losses. Profits and
stock appreciation are not rights, but rewards for insight mixed with a willingness to take risk. People who buy homes and the banks who give
them mortgages are no different, in principle, than investors in the stock market, commodity speculators or shop owners. Good decisions should
be rewarded and bad decisions should be punished. The market does just that with its profits and losses. ...But here's the rub. Now enter the government and the prospects of a kinder and gentler economy. To
alleviate the obvious hardships to both homeowners and banks, the government commits to buy mortgages and inject capital into banks, which on the face of it seems like a very nice thing to do. But
unfortunately in this world there is no tooth fairy. And the government doesn't create anything; it just redistributes. Whenever the government
bails someone out of trouble, they always put someone into trouble, plus of course a toll for the troll. Every $100 billion in bailout requires at least
$130 billion in taxes, where the $30 billion extra is the cost of getting government involved. If you don't believe me, just watch how Congress and Barney Frank run the banks. If you thought they did a bad job
running the post office, Amtrak, Fannie Mae, Freddie Mac and the military, just wait till you see what they'll do with Wall Street. ...The stock market is obviously no fan of second-term George W. Bush, Nancy
Pelosi, Harry Reid, Ben Bernanke, Barack Obama or John McCain, and again for good reasons. These issues aren't Republican or Democrat, left
or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much
they believe this time things are different. They aren't. ...Twenty-five years down the line, what this administration and Congress have done
will be viewed in much the same light as what Herbert Hoover did in the years 1929 through 1932. Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing
the end of prosperity.
Monday, October 27, 2008 ~ 10:22 p.m., Dan Mitchell Wrote: California continues to be burdened with high taxes, punitive regulations, huge wealth-transfer programs, out-of-control spending, and
lawsuit abuse. And there's no end in sight to the state's fiscal madness. The "balanced budget" signed only a few weeks ago by Governor Arnold Schwarzenegger already runs a deficit of as much as $5.5 billion.
…Analysts already project that next fiscal year's budget will be billions in the red. State spending has increased at a faster rate under Schwarzenegger than under his predecessor, Gray Davis. Every year,
California puts taxpayers on the hook for yet more spending without any reform of the government's boneheaded economic policies. It's not surprising, then, that California ranks fourth-to-last in the Pacific
Research Institute's 2008 U.S. Economic Freedom Index, published in association with Forbes. …By contrast, Nevada, California's neighbor to the east, boasts a much more favorable economic environment. Nevada
ranked sixth among the states in economic freedom, an improvement from 2004, when it placed twelfth. But the model of economic freedom among the states is slightly further east—South Dakota. The Mount
Rushmore State imposes no corporate-income tax, no personal-income tax, no personal-property tax, no business-inventory tax, and no inheritance tax. …Americans vote with their feet, and strong economic
freedom draws workers and businesses. According to United Van Lines, South Dakota ranked seventh in inbound migration in 2007. That's one way of saying that lots of people are moving there. Nevada ranked
second. By contrast, California tallied more outbound shipments than inbound. People are fleeing California partly because of economic aggravation. For every one-place improvement in a state's Index
ranking of economic freedom, its net migration per 1,000 people typically increases by one person. This means that for Michigan, the top-ranked outbound state, a one-spot improvement in economic freedom would
result in a net increase of about 10,000 people moving into the state—resulting in much-needed new consumers, workers, entrepreneurs, and investors. …When one state expands economic freedom, it puts
pressure on its neighbors also to improve, or risk competing at a disadvantage for people and capital. With luck, Nevada's example will spur California to embrace serious reforms. Sunday, October 26, 2008 ~ 6:09 p.m., Dan Mitchell Wrote: People who put faith in government to solve national or even individual problems are headed for deep disappointment, if it hasn't already
arrived. Still, that doesn't stop politicians from attempting to sell political snake oil to the gullible. ...Stossel visited New Orleans to see how
government reconstruction is progressing three years after Hurricane Katrina. What he found should not surprise anyone. Huge numbers of houses remain un-repaired thanks to a bureaucracy that could serve as a
plot for a horror movie called "Nightmare on Bourbon Street." The forms necessary to apply for permits to conduct any repairs or construct
new buildings take 10 minutes to explain. As for the houses themselves, "Of the 314 public projects (New Orleans Mayor Ray) Nagin promoted in
his 'One New Orleans' rebuilding campaign announced in January 2006, only six are complete." Contrast that with what the nonprofit Habitat for
Humanity has done: "They built 70 homes quickly," noted Stossel. "Even Nagin admitted they did what government didn't." Private enterprise has
succeeded, where government has failed. ...Stossel used a visual metaphor to demonstrate why government regulations stifle individual initiative, leading to dysfunction. He visited a skating rink where people
managed to go in the same direction and at about the same speed without instructions from anyone. Then he introduces Brian Boitano, a former Olympic skater, who begins telling some skaters they are going
too fast and others too slow and shouting other commands. Chaos results. The moral? "Intuition leads us to think that complex problems
require centrally planned solutions, but political decision-making is rarely the answer. Life works best when we govern ourselves."
Saturday, October 25, 2008 ~ 5:55 p.m., Dan Mitchell Wrote: [Sen. Obama's] true motive for raising taxes...isn't to fund the government, or deal with the deficit, or to establish a rainy day fund. It's
to "spread the wealth around," which the Illinois senator insists is "good for everyone." Sen. Obama calls this a "tax fairness plan," but what is
fair? Everyone knows that some people work harder than others. We've all witnessed it. If John Q chooses to work 60 hours a week to advance his career, and Henry Y prefers to spend time playing video games, who
is to say that Henry deserves some of the extra income John has earned? Is that fairness? I call it completely unfair. ...People do not work for the
general good. They work for their own individual ends, which in turn promotes the general welfare. Societies that ask workers to labor for
"the people" get poor results. As the joke from the old Soviet Union had it -- "They pretend to pay us and we pretend to work." By contrast, the
capacity of the American economy to reward effort and initiative is legendary and has lured ambitious people to our shores for more than two centuries. It has also made us the wealthiest society in history. You
don't have to look at socialist countries to know that redistribution of income punishes success and rewards sloth. We've seen it here. Our
welfare system was intended to help the poor -- but because it was poorly structured, it wound up discouraging work and marriage, thus prolonging poverty rather than alleviating it for many. ...Democrats like
to talk about "the rich" as if they are a fixed group of individuals, but anecdotal evidence suggests that two-thirds of those on the Forbes 400
list in 1994 were no longer on the list a decade later. And 80 percent of those on the list were self-made. ...Obama wants to perform an experiment by confiscating more of the income of the most productive
earners (who create the overwhelming majority of jobs) and distributing it to those who earn less. It's been done before -- with dreadful results.
Call it socialism if you like. But don't call it "fairness."
Friday, October 24, 2008 ~ 5:27 p.m., Dan Mitchell Wrote: "Europe wants the summit before the end of the year. Europe wants it. Europe demands it. Europe will get it." So said Nicolas Sarkozy - president of France,
and (until January) of the European Union - before jetting off to Washington over the weekend. There he persuaded President George W. Bush to agree to
an international summit dedicated, says Mr Sarkozy, to nothing less than "re-founding the capitalist system". This trip to Washington was like a French
fantasy come true: a successful attempt to push the US president into discussing global governance and the taming of capitalism. ...But the
Europeans should not believe their own publicity - and nor should a credulous and shell-shocked US president. ...Where might Mr Sarkozy's interventionist
instincts lead him in international discussions on a new "Bretton Woods" agreement? Some hints are already emerging. As well as the standard calls for
tighter supervision of the international banking system, Mr Sarkozy wants a crackdown on international tax havens. The idea of "unfair tax competition"
between nations has long been a bugbear of the French. The closing communiqué of the most recent EU summit also called for controls on
executive pay packages that encourage excessive risk-taking. It seems unlikely that any American administration will be particularly charmed by the idea of
international efforts to harmonise tax regimes or executive pay. Nor should they be.
Thursday, October 23, 2008 ~ 10:11 p.m., Dan Mitchell Wrote: The cabinet's plan, announced yesterday, is to convert the inheritance tax to a flat rate of 10% from the current 2%-50% range and increase the
amount of inheritance exempt from any tax. The move would encourage more taxpayers to bring their savings and investments back onshore -- boosting domestic liquidity and consumption and generating employment
in the high-paying wealth-management and investment-fund sectors. ...The proposal is a sign President Ma Ying-jeou may be getting back on track with a reform agenda that has drifted lately. After quick progress
on cross-Strait economic ties, his administration, which took office in May, has failed to lay out a clear vision of what comes next. Taxes are a
good place to start. Taiwan's corporate income tax rate is 25%, but Hong Kong's is 16.5% and Ireland's is 12.5%. Mr. Ma has convened a panel to study tax reform. Investors will be looking for signs the
tax-cutting momentum will continue. With the global economy in trouble, fortune will increasingly favor the bold reformers.
Thursday, October 23, 2008 ~ 10:00 p.m., Dan Mitchell Wrote: Three governors earned an A for their efforts to restrain spending and cut taxes. Charlie Crist of Florida has trimmed the state budget and
supported two large property-tax cuts since taking office last year. Mark Sanford of South Carolina cut income taxes and has pushed to impose a
cap on state budget growth. Joe Manchin of West Virginia passed major business tax cuts, including repealing the franchise tax and cutting the corporate income-tax rate. Bill Richardson of New Mexico, Jon
Huntsman of Utah, and Dave Heineman of Nebraska also pursued pro-growth tax cuts, but their mediocre spending records dragged down their grades to a B. Other recipients of B grades - such as Tim Pawlenty
of Minnesota - had good records on spending, but their support for substantial tax increases pulled their grades down. ...At the bottom of the
report card rankings, the F governors were not erratic - they consistently sought to increase taxes and spending. Illinois Gov. Rod Blagojevich, for
example, proposed a massive $6 billion hike in gross-receipts taxes on businesses. Maryland's Martin O'Malley enacted a sweeping $1.4 billion tax package that increased the corporate income tax rate, the top
personal income tax rate, and the sales tax rate. The other six F governors - Ted Kulongoski of Oregon, Chet Culver of Iowa, Jon Corzine of New Jersey, Bob Riley of Alabama, Jodi Rell of Connecticut,
and C. L. "Butch" Otter of Idaho - also proposed or enacted large tax hikes. ...Few governors seem to realize that the states are competing in
the global economy for job-creating capital. Corporate tax rates have plunged around the world, but the average state corporate income tax rate is the same now as it was two decades ago. While a few governors,
such as Democrat Joe Manchin, have cut business taxes, many others, such as Republican Rick Perry, have presided over large, job-killing tax increases on business.
Wednesday, October 22, 2008 ~ 4:33 p.m., Dan Mitchell Wrote: Barack Obama is promising a tax cut that most politicians will love. If he is able to keep this promise, politicians can expand government spending
while taking credit for cutting taxes. And attempts to control government spending and make the poor less dependent on the generosity of politicians by increasing their productivity can be attacked as a tax
increase on the poor. Much of the income-tax cut Obama is promising to give to 95% of Americans is not a tax cut at all, but a federal transfer in
the form of a check from the U.S. Treasury to families not paying any federal income tax. ...There is a limit on this nonsense, but it is a limit
imposed by the destruction of economic productivity. Eventually, the marginal tax rate on income will reach the point where additional rate increases will generate little, if any, additional income as
wealth-producing effort is increasingly redirected into tax avoidance. Raising taxes on the rich will cease generating the revenue to "lower
taxes" by increasing transfers to the non rich. And it isn't just those paying higher marginal tax rates on their income whose productivity will
be adversely affected as Obama takes credit for reducing taxes. Transfer recipients will also find themselves facing higher marginal income-tax
penalties as they receive larger transfers. The larger the transfers, the more most of them will be decreased if the recipients earn additional
income. So, as opposed to real cuts in the marginal income-tax rate, the Obama "tax cuts" would have the effect of discouraging productive
effort by those with the most to gain from increasing their productivity.
Wednesday, October 22, 2008 ~ 4:02 p.m., Dan Mitchell Wrote: The global problems we face require global solutions. ...This week, European leaders came together to propose...global
governance...cross-border supervision of financial institutions; shared global standards for accounting and regulation; a more responsible approach to executive remuneration that rewards hard work, effort and
enterprise but not irresponsible risk-taking; and the renewal of our international institutions to make them effective early-warning systems for the world economy.
Wednesday, October 22, 2008 ~ 3:21 p.m., Dan Mitchell Wrote: Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together
undermined our markets. Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make
money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic
risk-taking and hard work that are essential to a vibrant economy. ...And even today, as market forces deflate the credit bubble, the government is
stepping in to re-inflate it. First came the Treasury's $700 billion plan to purchase mortgage assets that no one in the private sector would buy.
Now it has recapitalized banks to the tune of $250 billion, guaranteeing loans between banks and fully insuring non-interest-bearing accounts. Policymakers say that absent these steps, banks would not be able to
extend loans. But given our already staggering debt burden, perhaps more loans are not the answer. That's what the free market is telling us. But the government cannot abide solutions that ask for consumer
sacrifice. Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market
forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is
resisting the cure while exacerbating the disease. The United States reached its economic preeminence on the strength of its free markets. So
far, the economic disaster exacerbated by government policies is creating opportunities for further government interference, which will lead to
bigger catastrophes. Binding the country to a tangle of socialist ideals will seal our fate as a second-rate economic power.
Tuesday, October 21, 2008 ~ 4:44 p.m., Dan Mitchell Wrote: The German finance minister Peer Steinbrück said Tuesday that Switzerland should be placed on an international list of tax havens being
drawn up by the Paris-based Organization for Economic Cooperation and Development. Speaking to reporters in Paris after a conference on measures to combat tax avoidance, Steinbrück said Switzerland deserves
to be on the OECD list because Swiss investment conditions encourage some German taxpayers to commit fraud. ...Switzerland, Austria, Luxembourg and Liechtenstein were not present at the conference.
...President Nicolas Sarkozy of France, addressing lawmakers Tuesday at the European Parliament in Strasbourg, reiterated calls for changes to the treatment of tax havens like the Cayman Islands and Monaco. He
said the issue should be on the agenda for a summit of world leaders to discuss the global financial crisis. ...The OECD is working on a new list
of tax havens and possible retaliation measures to be published by the summer of 2009, Woerth, the Frennch official, said. There will be a
"black list" of countries that are deemed to encourage fraud, and a "green list" of countries that are making progress in tackling it,
according to Steinbrück. ...Singapore and Hong Kong are also the target of European Union measures to tighten regulations governing "a wider
range of products and to a greater geographical reach," Woerth said.
Tuesday, October 21, 2008 ~ 4:13 p.m., Dan Mitchell Wrote: As the economy stalls and the end of the year nears, the best piece of tax advice you can get is pretty simple: Go West. America's most taxing
towns for individuals: Philadelphia, Baltimore, Bridgeport, Conn., and Detroit. The lowest: Anchorage, Alaska; Manchester, N.H.; Cheyenne, Wyo.; and Seattle. Tax burdens for states and cities in the eastern U.S.
tend to be higher than those in the rest of the country, according to several studies that track the amount of taxes people pay as a percentage
of their income. ...Philly appears at the top of the list for at least two reasons: It has a relatively high local wage tax... In other cities, such as
Bridgeport, Baltimore and Des Moines, Iowa, relatively high property taxes boost tax burdens. ...an August 2008 Tax Foundation study of combined state and local tax burdens ranked New Jersey and New York
as the top two tax-burdened states, respectively. California ranked sixth. The study found that high spending by the governments of New York and
New Jersey in particular contributed to the states' high tax burdens.
Monday, October 20, 2008 ~ 4:45 p.m., Andrew Quinlan Wrote: The Center for Freedom and Prosperity's Chairman, Dan Mitchell of the Cato Institute, has aggressively advanced the free market message. For those interested, here is a list of selected publications:
Several of the articles allow comments to be posted and the NPR and Google articles allow readers to "rate" or "recommend," so feel free to vote for more economic freedom! Links to the Above Publications: Real Clear Politics Google-sponsored online debate Five-part debate for the Los Angeles Times, Whether government should subsidize housing, How government caused the turmoil in markets Why McCain's mortgage bailout is misguided, Why Fannie Mae and Freddie Mac should be wiped out Need to end government intervention Article for National Public Radio Article for Pajamas Media Link to this Blog Entry Sunday, October 19, 2008 ~ 6:51 p.m., Dan Mitchell Wrote: House Financial Services Chairman Barney Frank has suggested that linking the banking crisis to the high-risk bank lending mandates of the
Community Reinvestment Act and the "affordable" housing goals set by Congress for Fannie Mae and Freddie Mac constitutes a Republican effort to scapegoat poor, minority households that took out such
mortgages. ...He not only fails to acknowledge the role the government-sponsored mortgage giants played in the flight to unsafe lending. He also doesn't understand the wrongheadedness of government
lending mandates for low-income neighborhoods: They tend to harm the prospects of the households and areas they purport to help. ...When households work hard and play by the rules - saving a down payment,
improving their credit rating over time - they are far less likely to default and far less likely to leave their credit-worthy neighbor left holding the
bag as a street declines. When lending is charity, foreclosure is invited - and it's the good borrowers and frugal families who are hurt. It's worth
noting that the only consistent voice in Congress to express concern about the fallout from "community reinvestment" requirements, as they
expanded during the 1990s, was the senator now judged to be especially indifferent to the plight of those of modest means - Phil Gramm.
Saturday, October 18, 2008 ~ 8:33 p.m., Dan Mitchell Wrote: The global economic crisis is a result of the "comprehensive failure of extreme capitalism," Australian Prime Minister Kevin Rudd said
Wednesday as he took aim at bulging executive pay packets. The centre-left Labor Party leader named greed and fear as the "twin evils"
at the root of the financial sector collapse, which began in the United States and swept the world. "What we have seen is the comprehensive
failure of extreme capitalism -- extreme capitalism which now turns to government to prevent systemic failure," Rudd told the National Press Club in Canberra. ...Governments should act so that greed and lax
regulation were never allowed to put the world in the same position again, he said, adding that Australia would press for this at a meeting of
the G20 group of 20 rich and emerging nations next month. ...Rudd said his government would work with the Australian Prudential Regulatory
Authority (APRA) to bring fat-cat pay packets under control. "This is not just a question of fairness and perceived fairness in the system, it goes
actually to the kernel of the incentive structures around risk-taking," he said.
Friday, October 17, 2008 ~ 5:04 p.m., Dan Mitchell Wrote: Socialist Venezuelan President Hugo Chavez mocked George W. Bush as a "comrade" on Wednesday, saying the U.S. president was a hard-line
leftist for his government's intervention of major private banks in the U.S. financial crisis. Chavez, who calls capitalism an evil and ex-Cuban
leader Fidel Castro his mentor, ridiculed Bush for his plan for the federal government to take equity in American banks... "Bush is to the left of me
now," Chavez told an audience of international intellectuals debating the benefits of socialism. "Comrade Bush announced he will buy shares in
private banks." Chavez, who has insulted Bush in the past as a drunkard or the devil, called him clueless on Wednesday. He accused him of simply
parroting the words of his aides without understanding the new policies that rely on heavy state intervention.
Thursday, October 16, 2008 ~ 4:44 p.m., Dan Mitchell Wrote: One of Barack Obama's most potent campaign claims is that he'll cut taxes for no less than 95% of "working families." ...It's a clever pitch,
because it lets him pose as a middle-class tax cutter while disguising that he's also proposing one of the largest tax increases ever on the other 5%.
But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several
sleights of hand, but the most creative is to redefine the meaning of "tax cut." For the Obama Democrats, a tax cut is no longer letting you keep
more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase "tax
credit." ...In other words, they are an income transfer -- a federal check -- from taxpayers to nontaxpayers. Once upon a time we called this
"welfare," or in George McGovern's 1972 campaign a "Demogrant." Mr. Obama's genius is to call it a tax cut. ...There's another catch:
Because Mr. Obama's tax credits are phased out as incomes rise, they impose a huge "marginal" tax rate increase on low-income workers. The
marginal tax rate refers to the rate on the next dollar of income earned. ...the marginal rate for millions of low- and middle-income workers would spike as they earn more income. Some families with an income of
$40,000 could lose up to 40 cents in vanishing credits for every additional dollar earned from working overtime or taking a new job. As
public policy, this is contradictory. The tax credits are sold in the name of "making work pay," but in practice they can be a disincentive to working
harder, especially if you're a lower-income couple getting raises of $1,000 or $2,000 a year.
Wednesday, October 15, 2008 ~ 6:23 p.m., Dan Mitchell Wrote: The new flat tax regulation collects 10 per cent of taxpayers' income from the beginning of 2008, replacing the previous system, which
combined several different tax rates - between 20 and 24 per cent, depending on income. ...In the second quarter of 2008 the number of employees reached a record 3.37 million. The average salary has
increased by 25 per cent, according to the latest statistics. The declared average social security income has increased at a similar rate, owing to
the slight decrease of stimuli for evasion of income declaration. In 2007, the Bulgarian middle class paid almost 45 per cent in taxes and social
contributions for every one leva additional income. That percentage fell to 35 per cent in 2008. Although the burden still remains high, the
reduction is significant because the greater part of every income increase now remains for worker, employee or enterprise. Economic growth
reached a record 7.1 per cent in the first half of 2008, unprecedented for that period of the year (excluding recovery after the 1996-1997 crisis
when growth was slightly higher). Moreover, the higher economic growth in Bulgaria comes at a time when the growth rates in the European economy are declining, even going into recession in some EU countries.
Tuesday, October 14, 2008 ~ 3:40 p.m., Andrew Quinlan Wrote: The proposed bailout of the financial system is a misguided scheme that will hurt the U.S. economy in the short run and long run. The economy currently is stumbling as a consequence of a government-created housing bubble, but a bailout of companies, executives, and shareholders that made unwise decisions would, at best, extend the economy's adjustment process. More likely, the bailout would impose considerable additional economic damage because political factors would at least partially supplant market forces in determining the allocation of resources. . . . Providing government with enormous - and opaque - new powers is likely to exacerbate economic uncertainty and increase system-wide risk. There is no need to incur this additional risk when the Federal Reserve and Federal Deposit Insurance Corporation have been able to deal with several major institution insolvencies (Washington Mutual, Wachovia, Bear-Stearns, Lehman Brothers, and AIG) with existing authority. . . . The bailout is bad for the economy. The unfortunate truth is that bad government policy has resulted in excess investment in the housing
sector, and the inevitable reallocation of labor and capital is going to cause some economic dislocation. The good news, though, is that this process - if not hindered - will create a stronger and more vibrant
economy. A bailout, however, will discourage this process and reduce economic efficiency.
Monday, October 13, 2008 ~ 4:17 p.m., Dan Mitchell Wrote: The global economic crisis means financial re-regulation is, finally, on the agenda. Most agree it is needed on a global level. Mitchell: Since the financial services industry already is subject to very heavy regulation, it is strange to state that re-regulation is on the agenda, but it certainly is true that politicians will use the turmoil that they created as an excuse to impose more red tape and restrictions. The more troubling phrase is this passage is the assertion that regulation is needed on a "global level." This would be a spectacularly bad idea since it would increase systemic risk. In short, if all nations get dumped into a one-size-fits-all regulatory straitjacket, then the inevitable government mistakes will have a negative impact on the entire world's financial system (in much the same way, for instance, that the global Basel rules encouraged over-securitization). ...the essence of the problem: tax havens. The offshore world created the conditions that led to this crisis, and unless the offshore world is tackled, it will undermine all efforts to deal with it. Mitchell: Morgenthau may want to bring a charge of plagiarism against the TJN guys, since they copy his tactic of blaming offshore centers while providing zero evidence. ...tax havens set out deliberately to "undermine the impact of legislation passed in other jurisdictions". This is their core business, and this is the threat they pose to the world. The impact of this is now visible in the economic crisis. Mitchell: So-called tax havens did not set out to "undermine" the laws of other nations. Indeed, most offshore centers have always had low taxation and privacy protections. What's changed is that politicians in "onshore" nations have become progressively more greedy, and this is causing an exodus of jobs and capital. The banking system has ceased to function because banks do not trust their peers' finances, structures and accounting disclosure. Opacity has been at the heart of the matter, and it is secrecy jurisdictions that create this opacity. Mitchell: This is an amazing claim. Onshore financial institutions have bad assets. Everyone knows which assets are bad. The problem is that nobody knows the market price of these assets, in large part because governments are hindering market forces. Yet somehow this is the fault of privacy laws in the offshore world! The Guardian is a leftist newspaper, but certainly they must have some standards for the columns they feature. If they print this drivel, apparently not. ...they create uncertainty about who owns what. Offshore entities were used to isolate ownership of financial vehicles from onshore parents to secure higher credit ratings. Mitchell: The ultimate owner of a bad mortgage is irrelevant. Indeed, to the extent that foreigners (in the offshore world, China, or anyplace else) own some of the toxic assets, they can be faulted for making bad investments. But that's hardly a sin. Moreover, if onshore regulators do not count the assets and liabilities of foreign subsidiaries, that's hardly the fault of the jurisdictions where those subsidiaries operate. Companies have spread complex structures across jurisdictions to exploit regulatory gaps. Even if each haven's claim to be properly regulated were true, the regulation of such firms falls between stools, since each jurisdiction only accepts responsibility for what happens in its domain. Regulation cannot function in such a world - a fact the failing banks exploited. Mitchell: As Sarbanes-Oxley and other initiatives indicate, nations have plenty of ability to impose regulations. And those regulations can be an extensive and as intrusive and as costly as politicians desire. Moreover, there is nothing to stop politicians from imposing regulations that require domestically-based companies to treat foreign-based activities as if they were domestic-based. The only thing that regulators cannot do is impose their policies on foreign entities operating in foreign jurisdictions. This, needless to say, is a good thing. It protects sovereignty and forces governments to compete with each other since they learn that senseless regulatory burdens simply drive economic activity to jurisdictions with better policy. ...we must gear up for a global fight against tax havens. In the long term this push must stop regulation being embedded in a context riddled with powerful actors deliberately aiming to undermine it. More immediately, it must help policymakers address the crisis's fallout by giving them back powers to tax wealth and capital properly. Mitchell: The authors get credit for honesty in the conclusion. They admit their real goal, which is to attack free-market jurisdictions.
Moreover, notwithstanding the alleged concern about regulatory gaps, they further admit their real goal is to give politicians more power to increase the tax burden and worsen the tax bias against income that is
saved and invested.
Sunday, October 12, 2008 ~ 1:28 p.m., Dan Mitchell Wrote: Beginning in 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low and moderate income
borrowers. For 1996, the Department of Housing and Urban Development (HUD) gave Fannie and Freddie an explicit target -- 42% of their mortgage financing had to go to borrowers with income below
the median in their area. The target increased to 50% in 2000 and 52% in 2005. For 1996, HUD required that 12% of all mortgage purchases by
Fannie and Freddie be "special affordable" loans, typically to borrowers with income less than 60% of their area's median income. That number
was increased to 20% in 2000 and 22% in 2005. The 2008 goal was to be 28%. Between 2000 and 2005, Fannie and Freddie met those goals every year, funding hundreds of billions of dollars worth of loans, many of
them subprime and adjustable-rate loans, and made to borrowers who bought houses with less than 10% down. Fannie and Freddie also purchased hundreds of billions of subprime securities for their own
portfolios to make money and to help satisfy HUD affordable housing goals. Fannie and Freddie were important contributors to the demand for subprime securities. ...The Community Reinvestment Act (CRA) did
the same thing with traditional banks. It encouraged banks to serve two masters -- their bottom line and the so-called common good. First passed
in 1977, the CRA was "strengthened" in 1995, causing an increase of 80% in the number of bank loans going to low- and moderate-income
families. Fannie and Freddie were part of the CRA story, too. In 1997, Bear Stearns did the first securitization of CRA loans, a $384 million offering guaranteed by Freddie Mac. Over the next 10 months, Bear
Stearns issued $1.9 billion of CRA mortgages backed by Fannie or Freddie. Between 2000 and 2002 Fannie Mae securitized $394 billion in CRA loans with $20 billion going to securitized mortgages. By pressuring
banks to serve poor borrowers and poor regions of the country, politicians could push for increases in home ownership and urban development without having to commit budgetary dollars. Another
political free lunch. ...The Fed did its part, too. In 2003, the federal-funds rate hit 40-year lows of 1.25%. That pushed the rates on adjustable loans
to historic lows as well, helping to fuel the housing boom. ...Fannie and Freddie played a significant role in the explosion of subprime mortgages
and subprime mortgage-backed securities. ...Both Bill Clinton and George W. Bush, abetted by Congress, trumpeted that rise as it occurred. The consequence? On top of putting the entire financial system at risk,
the hidden cost has been hundreds of billions of dollars funneled into the housing market instead of more productive assets. Beware of trying to do
good with other people's money. Unfortunately, that strategy remains at the heart of the political process, and of proposed solutions to this crisis.
Saturday, October 11, 2008 ~ 2:31 p.m., Andrew Quinlan Wrote: Congress has voted to give the Treasury Secretary nearly unlimited power to spend $700 billion to bailout Wall Street. The policy is designed to help financial institutions by paying above-market prices for money-losing portfolios. Taxpayers, of course, will be the ones picking up the tab. The bailout is unprecedented because of a) the approach that was chosen; b) the process that is being used, and; c) what it is intended to accomplish. More specifically: a) Regarding the approach, politicians periodically have sought to subsidize certain industries, generally by using loans, protectionism, or grants, but this is an enormous subsidy and it is
the first time the financial services industry has been the direct beneficiary of significant government intervention. . . . It already is becoming apparent that the short-run argument for the bailout was erroneous. The Dow Jones Industrial Average plunged
several hundred points the moment the bailout passed on Friday, and this week began with a huge plunge. Friday, October 10, 2008 ~ 10:25 p.m., Dan Mitchell Wrote: Taxpayers hit by the credit crunch fund the swish seven-bedroom home enjoyed free by Afghan migrant Toorpakai Saindi and her family. And her
landlord is raking in rent of more than £12,000 a month from a local council — funded by taxpayers. That's double the normal market value of the
seven-bedroom property, located in a swish West London street peppered with the Mercedes and BMW cars of private owners. Yesterday Saindi, who
also gets an estimated £400 a week in child and local tax benefits, said: "It's a lot of money, but the council pay it. This is their problem. I don't know why they pay so much."
Thursday, October 9, 2008 ~ 5:21 p.m., Dan Mitchell Wrote: When so many politicians speak with one voice in support of the biggest act of government intervention in the economy in generations, I cringe.
Everybody talked about the "freeze" in the credit markets, but why, I wonder, were the cable news programs that repeated the credit-freeze
mantra pausing for commercials from companies trying to lend me money? Ditech and LendingTree still hawk mortgages at under 6 percent. Some credit freeze. Economist Robert Higgs of the Independent
Institute looked at the credit numbers kept by the Federal Reserve. He writes: "Although certain financial institutions are undeniably in deep
trouble -- difficulties of their own making ... -- credit markets in general have not ceased to operate. Moreover, lenders are extending credit in
historically great amounts". …I suspect that the bailout will do more harm than good, like "aiding" an alcoholic by giving him booze. It
perpetuates the moral hazard produced by government guarantees that created the problems in the first place. It acts as an enabler by giving more money to opportunistic lenders who assumed they'd be bailed out.
…Sure, without the bailout, there might have been a severe recession. Bubbles must pop. But it's important that we let bubbles pop. Markets would then find a floor and recover. Now the politicians are blowing
some new air into the bubble, but we may have a recession anyway. And with more intervention, regulation and ambiguity about what the real market prices for those government-supported securities are, investors
won't know where the real bottom is. So any recession will last longer. And the moral hazard the bailout perpetuates will lead to new bubbles ... and then demands for another bailout.
Wednesday, October 8, 2008 ~ 6:12 p.m., Dan Mitchell Wrote: Fannie and Freddie also became a kind of jobs program for out-of-work Democrats. Franklin Raines and Jim Johnson, the CEOs under whom the
worst excesses took place in the late 1990s to mid-2000s, were both high-placed Democratic operatives and advisers to presidential candidate Barack Obama. Clinton administration official Jamie Gorelick
also got taken care of by the Fannie-Freddie circle. So did top Clinton aide Rahm Emanuel, among others. On the surface, this sounds innocent.
Someone has to head the highly political Fannie and Freddie, right? But this is why crony capitalism is so dangerous. Those in power at Fannie and Freddie, as the sirens began to wail about some of their more
egregious practices, began to bully those who opposed them. That included journalists, like the Wall Street Journal's Paul Gigot, and GOP congressmen, like Wisconsin Rep. Paul Ryan, whom Fannie and Freddie
actively lobbied against in his own district. Rep. Cliff Stearns, R-Fla., who tried to hold hearings on Fannie's and Freddie's questionable
accounting practices in 2004, found himself stripped of responsibility for their oversight by House Speaker Dennis Hastert - a Republican. Where,
you ask, were the regulators? ...Fannie and Freddie had a reliable coterie of supporters in the Senate, especially among Democrats. "We now know that many of the senators who protected Fannie and Freddie,
including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years," wrote economist Kevin Hassett on Bloomberg.com this week.
...Freddie and Fannie opened what were euphemistically called "Partnership Offices" in the districts of key members of Congress to
channel millions of dollars in funding and patronage to their supporters. In the space of a little more than a decade, Fannie and Freddie spent
close to $150 million on lobbying efforts. ...Clinton aide Raines, who took Fannie Mae's helm as CEO in 1999, took in nearly $100 million by the
time he left in 2005. Others, including former Clinton Justice Department official Gorelick, took $75 million from the Fannie-Freddie piggy bank.
...with the taxpayer tab approaching $1 trillion or more, we're learning the costs of crony capitalism.
Tuesday, October 7, 2008 ~ 3:18 p.m., Dan Mitchell Wrote: Barack Obama says, "[Today's economic problems are] a stark reminder of the failures of...an economic philosophy that sees any regulation at all
as unwise and unnecessary" (). What? Does that mean that until last week the Bush administration embraced the free market? Nonsense. Governments at all levels have regulated and subsidized the housing and
financial industries for years. Nothing changed under President Bush. The government-backed Fannie Mae and Freddie Mac were created precisely to interfere with the housing and mortgage markets. In effect,
Freddie and Fannie diverted money to people who wouldn't have qualified for mortgages in a real private market. Had actual private companies performed these activities, they would have been subject to
market checks. But they were not. The results were predictable. Now that it's all tumbling down, the politicians and pundits blame the free market. ...Moral hazard -- the poisonous mix of private profits and
taxpayer-covered losses -- is what you get when politicians indulge their hubris to redesign society. The bailout of those companies holding bad
mortgages -- big-business socialism -- sets us up for the next crisis. ...For decades politicians of both parties have relieved big companies of the
responsibility that market discipline would have imposed. The promise -- explicit or implicit -- to bail out companies "too big to fail" weakens
market discipline. That invites recklessness. ...Crisis is the friend of the State. The politicians are desperate to be seen as "showing leadership,"
so we're surely in for a new round of government interventions. Watch for the equivalent of the Sarbanes-0xley Act. There'll be much posturing
about how the new regulations "will keep this from ever happening again," but that's more nonsense because the root problem is not lack of
regulation. It's government social engineering of the housing market, which will be unchanged.
Tuesday, October 7, 2008 ~ 2:00 p.m., Dan Mitchell Wrote: For politicians and their hangers-on, keeping the populace alarmed is a strategy to seize more control over our lives. ...Most of today's economic
problems, whether it's energy, health care costs, financial problems, budget deficits or national debt, are caused by policies pursued by the White House and Congress. As my colleague Dr. Thomas Sowell
suggested in a recent column, we don't look to arsonists to put out fires that they've created; neither should we look to Congress to solve the problems they've created.
Monday, October 6, 2008 ~ 1:40 p.m., Dan Mitchell Wrote: In the first presidential debate, Barack Obama repeated a claim he has made many a time - that his economic plan would cut taxes for "95% of
working families." But is this really so? ...only if you accept Obama's definition of a tax cut. And doing that may force you to leave your
common-sense zone. ...A true tax "cut" is a reduction in the taxes you're paying. In contrast, much of the "relief" in Obama's plan consists of
"refundable credit" - payments you get even if you owe no taxes at all. ...The Tax Policy Center estimates that the share of households not
owing income tax would rise from 38% under current law to 48% under the Obama plan. ...What happens to our society and politics when so many Americans no longer expect to share the income-tax burden and
instead think "tax relief" means getting checks extracted from "the rich"? The country is on dangerous ground at such a point, because there
may be no stopping the zeal of politicians to pad their majorities even more by squeezing the wealth producers and buying the votes of a new welfare class that once was proud of paying its own way.
Monday, October 6, 2008 ~ 1:15 p.m., Dan Mitchell Wrote: The number of new unemployment claims soared last week to 493,000. Fox Business's Donna Fuscaldo spun the news as "underscoring the dour
state of the U.S. economy." After starting to rise in early January, initial jobless claims peaked this last March. New jobless claims either fell or
leveled off after that -- until July, that is, when they started to rise and kept on rising ever since. ...So what happened? What changed in July?
The increase has had only one cause: longer unemployment insurance benefits. ...This pattern is exactly what economists would predict. For example, Larry Katz, the Democratic chief economist at the Labor
Department during the Clinton Administration, found that workers are almost three times more likely to find jobs when benefits are just about to run out. Indeed, dozens of economic research papers predicted this
outcome. When you extend or increase unemployment benefits, you extend unemployment. ...Politicians would appear insensitive if they ever claimed that the increased unemployment rates mean little more than
people getting paid not to work. But while you are watching the higher unemployment rate numbers that are released later this week, remember that the troubling numbers are a politically created mirage.
Sunday, October 5, 2008 ~ 5:28 p.m., Dan Mitchell Wrote: Basing its recommendation on the theory that the greenhouse gases emitted by meat and dairy production are principal contributors to global
warming, the Food Climate Research Network, operating out of the University of Surrey, strongly suggests that meat and milk consumption in developed countries be rationed. This nonsense emanating from an
institute of supposedly higher learning is alarmingly similar to the madness spouted by Rajendra Pachauri, the vegetarian chair of the United Nations Intergovernmental Panel on Climate Change, who wants
people to "give up meat for one day (a week) initially, and decrease it from there." ...Fearmongers who want to ration meat and milk would
force the world to eat like residents of communist Cuba, where food is rationed by a malevolent regime that has institutionalized scarcity. In
that workers' paradise, the average ration of meat - if available and including fish - is two ounces per day. Milk is distributed only to children
under 7, and each Cuban gets 12 eggs per month. "Limited in what they can eat, Cubans spend much time thinking about their next meal," AP
reporter Anita Snow, who lived on a Cuban diet for 30 days, wrote last year. "I found myself obsessing about food as well." ...The forces that
want to scare the world about global warming wish to dictate how the rest of us live, from the homes we live in to the automobiles we drive
and, now, to the food we eat. They want people to believe that they have only the public interest at heart, but in reality their goal is to set
themselves up as autocrats who can shape the world so that it suits their tastes.
Saturday, October 4, 2008 ~ 10:44 p.m., Dan Mitchell Wrote: Economics is not supposed to be McCain's strong suit, but at least he knows that you don't raise taxes in tough economic times and that if you
do tax something you get less of it. If you want U.S. businesses to be competitive in a global market, you reward their risk-taking and don't
punish their success. ...As McCain noted, American companies "pay the second-highest business taxes in the world, 35%. Ireland pays 11%."
...McCain drew the obvious conclusion: "If you're a businessperson, and you can locate any place in the world, then, obviously, if you go to the
country where it's 11% tax vs. 35%, you're going to be able to create jobs, increase your business, make more investment, etc." This is a hard
concept to grasp for the No. 1 liberal in the U.S. Senate, whose economic program is a classic socialist income-redistribution scheme, but we need
more tax breaks, not fewer. ...in the last year and a half, nine of the 30 most developed countries and 20 countries worldwide have cut their corporate tax rates. Sweden, the poster child for the cradle-to-grave
socialist welfare state, plans to cut its corporate tax rate from 28% to 26.3% to get Swedes off subsidies and back in the job market. ...Cutting
corporate taxes helped Ireland in a generation go from being the "sick man of Europe" to the second richest country in the European Union,
with a per capita GDP higher than that of Germany, France and Britain.
Friday, October 3, 2008 ~ 11:15 p.m., Dan Mitchell Wrote: Too Much Money Is Beyond Legal Reach: New York-based funds are abusing 'secrecy jurisdictions.', By Robert M. Morgenthau, The Wall Street Journal A major factor in the current financial crisis is the lack of transparency in the activities of the principal players in the financial markets. Mitchell: This is a nonsensical assertion. Everyone knows the activities that have caused the problem, and it is rather obvious which institutions are in trouble. The only thing that's unclear is the real value of the bad assets, and that problem is compounded by political uncertainty and the instability associated with a bailout. This opaqueness is compounded by vast sums of money that lie outside the jurisdiction of U.S. regulators and other supervisory authorities. Mitchell: This sentence is even more absurd. Morgenthau does not identify a single problem that can be tied to money outside the United States. If anything, investors outside the United States are victims (or fools, depending on your perspective, since they purchased many bad assets) who have suffered major losses. The $700 billion in Treasury Secretary Henry Paulson's current proposed rescue plan pales in comparison to the volume of dollars that now escape the watchful eye, not only of U.S. regulators, but from the media and the general public as well. There is $1.9 trillion, almost all of it run out of the New York metropolitan area, that sits in the Cayman Islands, a secrecy jurisdiction. Another $1.5 trillion is lodged in four other secrecy jurisdictions. Mitchell: Yes, there is considerable money in high-quality financial centers. Places such as the Cayman Islands, Switzerland, Hong Kong, Singapore, and Delaware punch way above their weight in global markets. But Mr. Morgenthau fails to identify a single aspect of the financial turmoil that is the result of either foreign money in general or "secrecy-jurisdiction" money in specific. Following the Great Depression, we bragged about a newly installed safety net that was suppose to save us from such a hard economic fall in the future. However, the Securities and Exchange Commission, the Federal Reserve System, the Comptroller of the Currency and others have ignored trillions of dollars that have migrated to offshore jurisdictions that are secretive in nature and outside the safety net -- beyond the reach of U.S. regulators. Mitchell: At the risk of sounding like a broken record, Morgenthau continues to make rather hysterical assertions. Yet he does not bother to offer even a theory of how money in offshore jurisdictions is causing problems. As for any hard facts, don't even bother asking. We should have learned a long time ago that totally unsupervised markets, whether trading in tulips or subprime mortgages, will sooner rather than later get into trouble. We don't have to look back very far in history to understand this. Long Term Capital Management, a hedge fund "based" in Greenwich, Conn., but composed of eight partnerships chartered in the Caymans, was supposed to be the wunderkind of the financial world. At its peak in the late 1990s, its gross holdings were valued at $1.8 trillion. But, regrettably, its liabilities exceeded its assets and the Federal Reserve Bank of New York had to step in and rescue it when the value of its assets plummeted. Mitchell: Finally, we get something specific, but Morgenthau neglects to provide either theory or fact to explain how the failure of Long Term Capital Management has anything to do with the laws of the Cayman Islands. What's next, a screed blaming Delaware for the failure of AIG and Lehman Brothers and North Carolina for the collapse of Wachovia (though a piece blasting Congress for chartering Fannie Mae and Freddie Mac actually would hit the right target). Most recently, two Bear Stearns hedge funds, based in the Cayman Islands, but run out of New York, collapsed without any warning to its investors. Because of the location of these financial institutions -- in a secrecy jurisdiction, outside the U.S. safety net of appropriate supervision -- their desperate financial condition went undetected until it was too late. Of course, BCCI Overseas, which was part of the then largest bankruptcy in history, was also "chartered" in the Caymans. Mitchell: Gee, why didn't U.S. regulators and supervisors detect the problems of AIG, Lehman Brothers, Fannie Mae, Freddie Mac, Wachovia, Bear Stearns, and Washington Mutual (not to mention the other shoes that are about to drop)? Could it be that companies sometimes go bankrupt and that it makes no sense to blame the jurisdictions where they are chartered? Unfortunately, Morgenthau seems intent on demonizing the Cayman Islands, so intellectual honesty is not a constraint. We have to learn from our mistakes. Any significant infusion to the financial system must carry assurances that it will not add to the pool of money beyond the safety net and supervisory authority of the United States. Moreover, the trillions of dollars currently offshore and invested in funds that could impact the American economy must be brought under appropriate supervision. Mitchell: Morgenthau is right that we have to learn from mistakes. Sadly, he does not suggest ways to stop the Federal Reserve from engaging in easy-money policy. Nor does he argue that Fannie Mae and Freddie Mac should be shut down. If Congress and Treasury fail to bring under U.S. supervisory authority the financial institutions and transactions in secrecy jurisdictions, there will be no transparency with the inevitable consequences of the lack of transparency -- namely, a repeat of the unbridled greed and recklessness that we now face. Because of the monolithic character of world financial markets, a default crisis anywhere becomes a default crisis everywhere. Mitchell: Having failed to provide a shred of evidence for his hypothesis, Morgenthau's conclusion is just a stale repeat of his overwrought rhetoric about imaginary dangers. It's worth noting that the financial institutions most associated with the Cayman Islands – hedge funds – have been one of the strongest segments of the financial industry. But unlike Morgenthau, I don't draw any foolish conclusions and thus am not recommending that the Cayman Islands blacklist America. Too Much Money Is Beyond Legal Reach: New York-based funds are abusing 'secrecy jurisdictions.', By Robert M. Morgenthau, The Wall Street Journal
Thursday, October 2, 2008 ~ 12:44 p.m., Dan Mitchell Wrote: The French business community has criticised plans recently announced by French President Nicolas Sarkozy to introduce a new investment tax
which would help fund a jobseeker scheme. Mr Sarkozy on Thursday announced his proposal for a 1.1% tax on revenue from real estate and other investments, such as dividends, a levy which will be known as
'active solidarity revenue' (RSA). The tax is expected to raise EUR1.4bn and will fund a major part of the social programme, in a bid to help the
unemployed get back to work. This new levy would be paid in addition to existing investment taxes, the paper reported. Under the current system,
some unemployed people are reluctant to take jobs because they fear they will be less well off than on benefits. ...there has been a wave of objection from the business community, with the leader of French
business lobby Medef, Laurence Parisot, remarking, according to Dow Jones Newswires, that: "You can't just increase taxes - or add new ones -
every time you need to fulfill a new objective. If we add up everything that has been decided by the government in recent times, there's ground to get worried."
Wednesday, October 1, 2008 ~ 8:23 p.m., Dan Mitchell Wrote: In the 2009 budget speech aimed at reviving Sweden's flagging economy, Finance Minister, Anders Borg, revealed the government's key initiatives
at the heart of the Budget Bill: cutting taxes and benefit payments to increase work incentives... Unveiling the measures to parliament on Monday, Borg announced a cut in income tax of SEK15bn to be achieved
via an extension of the in-work tax credit system combined with a reduction in the state income tax paid by middle and high earners. In order to cut corporate taxes by nearly SEK16bn, the tax rate will be
reduced from 28% to 26.3% and the employers' social security contributions lowered by 1% from 32.4%.
Wednesday, October 1, 2008 ~ 7:56 p.m., Dan Mitchell Wrote: Many monumental errors and misjudgments contributed to the acute financial turmoil in which we now find ourselves. Nevertheless, the vast
accumulation of toxic mortgage debt that poisoned the global financial system was driven by the aggressive buying of subprime and Alt-A mortgages, and mortgage-backed securities, by Fannie Mae and Freddie
Mac. The poor choices of these two government-sponsored enterprises (GSEs) -- and their sponsors in Washington -- are largely to blame for our current mess. ...In order to curry congressional support after their
accounting scandals in 2003 and 2004, Fannie Mae and Freddie Mac committed to increased financing of "affordable housing." They became
the largest buyers of subprime and Alt-A mortgages between 2004 and 2007, with total GSE exposure eventually exceeding $1 trillion. In doing so, they stimulated the growth of the subpar mortgage market and
substantially magnified the costs of its collapse. ...In 2005, the Senate Banking Committee, then under Republican control, adopted a strong
reform bill, introduced by Republican Sens. Elizabeth Dole, John Sununu and Chuck Hagel, and supported by then chairman Richard Shelby. The
bill prohibited the GSEs from holding portfolios, and gave their regulator prudential authority (such as setting capital requirements) roughly
equivalent to a bank regulator. In light of the current financial crisis, this bill was probably the most important piece of financial regulation before
Congress in 2005 and 2006. All the Republicans on the Committee supported the bill, and all the Democrats voted against it. Mr. McCain endorsed the legislation in a speech on the Senate floor. Mr. Obama, like
all other Democrats, remained silent. Now the Democrats are blaming the financial crisis on "deregulation." This is a canard. There has indeed
been deregulation in our economy -- in long-distance telephone rates, airline fares, securities brokerage and trucking, to name just a few -- and
this has produced much innovation and lower consumer prices. But the primary "deregulation" in the financial world in the last 30 years
permitted banks to diversify their risks geographically and across different products, which is one of the things that has kept banks relatively stable in this storm. ...If the Democrats had let the 2005
legislation come to a vote, the huge growth in the subprime and Alt-A loan portfolios of Fannie and Freddie could not have occurred, and the
scale of the financial meltdown would have been substantially less. The same politicians who today decry the lack of intervention to stop excess
risk taking in 2005-2006 were the ones who blocked the only legislative effort that could have stopped it. |
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