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The MARKET CENTER is a platform for periodic observations about economic policy, philsophy, government, and the political process. Some of the commentary will relate to tax competition issues, but this site is designed to allow a wide range of topics to be analyzed. Readers are invited to submit questions, though we cannot promise public responses to every query. Readers also have an opportunity to sign up to receive postings via email.
 

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

Observations and insights on the global fight
for economic freedom and prosperity

CF&P's Market Center Blog Archives
October 2009

 

Saturday, October 31, 2009 ~ 11:17 a.m., Dan Mitchell Wrote:
Soviet-Style Tax Collection Tactics in the Windy City.
During the Cold War, Americans often would use dark humor to mock the totalitarian nature of the Soviet regime, and it was not uncommon to joke about children turning in their parents for anti-Soviet behavior in exchange for a pair of Western blue jeans. In the real world, of course, these things are not funny, and folks in places such as Cuba still live in fear that neighborhood informants will get them in trouble with the secret police. So it is particularly nauseating to see that the City of Chicago is seeking to encourage some taxpayers to snitch on others:

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Friday, October 30, 2009 ~ 5:45 p.m., Dan Mitchell Wrote:
Global Prosperity Index Ranks America 9th, Behind Nations Such As Finland, Australia, and Canada.
According to the Legatum Institute, Finland is the world's most prosperous nation, based on material well-being and certain social indicators. Other Nordic nations, as well as Switzerland and the Netherlands also rank above the United States. The variables that determined the ranking leave something to be desired from a libertarian perspective, but a column in the Wall Street Journal Europe, authored by the heads of the Legatum Institute and America Enterprise Institute, makes a valuable point about the the fact that the Nordic nations have very laissez-faire policies with the exception of large welfare states. This commitment to unfettered markets enables them to retain some dynamism, thus offsetting to some degree the negative impact of too much taxes and spending. As the column notes, this has important lessons - especially for the United States, which is moving toward bigger government and more intervention in private markets:

    ...free enterprise has come under attack with the global economic crisis, the perceived threat of climate change, and a broader concern洋ost recently promoted by French President Nicolas Sarkozy葉hat growth alone does not indicate prosperity. ...Many people容specially Americans葉hink of wealth as the basis of health and happiness, too. In other words, market economies with good economic fundamentals drive us to more fulfilling lives. Europeans often counter that a narrow pecuniary viewpoint gives a distorted picture of the human experience. Worse yet, it can lead to the tyranny of materialism. Who is right? ...While free enterprise is not the only important factor explaining national differences in well-being, it probably does explain most of it. This means subverting the mechanisms of free enterprise would not just lead to lower economic growth but also lower social scores. The fact that the Nordic countries do so well in the Prosperity Index has largely to do with the fact that apart from their welfare policies, they also encourage entrepreneurship, free trade, and have stable monetary policies容ven as they employ strong rhetoric against capitalism. Finland, Sweden and Denmark all score higher than Switzerland and nearly all of their southern European counterparts on their capacity to commercialize innovation, through factors such as business start-up procedures, business registration rates, and royalties on patents. All of this drives dynamic entrepreneurship, and spurs people to innovate and take risks, as they are more reassured that good ideas will pay off. U.S. policy makers would do well to note this fact as they contemplate more "European" policies. And as the West contemplates ever tighter regulations on how and where money can be spent, lent and invested, their leaders should remember that economic and political liberty謡hile not the whole story用lay a key role in prosperity. They are the engine driving much of what makes life worthwhile.
    http://online.wsj.com/article/SB100014240527487043359045744968822516 83104.html

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Thursday, October 28, 2009 ~ 12:23 p.m., Dan Mitchell Wrote:
The Good Guys Win One.
The past nine years have been discouraging, with Bush and Obama both being big-government interventionists. But it's nice to know that the other side still has a hard time imposing higher taxes. The Wall Street Journal's editorial page celebrates the death of a terrible tax proposal that would have increased double taxation on American companies trying to earn market share while competing abroad:

    Raising taxes on the overseas profits of American firms has been a central plank of Barack Obama's agenda since his campaign for President in 2008. The proposal was featured in the President's budget in February and was the focus of a May speech in which he said that corporations were "shirking" their responsibility to support his huge increases in federal spending through higher tax payments. But as this newspaper reported Tuesday, the Administration appears to have shelved the plan to limit business use of the current deferral of taxes on profits earned overseas. This climbdown comes after a full-court press by U.S. multinationals, notably including some of Mr. Obama's Silicon Valley supporters, which argued that raising taxes on U.S. companies abroad would do nothing to create jobs in the U.S. while undermining American competitiveness overseas. The U.S. is one of the few developed countries that even tries to tax corporate overseas profits. Most operate on a territorial system, in which business profits are taxed in the country in which they are earned. The U.S. taxes world-wide income but then allows a deferral of overseas taxes until those profits are repatriated. It also allows companies to take a tax credit for corporate taxes paid in other countries, although this tax credit system is cumbersome and only partially offsets the burden of double taxation. The idea that raising corporate taxes would promote job creation never made sense, and the mere threat of higher taxes is one factor depressing business investment and slowing any recovery. So it's good news that the Administration seems to have set this job-killer aside, at least for now.
    http://online.wsj.com/article/SB100014240527487041072045744713803802 16244.html

Hopefully, the Center for Freedom and Prosperity's video played at least a small role in educating policy makers about the foolishness of the President's proposal.


http://www.youtube.com/watch?v=pTXiadVpS4M

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Wednesday, October 28, 2009 ~ 6:34 p.m., Dan Mitchell Wrote:
Weekly Economics Lesson.
While doing research for an upcoming video, I found an excellent study from the National Center for Policy Analysis that explains how "third-party payer" is largely preventing markets from operating in health care. Government policies (including tax distortions) are the cause of the problem, yet the politicians want to expand third-party payments. Here's an excerpt from the paper, and I also reprint below a key chart from the paper that shows how most medical prices rise faster than the overall price level, but the opposite result occurs when consumes are in control (for things such as cosmetic surgery):

    Long before a patient enters a doctor's office, third- party bureaucracies have determined which medical services they will pay for, which ones they will not and how much they will pay. The result is a highly artificial market plagued by problems of high costs, inconsistent quality and poor access. ...Can the market for medical care be different? Interestingly, in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. And because they are not trapped in a system that pays for predetermined tasks at predetermined rates, providers are free to repackage and reprice their services just like vendors in other markets. It is primarily in these direct-pay markets that entrepreneurs are creating many innovative services to solve the very problems about which critics of the health care system complain. ...Cosmetic surgery is rarely covered by insurance. Because providers know their patients must pay out of pocket and are price sensitive, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery, and (c) pay a price that has been falling over time in real terms despite a huge increase in volume and considerable technical innovation (which is blamed for increasing costs for every other type of surgery). ...In 1960, consumers paid about 47 percent of overall health care costs out of pocket. ...In 2006, consumers paid only 12 cents out of their own pockets every time they spent a dollar on health care.
    http://www.ncpa.org/pdfs/st318.pdf

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Tuesday, October 27, 2009 ~ 3:11 p.m., Dan Mitchell Wrote:
Bruce Bartlett's VAT Delusions.
I've known and liked Bruce Bartlett for more than 20 years, so you can imagine my dismay that he is now pimping for a value-added tax (VAT). I'm not sure whether his mind has been captured as part of a remake of Invasion of the Body Snatchers or if he's just been hanging around Washington for too long, but his implication that it is possible to be a pro-market conservative while supporting a huge new tax to finance bigger government is absurd. Conservatives (not counting the big spenders who call themselves "compassionate conservatives") share the libertarian goal of smaller government. And trying to achieve smaller government by raising taxes is akin to treating alcoholics by giving them keys to a liquor store. The VAT is a particularly bad idea because it would be a huge new source of revenue, as Bruce acknowledges in an article for Forbes.com:

    Based on the experience in other countries, I estimate that a U.S. VAT could realistically tax about a third of the gross domestic product (GDP), which would raise close to $50 billion per percentage point. If we adopted Europe's average VAT rate of 20%, we could raise $1 trillion per year in 2009 dollars.

Bruce makes the point that a VAT does not do as much damage, per dollar raised, as the personal or corporate income tax, but so what? That would only be a compelling argument if the VAT was used to eliminate other taxes. At the risk of pointing out the obvious, that's not what Bruce is proposing. Interestingly, even though his core argument is that we should adopt a VAT to give the government additional revenue, Bruce tries to be all things to all people by mentioning that a VAT could replace other taxes:

    Replacing the corporate tax with a VAT would unquestionably improve the competitiveness of all U.S. exporters.

Even here, though, Bruce's argument is misleading. A VAT would have no impact on US exporters. All the benefits would occur only because the corporate income tax would disappear. Not that this matters since Bruce is not advocating for that position. He then continues to muddy the waters by citing Senator DeMint's legislation, presumably to make it seem as if his plan is good by association.

    Sen. Jim DeMint, R-S.C., introduced legislation (S. 1240) to establish a business consumption tax that is, in essence, a VAT.

There is a gigantic difference, of course, between Bartlett and DeMint. The Senator proposes to replace the internal revenue code, whereas Bruce wants to augment it. Bruce then whines that supporters of limited government attack his plan for facilitating bigger government, but he offers no refutation. But that is no surprise since Bruce is throwing in the towel, saying we should have a VAT since it is hopeless to fight against growing government.

    ...whenever I suggest the idea of a VAT for the U.S., I am attacked by supply-siders and assorted right-wingers. The other day my friend Larry Kudlow criticized me for wanting to "Europeanize the American economy." Their concern is that the VAT is a money machine that will lead to higher taxes and bigger government precisely because it is such a "good" tax. I myself held this same view for many years. But eventually I decided that it was stupid to oppose something because of its virtues. Opposing a VAT because it's too good is like breaking up with your girlfriend because she is too beautiful.

The last line is clever, but ridiculous. The more appropriate analogy is that you are married to the Creature from the Black Lagoon, and Bruce wants you to make the Wicked Witch of the West as a second wife.
http://www.forbes.com/2009/10/22/republicans-value-added-tax-opinions-columnist s-bruce-bartlett.html

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Monday, October 26, 2009 ~ 5:45 p.m., Dan Mitchell Wrote:
Politicians vs. the Constitution.
With characteristic bluntness, Walter Williams explains that much of what is happening in Washington is eroding American exceptionalism by undermining the Constitution's restraints on the power of the federal government:

    At the heart of the American idea is the deep distrust and suspicion the founders of our nation had for government, distrust and suspicion not shared as much by today's Americans. Some of the founders' distrust is seen in our Constitution's language such as Congress shall not: abridge, infringe, deny, disparage, violate and deny. If the founders did not believe Congress would abuse our God-given rights, they would not have provided those protections. After all, one would not expect to find a Bill of Rights in Heaven; it would be an affront to God. Other founder distrust for government is found in the Constitution's separation of powers, checks and balances and the several anti-majoritarian provisions such as the Electoral College and the requirement that three-quarters of state legislatures ratify changes in the Constitution. The three branches of our federal government are no longer bound by the Constitution as the framers envisioned and what is worse is American ignorance and acceptance of such rogue behavior. Look at the current debate over government involvement in health, business bailouts and stimulus packages. The debate centers around questions as whether such involvement is a good idea or a bad idea and whether one program is more costly than another. Those questions are entirely irrelevant to what should be debated, namely: Is such government involvement in our lives permissible under the U.S. Constitution?
    http://townhall.com/columnists/WalterEWilliams/2009/10/21/american_idea

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Sunday, October 25, 2009 ~ 7:21 p.m., Dan Mitchell Wrote:
The Politicians and Bureaucrats Are Lying about the Cost of Government-Run Healthcare.
The Wall Street Journal issues a devastating indictment against the absurd claim that the Senate plan for socialized health care will reduce the deficit:

    Washington has just run a $1.4 trillion budget deficit for fiscal 2009, even as we are told a new health-care entitlement will reduce red ink by $81 billion over 10 years. To believe that fantastic claim, you have to ignore everything we know about Washington and the history of government health-care programs. ...Let's start with the claim that a more pervasive federal role will restrain costs and thus make health care more affordable. We know that over the past four decades precisely the opposite has occurred. Prior to the creation of Medicare and Medicaid in 1965, health-care inflation ran slightly faster than overall inflation. In the years since, medical inflation has climbed 2.3 times faster than cost increases elsewhere in the economy. ...Next let's examine the record of Congressional forecasters in predicting costs. Start with Medicaid, the joint state-federal program for the poor. The House Ways and Means Committee estimated that its first-year costs would be $238 million. Instead it hit more than $1 billion, and costs have kept climbing. Thanks in part to expansions promoted by California's Henry Waxman, a principal author of the current House bill, Medicaid now costs 37 times more than it did when it was launched預fter adjusting for inflation. Its current cost is $251 billion, up 24.7% or $50 billion in fiscal 2009 alone, and that's before the health-care bill covers millions of new beneficiaries. Medicare has a similar record. In 1965, Congressional budgeters said that it would cost $12 billion in 1990. Its actual cost that year was $90 billion. Whoops. The hospitalization program alone was supposed to cost $9 billion but wound up costing $67 billion. These aren't small forecasting errors. The rate of increase in Medicare spending has outpaced overall inflation in nearly every year (up 9.8% in 2009), so a program that began at $4 billion now costs $428 billion. The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected.
    http://online.wsj.com/article/SB100014240527487037466045744616109852 43066.html

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Saturday, October 24, 2009 ~ 11:01 p.m., Dan Mitchell Wrote:
Good News: Obama Is not Repeating all of Bush's Mistakes.
Bush was a big spender. Obama is a big spender. Bush supported bailouts. Obama supports bailouts. Bush created a new healthcare entitlement. Obama is trying to create a new healthcare entitlement. But President Obama may not be a lost cause. According to the Associated Press, the Administration is reversing the old policy of persecuting people who use or provide medical marijuana in states where it is legal. This is a victory for federalism and common sense. People should be free to make dumb decisions with their own lives, and prohibition is both futile and expensive. And there certainly is no reason for the federal government to be involved:

    Federal drug agents won't pursue pot-smoking patients or their sanctioned suppliers in states that allow medical marijuana, under new legal guidelines to be issued Monday by the Obama administration. Two Justice Department officials described the new policy to The Associated Press, saying prosecutors will be told it is not a good use of their time to arrest people who use or provide medical marijuana in strict compliance with state law. ...The new policy is a significant departure from the Bush administration, which insisted it would continue to enforce federal anti-pot laws regardless of state codes. ...A three-page memo spelling out the policy is expected to be sent Monday to federal prosecutors in the 14 states, and also to top officials at the FBI and Drug Enforcement Administration. The memo, the officials said, emphasizes that prosecutors have wide discretion in choosing which cases to pursue, and says it is not a good use of federal manpower to prosecute those who are without a doubt in compliance with state law.
    http://apnews.myway.com/article/20091019/D9BE5D2G0.html

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Friday, October 23, 2009 ~ 9:09 p.m., Dan Mitchell Wrote:
A Picture Says 1,000 Words.

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Friday, October 23, 2009 ~ 7:34 p.m., Dan Mitchell Wrote:
Orwell Award for Reprehensible and Dishonest Use of Language.
Although it gets scant attention in America, the proposed EU Constitution (sometimes called the Lisbon Treaty) is a significant threat to economic freedom and national sovereignty (in this case, these are related concepts). One of the few heroes in this battle is the President of the Czech Republic, who is doing everything possible to avoid signing the treaty. This is irritating the pro-centralization, pro-harmonization, pro-bureaucratization apparatchiks in Brussels, who are afraid that Klaus' refusal to surrender may destroy their dreams of a socialist superstate governed by Brussels.

    In faraway Brussels furious diplomats were calling for his impeachment and even his country's expulsion from the European Union because of his obstinate refusal to sign the Lisbon treaty. Klaus, now the only European leader holding out against ratifying the document, made it clear he did not give a damn. ...On Klaus's return to Prague he dropped a political bombshell. At a press conference in his official residence the Czech leader announced that he would sign the treaty only if his government negotiated an opt-out from the Charter of Fundamental Rights, which is incorporated in the treaty. ..."I have always considered this treaty a step in the wrong direction," Klaus said. As he is well aware, the slightest change to the treaty, which was first proposed in 2001, would require all 27 EU member countries to agree. His remarks were greeted with outrage in Europe. German and French diplomats, in talks with their Czech counterparts, explored two ways of removing the Klaus obstacle: impeach him or change the Czech constitution to take away his right of veto. "If the president is obstructing the democratic process and opposing the decision of parliament as well as the will of the people, he is moving beyond the law and will need to face the consequences," a German diplomat told The Sunday Times. ...Opponents of the treaty hope that Klaus will be able to stall ratification until the British general election in May. David Cameron, the Tory leader, has promised a referendum if his party wins and the treaty is still unsigned. Klaus is unlikely to give in without at least some concessions. He is said to want to be seen as the leader who derailed the European project. A comparison is being drawn in Prague with Edvard Benes, the pre-war Czech leader who in 1938 had to flee to Britain after refusing to cede territory to Hitler under the Munich agreement.
    http://www.timesonline.co.uk/tol/news/world/europe/article6869578.ece

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Thursday, October 22, 2009 ~ 11:17 p.m., Geoffrey MacLeay Wrote:
Another Business Leader States the Obvious.
Over the past year notable business leaders, such as John Mackay from Whole Foods (http://freedomandprosperity.org/blog/2009-08/2009-08.shtml#161) and Donald Trump (http://freedomandprosperity.org/blog/2009-04/2009-04.shtml#161), have spoken out against big government policies.  Their criticisms have not been purely political, but rather based upon real world business experience. Recently, Las Vegas hotelier Steve Wynn continued this trend on Fox News.  Wynn noted that the best stimulus for the American economy would be lowered taxes and further went on to say that people should not look to the government to raise their standard of living.

    WYNN:  No, in the sense that I think that the priorities of the administration should have been more directly focused on job creation. From the day of the inauguration forward, the priority should have been job creation.  And the most powerful weapon and the tool that the government has for that is its tax policy. If the government had used its power to restrain its tax collection they would have given everybody who runs small businesses, large businesses, a chance to hire more people and that could have been done an entirely different way. With eight or $900 billion we could have created four or five million jobs, which would have made a big difference.

    WYNN:  Government has never increased the standard of living of one single human being in civilization's history.  For some reason that simple truth has evaded everybody.  The only thing that creates an increased standard of living is giving someone a job, the demand for their labor -- whether it's you and I, Chris, or anybody else.  The people that are paying the price for this juggernaut of federal spending are the middle class and the working class of America.
    http://www.rushlimbaugh.com/home/daily/site_101209/content/01125111.gues t.html

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Wednesday, October 21, 2009 ~ 11:40 a.m., Dan Mitchell Wrote:
Government-Mandated "Fairness" Means Unaffordable Health Insurance.
As part of so-called reform, the crowd in Washington is seeking to impose policies to bring "fairness" to the market for people who purchase their own health insurance. Yet these policies - community rating and guaranteed issue - have led to a disaster for families seeking health coverage in New York. The obvious lesson is that the government should not interfere with markets in hopes of creating fairness - though the politicians in Washington have decided that this disastrous approach should be imposed on the entire country. A column in the Wall Street Journal provides the gory details:

    One of the biggest things Mr. Cuomo did was to impose government mandates called community rating (CR) and guaranteed issue (GI). The former prevents insurers from charging people more based on their health or age, and the latter forbids denying coverage to anyone who wants to buy it. These two mandates are now a central part of reforms advancing in Congress. In New York, enacting them has been a mistake. One of the biggest proponents of community rating and guaranteed issue in the early 1990s was Empire Blue Cross and Blue Shield. With more than eight million customers, Empire was the state's largest insurer. It was also the state's "insurer of last resort" because, as a nonprofit organization, it already had to comply with both mandates. It lobbied to extend CR and GI to every insurer in the name of fair competition. But New Yorkers didn't get a more competitive insurance market. ...Within a few years, Empire and others stopped selling insurance in the individual market in the state. A 2007 report by the respected Seattle-based actuarial consulting firm Milliman surveyed the damage. It noted that "by 1996 GI and CR requirements effectively eliminated the commercial individual indemnity market in New York." While the reforms were supposed to help keep insurance affordable, "premiums for the two [remaining] standard plans increased rapidly," with one researcher noting "insurers increased premium rates 35%-40% in this period." Today, New York's private individual insurance market is among the nation's most expensive and highly regulated. New York City residents buying private, unsubsidized individual insurance coverage pay at least $9,036 a year for individual coverage and $26,460 for family coverage. New York's average premiums in the individual market are more than twice the national average, according to a 2007 eHealth Insurance survey. ...Partly because of the high costs of private coverage, nearly one in four New Yorkers is enrolled in Medicaid. New York's Medicaid program is the nation's most expensive, requiring high local and state taxes to support it. Policy makers rarely mention that state mandates such as CR and GI can drive up prices and drive millions of people away from private insurance. New York has 51 mandates dictating coverage for a wide range of things including hormone replacement therapy (one of four states with this mandate) and drug abuse counseling (one of seven states). Each adds to the cost of insurance. William Congdon at the Brookings Institution and Michael New from the Heritage Foundation have separately done studies that suggest that 40 of the costliest state mandates in the country add as much as 20% to the cost of basic insurance coverage. In 1994, about 4.5% (10.45 million) of the U.S. nonelderly population was covered by individual insurance. Today, that number has grown to 5.5% (14.35 million), a 20% increase. In California, 8% of the nonelderly population has individual insurance. But New York's individual insurance market represents a paltry 0.2% of its nonelderly population. Before Mr. Cuomo's reforms it was 4.7%. ...market-based reforms could make insurance much more affordable, especially if the CR and GI mandates were repealed. Doing that would reduce the number of uninsured by 18% and 19%, respectively (37% combined), and would lower premiums by 42%. We also found that if the state allowed New Yorkers to buy health insurance sold in Connecticut and Pennsylvania, as much as 26% of the uninsured would purchase private policies costing 25% less than similar policies in New York.
    http://online.wsj.com/article/SB100014240527487037466045744614828600 07734.html

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Tuesday, October 20, 2009 ~ 3:23 p.m., Dan Mitchell Wrote:
The Laffer Curve Strikes Again.
Every couple of months, we get another reminder about the senseless economic damage of higher tax rates. The recipe is always the same. First, greedy politicians push up tax rates. Second, economic activity falls. Third, revenues fall short of the forecasts. Maybe, after another forty or fifty episodes, the politicians will finally figure out it is a bad idea to raise tax rate. Investor's Business Daily makes a compelling case:

    When David Paterson became governor of New York after Eliot Spitzer's hooker escapades, the former state senator from Harlem shocked New Yorkers by declaring that taxes were too high and that he had many friends who had left the state because there were better opportunities elsewhere. New York had to grab control of its spending rather than continue raising taxes, said the former state senator with a long tax-and-spend track record, in what amounted to the equivalent of ideological heresy. ...I suppose it is cold comfort to New Yorkers that Paterson is now giving his political enemies the "I told you so" treatment. Speaking to reporters recently in Albany, Paterson noted that revenue from tax increases was running 20% below projections and that, in particular, the wealthy were not paying up. So far, the state had only collected about half of an expected $1 billion in income tax revenues from the state's wealthiest residents. "You heard the mantra, 'Tax the rich, tax the rich,'" Paterson said. "We've done that. We've probably lost jobs and driven people out of the state." ...New Jersey enacted its millionaires' tax in 2004. Pitched by the state's unions as the cure for Jersey's budget woes, the state collected $9.5 billion in personal income taxes in fiscal 2005. Last year, four budget cycles later, the state collected only $10.3 billion, and this year it's estimating just $9.4 billion from the same tax. Revenues have fallen so far below projections that Jersey has actually had to cut its spending (not just its rate of spending, like most states) by more than $3 billion this year despite $2 billion in federal stimulus aid for the state budget.
    http://www.investors.com/NewsAndAnalysis/Article.aspx?id=508308

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Monday, October 19, 2009 ~ 10:10 p.m., Dan Mitchell Wrote:
The So-Called Stimulus Is Creating Jobs - for Bureaucrats and Lobbyists.
Every so often, Republicans actually put forth a good argument, and the minority staff of the Ways & Means Committee earned their pay recently. They assembled a chart showing that the White House promised that wasting $800 billion supposedly was going to create nearly 3.5 million jobs, but the result so far is a loss of 2.3 million jobs. But the real clincher is that the jurisdiction that actually is on track to meet its job-creation target is Washington, DC:
http://republicans.waysandmeans.house.gov/News/DocumentSingle.aspx?DocumentI D=149213

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Sunday, October 18, 2009 ~ 5:08 p.m., Dan Mitchell Wrote:
Senate Healthcare Proposal is a Fiscal Fraud.
The indispensable editorial page of the Wall Street Journal blasts the phony spending "cuts" that are supposed to offset some of the new spending in the Senate health care bill. Sadly, the Congressional Budget Office has compromised its independence to help the left foist a fiscal fraud on the nation:

    Washington spent the week waiting for the Congressional Budget Office to roll in with its new cost estimates of the Senate health-care bill, and what a carnival. Behold: a new $829 billion entitlement that will subsidize insurance for tens of millions of people預nd reduce deficits by $81 billion at the same time. In the next tent, see the mermaid and a two-headed cow. ...The irony is that the CBO's guesstimate exposes the fraudulence and fiscal sleight-of-hand underlying this whole exercise. Anyone who reads beyond the top-line numbers will find that the bill creates massive new spending commitments that will inevitably explode over time, and that this is "paid for" with huge tax increases plus phantom spending cuts that will never happen in practice. ...Liberals are demanding heftier subsidies, and once people see the deal their neighbors are getting on "free" health care, they too will want in. Even CBO seems to find this unrealistic, noting "These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation." Scratch "often." Then there are the many budget gimmicks. Take the "failsafe budgeting mechanism" that would require automatic cuts in exchange spending if it increases the deficit. CBO expects 15% reductions in exchange subsidies each year from 2015 to 2018, even though the exchanges don't open until 2014. That kind of re-gifting should have been laughed out of the committee room, but the ruse helps to move future spending off the current budget "score." Mr. Baucus spends $10.9 billion to eliminate the scheduled Medicare cuts to physician payments傭ut only for next year. In 2011, he assumes they'll be reduced by 25%, with even deeper cuts later. Congress has overridden this "sustainable growth rate" every year since 2003 and will continue to do so because deeper cuts in Medicare's price controls will cause many doctors to quit the program. Fixing this alone would add $245 billion to the bill's costs, according to an earlier CBO estimate. The Baucus bill also expands ailing Medicaid by $345 billion容ven as it busts state budgets by imposing an additional $33 billion unfunded mandate. ...the bill piles on new taxes, albeit on health-care businesses so the costs are hidden from customers. Insurance companies offering policies that cost more than $8,000 for individuals and $21,000 for families will pay $201 billion per a 40% excise tax, which will be passed down to all policy holders in higher premiums. Another $180 billion will hit the likes of drug and device makers, including $29 billion because companies won't be allowed to deduct these "fees" from their corporate income taxes. Then there's the $4 billion in penalty payments on those who don't buy insurance because all of ObamaCare's other new taxes and mandates have made it more expensive.
    http://online.wsj.com/article/SB100014240527487037466045744611218814 07350.html

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Sunday, October 18, 2009 ~ 4:15 p.m., Dan Mitchell Wrote:
Didn't Washington Learn Anything from the Fannie-Freddie Fiasco?
The Wall Street Journal opines about the crazy idea to add more subsidies to a heavily distorted housing market:

    ...the latest Fannie brainstorm: Launch a program to guarantee the short-term debt of these small mortgage lenders, provided they use the money to make mortgages approved by Fan and Fred. Keep in mind that Fan and Fred already guarantee the mortgages themselves. So this new program would pile another taxpayer liability on top of that one by guaranteeing the short-term debt of independent mortgage companies, too. Now, some might say that in a world in which more than 90% of all mortgages are already taxpayer guaranteed, this is no big deal. If you insure the mortgage product, why not insure the lenders who created it too? Yet by that logic, the taxpayers might as well cut out the middle men and simply nationalize the entire mortgage industry. ...piling mortgage guarantee upon guarantee is going in precisely the wrong policy direction. If we are ever going to return to a private mortgage market, the feds need to begin to roll back their guarantees and market share. Yet the more guarantees that are made, the harder it will be to withdraw. This may be precisely what Fannie and Freddie and their Congressional patrons want, since these new guarantees will make it that much harder to reform them and reduce their sway in the housing market. This also shows how one policy mistake typically begets another. Fannie and Freddie's guarantees and subsidies helped to create the housing disaster, which has led the Fed directly to purchase mortgage-backed securities and mess up the market for small mortgage lenders, which in turn is leading Fan and Fred to guarantee the debt of those small lenders. Market distortion is piled on market distortion until we have a mortgage industry that can't function without taxpayers being on the hook for every transaction. The Chinese must look at all this and wonder why the crazy Americans think they can give anyone advice about how to run a market economy.
    http://online.wsj.com/article/SB100014240527487037466045744609034490 28672.html

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Saturday, October 17, 2009 ~ 6:06 p.m., Dan Mitchell Wrote:
The Hidden Cost of Government Intervention.
Alex Pollack of the American Enterprise Institute explains how even supposedly benign interventions have negative effects. Using deposit insurance as an example, he explains how the benefits of intervention are often obvious, but the costs are usually hidden and indirect - and generally of a greater magnitude. The politicians get applause for the supposed benefit (in this case, peace-of-mind for depositors) while avoiding any blame for the hidden costs (moral hazard, financial crisis, malinvestment, etc):

    On one hand, there is the fervent political desire to make deposits riskless for the public, so that depositors do not need to know anything about or care about the soundness of their bank. But their deposits fund businesses that are inherently very risky, highly leveraged and cyclically subject to much greater losses than anyone imagined possible. The combination of riskless funding with risky businesses is inherently impossible. The attempt is made to achieve the combination through regulation, but this inevitably fails. Governments are therefore periodically put in the position of desperately wanting to transfer losses from the banks to the public, as once again in this cycle. An alternative is to prefund the losses through deposit insurance. But because the losses can get bigger than the fund, it ends up needing a government guarantee, thus bringing the risk back to the public. ...Has government deposit insurance "put a premium on bad banking," as Sen. Bulkley warned it would? Certainly in some cases it did, especially when risky, rapidly expanding real estate-lending banks could fund themselves by rapidly expanding brokered deposits. More generally, did deposit insurance help inflate the real estate bubble, especially in commercial real estate? Without doubt, it did. Leveraged real estate has been the cause of many banking busts. Over the past several years real estate loans of all commercial banks have grown to represent 56% of their total loans. For the 6,500 smaller banks, with assets under $1 billion, this ratio is a whopping 74%. This expansion of real estate risk could not have happened without deposit insurance.
    http://www.aei.org/article/101126

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Friday, October 16, 2009 ~ 3:09 p.m., Dan Mitchell Wrote:
The VAT Threat Is Real...and Growing.
Less than two weeks ago, this blog discussed (http://www.freedomandprosperity.org/blog/2009-10/2009-10.
shtml#052
) how one of Obama's main political allies was arguing for a value-added tax. Now Nancy Pelosi is adding her shrill voice to the mix. The left's agenda is rather clear. They need this giant new consumption tax if they want to keep making government bigger. This is a serious threat - especially since there are a handful of Republicans who would be tempted to go along with the idea because they foolishly think that a VAT will help exports. Here's a story from The Hill with some of the details:

    A new value-added tax (VAT) is "on the table" to help the U.S. address its fiscal liabilities, House Speaker Nancy Pelosi (D-Calif.) said Monday night. ...The VAT is a tax on manufacturers at each stage of production on the amount of value an additional producer adds to a product. Pelosi argued that the VAT would level the playing field between U.S. and foreign manufacturers, the latter of which do not have pension and healthcare costs included in the price of their goods because their governments provide those services, financed by similar taxes. "They get a tax off of that and they use that money to pay the healthcare for their own workers," Pelosi said, using the example of auto manufacturers. "So their cars coming into our country don't have a healthcare component cost. "Somewhere along the way, a value-added tax plays into this. Of course, we want to take down the healthcare cost, that's one part of it," the Speaker added. "But in the scheme of things, I think it's fair look at a value-added tax as well."
    http://thehill.com/blogs/blog-briefing-room/news/61783-pelosi-says-new-tax-is -on-the-table

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Thursday, October 15, 2009 ~ 10:04 a.m., Dan Mitchell Wrote:
A Weak Currency Does Not Lead to a Strong Economy.
Writing in the Wall Street Journal, David Malpass explains why the Fed's weak-dollar policy (supported by both Bush and Obama) is a recipe for economic decline:

    Some weak-dollar advocates believe that American workers will eventually get cheap enough in foreign-currency terms to win manufacturing jobs back. In practice, however, capital outflows overwhelm the trade flows, causing more job losses than cheap real wages create. This was the lesson of the British malaise, the Carter malaise, the Mexican malaise of the 1990s, Yeltsin's Russian malaise through 1999 and the rest. No countries have devalued their way into prosperity, while many幽ong Kong, China, Australia today揺ave used stable money to invite capital and jobs. ...If stocks double but the dollar loses half its value, who beyond Wall Street are the winners and losers? There's been a clear demonstration this decade. The S&P nearly doubled from 2003 through 2007. Those who borrowed to buy won big-time. Rich people got richer, seeing their equity bottom line double. At the same time, the dollar's value was cut nearly in half versus the euro and other stable measures. Capital fled, undercutting job growth. Rent, gasoline and food prices rose more than wages. ...The solution is a strong U.S. jobs and wealth program. It has to include stable money, a flatter, more competitive tax structure, spending restraint, and common-sense bank regulation so small business lending can restart. ...Instead, Washington's current economic program pushes capital away by weakening the dollar, threatening higher tax rates, borrowing short (the Fed's near trillion-dollar overnight debt, Treasury's mounds of bill and note issuance) to lend long (mortgages, student loans, entitlements), doubling down on government subsidies, and rechanneling bank loans to governments and big businesses instead of the small business job-growth engine.
    http://online.wsj.com/article/SB100014240527487032980045744589231869 41870.html

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Wednesday, October 14, 2009 ~ 8:13 p.m., Dan Mitchell Wrote:
America Ranks as 13th Best Place to Live According to United Nations Report.
I've been to Norway, Australia, and Iceland and they are all among my favorite nations, but are they really the three best places to live, as is implied by the latest Human Development Report from the United Nations? Here's a brief blurb from the U.K.'s Daily Mail:

    The UN list, which saw Norway retain its status as the world's most desirable place to live, ranks sub-Saharan African states afflicted by war and Aids as the worst. Data collected prior to the global economic crisis showed people in Norway, Australia and Iceland had the best living standards... The United Nations Development Programme (UNDP) index was compiled using 2007 data on GDP per capita, education, and life expectancy, and showed marked differences between the developed and developing world. ...Liechtenstein has the highest GDP per capita at $85,383 in a tiny principality home to 35,000 people, 15 banks and more than 100 wealth management companies. People were poorest in the Democratic Republic of Congo, where average income per person was $298 per year. Five countries - China, Venezuela, Peru, Colombia and France - climbed three or more places from the previous year, driven by greater earnings and longer life expectancy. China, Colombia and Venezuela also scored better due to improvements in education.
    http://www.dailymail.co.uk/news/worldnews/article-1218276/Norway-crowne d-best-place-world-live--UK-trails-21st-place.html

I'm very skeptical of the U.N. report. I strongly suspect migration patterns would show more Norwegians, Australians, and Icelanders emigrating to the United States rather than vice-versa. And the ratio presumably would be even more lopsided if it included unsuccessful residency requests. Isn't that a more accurate measure of the best place to live? In any event, the U.N. report actually does have some interesting pieces of information. It turns out that two tax havens, Liechtenstein and Luxembourg, are the two richest nations. This suggests these places are doing something right, but in the upside-down world of international economic policy, low-tax jurisdictions are being pressured by high-tax nations to adopt bad policy (see here for more information).

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Tuesday, October 13, 2009 ~ 6:44 p.m., Dan Mitchell Wrote:
Brains and Common Sense Are Not the Same Thing.
Thomas Sowell makes a very good point about the ostensibly brilliant advisers working for President Obama. If these smart people think that a high IQ somehow entitles them to "plan" the economy, then history shows the results will not be pretty. This is the difference between intellect and wisdom. Unfortunately, Obama's people have very little of the latter. The late Nobel Laureate, Friedrich Hayek, referred to this trait among certain intellectuals as the "fatal conceit" and it is an especially common affliction in Washington as Sowell opines:

    Many people, including some conservatives, have been very impressed with how brainy the president and his advisers are. But that is not quite as reassuring as it might seem. It was, after all, Franklin D. Roosevelt's brilliant "brains trust" advisers whose policies are now increasingly recognized as having prolonged the Great Depression of the 1930s, while claiming credit for ending it. ...Brainy folks were also present in Lyndon Johnson's administration, especially in the Pentagon, where Secretary of Defense Robert McNamara's brilliant "whiz kids" tried to micro-manage the Vietnam war, with disastrous results. There is usually only a limited amount of damage that can be done by dull or stupid people. For creating a truly monumental disaster, you need people with high IQs. Such people have been told all their lives how brilliant they are, until finally they feel forced to admit it, with all due modesty. But they not only tend to over-estimate their own brilliance, more fundamentally they tend to over-estimate how important brilliance itself is when dealing with real world problems. ...Argentina began that century as one of the 10 richest nations in the world-- ahead of France and Germany-- and ended it as such an economic disaster that no one would even compare it to France or Germany. Politically brilliant and charismatic leaders, promoting reckless government spending-- of whom Juan Peron was the most prominent, but by no means alone-- managed to create an economic disaster in a country with an abundance of natural resources and a country that was spared the stresses that wars inflicted on other nations in the 20th century.
    http://townhall.com/columnists/ThomasSowell/2009/09/29/the_brainy_bunch

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Monday, October 12, 2009 ~ 4:23 p.m., Dan Mitchell Wrote:
Revenge of the Laffer Curve, Part II.
An earlier post revealed that higher tax rates in Maryland were backfiring, leading to less revenue from upper-income taxpayers. It seems New York politicians are running into a similar problem. According to an AP report, the state's 100 richest taxpayers have paid $1 billion less than expected following a big tax hike. The story notes that several rich people have left the state, and all three examples are about people who have redomiciled in Florida, which has no state income tax. For more background information on why higher taxes on the rich do not necessarily raise revenue, see this three-part Laffer Curve video series:

    Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth. ...Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20 percent less than anticipated. The concern about millionaire flight has prompted some states, including New York, New Jersey and California, to increase the highest tax rates only temporarily. ..."People aren't wedded to a geographic place as they once were. It's a different world," said New York Lt. Gov. Richard Ravitch. He said last year's surcharge on income taxes, set to last three years, won't likely meet expectations. So far this year, half of about $1 billion in expected revenue from New York's 100 richest taxpayers is missing. ...State officials say they don't know how much of the missing revenue is because any wealthy New Yorkers simply left. But at least two high-profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes, and radio talk-show host Rush Limbaugh. Golisano changed his official address to Florida, and Limbaugh, who also has a Florida home, announced earlier this year that he was relinquishing his home in Manhattan. Donald Trump told Fox News earlier this year that several of his millionaire friends were talking about leaving the state over the latest taxes. ...And it's not just the well-known leaving. Nancy Bell is moving her Science First manufacturer of scientific products from the Buffalo site her father founded in 1960 to Florida... "It was the higher tax brackets, the so-called millionaire's tax" that forced the move, she said. "We feel we have to look to the future ... I'm leaving wonderful, wonderful friends. It's not our first choice. It's our 100th." Maryland enacted higher tax rates for wealthier residents in 2008 to boost revenues but income from those taxes is down 6.7 percent so far this year.
    http://news.yahoo.com/s/ap/20090927/ap_on_re_us/us_taxing_the_rich

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Sunday, October 11, 2009 ~ 11:20 p.m., Dan Mitchell Wrote:
France Wants to Move the Goal Posts to Hide Dismal Economic Performance.
A column in the Wall Street Journal mocks President Sarkozy for suggesting that gross domestic product, which is how economic growth is measured, be changed to include subjective variables such as happiness. This is a transparent attempt to paper over France's sluggish economic performance. Happiness is important, of course, but it comes about by allowing people to make voluntary choices in a free society, not by creating involuntary leisure with stifling tax rates and welfare dependency:

    French President Nicolas Sarkozy recently said he wanted the nations of the world to stop using GDP, or gross domestic product, as the main measure of their economic performance. He wants them instead to work up another metric that takes into account not only economic production but such things as environmental quality and even time not spent in traffic預 sort of gross national satisfaction index. France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth. In the quarter century following 1982, France's GDP growth rate was a mere 2.1% per year in comparison to the U.S.'s 3.3%. Thus the U.S. grew at more than a 50% premium to France per year during that span. When the quarter century elapsed, Americans were one-third richer than the French. ...countries of "old Europe" such as France and Italy that were content to stand pat with an overregulated private sector and tax rates well above 50% were left in the dust. In 2003, as the Iraq war got going, France complained that the U.S. was the world's "hyperpower." Yet France itself was partly responsible for this fate. ...If Mr. Sarkozy's statisticians ever come up with their new economic index, they should be sure it includes leisure time傭ecause that is one thing the French economy excels at producing. In 2004, the year he won the Nobel Prize, economist Edward Prescott asked, in the title of a journal article, "Why Do Americans Work So Much More Than Europeans?" The answer, he found, was tax rates. Tax rates had fallen so much in the U.S. by that year that the American workforce couldn't wait to get on the job熔r start a business傭ecause you got to keep so much of what you earned. In contrast, high and progressive French taxes left over from the 1970s lured people away from work, especially as they started doing well. So people came to take seven-hour days and six-week vacations, as well as not show any particular interest in striking out on their own in a work-intensive small business. The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the U.S., Britain and East Asia. Mr. Sarkozy's gambit to paper over this real difference will be lucky to find any takers.
    http://online.wsj.com/article/SB100014240529702044883045744294329354 33474.html

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Saturday, October 10, 2009 ~ 12:08 p.m., Dan Mitchell Wrote:
Cash-for-Clunkers Was a Dud.
The Wall Street Journal has the details on why it is a dumb idea to destroy wealth and use gimmicks:

    Last week U.S. automakers reported that new car sales for September, the first month since the clunker program expired, sank by 25% from a year earlier. Sales at GM and Chrysler fell by 45% and 42%, respectively. Ford was down about 5%. Some 700,000 cars were sold in the summer under the program as buyers received up to $4,500 to buy a new car they would probably have purchased anyway, so all the program seems to have done is steal those sales from the future. Exactly as critics predicted. Cash for clunkers had two objectives: help the environment by increasing fuel efficiency, and boost car sales to help Detroit and the economy. It achieved neither. According to Hudson Institute economist Irwin Stelzer, at best "the reduction in gasoline consumption will cut our oil consumption by 0.2 percent per year, or less than a single day's gasoline use." Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer. ...As the journalist Henry Hazlitt wrote in his classic, "Economics in One Lesson," you can't raise living standards by breaking windows so some people can get jobs repairing them. In the category of all-time dumb ideas, cash for clunkers rivals the New Deal brainstorm to slaughter pigs to raise pork prices.
    http://online.wsj.com/article/SB100014240527487036283045744532807664 43704.html

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Friday, October 9, 2009 ~ 7:23 p.m., Dan Mitchell Wrote:
Bad News from Ireland.
There's no sugar-coating the election results. Irish voters, hit hard by the global recession and plunging property values, inexplicably decided that these factors somehow justified voting for the Lisbon Treaty (a.k.a., the EU Constitution) and giving more power to the statist bureaucracy in Brussels. The Wall Street Journal Europe is appropriately skeptical about whether this was the right decision:

    The people of Ireland approved the treaty 67.1% to 32.9%, with a 59% turnout揺igher participation and wider margins than the "No" camp had been able to muster when the Irish rejected the same charter last year. ...Brussels now tells us the vote was a resounding Yes for further centralization of power in the EU's 27 member states, and represented satisfaction that Ireland had secured guarantees for its neutrality and abortion laws. A more convincing explanation is the global recession, which has hit the Celtic Tiger particularly hard. Irish unemployment now runs to 12.6%. Standard & Poor's has yanked the country's triple-A credit rating, which in turn has ratcheted up borrowing costs. All this made voters more susceptible to the argument that another "No" could have jeopardized Ireland's membership in the euro club and its access to the EU's single market預 baseless scenario that nonetheless was bound to have an effect on an electorate with pocketbook worries. ...one wonders how much economic authority the Irish are really prepared to hand over to Brussels, especially if that means giving it an effective veto (in the name of eradicating "unfair tax competition") over Dublin's pro-growth tax policies. It was those policies預nd not membership in the EU, which dates to the early 1970s葉hat were chiefly responsible for transforming Ireland from one of the poorest countries in Europe in the early 1990s to one of the richest. All the more remarkable is that Ireland did this in the teeth of resistance from the same Brussels bureaucracy in which it now puts its trust.
    http://online.wsj.com/article/SB400014240527487036283045744526807073 56224.html

This means President Klaus of the Czech Republic is the only meaningful barrier standing in the way of further centralization of the European Union. This is the man who has resisted the fanatics on global warming hysteria, so he has backbone. On behalf of the 26 nations that were denied a vote, let's hope he holds firm.

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Thursday, October 8, 2009 ~ 11:12 a.m., Dan Mitchell Wrote:
Real Story on Minimum Wage Is that Unions Are Intentionally Harming Teenagers.
The Wall Street Journal rightfully complains about government-imposed minimum wage laws, which are causing higher levels of teenage unemployment. But an underappreciated aspect of this story is the role of union bosses. The unions are big advocates of higher minimum wages, ostensibly because they want to help the working poor, but the real reason is that unions want to somehow achieve above-market wages for their members, and it is difficult to achieve that goal if employers have other options. But if unions can increase the cost of hiring other workers - or if they can price them out of the market with minimum-wage laws, then that helps the union bosses negotiate favorable deals. Regardless, the real victims are the hundreds of thousands of teenagers who are now jobless:

    Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage. Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers. The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July. The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. ...The current Congress has spent billions of dollars擁ncluding $1.5 billion in the stimulus bill熔n summer youth employment programs and job training. Yet the jobless numbers suggest that the minimum wage destroyed far more jobs than the government programs helped to create. Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. ...State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008.
    http://online.wsj.com/article/SB100014240529702034401045744028202786 69840.html

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Thursday, October 8, 2009 ~ 9:58 a.m., Dan Mitchell Wrote:
Politicians Feather Their Own Nests.
A story in Politico reveals that politicians are increasing the budget for Congress by 5.8 percent in the 2010 fiscal year. This is on top of a 10.9 percent funding increase from last year to this year. But the really disturbing number is that it will cost taxpayers $4.7 billion overall to keep the 535 politicians on Capitol Hill on the gravy train:

    Congress is on the verge of giving itself a bump in its annual budget even as local governments, families and businesses across the country are tightening their belts in the worst recession in decades. Under a House-Senate conference measure, approved by the House last week and poised for passage in the Senate on Wednesday, spending for the legislative branch will increase 5.8 percent this year, boosting Capitol Hill's annual budget to $4.7 billion. The measure includes a hodgepodge of new funding for lawmakers: a $500,000 pilot program for senators to send out postcards about their town hall meetings, $30,000 for receptions for foreign dignitaries and $4 million for consultants with Majority Leader Harry Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.) getting up to nine each and Senate President Pro Tempore Robert Byrd (D-W.Va.) getting up to three more. ...Supporters of the bill argue that they were relatively frugal this year. Last year, Congress increased its funding 10.9 percent over the fiscal 2008 level and the $4.7 it's appropriating to itself this year is less than the $5 billion Obama set forth in his budget earlier this year. ...The Senate Appropriations Committee where McConnell and 29 other appropriators sit voted 30-0 in June to send the bill to the full Senate, which approved the bill in July by a 67-25 vote.
    http://www.politico.com/news/stories/0909/27732.html

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Thursday, October 8, 2009 ~ 9:09 a.m., Dan Mitchell Wrote:
Will California Slash Tax Rates and Eliminate Corporate Tax?
Sometimes, when all other options are exhausted, politicians do the right thing. This may be the case in California, where a bipartisan commission has recommended big reductions in tax rates. The Wall Street Journal opines:

    The heart of the new plan is to broaden the tax base and slash tax rates on personal income, business and sales. California currently ranks at or near the top in all three categories. This has, paradoxically, contributed to the state's inability to pay its bills by driving men and women from the state and leading to revenue boom and bust. ...Because about 70% of small businesses pay the personal California income tax, the commission found that California's high rate is driving enterprises to the likes of Nevada, Texas and Idaho. The number of tax rates is reduced to three from seven (we prefer one), and thanks to the elimination of credits and loopholes, the new California tax form would fit on a postcard. Even more impressive is the recommendation to eliminate the corporate income tax and the 5% of the sales tax that contributes to the general fund. These would be replaced by a broad-based Business Net Receipts Tax of no higher than 4%. This taxes businesses on what they produce, minus their costs of purchases from other firms. This is similar to a value added tax. ...only a growing economy can create opportunity for the middle class and enough state revenues to finance schools and health care for the poor. A tax code that depends on 1% of taxpayers, 144,000 filers, to finance 50% of state income tax revenues has proven to be unsustainable, notwithstanding the liberal dogma that says tax rates don't matter.
    http://online.wsj.com/article/SB100014240527487044715045744434137420 32356.html

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Wednesday, October 7, 2009 ~ 10:43 a.m., Dan Mitchell Wrote:
Not Quite a Death Panel, but Certainly a Compelling Argument Copying Canada's Government-Run Health System.
This powerful story requires no elaboration on my part. It is amazing, though, that some people want America's system to be like the inhumane system in Canada:

    When the pain in Christina Woodkey's legs became so severe that she could no longer hike or cross-country ski, she went to her local health clinic. The Calgary, Canada, resident was told she'd need to see a hip specialist. Because the problem was not life-threatening, however, she'd have to wait about a year. So wait she did. In January, the hip doctor told her that a narrowing of the spine was compressing her nerves and causing the pain. She needed a back specialist. The appointment was set for Sept. 30. 'When I was given that date, I asked when could I expect to have surgery,' said Woodkey, 72. 'They said it would be a year and a half after I had seen this doctor.' So this month, she drove across the border into Montana and got the $50,000 surgery done in two days. ...Hoping to capitalize on patients who might otherwise go to the U.S. for speedier care, a network of technically illegal private clinics and surgical centers has sprung up in British Columbia, echoing a trend in Quebec. In October, the courts will be asked to decide whether the budding system should be sanctioned. More than 70 private health providers in British Columbia now schedule simple surgeries and tests such as MRIs with waits as short as a week or two, compared with the months it takes for a public surgical suite to become available for nonessential operations. ...In other words, while Congress debates whether to set U.S. medicine on the Canadian path, Canadians are desperately seeking their own private option. At least Ms. Woodkey had the safety valve of Montana and private American medicine. Once Congress passes a form of Medicare for all, with its inevitable government price controls and limits on care, Americans might not be so lucky. Let's hope that by then Canada has expanded its own private option, so Americans will one day be able to visit Alberta for faster, better care. Unless Congress bars that too.
    http://online.wsj.com/article/SB100014240527487044715045744432530096 07932.html

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Tuesday, October 6, 2009 ~ 3:51 p.m., Dan Mitchell Wrote:
An Astounding 52 Percent of French Citizens Interested in Fleeing to Capitalist America.
The French love to complain about the unfettered capitalism (if only that was true) and social Darwinism of America's "Anglo-Saxon" system. Yet a Reader's Digest poll found that more than one-half of the French people would be interested in moving to America if they had the opportunity.
http://www.rd.com/your-america-inspiring-people-and-stories/presidential-election-0 8-global-poll-france/article102159.html

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Monday, October 5, 2009 ~ 11:14 a.m., Dan Mitchell Wrote:
The VAT Debate: Should Politicians in Washington Get a Huge New Source of Tax Revenue as a Reward for Overspending?
Based on five criteria, James Pethokoukis of Reuters connects the dots and warns that President Obama is going to propose a value-added tax.

    Does President Obama have a secret plan to raise taxes on middle-class Americans and,well, pretty much everybody else with a European-style, value-added tax? Actually, it's not such a big secret. ...Obama's campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. ...Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What's more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans. And it's also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. ...Liberals love the idea of a VAT because it's, well, so European also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.
    http://blogs.reuters.com/james-pethokoukis/2009/09/30/obamas-not-so-secret -plan-to-raise-taxes/

While the timing is unclear, his prediction is correct. The politicians in Washington want much bigger government, but they know that it will be difficult to achieve that goal without a big new source of revenue. The VAT would be perfect from their perspective. It is a form of national sales tax, but would be hidden in the price of products and therefore easy to increase. Moreover, every time they increase the VAT, they would use that as an excuse to raise income tax rates for "distributional fairness." It is no exaggeration to say that the VAT is the biggest fiscal threat to the cause of limited government.

One final point about the column. Economists don't love the VAT, per se, but they do view it as being less destructive - per dollar raised - than the income tax. But less destructive is still destructive. And since the VAT would be in addition to the taxes we have now (and actually create the conditions for higher income tax rates), its enactment would create a lose-lose situation for taxpayers.

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Monday, October 5, 2009 ~ 10:41 a.m., Dan Mitchell Wrote:
Great Moments in Local Government.
While the federal bureaucracy is more dangerous because it generates misguided regulations that are imposed on the entire nation, state and local governments certainly are capable of equally foolish actions. Here's a report about state bureaucrats in Michigan threatening a women for watching her neighbors' kids while they wait for a bus:

    A West Michigan woman says the state is threatening her with fines and possibly jail time for babysitting her neighbors' children. Lisa Snyder of Middleville says her neighborhood school bus stop is right in front of her home. It arrives after her neighbors need to be at work, so she watches three of their children for 15-40 minutes until the bus comes. The Department of Human Services received a complaint that Snyder was operating an illegal child care home. DHS contacted Snyder and told her to get licensed, stop watching her neighbors' kids, or face the consequences. "It's ridiculous." says Snyder. "We are friends helping friends!" She added that she accepts no money for babysitting. ...State Representative Brian Calley is drafting legislation that would exempt people who agree to care for non-dependent children from daycare rules as long as they're not engaged in a business. "We have babysitting police running around this state violating people, threatening to put them in jail or fine them $1,000 for helping their neighbor (that) is truly outrageous" says Rep. Calley.
    http://www.wzzm13.com/news/news_story.aspx?storyid=114016

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Sunday, October 4, 2009 ~ 6:32 p.m., Dan Mitchell Wrote:
Who Elected Obama School Principal?
Politicians in Washington have a nasty habit of assuming that they should control every aspect of life, and education is a good example. Bush thought he could demonstrate "compassion" by spendinng a lot of money to centralize education policy in Washington, so we got saddled with the No-Bureaucrat-Left-Behind education bill. Now Obama is trying to be Bush on steroids, increasing spending even more and proposing to micro-manage local school districts by dictating school calendars. It may very well be the case that summer vacations should be shortened, but that is none of Obama's business. Moreover, the AP story on the issue notes that other nations get much better performance with less time in school - which is why decentralization and choice are the right ways of discovering the right way(s) of providing better education:

    Students beware: The summer vacation you just enjoyed could be sharply curtailed if President Barack Obama gets his way. ...The president, who has a sixth-grader and a third-grader, wants schools to add time to classes, to stay open late and to let kids in on weekends so they have a safe place to go. ...While it is true that kids in many other countries have more school days, it's not true they all spend more time in school. Kids in the U.S. spend more hours in school (1,146 instructional hours per year) than do kids in the Asian countries that persistently outscore the U.S. on math and science tests Singapore (903), Taiwan (1,050), Japan (1,005) and Hong Kong (1,013). That is despite the fact that Taiwan, Japan and Hong Kong have longer school years (190 to 201 days) than does the U.S. (180 days).
    http://news.yahoo.com/s/ap/20090927/ap_on_re_us/us_more_school

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Saturday, October 3, 2009 ~ 8:44 p.m., Dan Mitchell Wrote:
A Good Argument Against Rogue Prosecutors.
The despicable prosecutor in the Duke lacrosse-players rape case, Mike Nifong, is the classic example of a government official who acts without integrity in hopes of advancing himself or some agenda. A column in the Wall Street Journal discusses the issue from a broader perspective, looking at the need to fix vague laws and restore the principal of no crime without criminal intent:

    Boston civil-liberties lawyer Harvey Silverglate calls his new book "Three Felonies a Day," referring to the number of crimes he estimates the average American now unwittingly commits because of vague laws. New technology adds its own complexity, making innocent activity potentially criminal. Mr. Silverglate describes several cases in which prosecutors didn't understand or didn't want to understand technology. This problem is compounded by a trend that has accelerated since the 1980s for prosecutors to abandon the principle that there can't be a crime without criminal intent. In 2001, a man named Bradford Councilman was charged in Massachusetts with violating the wiretap laws. He worked at a company that offered an online book-listing service and also acted as an Internet service provider to book dealers. As an ISP, the company routinely intercepted and copied emails as part of the process of shuttling them through the Web to recipients. ...The case went through several rounds of litigation, with no judge making the obvious point that this is how ISPs operate. After six years, a jury found Mr. Councilman not guilty. ...Mr. Silverglate, a liberal who wrote a previous book taking the conservative position against political correctness on campuses, is a persistent, principled critic of overbroad statutes. This is a common problem in securities laws, which Congress leaves intentionally vague, encouraging regulators and prosecutors to try people even when the law is unclear. He reminds us of the long prosecution of Silicon Valley investment banker Frank Quattrone, which after five years resulted in a reversal of his criminal conviction on vague charges of obstruction of justice. ,,,In a complex world of new technologies, there is more need than ever for clear rules of the road. Americans should expect that a crime requires bad intent and also that Congress and prosecutors will try to create clarity, not uncertainty.
    http://online.wsj.com/article/SB100014240527487044715045744389008307 60842.html

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Friday, October 2, 2009 ~ 5:27 p.m., Dan Mitchell Wrote:
The English Are Also Nuts on the Babysitting Issue
. A previous post poked fun at Michigan state bureaucrats for threatening a woman for the ostensible crime of keeping an eye on her neighbors' kids without a government permit. English bureaucrats are equally clueless, badgering two women who help care for each other's kids while they work. The common theme, of course, is that bureaucracts lack common sense - but the real lesson is that this is the inevitable consequence of government intervention (especially when politicians say they are "doing it for the children):

    England's Children's Minister wants a review of the case of two police officers told they were breaking the law, caring for each other's children. Ofsted said the arrangement contravened the Childcare Act because it lasted for longer than two hours a day, and constituted receiving "a reward". It said the women would have to be registered as childminders. ...The two detective constables, Leanne Shepherd, from Milton Keynes, and Lucy Jarrett, from Buckingham, told the BBC how Ofsted insisted they end their arrangement. ...Ms Shepherd, who serves with Thames Valley Police, recalled: "A lady came to the front door and she identified herself as being from Ofsted. She said a complaint had been made that I was illegally childminding. "I was just shocked - I thought they were a bit confused about the arrangement between us. "So I invited her in and told her situation - the arrangement between Lucy and I - and I was shocked when she told me I was breaking the law." ..."To think that they would waste their time and effort on innocent people who are trying to provide for their families by returning to the workplace... Surely their time and effort would be better placed elsewhere." ...Minister for Children, Schools and Families Vernon Coaker insisted the Childcare Act 2006 was in place "to ensure the safety and wellbeing of all children".
    http://news.bbc.co.uk/2/hi/uk_news/8277378.stm

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Thursday, October 1, 2009 ~ 2:44 p.m., Dan Mitchell Wrote:
Time to Kill the Death Tax.
I like USA Today for the sports section, but today's editorial page has a piece by yours truly arguing (contrary to the statist position of USA Today) that the death tax should be completely repealed. While this tax is grossly immoral, my main points were about 1) the damage to economic growth because of reduced saving and investment, and 2) the loss of national competitiveness since other nation's are getting rid of this absurd levy:

    The politicians in Washington impose double taxation on interest, dividends and capital gains, but the "death tax" wins the prize for being the most self-destructive part of the internal revenue code. Adding an extra layer of tax when someone dies is an unsavory combination of bad economics and immoral grave robbing. ...Economists warn that the death tax reduces the capital stock. That sounds like jargon, but it means all of us have lower living standards because of less investment, fewer machines, less technology and diminished innovation. Ironically, other nations have figured out that the death tax does a lot of damage in a competitive global economy. Many people will not be surprised to know that a free-market paradise such as Hong Kong has eliminated its death tax, but it is certainly newsworthy that European welfare states such as Austria and Sweden also have repealed this unfair tax. Australia, Russia and New Zealand are among the other nations that have figured out how senseless it is to penalize wealth creation.

But I also noted that we are going to conduct an interesting social-science experiment in 2010. How many investors, entrepreneurs, and business owners are willing to hasten their own death to protect their assets from the IRS grave robbers?

    There may be a bit of good news on the horizon. Assuming Congress does not change the law, the death tax disappears in 2010. But since the death tax comes roaring back to life in 2011 (with an even higher tax rate of 55%), this creates a bit of a quandary. I'm sure the successful people affected by the death tax love their children, but how many of them are willing to jump off a bridge before the end of next year to keep the IRS from seizing the lion's share of their wealth?
    http://blogs.usatoday.com/oped/2009/09/opposing-view-death-tax-destroys-w ealth.html

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Thursday, October 1, 2009 ~ 11:23 a.m., Dan Mitchell Wrote:
Another "Victory" in the War on Drugs.
A grandmother in Indiana has been arrested for purchasing cold medicine. We can all sleep more safely now that this hardened criminal has been taught a lesson. The Terre Haute News reports:

    When Sally Harpold bought cold medicine for her family back in March, she never dreamed that four months later she would end up in handcuffs. Now, Harpold is trying to clear her name of criminal charges, and she is speaking out in hopes that a law will change so others won't endure the same embarrassment she still is facing. ...Harpold is a grandmother of triplets who bought one box of Zyrtec-D cold medicine for her husband at a Rockville pharmacy. Less than seven days later, she bought a box of Mucinex-D cold medicine for her adult daughter at a Clinton pharmacy, thereby purchasing 3.6 grams total of pseudoephedrine in a week's time. Those two purchases put her in violation of Indiana law 35-48-4-14.7, which restricts the sale of ephedrine and pseudoephedrine, or PSE, products to no more than 3.0 grams within any seven-day period. When the police came knocking at the door of Harpold's Parke County residence on July 30, she was arrested on a Vermillion County warrant for a class-C misdemeanor, which carries a sentence of up to 60 days in jail and up to a $500 fine.
    http://www.tribstar.com/local/local_story_246225916.html

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