www.freedomandprosperity.org

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


Sunday, February 28, 2010 ~ 8:25 p.m., Dan Mitchell Wrote:
Great Moments in (Anti) Stimulus.
There were many reasons to oppose last year's so-called stimulus legislation. High on my list of reasons would be that the $800 billion spending bill was based on discredited Keynesian theory. Government spending diverts resources from the productive sector of the economy would be another good reason. Another one of my favorites is that the federal government is involved in all sorts of areas that are outside of its legitimate responsibilities as outlined in the Constitution. But perhaps one of the most compelling reason is that politicians and bureaucrats inevitably do really stupid things because the federal budget is a racket designed to funnel the maximum amount of money to powerful interest groups. Here's a great example from a story I saw linked on Kausfiles.com. A city in New Hampshire wanted to stick its snout in the trough in order to subsidize a water treatment plant, but eventually decided to reject the money because the out-of-pocket costs would increase primarily thanks to corrupt rules designed to line the pockets of union bosses, but also because of protectionist requirements and a mind-boggling $100,000 of paperwork expenses:

    As stimulating as it might have sounded at the time, the city recently declined $2.5 million from the American Recovery and Reinvestment Act for its new water treatment plant because federal wage regulations would have forced the city to pay more for the project. ...the low bidder — Penta Corporation — presented final cost of $21 million with the stimulus funds and $17.3 million without. So the city said thanks, but no thanks, to the stimulus funds. "It just didn't make sense," said Deputy Public Works Director David Allen. "It was going to cost us more money to take the money." Stimulus funds mandate workers are paid using Davis-Bacon Wage Determination, which sets the pay scale for workers on federal projects and added $2.5 million to the bottom line. The "Buy American" provision would've added another $500,000 and Allen said there would have been significant administrative costs — upwards of $100,000 — for the city to track it the way the government requires over the course of the two-year project.
    http://www.seacoastonline.com/articles/20100209-NEWS-2090401

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Saturday, February 27, 2010 ~ 10:12 p.m., Andrew Quinlan Wrote:
Say No to a VAT.
With the VAT becoming an ever-bigger issue, Dan Mitchell discusses the issue on CNBC. Dan's opponent winds up agreeing with him:

 

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Friday, February 26, 2010 ~ 7:23 p.m., Dan Mitchell Wrote:
More Good News on the Climate Scam.
One of the many reprehensible features of Washington is how companies climb into bed with government. They do this either because they want legislation to get undeserved wealth by screwing consumers or competitors, or they do it because they think they the government is going to do something bad to them and they hope to reduce the pain by acting like cringing curs. This is a good description of the global-warming/climate-change/whatever-they're-
calling-it-now issue, where many big companies are part of a coalition to support the Administration's statist agenda. The good news is that this coalition is now beginning to fall apart, as thee big companies have decided that having a "seat at the table" isn't such a good idea if it's Thanksgiving and you're a turkey. The Wall Street Journal reports:

    Three big companies quit an influential lobbying group that had focused on shaping climate-change legislation, in the latest sign that support for an ambitious bill is melting away. Oil giants BP PLC and Conoco-Phillips and heavy-equipment maker Caterpillar Inc. said Tuesday they won't renew their membership in the three-year-old U.S. Climate Action Partnership... "We think there's momentum to get [a climate bill] done," USCAP spokesman Tad Segal said. "President [Barack] Obama's State of the Union address made it clear the administration is behind us." But experts said the companies' decision to withdraw from USCAP is a sign the politics of climate change is shifting in Washington. When Mr. Obama took office, Congress appeared to have momentum for a climate bill that would push the economy toward lower-carbon alternatives. But as the economy soured, support waned.
    http://online.wsj.com/article/SB10001424052748704804204575069440096 420212.html

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Friday, February 26, 2010 ~ 5:51 p.m., Dan Mitchell Wrote:
The Greek Saga.
Here are a few interesting links to keep you informed about the fiscal crisis in Greece.

Richard Rahn has a nice comparison in the Washington Times of Poland's good policy and Greece's profligacy.
http://www.washingtontimes.com/news/2010/feb/18/poland-versus-greece/

Reuters has a story about some new reforms in Greece, including a very Orwellian proposal to track everyone's purchases by banning cash transactions above 1,500 euro.
http://www.reuters.com/article/idUSLDE61824V20100209

And the Associated Press has a story about gas shortages because bureaucrats at the Customs office went on strike to protest a proposal by the government to give them only one (rather than two) extra month(s) of pay per year.
http://finance.yahoo.com/news/Fuel-shortage-hits-Greece-as-apf-1182321877.html? x=0&.v=3

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Friday, February 26, 2010 ~ 3:38 p.m., Dan Mitchell Wrote:
The So-Called Stimulus Was a Flop.
On the one-year anniversary of Obama's stimulus scam, I appeared on the Fox Business Network to explain why squandering $800 billion was bad for the economy.

 

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Thursday, February 25, 2010 ~ 7:17 p.m., Dan Mitchell Wrote:
A Value-Added Tax Is Not the Answer...Unless the Question is How to Finance Bigger Government.
While admitting that spending restraint is the ideal approach, Tyler Cowen of Marginal Revolution asks whether a value-added tax (VAT) might be the most desirable of all realistic options for dealing with an unsustainable budget situation.

Read his post for yourself, but I think a fair summary is that he is basically saying that a) there will be a crisis if we don't do something about future deficits, b) a crisis will result in very bad policy, and c) if we support a VAT now, we will at least be able to extract concessions from the other side.

I have no idea whether there will be a future crisis, but I think the rest of Tyler's argument is wrong.

But before explaining my position, let's start by stating what I assume to be our mutual objective, which is to control the size of government. We all agree that there is a problem because government is too big now, and it is projected to get even bigger because of the built-in growth of entitlement programs. One symptom of growing government is deficits, which are very large today and will be even bigger in the near future as more and more baby boomers retire and push up costs for Social Security, Medicare, and Medicaid.

Our side (broadly speaking) wants to solve the budgetary situation by restraining the growth of government. One proposed solution is Congressman Paul Ryan's Roadmap plan, which would reform entitlements and curtail other programs so that the long-term burden of federal spending is reduced to less than 20 percent of GDP. Since long-term federal tax revenues under current law - even if the 2001 and 2003 tax cuts are made permanent - are expected to be about 19 percent of GDP, this solves the budet problem (the tax reform component of the Roadmap includes a VAT, which is a poison pill in an otherwise excellent plan, but let's set that aside for another day).

The left, by contrast, generally wants to let federal spending consume ever-larger shares of economic output, and they believe that increasing the tax burden is the right way of keeping the deficit from getting too large. No statist has put forth a detailed plan to match Rep. Ryan, but several high-ranking Democrats have made no secret about their desire for a VAT (see here, here, and here). And everyone agrees that a VAT is capable of extracting a lot of money from the productive sector of the economy.

These two visions are fundamentally incompatible, which helps to explain why there is a standoff. The bad guys do not want to control the size of government and the good guys do not want to raise taxes. But now we have to add one more piece to the puzzle. While gridlock normally is a good result, inaction to some degree favors the other side because entitlement programs automatically expand. The helps to explain why Tyler (with reluctance) thinks that it may be best to acquiesce to a VAT now rather than to wait for a fiscal crisis.

Now let's explain why Tyler is wrong. First, it is far from clear that surrendering to a VAT now will result in better (less worse) policy than what will happen during a crisis. It certainly is true that some past crises have led to terrible policy, such as the failed policies of Hoover and Roosevelt in the 1930s or the more recent Bush-Paulson-Obama-Geithner TARP debacle. But at other points in time, a crisis atmosphere has paved the way for better policy, with Reagan's presidency being the most obvious example.

The wait-for-a-crisis strategy clearly is a bit of a gamble, but even if we lose, we get a VAT in the future rather than a VAT today. So what's the downside? Tyler and others might say that the future legislation in the midst of a crisis could be a vehicle for other bad provisions, but he offers no evidence for this proposition. And it may be the case that the other side would be forced to add good provisions instead. Moreover, the lack of a VAT in the period between today and the future crisis might help lead to some much-needed spending restraint.

What about Tyler's argument that the good guys could extract some concessions from the other side by putting a VAT on the table. This is horribly naive. Even though George Mason University is less than 20 miles from Washington, and even though Tyler is a renassaince man with many talents, he does not understand how Washington really works.

Imagine there is a budget summit where politicians from both sides get together to work on this supposed deal. Here are the inevitable ground rules - and the consequences they will produce:

1. The deal will be 50 percent spending cuts and 50 percent tax increases, but the supposed spending "cuts" will be nothing more than reductions in already-legislated increases. The tax increases, by contrast, will be on top of all the additional revenue that is already exepected under current law (not a trivial matter since receipts will be $1.5 trillion higher in 2015 than they are today according to OMB). For proponents of limited government, using the "current services baseline" as a benchmark in budget negotiations is like playing a five-minute basketball game after spotting the other team a 20-point lead.

2. All spending and revenue decisions will be examined through the prism of CBO income distribution tables, and the left will successfully insist that nothing is done to make the tax code less progressive. But since a VAT is a proportional tax, the only way of preserving overall progressivity is to raise tax rates on those wicked and evil rich people and/or to massively increase "refundable" tax credits (what normal people call income redistribution). Any proposal to lower income tax rates or eliminate the corporate income tax, as Tyler envisions, would be laughed out of the room (though Democrats will offer a fig leaf or two in order to seduce a sufficient number of gullible Republicans into supporting a terrible agreement, and that might include a cosmetic change to the corporate tax regime).

3. Many of the supposed spending cuts, for all intents and purposes, will be back-door tax increases on saving and investment. More specifically, a big chunk of the supposed spending cut portion of a budget deal will be from means-testing entitlement programs. This sounds good. After all, who wants to send a Social Security check to Bill Gates when he retires? But consider how such a system actually will work. The government will say that people with income (and/or assets) above a certain level are ineligible for some or all of the benefits available to less-fortunate retirees. From an economic persepective, this is very much akin to a higher tax rate on people who save and invest during their working years. And since means testing would only generate substantial budgetary savings if it applied to millions of regular people in addition to Bill Gates, we would wind up with a system that created big penalties on middle-class families that were dumb enough to save and invest.

I've already pontificated enough for one blog post, so let me summarize by stating that Tyler's approach, while not unreasonable, is about how to lose gracefully. Even if his strategy works perfectly, the result is bigger government. I'd much rather fight. If you want some inspiration for the battle, watch this video. If you haven't had enough of me already, here's my video explaining why the VAT is a horrible idea.

 

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Wednesday, February 24, 2010 ~ 4:24 p.m., Dan Mitchell Wrote:
Class Warfare Tax Policy Wreaks Havoc with New Jersey Economy.
Barack Obama wants higher tax rates on the so-called rich, including steeper levies on income, capital gains, dividends, and even death! Along with other greedy politicians in Washington, he acts as if successful taxpayers are like sheep meekly awaiting slaughter. In reality, class-warfare tax policies generally backfire because of the five reasons outlined in this video:

 

A new study from Boston College provides additional evidence about the consequences of hate-and-envy tax policy. The research reveals that high tax rates in New Jersey have helped cause wealthy people to leave the state, leading to a net wealth reduction of $70 billion between 2004 and 2008. Wealth and income are different, of course, so it is worth pointing out that another study from 2007 estimated that the state lost $8 billion of gross income in 2005. That's a huge amount of income that is now beyond the reach of the state's greedy politicians. Here's a report from the New Jersey Business News:

    More than $70 billion in wealth left New Jersey between 2004 and 2008 as affluent residents moved elsewhere, according to a report released Wednesday that marks a swift reversal of fortune for a state once considered the nation's wealthiest. Conducted by the Center on Wealth and Philanthropy at Boston College, the report found wealthy households in New Jersey were leaving for other states — mainly Florida, Pennsylvania and New York — at a faster rate than they were being replaced. ...The study – the first on interstate wealth migration in the country — noted the state actually saw an influx of $98 billion in the five years preceding 2004. The exodus of wealth, then, local experts and economists concluded, was a reaction to a series of changes in the state's tax structure — including increases in the income, sales, property and "millionaire" taxes. "This study makes it crystal clear that New Jersey's tax policies are resulting in a significant decline in the state's wealth," said Dennis Bone, chairman of the New Jersey Chamber of Commerce and president of Verizon New Jersey. ...In New Jersey, the top 1 percent of taxpayers pay more than 40 percent of the state's income tax, he said. "That's probably why we have these massive income shortfalls in the state budget, especially this year," he said. Until the tax structure is improved, he said, "we'll probably see a continuation of the trend, until there are no more high-wealth individuals left." He added the report reinforces findings from a similar study he conducted in 2007 with fellow Rutgers professor Joseph Seneca, which found a sharp acceleration in residents leaving the state. That report, which focused on income rather than wealth, found the state lost nearly $8 billion in gross income in 2005. ...Ken Hydock, a certified public accountant with Sobel and Company in Livingston, said in this 30-year-career he's never seen so many of his wealthy clients leave for "purely tax reasons" for states like Florida, where property taxes are lower and there is no personal income or estate tax. In New Jersey, residents pay an estate tax if their assets amount to more than $675,000. That's compared to a $3.5 million federal exemption for 2009. Several years ago, he recalled, one of his clients stood to make $60 million from stock options in a company that was being acquired by another. Before he cashed out, however, the client put his home up for sale, moved to Las Vegas, and "never stepped foot back in New Jersey again," Hydock said. "He avoided paying about $6 million in taxes," he said. "He passed away two years later and also saved a huge estate tax, so he probably saved $7 million." http://www.nj.com/business/index.ssf/2010/02/nj_loses_70b_in_wealth_over_ fo.html

Still not convinced that high tax rates are causing wealth and income to escape from New Jersey? The Wall Street Journal wrote a very powerful editorial about the Boston College study, noting that New Jersey "...was once a fast-growing state but has now joined California and New York as high-tax, high-debt states with budget crises." But the most powerful part of the editorial was this simple image. Prior to 1976, there was no state income tax in New Jersey. Now, by contrast, highly-productive people are getting fleeced by a 10.75 percent tax rate. No wonder so many of them are leaving.

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Tuesday, February 23, 2010 ~ 3:11 p.m., Dan Mitchell Wrote:
George Will Condemns Obama's Dependency Agenda.
The healthcare fight in Washington is not about access to doctors and hospitals, or the cost of those services. It is an effort by the left to create more dependency on government. George Will examines this theme in a Washington Post column:

    Killing this small program, which currently benefits 1,300 mostly poor and minority children, is odious and indicative. It is a small piece of something large -- the Democrats' dependency agenda, which aims to multiply the ways Americans are dependent on government. Democrats, in their canine devotion to teachers unions, oppose empowering poor children to escape dependency on even terrible government schools. ...For congressional Democrats, however, expanding dependency on government is an end in itself. They began the Obama administration by expanding the State Children's Health Insurance Program. It was created for children of the working poor but the expansion made millions of middle-class children eligible -- some in households earning $125,000. The aim was to swell the number of people who grow up assuming that dependency on government health care is normal. ...Democrats' "reforms" of the financial sector may aim to reduce financial institutions to dependent appendages of the government. By reducing banks to public utilities, credit, which is the lifeblood of capitalism, could be priced and allocated by government. ...Many Democrats, opposing the Supreme Court, advocate new campaign finance "reforms" that will further empower government to regulate the quantity, timing and content of speech about government. Otherwise voters will hear more such speech than government considers good for them.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/02/12/AR2010 021204007.html

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Tuesday, February 23, 2010 ~ 2:34 p.m., Dan Mitchell Wrote:
The United Kingdom Is Screwed No Matter Who Wins the Next Election.
Prime Minister Gordon Brown has done a terrible job and is widely unpopular.. But even if the opposition party wins control later this year, it may not make much of a difference. The leader of the Tory party, David Cameron, is a British version of a RINO. He has not pledged to reduce the burden of government spending (which, as the chart illustrates, has skyrocketed). He has not pledged to reverse Brown's dramatic increase in the top tax rate. And now the Conservative Party is expressing support for a huge increase in the value-added tax. The UK-based Times reports:

    A rise in VAT is looming whichever party wins the general election, as Labour and the Conservatives draw up plans to balance Britain's books. Alistair Darling and George Osborne, the Shadow Chancellor, are both considering raising VAT to as high as 20 per cent — the European average — from the current rate of 17.5 per cent, The Times has learnt. ...One City source close to the Tory tax team said: "There is a view across the Conservative Party that VAT is going to have to go up." The Chancellor is also keenly aware that Britain needs to retain the confidence of the credit-rating agencies. He has privately ruled out either raising income taxes or increasing the scope of VAT, but has deliberately left open the possibility of increasing the sales tax in the next Parliament.
    http://www.timesonline.co.uk/tol/news/politics/article7025833.ece

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Monday, February 22, 2010 ~ 5:57 p.m., Dan Mitchell Wrote:
Why I'm Proud to Be an American.
Mark Steyn has a typically witty column that covers everything from the infamous Audi Superbowl commercial to the kid who was stopped by TSA for having Arabic-language flash cards. But he closes his piece with this powerful statement:

    ...the difference between America and Europe is that, when the global economy nosedived, everywhere from Iceland to Bulgaria mobs took to the streets and besieged Parliament demanding to know why government didn't do more for them. This is the only country in the developed world where a mass movement took to the streets to say we can do just fine if you control-freak statists would just stay the hell out of our lives, and our pockets. You can shove your non-stimulating stimulus, your jobless jobs bill, and your multi-trillion-dollar porkathons. 
    http://article.nationalreview.com/424914/the-new-conformo-radicalism/mark- steyn

There are obviously millions of Europeans who want to be left alone and millions of Americans who like sticking their snouts in the public trough, but Mark's observation is generally true. The United States is the only major nation that still has a libertarian tradition of individual liberty and personal responsibility. This is why we need to stop government-run healthcare and roll back the nanny state. Yes, it is bad that bigger government undermines growth and prosperity, but the real danger is that collectivism will destroy the American soul.

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Monday, February 22, 2010 ~ 5:34 p.m., Dan Mitchell Wrote
England's Absurd - and Intrusive - Nanny State.
A story from the U.K.'s Daily Mail shocked me for two reasons. First, a supermarket has announced that it won't offer valuable savings on infant formula because it violates European law. Apparently, there are lots of bored bureaucrats in Brussels who apparently have nothing better to do than concoct such inane policies. That was bad enough, but the story also reveals that the government sends bureaucrats to the homes of new mothers to badger them back in the workforce (presumably to pay taxes to support needless bureaucrats). Can anyone from England tell me if this is a mandatory program? Do families have to accept visits from these baby-ogling bureaucrats?

    New mothers are being denied valuable money saving offers on infant milk formula because of 'politically correct' pressure to breast feed. Boots says it cannot award loyalty points on milk for newborns because it is against EU law to 'promote' bottle feeding. ...Under European legislation, Boots and other stores with loyalty schemes can be penalised by trading standards officers for 'incentives' to buy formula milk for babies up to six months. ...Health visitors sent to help new mothers have been told to ask them when they will go back to work. They have been instructed to find out about job plans as part of routine checks on the health of the baby. The pressure on mothers to think about an early return to work has come as part of a Government drive to widen the role of health visitors. But their union last night called the edict 'unethical', while mothers said the intrusive questioning made them feel guilty for wanting to stay at home to look after their families.
    http://www.dailymail.co.uk/health/article-1251058/Boots-kowtows-Brussels- mothers-bottle-feed.html

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Sunday, February 21, 2010 ~ 10:05 a.m., Dan Mitchell Wrote
Watch and Laugh.
Saw this linked on Instapundit. It's poetic justice when scam artists and moochers get mocked.

 

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Sunday, February 21, 2010 ~ 9:32 a.m., Dan Mitchell Wrote
More TSA Stupidity.
The bureaucrats at the TSA must be trying to surpass their colleagues at various motor vehicles departments in the race for bone-headed and inane bureaucracy. Here's a story from Philadelphia about abusive treatment of a 4-year old kid with leg braces. Even though I think it's ridiculous, I can understand the rule about not allowing metal to go through without more inspection. But what possible purpose does it serve not to allow a parent to carry a child through?

    This happened to Bob Thomas, a 53-year-old officer in Camden's emergency crime suppression team, who was flying to Orlando in March with his wife, Leona, and their son, Ryan. Ryan was taking his first flight, to Walt Disney World, for his fourth birthday. The boy is developmentally delayed, one of the effects of being born 16 weeks prematurely. His ankles are malformed and his legs have low muscle tone. In March he was just starting to walk. ...The boy's father broke down the stroller and put it on the conveyor belt as Leona Thomas walked Ryan through the metal detector. The alarm went off. The screener told them to take off the boy's braces. The Thomases were dumbfounded. "I told them he can't walk without them on his own," Bob Thomas said. "He said, 'He'll need to take them off.' " Ryan's mother offered to walk him through the detector after they removed the braces, which are custom-made of metal and hardened plastic. No, the screener replied. The boy had to walk on his own. ...Bob Thomas was furious. He demanded to see a supervisor. The supervisor asked what was wrong. "I told him, 'This is overkill. He's 4 years old. I don't think he's a terrorist.' " The supervisor replied, "You know why we're doing this," Thomas said. Thomas said he told the supervisor he was going to file a report, and at that point the man turned and walked away.
    http://www.philly.com/inquirer/home_region/20100215_Daniel_Rubin__Anot her_case_of_TSA_overkill.html

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Saturday, February 20, 2010 ~ 4:32 p.m., Dan Mitchell Wrote
Bureaucrats vs. Taxpayers, Part X.
Saw something very interesting on the National Review blog. We finally have some good news in the battle between government workers and the serfs who support them (i.e., taxpayers). A Rhode Island town, frustrated by the intransigence of the teacher union, decided to fire the entire staff of the local high school. The union was upset that teachers were being asked to work harder, even though teachers make more than three times as much as the town's median income. Hopefully, this is a sign that taxpayers have finally become fed up and state and local politicians will decide that they need to side with the people pulling the wagon rather than those riding in the wagon. Here's an excerpt from the Providence Journal:

    Under threat of losing their jobs if they didn't go along with extra work for not a lot of extra pay, the Central Falls Teachers' Union refused Friday morning to accept a reform plan for one of the worst-performing high schools in the state. The superintendent didn't blink either. After learning of the union's position, School Supt. Frances Gallo notified the state that she was switching to an alternative she was hoping to avoid: firing the entire staff at Central Falls High School. In total, about 100 teachers, administrators and assistants will lose their jobs. Gallo blamed the union's "callous disregard" for the situation, saying union leaders "knew full well what would happen" if they rejected the six conditions Gallo said were crucial to improving the school. ...In an interview, Jane M. Sessums, union president, said the union intends to fight the terminations, although she was not ready to say how.
    http://www.projo.com/education/content/central_falls_teachers.1_02-13-10_ A8HEI7Q_v61.3a65218.html

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Saturday, February 20, 2010 ~ 3:23 p.m., Dan Mitchell Wrote
The Obamacare Fight Is Not Over.
Even though the American people don't want government-run healthcare, and even though Democrats are very nervous after losing a supposedly-safe Senate seat in Massachusetts, Obamacare is not dead. The Democrats still have huge majorities in the House and Senate and the White House clearly is trying to put the GOP back on the defensive. Exhibit A is the President's invitation for a televised healthcare summit on February 25. Exhibit B is the fact that the Congressional Budget Office has greased the skids by concocting preposterous estimates that government-run healthcare will reduce the budget deficit. This may seem like meaningless wonkery, but it could allow the Democrats to use the "reconciliation" process to impose Obamacare with just 51 votes in the Senate. Here are two reminders of why it is utterly absurd to think that a giant new entitlement program will reduce red tape. First, we have an excerpt from a Wall Street Journal column about how the "cost curve" is bending up rather than down. Second, we have a Center for Freedom and Prosperity video that looks at the evidence confirming that government-run healthcare will be a budget buster:

    Richard Foster, the chief actuary for the Centers for Medicare and Medicaid Services, reports that under his analysis national health spending will rise under the bills by $222 billion over the next 10 years. In other words, ObamaCare really does "bend the cost curve"—up. Even that estimate exists only on paper, as Mr. Foster has the honesty to admit. Because "most of the coverage provisions would be in effect for only six of the 10 years of the budget period, the cost estimates shown in this memorandum do not represent a full 10-year cost for the proposed legislation," he writes. The report is punctuated by phrases like "unrealistic" and "doubtful," and Mr. Foster adds that "the scope and magnitude of these changes are such that few precedents exist for use in estimation." ...ObamaCare is "paid for" only in the sense that Medicare's payments to doctors are assumed in the bill to be cut by more than 20% this spring and even deeper after that, which will never happen in practice. ...As for the White House's promise that it will reduce health spending painlessly by cutting "waste," Mr. Foster isn't buying it. He writes that "we find the language as it now reads is not sufficiently specific to provide estimates." The report also calls out the new entitlement program for long-term care, which is included only because it will start collecting premiums five years before it starts paying benefits. In return for this accounting gimmick, the fisc will be saddled with a program that Mr. Foster estimates will be bankrupt by 2025.
    http://online.wsj.com/article/SB10001424052748703652104574652563562 216036.html

 

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Friday, February 19, 2010 ~ 7:36 p.m., Dan Mitchell Wrote
Super Waste at the Super Bowl.
The Union Leader newspaper in New Hampshire has a correct view of the absurd $130 million "census awareness budget," including the reprehensible decision to squander $2.5 million on an ad during the Super Bowl. It's bad enough that the Census has evolved into an exercise in nanny-state intrusion, rather than the simple head-counting exercise as our Founders envisioned. But it adds insult to injury (or should it be injury to insult?) that our tax dollars are being wasted to publicize the exercise. Anybody want to guess whether the public relations agency that got the contract for this boondoggle donated money to Obama?

    Did you see that Super Bowl ad for the U.S. Census? If not, too bad, because you paid $2.5 million for it. Maybe you can catch it on YouTube. If you think that's outrageous, it gets worse. The $2.5 million is just 1.9 percent of the government's $130 million "census awareness budget." Oh, yes. Just in case you didn't know that Census Bureau workers will be coming to your home this year to do what they have done every 10 years for more than two centuries, Washington is spending $130 million of your money to tell you. ...It's also par for the course in a Washington so awash in money that $130 million isn't considered serious spending, and yet the government still manages to outspend revenues by $1.6 trillion.
    http://www.unionleader.com/article.aspx?headline=Super+blunder%3a+A+% 242.5+million+Census+ad&articleId=3151433c-5654-498c-815a-664732a 795b1

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Friday, February 19, 2010 ~ 2:45 p.m., Dan Mitchell Wrote
Bureaucrats vs. Taxpayers, Part IX.
According to a new article from the Mackinac Center, Michigan has below-average income compared to other states. But even though it is in 37th place for per-capita income, the politicians in the state are currying favor with union bosses by paying the 8th-highest teacher salaries:

    The president of the Michigan Education Association stated on the radio recently that school employees have "given and given and given and given." Comparing teacher salaries to personal income demonstrates that the taxpayers who pay for teacher salaries have "given" a lot more. The National Education Association just released its annual report that compares average teacher salaries throughout the country. For 2009-2010, Michigan ranks 8th. ...Public school teachers are government employees and are paid with tax dollars, and therefore their wages are inextricably linked to the economic well-being of the state and the wealth of its citizens. ...Michigan has many difficult decisions ahead, especially if Lansing continues its failed economic policies. Based on the numbers above, one issue that must be addressed is whether Michigan can continue to pay teachers "rich state" wages while the taxpayers footing the bill have "poor state" incomes.
    http://www.mackinac.org/12075

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Friday, February 19, 2010 ~ 2:22 p.m., Dan Mitchell Wrote
The European Superstate Continues to Metastasize.
Insanity is sometimes defined as doing the same thing over and over again while expecting a different result. On this basis the Euro-statists are clinically over the edge. They keep centralizing more power in Brussels and then they complain that European economies remain stagnant. On this basis, the new EU President must have escaped from the sanitarium, because he is asking for "economic government." This means, not surprisingly, more power for Brussels to harmonize and regulate in hopes of creating the imaginary nirvana of a competitive social model. But I have to admire the perseverance of the "federalists," as they are known. Every time they expand power, such as the recent Lisbon Treaty (basically a sanitized version of the statist EU constitution), they claim that they don't intend to push for more centralization. Yet the ink is barely dry on one agreement before they start pushing for more powers. You would think European citizens would wake up to this boy-who-cried-wolf scam, but since the "European project" is fundamentally anti-democratic, most of them have ceased paying attention.

    The European Union's new president, Herman Van Rompuy, is calling for an "economic government" for the bloc, with closer policy coordination and financial incentives for good performers. ..."Whether it is called coordination of policies or economic government," only the European nations working are "capable of delivering and sustaining a common European strategy for more growth and more jobs," he underlined. ...The evocation of a European "economic government" will please France which has lobbied in this direction for years without success. ...Thursday's summit will also will also prepare the ground for a new EU economic strategy, focussing on investing in research, innovation and the green economy. This will replace the bloc's Lisbon Strategy launched in 2000. The ambitious Lisbon Strategy was supposed to make Europe's economy the most competitive and dynamic in the world. It failed to do so and Van Rompuy was happy to bury it. ...For Van Rompuy it the matter is urgent and strikes at the very heart of the European project. ..."Our structural growth rate is not high enough to create jobs and sustain our social model," he warned.
    http://www.eubusiness.com/news-eu/summit-economy.2l4/

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Thursday, February 18, 2010 ~ 9:58 p.m., Dan Mitchell Wrote
If the So-Called Stimulus Was an Unsung Hero, I'd Hate to Meet a Singing Enemy.
The White House recently released the Economic Report of the President. In a post at the White House blog, Christina Romer brags that the stimulus legislation was a big success.

    This Act is the great unsung hero of the past year.  It has provided a tax cut to 95 percent of America's working families and thousands of small businesses.  It has meant the difference between hanging on and destitution for millions of unemployed workers who had exhausted their conventional unemployment insurance benefits.  It has kept hundreds of thousands of teachers, police, and firefighters employed by helping to fill the yawning hole in state and local budgets. And, it has made crucial long-run investments in our country's infrastructure and jump-started the transition to the clean energy economy.  All told, the Recovery Act has saved or created some 1½ to 2 million jobs so far, and is on track to have raised employment relative to what it otherwise would have been by 3.5 million by the end of this year. 
    http://www.whitehouse.gov/blog/2010/02/11/a-look-inside-economic-report- president

Let's set aside some of the disingenuous components of her post, such as categorizing income redistribution as tax relief, and focus on her claim that the legislation created at least 1.5 million new jobs when total employment has dropped by 3 million. Romer is not bad at math. Instead, she is saying that the economy would have lost 4.5 without the $787 billion increase in government spending. This what-might-have-been analysis is completely legitimate, assuming that there is good theory and evidence to back the assertion. Unfortunately, Ms. Romer and another colleague last year prepared a supposedly rigorous what-might-have-been report, where they estimated that the so-called stimulus would keep the unemployment rate at 8 percent and that failure to increase the burden of government spending would drive the unemployment rate to 9 percent. Yet as this chart from their paper indicates, when we add in the data for what actually has happened, in turns out that bigger government is not only theoretically misguided, but it also doesn't work in the real world..

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Thursday, February 18, 2010 ~ 9:12 p.m., Dan Mitchell Wrote
Bureaucrats vs. Taxpayers, Part VIII.
Arizona was hit hard by the housing bubble and that is causing considerable headaches for politicians - particularly since they allowed spending to explode during the boom years. Phoenix could be a poster child for fiscal excess. The city budget grew by nearly 10 percent annually when revenues were buoyant, in part because government employees have compensation that is almost twice as high as workers in the productive sector of the economy:

    Phoenix City Councilman Sal DiCiccio has pointed out that the average cost for a Phoenix city employee is $100,000. In just the past six years, the City of Phoenix budget grew by 59.6 percent, more than double the sum of inflation and population growth. ...Clearly, there is a failure by the City of Phoenix to address fundamental reform in the face of shrinking tax revenues. Public safety should be the city's first priority for funding, not an afterthought that depends on the promise of additional taxes. Many of the funds in the city's total budget are dedicated for various purposes such as public art.
    http://www.goldwaterinstitute.org/article/4381

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Wednesday, February 17, 2010 ~ 10:30 a.m., Dan Mitchell Wrote
Switzerland's Strong Human Rights Laws Should be Emulated, not Persecuted.
In a rational world, Switzerland would be a role model for other nations. It is quite prosperous thanks largely to a modest burden of government. There is remarkable ethnic and religious diversity, but virtually no tension because power is decentralized (sort of what America's Founders envisioned for the United States). Yet despite these - and many other - attractive features, Switzerland is being persecuted because of strong human rights laws that protect financial privacy. Money-hungry politicians from other nations resent Swtizerland's attractive policies, and they would rather trample Swiss sovereignty rather than fix their own oppressive tax laws. An official from the Swiss Bankers Association provides some background in a New York Times column:

    In Switzerland, this tradition of treating a client's financial affairs in confidence became law in 1934 when it was codified in Article 47 of the country's first-ever federal banking act as a contemporary reaction to the economic crisis, various domestic political considerations and well-publicized cases of espionage involving France and Germany. ...Banking secrecy, therefore, is not some gimmick the Swiss devised to attract foreign clients to their banks. It reflects the very high degree of trust that exists between the Swiss state and its citizens and it has strong democratic foundations. ...The Swiss are proud of their system and they reward it with a high level of taxpayer honesty. It works because the Swiss vote their own taxes, they have a high degree of control over the way tax revenues are spent and over all they believe their tax system to be reasonable, comprehensible, transparent and fair. The principle of self-declaration backed up with withholding taxes and, if necessary, stiff fines supports this "honesty box" system. ...Doesn't Switzerland hear the snapping jaws and cracking whips of foreign finance ministers, tax collectors, O.E.C.D. bureaucrats, cash-dispensing government agents and other denizens of the encroaching real world as they circle round Mother Helvetia intent on biting huge chunks out of her banking secrecy, if not swallowing it whole? ...In March last year the Swiss announced they would give up the evasion-fraud distinction for foreign bank clients and adopt  the O.E.C.D. standards on information exchange in tax matters. ...However, requests for assistance must be made with regard to a specific individual, and "fishing expeditions" — any indiscriminate trawling through bank accounts in the hope of finding something interesting — remain ruled out. ...Switzerland demonstrates to the world that it is possible for a state to collect taxes with a high degree of taxpayer honesty and without the authorities being corroded with suspicion about the financial activities of their citizens. Citizens in a democracy would never allow their police force to have an automatic right of forced entry into their homes just on the off-chance of finding some stolen goods, so why on earth should the state have an automatic right of forced entry into citizens' banks accounts just on the off-chance of discovering some tax evasion? There must be a limit to the extent to which respect for an individual's privacy is sacrificed on the altar of international cooperation in tax matters.
    http://dealbook.blogs.nytimes.com/2010/02/11/another-view-why-privacy-ma tters-to-the-swiss/

Sadly, the United States is part of the effort to create a global tax cartel. An "OPEC for politicians" would be terrible news for taxpayers, though, much as a cartel of gas stations would be bad for drivers. So-called tax havens play a valuable role in curtailing the greed of the political class. Ask yourself a simple question: Would politicians be more likely or less likely to raise tax rates if they knew taxpayers had no escape options?

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Wednesday, February 17, 2010 ~ 10:00 a.m., Dan Mitchell Wrote
Where's PETA When You Need Them?
I'm not sure if this is better or worse than the infamous Bridge to Nowhere, but the U.K. government has been spending millions of dollars in a futile effort to exterminate a duck. And because they are relying on government bureaucrats to kill the ducks, the cost-per-dead-duck is well over $750. I would suggest that they simply offer regular citizens a $50 bounty on each dead duck, but that might not work since the government has banned private gun ownership. Not surprisingly, this foolish program was instigated by the bureaucrats at the European Commission. Here's a report from the Daily Telegraph:

    For five years it has been subject to a ruthless European Union-inspired campaign of extermination. But now the ruddy duck could be about to have the last laugh. ...The cull was supposed to have been completed this year, but despite the killing of 6,200 ruddy ducks, the population is starting to increase again. ...And while the British government has been trying to kill off its population, ruddy ducks in Holland and France have grown in number, undermining the British effort. ...Lee Evans, from the British Birding Association, said: "It is a pointless farce. They will never be able to kill every last bird. ..."The cull has been a complete and utter waste of money because the government would have to kill every one and there is no possibility of that." ...The five year project to kill off the ruddy duck, co-ordinated by the Department for Environment, Food and Rural Affairs (Defra), is due to finish this summer. But 687 birds are still alive in the UK, up from an estimated 400 to 500 two years ago. ...Andrew Tyler, director of Animal Aid, said: "This has been a completely hopeless slaughter. The whole premise is nonsense, as well as the logistics, and it has also been extraordinarily expensive. "The birds from Britain don't seem to be going to Spain anyway, but even if ruddies are breeding with white headed ducks, that is a natural hybridisation that occurs in many birds." ...At one shoot earlier this month, an estimated 12 Defra officials, in eight boats, killed a total of 14 ducks on Ibsley Water, near the New Forest. ...Half the cost of the UK's £3.3 million ruddy duck cull has been met by the EU, with the other half provided by Defra. It follows earlier research by the department into eradicating ruddy ducks, said to have cost a further £1.3 million.
    http://www.telegraph.co.uk/earth/wildlife/7110463/500-a-duck-bill-for-cull-o n-behalf-of-Spain.html

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Tuesday, February 16, 2010 ~ 5:17 p.m., Dan Mitchell Wrote
Great Moments in Local Government.
Since we've been talking about the snow, here's a story about city that must have no real crime. At least, that's the only sensible thing to conclude after reading that cops in Harrisonburg, VA, arrested two college kids for the horrific offense of tossing snowballs (technically they were charged with "throwing a missile at an occupied vehicle"). This would be understandable if the kids embedded rocks in the snowballs, or even if they compacted slush to make ice balls, which also can be dangerous. But the city's press release offered no evidence of anything other than kids having fun. The Smoking Gun has the details:

    Felony snowball throwing charges have been leveled against two Virginia college students for allegedly pelting a city plow and an undercover police car during Saturday's blizzard. Charles Gill and Ryan Knight, both 21, were nabbed by cops in Harrisonburg, where they attend James Madison University. According to police, the pair first targeted a city plow last Saturday afternoon. ...If convicted of the felonious snowball tossing, the men each face between one and five years in prison, and a maximum $2,500 fine.
    http://www.thesmokinggun.com/archive/years/2010/0209101snow1.html

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Tuesday, February 16, 2010 ~ 4:44 p.m., Dan Mitchell Wrote
Maybe Greece Should Go Bankrupt.
The fiscal crisis in Greece is fascinating political theater, in part because the Balkan nation is a leading indicator for what will probably happen in many other countries. The most puzzling feature of the crisis is the assumption in other European capitals, discussed in the BBC article below, that a Greek default is the worst possible result. It certainly would not be good news, especially for investors who thought it was safe to lend money to the government, but there are several reasons why the long-term pain resulting from a bailout would be even worse.

1. Bailing out Greece will reward over-spending politicians and make future fiscal crises more likely. In a four-year period between 2005 and 2009, Greek politicians expanded the burden of government spending from an already excessive level of 43.8 percent of GDP to an even more excessive level of 51.3 percent of GDP. Subsidies are rampant, the public sector is bloated, civil service pay is way too high, and entitlements are wildly unsustainable. A fiscal crisis - with no escape options - is probably the only hope of reversing these disastrous policies. So why, then, would it make sense for Germany and other nations to provide an escape option?
 
2. Bailing out Greece will reward greedy and short-sighted interest groups, particularly overpaid government workers. Greece is in trouble because the the people riding in society's wagon assumed that there would always be enough chumps to pull the wagon. In reality, Greece is turning into a real-world version of Atlas Shrugged. Government has become such a burden that the job creators and wealth generators have given up and/or moved their money out of the country. Should taxpayers in other nations reward the greed and narcissism of Greece's interest groups by being forced to pull the wagon instead?
 
3. Bailing out Greece will encourage profligacy in Spain, Italy, and other nations. The hot acronym in public finance circles is PIIGS, which is shorthand for Portugal, Ireland, Italy, Greece, and Spain. Greece is getting all the attention now, but these other countries have the same problems of excessive spending, bloated and dysfunctional public sectors, and unsustainable finances. What happens in Greece will send a very clear signal to the politicians in these nations, much as a parent who lets the oldest child run rampant is sending signals the younger siblings. Does anybody doubt that a bailout of Greece will discourage the other PIIGS from undertaking needed reforms?
 
4. Bailing out Greece is not necessary to save the euro. This is the most puzzling feature of this Greek tragedy (sorry, I couldn't resist). There is a pervasive assumption that a default somehow would cripple the common currency of most European Union nations. But why would a default in Greece undermine the euro? If California went under, after all, that would not cripple the US dollar. There are unpleasant things that would probably happen following a Greek default, but the stability and strength of a currency is a function of central bank behavior. And so long as the European Central Bank does not crank up the proverbial printing press to monetize Greece's debt, the euro should be fine.
 
In my darker moments, I have sometimes warned audiences of what will happen when a majority of voters in a country or a state become dependent on government. In such an environment, it obviously becomes much more difficult to put together an electoral coalition that will lead to fiscal changes that shrink the burden of government and curtail the predatory state. This is what has happened to Greece, and what is soon going to happen in other European nations (and, barring reform, what will eventually happen in the United States). The irony of this situation is that even the folks riding in the wagon should favor reform. After all, a parasite needs a healthy host.
 
For background info, here's the BBC article:

    Despite heavy rain, there have been rallies across Greece throughout the day, with thousands of striking workers and pensioners gathering in the capital, Athens. Several thousand people were also reported to have protested in Greece's second city, Thessaloniki. The rallies have been mainly peaceful, but in one incident police fired tear gas at rubbish collectors who tried to drive through a police cordon. ...The unions regard the austerity programme as a declaration of war against the working and middle classes, the BBC's Malcolm Brabant reports from the capital. He says their resolve is strengthened by their belief that this crisis has been engineered by external forces, such as international speculators and European central bankers. "It's a war against workers and we will answer with war, with constant struggles until this policy is overturned," said Christos Katsiotis, a union member affiliated to the Communist Party, at the Athens rally. ...On Tuesday, Prime Minister George Papandreou's socialist government announced that it intends to raise the average retirement age from 61 to 63 by 2015 in a bid to save the cash-strapped pensions system. ...Mr Papandreou has already faced down a three-week protest by farmers demanding higher government subsidies. ...The markets remain sceptical that Greece will be able to pay its debts and many investors believe the country will have to be bailed out. The uncertainty has recently buffeted the euro and the problems have extended to Spain and Portugal, which are also struggling with their deficits. The possibility of Greece or one of the other stricken countries being unable to pay its debts - and either needing an EU bailout or having to abandon the euro - has been called the biggest threat yet to the single currency. Ahead of the talks between EU leaders in Brussels on Thursday, some business media reported that Germany is preparing to lead a possible bail-out, supported by France and other eurozone members.
    http://news.bbc.co.uk/2/hi/europe/8507551.stm

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Tuesday, February 16, 2010 ~ 3:12 p.m., Dan Mitchell Wrote
The Federal Government Is Bribing States to Create More Welfare Dependency?!?
If you want to get depressed or angry, the New York Times has an article celebrating the effort by politicians at all levels of government to lure more people into the food stamp program. New York City is running ads in foreign languages asking people to stick their snouts in the public trough. The City is even signing up prisoners when they get out of jail. The state of New York, meanwhile, actually set up quotas for enrolling new recipients. And on the federal level, there apparently is a program that gives states "bonuses" for putting more people on the dole. No wonder one out of every eight Americans is receiving food stamps. By the way, this is not just the fault of Democrats. The ranking Republican on the Agriculture Committee is a big defender of the program, in part because of the sordid pact among urban and rural politicians to support each other's handouts. And President George W. Bush's food stamp administrator actually had the gall to assert "food stamps is not welfare." No wonder the burden of federal spending skyrocketed during the reign of so-called compassionate conservatism. The correct policy, of course, is to get the federal government out of the welfare business. If Mayor Bloomberg thinks it is a "civic duty" to expand food stamps, he should see whether New York City voters agree with him - and want to foot the bill.

    A decade ago, New York City officials were so reluctant to give out food stamps, they made people register one day and return the next just to get an application. The welfare commissioner said the program caused dependency and the poor were "better off" without it. Now the city urges the needy to seek aid (in languages from Albanian to Yiddish). Neighborhood groups recruit clients at churches and grocery stores, with materials that all but proclaim a civic duty to apply — to "help New York farmers, grocers, and businesses." There is even a program on Rikers Island to enroll inmates leaving the jail. "Applying for food stamps is easier than ever," city posters say. ...These changes, combined with soaring unemployment, have pushed enrollment to record highs, with one in eight Americans now getting aid. "I've seen a remarkable shift," said Senator Richard G. Lugar, an Indiana Republican and prominent food stamp supporter. "People now see that it's necessary to have a strong food stamp program." ...The program has commercial allies, in farmers and grocery stores, and it got an unexpected boost from President George W. Bush, whose food stamp administrator, Eric Bost, proved an ardent supporter. "I assure you, food stamps is not welfare," Mr. Bost said in a recent interview. Still, some critics see it as welfare in disguise and advocate more restraints. ...The federal government now gives bonuses to states that enroll the most eligible people. ...In 2008, the program got an upbeat new name: the Supplemental Nutrition Assistance Program — SNAP. ...Since Mayor Michael R. Bloomberg took office eight years ago, the rolls have doubled, to 1.6 million people... Albany made a parallel push to enroll the working poor, setting an explicit goal for caseload growth. "This is all federal money — it drives dollars to local economies," said Russell Sykes, a senior program official. But Mr. Turner, now a consultant in Milwaukee, warns that the aid encourages the poor to work less and therefore remain in need. "It's going to be very difficult with large swaths of the lower middle class tasting the fruits of dependency to be weaned from this," he said.
    http://www.nytimes.com/2010/02/11/us/11foodstamps.html

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Monday, February 15, 2010 ~ 4:35 p.m., Dan Mitchell Wrote
Powerful Evidence for School Choice, Part III.
Here's another study showing the benefits of comprehensive school choice in a foreign country. Interestingly, the author of the report about the Chilean system clearly is not a fan of competition, yet even his data shows higher scores for private schools and rising overall scores, even in the government schools - which is exactly what one would expect since competition encourages every type of school to do a better job:

    Chile's education system was decentralized in 1980, and a voucher-type subsidy was introduced to encourage private providers to enter the market. ...Following the reform..., the subsidized private sector rapidly expanded...with 56 percent of enrollments in the municipal sector and 34 percent in subsidized private schools. The fee-paying private sector has expanded...to account for 10 percent of total enrollment. ...test results have tended to improve over time, especially at 4th grade, but there are significant differences...fee-paying private schools on average score 19 more points than municipal schools in the SIMCE test, whereas subsidized private schools score 4.5 more.
    http://www.jstor.org/stable/146331?seq=8

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Sunday, February 14, 2010 ~ 9:43 a.m., Dan Mitchell Wrote
Politically Correct Agenda at the SEC Is Misguided, but It Demonstrates Why Democrats Are Smarter than Republicans.
It's almost amusing to see the Securities and Exchange Commission jumping on the sinking ship of global warming alarmism. After all, only a government bureaucracy would take such a step at precisely the moment that the scam has been exposed. But I said it's "almost amusing" because the added costs imposed on companies will be real, and this will hurt workers, shareholders, and consumers. But I will tip my proverbial hat to the Democrats. I remember several years ago trying to get the SEC to give shareholders more accurate information by having dividend checks show that corporate tax already was paid on the money. This would help people realize, of course, that declaring dividend income on personal tax returns was a punitive form of double taxation. Yet even though this was squarely in the SEC's mission of supposedly serving investors, the Republicans in charge were politely dismissive. The moment Democrats get in charge, however, they move forward with a politically-motivated change that has nothing to do with helping investors. This is a good example of the old saying that Republicans are the stupid party and Democrats are the evil party:

    A politically divided Securities and Exchange Commission voted on Wednesday to make clear when companies must provide information to investors about the business risks associated with climate change. The commission, in a 3 to 2 vote, decided to require that companies disclose in their public filings the impact of climate change on their businesses -- from new regulations or legislation they may face domestically or abroad to potential changes in economic trends or physical risks to a company. Chairman Mary L. Schapiro and the two Democrats on the commission supported the new requirements, while the two Republicans vehemently opposed them. "I can only conclude that the purpose of this release is to place the imprimatur of the commission on the agenda of the social and environmental policy lobby, an agenda that falls outside of our expertise and beyond our fundamental mission of investor protection," Republican commissioner Kathleen L. Casey said.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/27/AR2010 012704502.html

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Sunday, February 14, 2010 ~ 9:21 a.m., Dan Mitchell Wrote
Powerful Evidence for School Choice, Part II.
I was vaguely aware the there was a school choice system in the Netherlands, but I had no idea how good it was. Nearly three-fourths of all schools are privately controlled. Not surprisingly, the Dutch score very highly compared to other nations. Here's some of the data from a recent study:

    One of the key features of the Dutch education system is freedom of education—freedom to establish schools and organize teaching. Almost 70 percent of schools in the Netherlands are administered by private school boards... it is shown that the Dutch system promotes academic performance. The instrumental variables results show that private school attendance is associated with higher test scores. ...a significant part of the high achievement of Dutch students in international achievement tests is due to the institutional features associated with school choice. ...Money follows students and each school receives for each student enrolled a sum equivalent to the per capita cost of public schooling. ...achievement levels are high, while relative costs are low. ...Private school size effects in math, reading and science achievement are 0.17, 0.28 and 0.18, all significant. Given PISA's scaling, this is close to 0.2 of a standard deviation in the case of math and science, and almost 0.3 of a standard deviation in reading. In other words, these are large effect size effects, indicating that school choice contributes to achievement in Netherlands.
    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1543044

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Saturday, February 13, 2010 ~ 8:23 p.m., Dan Mitchell Wrote
Government Stupidity Alert.
When I saw this story on the Wall Street Journal's Best of the Web, all I could think about is staging a contest between education bureaucrats or TSA bureaucrats to see which group should symbolize the inherent incompetence of the public sector:

    Patrick Timoney, a fourth-grader at PS 52, South Beach, was nearly suspended after playing with LEGOs during his lunch period because one of the action figures was carrying at toy machine gun. He and his friends had planned a playdate with their respective toys, and were sitting around the cafeteria table when the principal walked in and saw the action figure carrying the fake gun. While the action figure was a standard LEGO policeman figure, the brand of the gun could not be determined. "She took him into her office in the middle of the lunch period and he was crying," said the boy's mother, Laura Timoney. "He was afraid." The principal called Ms. Timoney and said she considered the toy suspension-worthy, and that she was going to double-check with a security administrator from the city Department of Education. According to Ms. Timoney, the administrator said the toy should be confiscated and returned to the parents at the end of the day, and that no other action was necessary. ...She pointed out that another child had an action figure that was holding an ax, but that only Patrick was reprimanded.
    http://www.silive.com/news/index.ssf/2010/02/big_brouhaha_over_tiny_toy_g un.html

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Saturday, February 13, 2010 ~ 7:45 p.m., Dan Mitchell Wrote
Sex-Change Operations Are Deductible According to Tax Court.
The internal revenue code is a monstrous nightmare of special-interest loopholes and class-warfare penalties, but at least is generates some interesting stories. Here's a report from Bloomgberg about a court deciding that the costs of switching from a man to a woman are tax deductible. Since I'm not a leftist, I'm not going to make the absurd argument that taxpayers are subsidizing sex-change operations. After all, the case revolved around how much of his/her own money the taxpayer got to keep. But I am an economist, so I'm going to say that tax loopholes tilt the playing field and encourage all sorts of inefficient outcomes. Indeed, this tax court ruling should be seen as a symbol of why tax preferences for health care should be eliminated as part of the shift to a simple, fair, and neutral flat tax:

    Costs incurred in sex-change operations and procedures are tax-deductible, the U.S. Tax Court ruled. The Washington-based court decided yesterday that hormone therapies and sex reassignment surgeries are necessary to treat gender identity disorder, a disease, in the case of a Boston- area man who became a woman named Rhiannon O'Donnabhain. "The Court is persuaded that petitioner's sex reassignment surgery was medically necessary," Judge Joseph Gale wrote in a 69-page decision for the majority. The decision is the first to rule that sex-change operations qualify as medical care and overturns a 2005 Internal Revenue Service policy denying medical expense deductions in such operations on the grounds they are 'cosmetic.'' The case involves a $5,679 tax bill assessed by the IRS, which denied medical deductions claimed by O'Donnabhain after she underwent sex reassignment-surgery in 2000. O'Donnabhain, a civil engineer who joined the U.S. Coast Guard during the Vietnam War, was diagnosed with gender identity disorder in 1997. O'Donnabhain sued the IRS after it denied her deduction of $25,000 in out-of-pocket medical costs associated with the surgeries and other care such as hormone treatments and counseling, according to Boston-based Gay & Lesbian Advocates & Defenders, which represented her in court.
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aqACvUSEea s4

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Friday, February 12, 2010 ~ 4:35 p.m., Dan Mitchell Wrote:
Bashing Obama's Class-Warfare Tax Policy on CNBC. No left-winger to debate in this appearance.

 

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Friday, February 12, 2010 ~ 2:56 p.m., Dan Mitchell Wrote:
Second Stimulus Could Feature Inefficient Tax Cut.
The political crowd in Washington is looking to put together a so-called jobs bill, but even when politicians include tax cuts, they choose the wrong approach.

 

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Thursday, February 11, 2010 ~ 5:40 p.m., Dan Mitchell Wrote:
The Phony Cost of Shutting Down the Federal Government.
For the fourth day in a row, the federal government is shut down because of snow. This causes me mixed feelings. Because federal workers already are so vastly overpaid, part of me is irritated that they are getting what are, for all intents and purposes, extra vacation days. On the other hand, isn't it better to have bureaucrats sitting at home instead of hunched over their desks figuring out new ways to tax and regulate? And let's not forget that Harry Reid has been forced to delay the so-called jobs bill because of the snow, so the economy at least will be temporarily spared this new stimulus scam. But then I saw a story that it costs $100 million for each day the government is shut down. This perplexed me. While I have great faith in the ability of government to waste money, how could it cost even more for bureaucrats to stay home? It turns out this number is fake. As the story excerpted below indicates, the $100 million figure is a government estimate of "lost productivity." For people in the real world, however, fewer IRS audits, fewer OSHA inspections, and fewer Dept. of Energy subsidies translate into higher productivity:

    While D.C. residents take out their snow shovels for untold hours of back-breaking labor, the Office of Personnel Management estimates that the shuttering of the federal government is breaking the bank as well -- costing taxpayers about $100 million every day in lost productivity, or work that's not getting done. With Friday's half day, and three full days of government shut-down this week, that adds up to $350 million -- and it could top $500 million if the government, with its 230,000 D.C.-area employees, remains closed through the end of the week.
    http://www.foxnews.com/politics/2010/02/10/governments-million-day-loss-s nowstorm/

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Thursday, February 11, 2010 ~ 5:28 p.m., Dan Mitchell Wrote:
Revenge of the Laffer Curve, Part III.
The bloodsuckers and leeches in the U.K. government are better than their counterparts in the United States. Unlike the American revenue-estimating system, which assumes higher tax rates raise revenue, the British bureaucracy admits that the new 50 percent tax rate will raise very little revenue. The UK-based Times reports:

    High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday. Lord Myners, the City Minister, said that the Treasury had "significantly reduced" its estimate of the revenue to be earned from the historic change. ...Lord Myners told peers that "behavioural consequences of the new higher rate of taxation" — shorthand for tax avoidance — had forced the Treasury to lower its expectations. ...Mike Warburton, senior tax adviser at Grant Thornton, one of Britain's biggest accounting firms, said..."People are taking obvious avoidance measures because they are not prepared to pay 50 per cent tax"... "People were prepared to pay 40 per cent but the Treasury don't seem to understand what drives people. The minister has at last admitted that the 50 per cent tax rate was a blatantly political measure and not designed to raise new revenues. This is all to do with the politics of envy." Lord Myners said that there were "very small numbers of people" who appeared to have moved abroad as a result of the tax change.
    http://www.timesonline.co.uk/tol/news/politics/article7011728.ece

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Thursday, February 11, 2010 ~ 2:14 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part VII.
Here's another depressing column about how government workers are getting showered with high pay and lavish benefits while people in the productive sector of the economy are bearing the economic pain of financing a bloated welfare state:

    ...government unionized workers often have gold-plated health benefits packages that are among the most expensive in America. Several years ago, for instance, the Employee Benefit Research Institute noted in a report the growing gap in both salaries and benefits between the private and public sector, estimating that state and local governments paid on average about 120 percent more on an hourly basis for employee health premiums than private employers. ...n places where government unions have the most influence, like California, New York and New Jersey, the cost of public health plans is well beyond what's typical in the private sector because public workers in these places make little or no contribution toward premiums, often don't have co-pays for doctor visits, and have a rich array of supplemental benefits that are rare in the private sector... Many of these benefits, by the way, don't merely apply to current government workers but also to retirees because many states and cities now offer public workers attractive retirement packages that start at 50 for public safety workers and 55 for everyone else and which include full-health benefits until retirees reach the age that Medicare kicks in. ...The health care deal, moreover, represents only the latest victory in what has been a very good period for public workers. In most places these workers have largely been insulated from the impact of the devastating recession. Hundreds of billions of dollars of the so-called federal stimulus bill actually went to insuring that state and local workers did not lose their jobs, one reason why the unemployment rate for government workers remains under four percent. ...we can't blame all of this on the Obama administration. Indeed, the Bush years were quite good for public sector workers too. In fact, the last 50 years, ever since governments began allowing widespread organizing by public workers, have been one upward arc for government workers, so that today they surpass their private counterparts in pay, benefits and working conditions. And now they've gotten their hands into the tax code, too.
    http://www.realclearmarkets.com/articles/2010/01/20/health_reform_and_the _conspiracy_against_taxpayers_97596.html

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Wednesday, February 10, 2010 ~ 8:48 p.m., Dan Mitchell Wrote:
Government Is too Big and It Is Doing too Much.
Paul Light of New York University has a column in the Washington Post that acknowledges an ongoing pattern of incompetence by the federal government. He admits that the bureaucracy is too big. He notes that bureaucratic success is unrelated to merit and that it is well nigh impossible to fire incompetent staff. And he also mentions that huge army of consultants and contractors, which further makes accountability impossible. Unfortunately, he fails to draw the obvious conclusion that the federal government needs to be radically downsized:

    The systemic failures that led to the attempted bombing of Northwest Flight 253 are, sadly, all too familiar. Substitute the words "Christmas Day plot" for tainted meat, poisoned peppers, aircraft groundings, the Columbia shuttle accident, Hurricane Katrina, counterfeit Heparin, toxic toys, the banking collapse, Bernie Madoff or even Sept. 11, and the failure to put Umar Farouk Abdulmutallab on the "no-fly" list becomes yet another indication that the federal government can no longer guarantee the faithful execution of our laws. ...Fifteen years later, a second national commission...looked at the widening federal agenda after the Sept. 11 attacks as well as underlying causes of poor performance and frequent breakdowns. The final report minced no words: "There are too many decision-makers, too much central clearance, too many bases to touch, and too many overseers with conflicting agendas . . . accountability is hard to discern and harder still to enforce." ...four bureaucratic problems that plague the federal government. First, the federal government currently has the most confusing hierarchy in its history. Barack Obama entered office overseeing at least 64 discrete titles just at the top of the government. Even one vacancy in the reporting chain can wreak havoc on performance. With more layers of management and more managers per layer, information must travel a great distance before reaching the president, if it ever does. ...Third, front-line government employees have expressed serious concerns about their jobs. Interviewed in mid-2008 by the U.S. Office of Personnel Management, less than half of a random sample of federal employees said their agencies were able to recruit employees with the right skills, just over a third said promotions were based on merit, and even fewer said their agencies took steps to deal with poor performers. ...Fourth, the federal government is increasingly dependent on a huge workforce of employees who operate in the shadows. According to estimates from Eagle Eye Publishers, prepared on my behalf, the number of federal contractors grew from an estimated 4.4 million in 1999 to more than 7.5 million by the end of the 2005 fiscal year. Given the continued rise in federal procurement spending, the number of contractors is almost certainly higher today. As the number of large contracts has increased and competition has declined, it has become nearly impossible to hold anyone accountable for what goes right or wrong.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/11/AR2010 011103255.html

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Wednesday, February 10, 2010 ~ 6:21 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part VI.
I'm going to have to stop this series soon because it is getting too depressing. This Wall Street Journal column contains more surprising data, including the fact that pension costs for California bureaucrats jumped by 2000 percent in just one decade (revenues rose by 24 percent in the same period). The most shocking factoid, though, is that more than 15,000 former bureaucrats get pensions of more than $100,000 per year:

    [California] is in a precarious position, with a 12.3% unemployment rate (more than two points higher than the national average) and a budget $20 billion in the red (only months after the last budget fix closed a large deficit). Productive Californians are leaving for states with less-punishing regulatory and tax regimes. Yet so far there isn't a broad consensus to do much about those who have prodded the state into its current position: public employee unions that drive costs up and fight to block spending cuts. ...California needs to take on its public employee unions. Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility. Many of these retirees are former police officers, firefighters, and prison guards who can retire at age 50 with a pension that equals 90% of their final year's pay. ...A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar. ...State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."
    http://online.wsj.com/article/SB10001424052748703699204575017182296 077118.html

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Tuesday, February 9, 2010 ~ 11:15 p.m., Dan Mitchell Wrote:
Political Alchemy: Turning Spending Increases into Tax Cuts, Part I.
Politicians in Washington have come up with something far more impressive than turning lead into gold or water into wine. Using self-serving budget rules, they can increase the burden of government spending and say they are cutting taxes instead.

This bit of legerdemain is made possible, thanks to the convolutions of the personal income tax, by adopting or expanding refundable tax credits. But in this case, "refundable" does not mean the government is returning money to taxpayers. Instead, it means that money is being redistributed to people who do not earn enough to be subject to the income tax.

This is hardly a trivial issue. According to the Congressional Budget Office, the amount of income redistribution being laundered through the tax code is now so large that the bottom 40 percent of the population has a negative "effective" income tax rate. In simple terms (though perhaps with profound political implications), the income tax is a revenue generator for a big share of the population.

And the problem is going to get worse if the President's budget is approved. Buried in the fine print, on pages 188-189 of the Analytical Perspective of the Budget, you will see that the President is proposing to increase this hidden form of spending by more than $152 billion over the next ten year.

It is worth noting that proponents argue that it is okay to classify this new spending as tax cuts because it somehow offsets other tax payments, especially the payroll tax. I'm sympathetic to lower taxes on everybody, including the poor, but surely it is better to be honest and simply cut the taxes that people pay. The current methodology, by contrast, is open to abuse. Heck, I'm surprised politicians don't classify other forms of spending as tax cuts. Maybe corporate welfare can be reclassified as a corporate tax cut (I better stop lest I give the political class any ideas).

Defenders also assert that some so-called refundable tax credits, particularly the earned income tax credit, are designed to encourage work. That is partly true, but credits like the EITC are withdrawn as income climbs, and this means poor people face punitive marginal tax rates, so the overall effect on hours worked may be negligible.

The right approach, of course, is to get the federal government out of the racket of redistributing income.

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Tuesday, February 9, 2010 ~ 9:27 p.m., Dan Mitchell Wrote:
The Global Warming Battle Is not Over.
Proponents of sound science and economic growth certainly have many reasons to be happy. The global-warming crowd has been exposed as a bunch of fraudsters, the Copenhagen "climate change" summit collapsed in failure, and there now appears to be no chance that the US Senate will pass legislation to cripple the American economy. But while we are winning the battles, the war is far from over. As Walter Williams warns, there are many special interest groups who have invested money in the scam and they will not give up:

    Mounting evidence of scientific fraud might make little difference in terms of the response to manmade global warming hysteria. Why? Vested economic and political interests have emerged where trillions of dollars and social control are at stake. Therefore, many people who recognize the scientific fraud underlying global warming claims are likely to defend it anyway. Automobile companies have invested billions in research and investment in producing "green cars." General Electric and Phillips have spent millions lobbying Congress to outlaw incandescent bulbs so that they can force us to buy costly compact fluorescent light bulbs (CFL). Farmers and ethanol manufacturers have gotten Congress to enact laws mandating greater use of their product, not to mention massive subsidies. ...Then there's Chicago Climate Futures Exchange that plans to trade in billions of dollars of greenhouse gas emission allowances. Corporate America and labor unions, as well as their international counterparts have a huge multi-trillion dollar financial stake in the perpetuation of the global warming fraud. Federal, state and local agencies have spent billions of dollars and created millions of jobs to deal with one aspect or another of global warming.
    http://townhall.com/columnists/WalterEWilliams/2010/02/03/global_warming_ update

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Monday, February 8, 2010 ~ 3:23 p.m., Andrew Quinlan Wrote:
At the Oscars this year: Kelo vs. New London in Space?
The critically acclaimed film Avatar has drawn its fair share of conservative criticism.  Much of this is well deserved.  The "heroes" of Avatar are alien facsimiles of crunchy American leftist and the apparent "villains" are American military personnel. Yet, as David Boaz of the Cato Institute points out, the underlying storyline is actually about property rights. The film, perhaps unintentionally, promotes a conservative stance on eminent domain abuse and government interference in the market place:

    …But conservative critics are missing the conflict at the heart of the movie. It's quite possible that Cameron missed it too.

    The earthlings have come to Pandora to obtain unobtainium. In theory, it's not a military mission, it's just the RDA Corp. with a military bigger than most countries. The Na'vi call them the Sky People.To get the unobtainium, RDA is willing to relocate the natives, who live on top of the richest deposit. But alas, that land is sacred to the Na'vi, who worship the goddess Eywa, so they're not moving. When the visitors realize that, they move in with tanks, bulldozers and giant military robots, laying waste to a sacred tree and any Na'vi who don't move fast enough.

    Conservatives see this as anti-American, anti-military and anti-corporate or anti-capitalist. But they're just reacting to the leftist ethos of the film. They fail to see what's really happening. People have traveled to Pandora to take something that belongs to the Na'vi: their land and the minerals under it. That's a stark violation of property rights, the foundation of the free market and indeed of civilization. Sure, the Na'vi -- who, like all of the people in lefty dreams, are psychically linked to one another and to all living creatures -- probably view the land as their collective property. At least for human beings, private property rights are a much better way to secure property and prosperity. Nevertheless, it's pretty clear that the land belongs to the Na'vi, not the Sky People.

    Conservatives rallied to the defense of Susette Kelo when the Pfizer Corp. and the city of New London, Conn., tried to take her land. She was unreasonable too, like the Na'vi: She wasn't holding out for a better price; she just didn't want to sell her house. As Jake tells his bosses, "They're not going to give up their home."

    "Avatar" is like a space opera of the Kelo case, which went to the Supreme Court in 2005. Peaceful people defend their property against outsiders who want it and who have vastly more power.

     Jake rallies the Na'vi with the stirring cry "And we will show the Sky People that they cannot take whatever they want! And that this is our land!" That's a story conservatives ought to be able to understand.

    "Avatar" has its problems, from stilted dialogue to its embrace of the long-discredited myth of the "noble savage" in tune with nature. But conservatives should appreciate a rare defense of property rights coming out of Hollywood.
    http://articles.latimes.com/2010/jan/26/opinion/la-oe-boaz26-2010jan26

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Monday, February 8, 2010 ~ 11:44 a.m., Dan Mitchell Wrote:
Great Moments in Local Government.
I'd say only a government would be stupid enough to sign a contract that obligates them to pay somebody more than $100K each year for doing nothing, though it's possible the corporate bureaucrats at the auto companies may have done something equally stupid in their deals with the UAW. But the real lessons to be learned here are, 1) that governments sign absurdly generous agreements with unions because they have no reason to be responsible when spending other people's money, and 2) what makes unions so destructive are not necessarily salaries, but rather the accompanying rules that make it all but impossible to weed out bad employees. In any event, here's a New York Post story that should anger all taxpayers:

    A Queens teacher who collects a $100,000 salary for doing nothing spends time in a Department of Education "rubber room" working on his law practice and managing 12 real-estate properties worth an estimated $7.8 million, The Post found. Alan Rosenfeld hasn't set foot in a classroom for nearly a decade since he was accused in 2001 of making lewd comments to junior-high girls and "staring at their butts," yet the department still pays him handsomely for sitting on his own butt seven hours a day. ...The DOE can't fire him. "We have to abide by the union contract," spokeswoman Ann Forte said. So Rosenfeld simply collects his $100,049 salary -- top scale for teachers -- plus full health benefits and the promise of a fat pension, about $82,000 a year if he were to retire today. His pension will grow by $1,700 each year he remains. He could have retired at age 62, but he stays. He has also accumulated about 435 unused sick days -- and will get paid for half of them when he retires.
    http://www.nypost.com/p/news/local/queens/school_creep_bQL5kouK80ob W5MhZRyq7J#ixzz0eVkyswBP

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Sunday, February 7, 2010 ~ 5:49 p.m., Dan Mitchell Wrote:
Greetings from Canada.
I'm just back from a swing through Canada, giving speeches for the Fraser Institute to audiences in Vancouver, Calgary, and Toronto. I've been talking about the size of government and the future of capitalism. As you might imagine, several people have asked about the battle in America over government-run healthcare and how the system in the United States today compares to the Canadian system. I make two points. First, I tell them that America's health care system already is largely run by government. Obama's proposal simply increases the level of control from perhaps 70 percent to 80 percent. Second, I tell them that the surviving remnants of a free market in the United States are worth preserving. Politicians have made the American system very cumbersome and expensive, but it is nonetheless the place where people want to be when their lives are on the line. So it's quite appropriate that this bit of news was just unveiled:

    Newfoundland and Labrador Premier Danny Williams is set to undergo heart surgery this week in the United States. CBC News confirmed Monday that Williams, 59, left the province earlier in the day and will have surgery later in the week. The premier's office provided few details, beyond confirming that he would have heart surgery and saying that it was not necessarily a routine procedure.
    http://www.cbc.ca/canada/newfoundland-labrador/story/2010/02/01/nl-willia ms-heart-201.html

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Sunday, February 7, 2010 ~ 3:11 p.m., Dan Mitchell Wrote:
The Debilitating Economic Consequences of Bigger Government.
While speaking in Canada last week, I authored a column in the Financial Post. I hope the entire piece is worth reading, but here are a few of the highlights:

    The Obama Administration claimed that spending more money would keep the unemployment rate below 8% in the United States, yet it climbed to 10%. The United Kingdom and Canada also suffered continued stagnation after adopting so-called stimulus packages. Ironically, statist nations such as France and Germany that resisted the siren song of Keynesianism better weathered the global economic storm. ...While many factors influence economic performance, the negative impact of government spending is one reason why small-government jurisdictions such as Hong Kong (where the burden of the public sector is below 20% of GDP) have higher growth rates than nations that have medium-sized government, such as Canada and the United States. The same principle explains in part why big-government countries such as France often suffer from economic stagnation. ...Most studies using current economic data show that economic performance is maximized when the public sector is less than 20% of GDP. And if historical data is used, the evidence suggests that government should be even smaller. Ironically, John Maynard Keynes might not be a Keynesian if he was alive today. He certainly would not be a proponent of big government. In correspondence with another British economist, he agreed with the premise of "25% [of GDP] as the maximum tolerable proportion of taxation."
    http://www.financialpost.com/todays-paper/story.html?id=2510823#ixzz0eUu ERqwK

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Saturday, February 6, 2010 ~ 7:21 p.m., Dan Mitchell Wrote:
A Tribute to the Man Who Saved America.

Ronald Reagan was born 99 years ago on this date.

 

The tribute is moving, but this video underscores what made Reagan special. Unlike most Republicans today, he actually believed in freedom.

 

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Friday, February 5, 2010 ~ 5:55 p.m., Dan Mitchell Wrote:
Volcker Is Right about "Resolution Authority."
As I noted a few days ago, Paulson's bailout was the worst possible way to do a bad thing. To the extent that the government had to inject money into the financial system, I explained, it would have been far better to use the "FDIC Resolution" approach, which at least addresses the moral hazard issue by wiping out shareholders and getting rid of incompetent management. Paul Volcker made the same point in the New York Times:

    The phrase "too big to fail" has entered into our everyday vocabulary. It carries the implication that really large, complex and highly interconnected financial institutions can count on public support at critical times. The sense of public outrage over seemingly unfair treatment is palpable. Beyond the emotion, the result is to provide those institutions with a competitive advantage in their financing, in their size and in their ability to take and absorb risks. ...To meet the possibility that failure of such institutions may nonetheless threaten the system, the reform proposals of the Obama administration and other governments point to the need for a new "resolution authority." Specifically, the appropriately designated agency should be authorized to intervene in the event that a systemically critical capital market institution is on the brink of failure. The agency would assume control for the sole purpose of arranging an orderly liquidation or merger. Limited funds would be made available to maintain continuity of operations while preparing for the demise of the organization. To help facilitate that process, the concept of a "living will" has been set forth by a number of governments. Stockholders and management would not be protected. Creditors would be at risk, and would suffer to the extent that the ultimate liquidation value of the firm would fall short of its debts. To put it simply, in no sense would these capital market institutions be deemed "too big to fail." What they would be free to do is to innovate, to trade, to speculate, to manage private pools of capital — and as ordinary businesses in a capitalist economy, to fail.
    http://www.nytimes.com/2010/01/31/opinion/31volcker.html

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Friday, February 5, 2010 ~ 2:46 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part V.
This may not be as dumbfounding as being told not to advertise for reliable people in England, but I certainly was shocked to see that nearly one-in-five federal bureaucrats is paid more than $100,000 - and that doesn't even include overtime and bonuses! Or how about the fact that number of bureaucrats making more than $170,000 at the Department of Transportation jumped from one to 1,690. No wonder the average bureaucrat makes 76 percent more than someone in the productive sector of the economy. If you want to get angry, read Jeff Jacoby's column:

    Since December 2007, when the current downturn began, the ranks of federal employees earning $100,000 and up has skyrocketed. According to a recent analysis by USA Today, federal workers making six-figure salaries - not including overtime and bonuses - "jumped from 14 percent to 19 percent of civil servants during the recession's first 18 months.'' The surge has been especially pronounced among the highest-paid employees. At the Defense Department, for example, the number of civilian workers making $150,000 or more quintupled from 1,868 to 10,100. At the recession's start, the Transportation Department was paying only one person a salary of $170,000. Eighteen months later, 1,690 employees were drawing paychecks that size. All the while, the federal government has been adding jobs at a 10,000-a-month clip. Between December 2007 and June 2009, federal payrolls exploded by nearly 10 percent. "Federal workers are enjoying an extraordinary boom time in pay and hiring,'' USA Today observes, "during a recession that has cost 7.3 million jobs in the private sector.'' And to add public-sector insult to private-sector injury, data from the Office of Personnel Management show the average federal salary is now roughly $71,000 - about 76 percent higher than the average private salary.
    http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/01/ 27/income_angst_not_for_public_employees/

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Thursday, February 4, 2010 ~ 10:19 a.m., Dan Mitchell Wrote:
Republicans Are Hypocritical, but Correct.
Steve Chapman skewers Republicans for being the party of big government when they were in power, but also notes that they are right to criticize Obama's reckless fiscal policies. Chapman hopes that the GOP will actually propose to shrink the burden of government. A good start would be an apology for all the wasteful programs of the Bush years:

    After the administration floated a plan to cap non-defense, non-security discretionary spending for the next three years, the opposition party erupted in jeers. The complaints were many: It affected only one-eighth of the budget, it came on top of big increases, and the savings would be trivial next to the deficits that are in the pipeline. ...All the criticisms, as it happens, are true. Obama's claim of stern fiscal discipline -- "we are prepared to freeze government spending for three years" -- collapsed into comical irrelevance as soon as he listed all the programs that won't be included: national security, Medicare, Medicaid and Social Security, which happen to be the Four Horsemen of the Fiscal Apocalypse. There's more: Unspent stimulus funds amounting to $165 billion. Other "mandatory" programs like unemployment and food stamps. Interest on the debt, which will triple in the next three years. Obama is going on a hunger strike, except during mealtimes. ...Still, it's odd to hear complaints about excessive spending from the people who brought us the bloated budgets of the Bush years. During his tenure, federal spending did not retreat under the relentless assault of tight-fisted conservatives. In fact, during the Bush administration, total federal spending, adjusted for inflation, climbed by 72 percent. What was originally a fiscal surplus became a deficit, reaching $1.8 trillion in 2009, Bush's final budget year (to which Obama contributed only a minor amount). Not until he had been in office for more than six years did he veto a bill because it cost too much. Bill Clinton may feel your pain, but next to his successor, he looked like Ebenezer Scrooge. ...If the GOP really wants to highlight the administration's budgetary excesses, the right response is not to merely ridicule how little he offers in the way of savings, but to offer bigger and better savings of their own. Otherwise, they may find that the public disgust with runaway spending can scorch incumbent Republicans as well as incumbent Democrats.
    http://townhall.com/columnists/SteveChapman/2010/01/31/fiscal_fraud_--_or _frugality

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Thursday, February 4, 2010 ~ 9:23 a.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part IV.
This Bloomberg article reinforces the theme that bureaucrats have plush sinecures while workers in the productive sector of the economy are facing difficult times. But the most shocking number is that state and local governments have underfunded pensions for bureaucrats by $1 trillion, not to mention $500 billion of unfunded health care promises. Needless to say, the politicians will want me and you to pay for their reckless promises:

    Any expectation that state and local governments would use the worst fiscal crisis since the Great Depression to reduce their biggest expenditures is proving to be wishful thinking. Companies have cut 7.3 million jobs, 6.29 percent, since business employment peaked at 115.8 million in December 2007. State and local governments kept adding jobs through August 2008 to 19.8 million and have since cut 132,000 positions -- 0.66 percent, according to the U.S. Labor Department. ...Reducing headcount would help narrow budget deficits. It would also reduce public-pension liabilities, which analysts say threaten state and local credit ratings and even, at the local level, solvency. State and local government pensions nationwide are underfunded by about $1 trillion, Orin S. Kramer, chairman of the New Jersey Investment Council, which oversees the state's pension fund, estimated in November. That doesn't include other retirement benefits, such as health care, which Standard & Poor's earlier this year pegged at about $500 billion for the states alone.
    http://www.bloomberg.com/apps/news?pid=20601039&sid=a_uabvfu9CAk

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Wednesday, February 3, 2010 ~ 6:14 p.m., Dan Mitchell Wrote:
Is This One of the Federal Government Responsibilities Listed in the Constitution?
Maybe I have an outdated copy, but I don't see college football listed in the enumerated powers of the Congress. And it doesn't seem to be mentioned in any of the amendments. Yet the busybodies in Washington now want to exert their control over how the college football national championship is decided?!? Somebody needs to tell them to go jump in a lake:

    The Obama administration is considering several steps that would review the legality of the controversial Bowl Championship Series, the Justice Department said in a letter Friday to a senator who had asked for an antitrust review. In the letter to Sen. Orrin Hatch, obtained by The Associated Press, Assistant Attorney General Ronald Weich wrote that the Justice Department is reviewing Hatch's request and other materials to determine whether to open an investigation into whether the BCS violates antitrust laws. "Importantly, and in addition, the administration also is exploring other options that might be available to address concerns with the college football postseason," Weich wrote, including asking the Federal Trade Commission to review the legality of the BCS under consumer protection laws. ..."The administration shares your belief that the current lack of a college football national championship playoff with respect to the highest division of college football ... raises important questions affecting millions of fans, colleges and universities, players and other interested parties," Weich wrote.
    http://sportsillustrated.cnn.com/2010/football/ncaa/01/29/obama.bcs.ap/index. html

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Wednesday, February 3, 2010 ~ 2:45 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part III:
If you work for the government and you want to feel good about living on Easy Street, check out this link from the Goldwater Institute. But if you're a taxpayer and don't want to deal with high blood pressure, you might want to avoid even this small excerpt:

    …government employees of all stripes have manipulated the system to spike their pensions. The old deal seemed fair: public employees would earn lower salaries than Americans working in the private sector, but would receive a somewhat better retirement and more days off. Now, public employees get higher average pay, far higher benefits, and many more days off and other fringe benefits. They have also obtained greatly reduced work schedules, thus limiting public services even as pay and benefits shoot ever higher. The new deal is starting to raise eyebrows, thanks to efforts by groups such as the California Foundation for Fiscal Responsibility, which publishes the $100,000 Club, a list of thousands of California government retirees with six-figure, taxpayer-guaranteed incomes. The story doesn't end with the imbalance in pay and benefits. Government workers also enjoy absurd protections. The Los Angeles Times published a recent series about the city's public school district, which doesn't even try to fire incompetent teachers and is seldom able to get rid of those credibly accused of misconduct or abuse. The real scandal is a two-tier society where government workers enjoy benefits far in excess of those for whom they supposedly work. It's past time to start cleaning up the mess by reforming retirement systems and limiting the public unions' power.
    http://goldwaterinstitute.org/print/4224

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Tuesday, February 2, 2010 ~ 7:27 p.m., Dan Mitchell Wrote:
There Is some Budget Good News, but It Is Really Bad News.
The Office of Management and Budget has released the President's FY2011 budget and the Congressional Budget Office has released its semi-annual Budget and Economic Outlook. Much of the coverage of these documents has focused on deficit numbers. This is not a trivial concern, particularly since the Bush-Obama policies of bigger government have dramatically boosted red ink.

But the most important numbers in the budget documents are the estimates of what is happening to government spending. The good news is that burden of government spending is projected to decline over the next few years from about 25 percent of GDP to less than 23 percent of GDP.

That's the good news. The bad news is that federal government outlays only consumed 18.2 percent of economic output when Bush took office. In other words, notwithstanding the good news cited above, the size and scope of government has increased dramatically since 2001. The worse news is that the long-run spending forecasts show a cataclysmic expansion in the burden of government. The "optimistic" estimate is that the federal government will consume more than 30 percent of GDP by 2050 and 40 percent of GDP by 2080.

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Tuesday, February 2, 2010 ~ 7:12 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers, Part II.
It is horribly unjust that politicians do things to destabilize the economy, but it is workers in the productive sector of the economy who pay the price by losing their jobs and foregoing wage increases. To add insult to injury, government bureaucrats are living the high life, getting more pay - even though they already get ("earn" would be the wrong word) for more than their private-sector counterpart. A column posted at realclearmarkets.com has some of the depressing details:

    There's a recession going on, but you wouldn't necessarily know it by looking at public employee earnings. If you work for the government, you're far less likely than your private-sector counterparts to have been laid off in the recession, and you probably also saw relatively fast wage growth. ...During the recession, public employees have done better than private ones on two measures: total employment and hourly compensation. Over the last two years, private payrolls shed 7.3 million jobs, but public sector civilian employment actually grew very slightly, adding 98,000 jobs. ...public sector compensation (as measured by the Department of Labor) rose 42% faster than private sector compensation over the last three years. Since the end of 2006, hourly total compensation (wages plus benefits) has risen 6.5% for private sector workers, essentially keeping pace with inflation. But state and local government workers saw their hourly compensation rise 9.2%. Federal civilian workers (about 10% of the public sector civilian workforce) are excluded from the above measure, but they did even better, receiving Congressionally-approved wage rises totaling 9.9% over the same period. ...If states and localities had kept pace with private sector wage growth over the last three years, state budget gaps would be approximately $36 billion less than they are today.
    http://www.realclearmarkets.com/articles/2010/01/19/its_time_to_freeze_gov ernment_wages_97595.html

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Tuesday, February 2, 2010 ~ 3:45 p.m., Dan Mitchell Wrote:
England Is Going Nuts...Again.
My jaw is gaping with amazement once more at the hare-brained political correctness that is infecting (or should I say infesting?) the United Kingdom. A story in the Daily Mail states that a recruitment agency was told not to advertise for "reliable" and "hard-working" people since that discriminated against...well, people that aren't reliable and hard working. The silver lining to this dark cloud is that the the bureaucracy in charge of such matters backed down to avoid public ridicule, but the mere fact that this happened says a lot about what's happening across the pond - and what's beginning to happen in America:

    When it comes to hiring staff, there are plenty of legal pitfalls employers need to watch out for these days. So recruitment agency boss Nicole Mamo was especially careful to ensure her advert for hospital workers did not offend on grounds of race, age or sexual orientation. However, she hadn't reckoned on discriminating against a wholly different section of the community - the completely useless. When she ran the ad past a job centre, she was told she couldn't ask for 'reliable' and 'hard-working' applicants because it could be offensive to unreliable people. 'In my 15 years in recruitment I haven't heard anything so ridiculous,' Mrs Mamo said yesterday. 'If the matter wasn't so serious I would be laughing out loud. 'Unfortunately it's extremely alarming. I need people who are hardworking and reliable - and I am pleased to discriminate in that way. If they're not then I really can't use them. The reputation of my business is on the line. 'Even the woman at the jobcentre agreed it was ridiculous but explained it was policy because they could get sued for being discriminatory against unreliable people. ...She filed the advert for a £5.80-an-hour domestic cleaner at a hospital in Bury St Edmunds, Suffolk, through the Jobcentre Plus online service last Thursday. However, when she rang the nearest branch in Thetford, Norfolk, to make sure details would be available to jobseekers who turned up in person, she was transferred to a woman who said the wording was unacceptable.
    http://www.dailymail.co.uk/news/article-1246201/Employer-told-advertise-rel iable-workers--discriminates-unreliable-applicants.html#ixzz0drqI6ufB

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Monday, February 1, 2010 ~ 7:51 p.m., Dan Mitchell Wrote:
Paulson Should Just Go Away.
Like most statists and interventionists, former Treasury Secretary Henry Paulson raises the economic equivalent of monsters under the bed when justifying more government. Here's a blurb from a story about his recent testimony on Capitol Hill:

    ...former Treasury Secretary Henry Paulson on Wednesday defended his decision to complete a $182 billion bailout of American International Group Inc., arguing that the unemployment rate would have risen easily to 25% without the bailout. "If the system had collapsed millions more in savings would have been lost," said Paulson, who was Treasury Secretary at the time of the bailout, at a hearing. "Industrial companies of all size would not have been able to raise funding and they would not have been able to pay employees, this would have rippled through the economy."
    http://www.marketwatch.com/story/paulson-25-unemployment-rate-without-a ig-bailout-2010-01-27-131520

For the sake of argument, let's assume he is right and that the economy would have collapsed without huge amounts of money being pumped into the financial system. Does that justify Paulson giving money to his friends on Wall Street? Not at all. The crowd in Washington could have used what's known as the FDIC-resolution approach, which would have resulted in the government paying healthy financial institution to take over the insolvent ones. In effect, this is what happened during the savings & loan crisis twenty years ago. It's not an ideal libertarian solution since tax dollars are pumped into the financial system and there is some degree of increased moral hazard since consumers/customers have less reason to monitor the safety and soundness of the banks they patronize. But the FDIC-resolution approach has one enormously good feature, at least compared to the Bush-Paulson-Obama-Geithner bailout: Bad banks are shut down, meaning that shareholders lose all their money and senior managers lose their jobs.
 
There was no justification for bailing out the institutions that went under water. To the extent a system-wide collapse was a real possibility, the FDIC-resolution approach would have worked. Indeed, it would have worked much better since the economy would not be plagued by the zombie banks that are only alive because of handouts from the Treasury (similar to what happened in Japan). But politicians instead chose the approach that was bad for the economy, but good for raising campaign cash and increasing the power of government.

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Monday, February 1, 2010 ~ 5:00 p.m., Dan Mitchell Wrote:
Bureaucrats vs. Taxpayers.
New data from the Bureau of Labor Statistics shows that only 7.2 percent of private-sector workers belong to unions, which makes sense since unions behave in a myopic fashion and undermine competitiveness (and thus reduce jobs in the long run). On the other had, insulated from competition, 37.4 percent of bureaucrats are unionized. Moreover, because the burden of government has been climbing so fast during the Bush-Obama spending binge, this has resulted in bloated government payrolls. One consequence is that a majority of union workers, for the first time in American history, are now bureaucrats. The New York Times has the story, including a good observation by a scholar that there is a corrupt relationship between Democrats and bureaucrats that is leading to huge burdens on taxpayers:

    For the first time in American history, a majority of union members are government workers rather than private-sector employees, the Bureau of Labor Statistics announced on Friday. In its annual report on union membership, the bureau undercut the longstanding notion that union members are overwhelmingly blue-collar factory workers. It found that membership fell so fast in the private sector in 2009 that the 7.9 million unionized public-sector workers easily outnumbered those in the private sector, where labor's ranks shrank to 7.4 million, from 8.2 million in 2008. …According to the labor bureau, 7.2 percent of private-sector workers were union members last year, down from 7.6 percent the previous year. That, labor historians said, was the lowest percentage of private-sector workers in unions since 1900. Among government workers, union membership grew to 37.4 percent last year, from 36.8 percent in 2008. …government employment grew last year, inching up 16,000, to 22,516,000, according to the bureau. …Fred Siegel, a visiting professor of history at St. Francis College in Brooklyn and a senior fellow at the Manhattan Institute, a conservative research organization, said, "There were enormous political ramifications" to the fact that public-sector workers are now the majority in organized labor. "At the same time the country is being squeezed, public-sector unions are a rising political force in the Democratic Party," he said. "They depend on extra money for the public sector, and that puts the Democrats in a difficult position. In four big states — New York, New Jersey, Illinois and California — the public-sector unions have largely been untouched by the economic downturn. In those states, you have an impeding clash between the public-sector unions and the public at large."
    http://www.nytimes.com/2010/01/23/business/23labor.html

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Monday, February 1, 2010 ~ 2:36 p.m., Dan Mitchell Wrote:
Oregon Voters Choose Higher Tax Rates.
While most political observers are paying lots of attention to the stunning Senate race in Massachusetts, there were two important ballot initiatives in Oregon on Tuesday and in both cases 54 percent of voters decided to impose higher tax rates on some of their neighbors. This is a disturbing development since voters rarely get tricked into supporting such measures. The corporate tax initiative is somewhat of a nuisance initiative, boosting the minimum annual tax from $10 to $150, but the ballot initiative on personal income tax rates is much more significant. Oregon already has a 9 percent top tax rate on individuals, which is one of the highest in the nation, yet voters were willing to boost the rate even higher (11 percent for 2009-2011 and 9.9 percent thereafter). This will be good news for neighboring states with no income tax, such as Nevada and Washington, but it is a worrisome sign that government employee unions were able to fund a campaign that generated such a disappointing result. Here's a brief blurb from the state:

    It looks like Oregon corporations and high-income earners will pay higher state taxes as voters weighed in Tuesday on two hotly debated measures. ...Measure 66 raises the income tax paid by households earning at or above $250,000 a year or individual filers who make $125,000 or more. Measure 67 raises the state's $10 minimum corporate income tax. ...The tax measures were strongly supported by the state's teachers and other public employee unions. ...Pat McCormick, spokesman for the opposing campaign, "Oregonians Against Job-Killing Taxes" described the results as "disappointing and discouraging."
    http://www.oregonlive.com/politics/index.ssf/2010/01/oregon_measure_66_m easure_67_e.html

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Sunday, January 31, 2010 ~ 3:55 p.m., Dan Mitchell Wrote:
Adding Fiscal Insult to Budget Injury.
A recent poll, conducted in early January, shows that the America people are catching on to the stimulus scam. Three-fourths of respondents believe that at least one-half of the money has been wasted. Here's a brief excerpt from the CNN story, which includes a rather bizarre assertion that the stimulus represented a "cost to the government." Actually, the so-called stimulus was a shot-in-the-arm to government. The burden of all the new spending is borne by the economy today and taxpayers in the future:

    Nearly three out of four Americans think that at least half of the money spent in the federal stimulus plan has been wasted, according to a new national poll. A CNN/Opinion Research Corporation survey released Monday morning also indicates that 63 percent of the public thinks that projects in the plan were included for purely political reasons... the program, formally known as the American Recovery and Reinvestment Act of 2009, attempts to stimulate the country's economy...at a total cost to the government of $787 billion.
    http://www.cnn.com/2010/POLITICS/01/25/poll.stimulus.money/?hpt=T2

But it gets worse. According to the new CBO budget numbers, Obama's boondoggle proposal actually will cost $75 billion more than he said last year (typical mistake with government budgeting, yet we're somehow supposed to believe his fatuous claims that a giant new healthcare entitlement will reduce the deficit). By the way, this doesn't count the added interest on the debt from all this new spending, so the actual cost of the so-called stimulus is more than $1 trillion - and rising. And as this AP story notes, there's more bad news since the Senate is crafting a second "stimulus" to waste another $82.5 billion:

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Saturday, January 30, 2010 ~ 6:23 p.m., Dan Mitchell Wrote:
Pinocchio Rove Strikes Again.
George Bush ranks as one of America's most fiscally irresponsible presidents. He increased overall spending from $1.8 trillion to $3.5 trillion and most of that new spending was used to create or expand domestic programs (no-bureaucrat-left-behind education spending, pork-filled highway bills, sleazy Wall Street bailouts, corrupt farm spending, new Medicare entitlements, etc) that are not legitimate functions of the federal government. So it is galling to see his former senior adviser writing columns complaining about Barack Obama being a big spender. Many of the criticisms about the Obama Administration are correct, to be sure, but Karl Rove has zero moral authority to make those arguments. Moreover, Rove once again engages in sloppy or dishonest (you choose) analysis by blaming Obama for some of Bush's mistakes. In the excerpt below, he blames Obama for any of the Fiscal Year 2009 debt that was incurred after January 20 of last year. But as I've already explained, 96 percent of the spending in FY2009 is the result of Bush's policies:

    Consider that from Jan. 20, 2001, to Jan. 20, 2009, the debt held by the public grew $3 trillion under Mr. Bush—to $6.3 trillion from $3.3 trillion at a time when the national economy grew as well. By comparison, from the day Mr. Obama took office last year to the end of the current fiscal year, according to the Office of Management and Budget, the debt held by the public will grow by $3.3 trillion. In 20 months, Mr. Obama will add as much debt as Mr. Bush ran up in eight years. ...Mr. Bush's deficits ran an average of 3.2% of GDP, slightly above the post World War II average of 2.7%. Mr. Obama's plan calls for deficits that will average 4.2% over the next decade. Team Obama has been on history's biggest spending spree, which has included a $787 billion stimulus, a $30 billion expansion of a child health-care program, and a $410 billion federal spending bill that increased nondefense discretionary spending 10% for the last half of fiscal year 2009. Mr. Obama also hiked nondefense discretionary spending another 12% for fiscal year 2010.
    http://online.wsj.com/article/SB10001424052748704320104575015072822 042394.html

Correction: In an earlier post on one of Rove's columns (http://www.freedomandprosperity.org/blog/2010-01/2010-01.shtml#141), I incorrectly claimed that Bush never vetoed a bill because it spent too much.That was wrong. He did veto a handful of bills once Democrats took control of Congress.

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Friday, January 29, 2010 ~ 2:59 p.m., Dan Mitchell Wrote:
The Case Against Bernanke.
The Washington establishment rallied behind Ben Bernanke, so the Fed Chairman was confirmed for another term. But this is precisely why he is the wrong man for the job. As the Wall Street Journal opines, Bernanke is guilty of two sins. His track record on monetary policy is weak, indicating an insufficient commitment to protecting the value of the dollar. And his willingness to resist political pressure is even weaker, suggesting that America could be headed back to 1970s-style inflation:

    The White House said yesterday it has damped down a political revolt against Ben Bernanke and now has the votes to secure the Federal Reserve Chairman's second four-year term. Whether or not Mr. Bernanke is confirmed, the lesson we draw is that overly political central bankers will eventually be undone by politics. ...When we opposed Mr. Bernanke's reconfirmation on December 3, the facile consensus was that the Fed chief was a master of the universe who had saved the world from depression. But after Scott Brown's victory in Massachusetts last week, Senate Democrats are suddenly looking for a financial political sacrifice. ...The Democrats' loudest complaint, moreover, is that Mr. Bernanke and the Fed haven't been easy enough in printing money. ...The Fed has already kept interest rates at near zero for more than a year, and it is buying $1.25 trillion in mortgage-backed securities to refloat the housing bubble, among other interventions into fiscal policy and credit allocation. Is the Fed going to buy another $1.25 trillion, or promise to keep rates at zero for another 14 months? Mr. Reid's declaration of a confirmation quid pro quo will not reassure global investors who already fear that the Fed lacks the political will to withdraw its historic post-crisis liquidity binge soon enough to avoid new asset bubbles. ...Mr. Bernanke is already far too susceptible to political pressure. As a Fed governor, he was Alan Greenspan's intellectual co-pilot last decade when their easy money policies created the housing mania. When Congress later put political pressure on the Fed to direct credit toward housing, and even to student loans, Mr. Bernanke (who was then chairman) also quickly obliged. More ominously for the next four years, Mr. Bernanke continues to deny any Fed monetary culpability for creating the mania. Shortly after the New Year, even with his nomination pending, Mr. Bernanke issued an apologia that was striking for its willingness to play to the Congressional theory of the meltdown by blaming bankers and lax regulators. ...Yes, much of Wall Street wants to see Mr. Bernanke confirmed. The Street is currently making a bundle off Fed policy, as it borrows at near-zero rates and lends long, and the banks don't want that to end. The banks also loved negative real interest rates in the middle of the last decade, and we know how that turned out.
    http://online.wsj.com/article/SB10001424052748704562504575021704013 095196.html

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Thursday, January 28, 2010 ~ 11:44 a.m., Dan Mitchell Wrote:
The Global Warming Shakedown.
When people ask me about global warming, or climate change, or whatever they're calling it now, I freely admit that I'm not a climatologist and thus have no informed opinion on whether the planet is warming due to human activity (or whether this, on net, would be a bad thing). But I am somewhat familiar with how special interests like to obtain power and unearned wealth using the coercive power of government. So when I see people who have always favored statism suddenly say we need big government to fight global warming, I am inherently skeptical. My doubts become even larger when I see that some of the same people were playing Chicken Little a few decades ago saying we faced a coming ice age. And I get downright suspicious when these people (did someone say Al Gore?) directly line their own pockets as a result of the policies they promote. So I was not surprised when the climate-gate scandal broke. After all, these supposed scientists had every reason to behave dishonestly and unethically to keep the gravy train of government grants rolling. The latest scandal comes from a high-level con artist with the so-called Intergovernmental Panel on Climate Change at the United Nations. First, we have a stunning confession that a major claim of the IPCC is fake, as noted by the Wall Street Journal:

    ...when it comes to unsubstantiated research it's hard to beat the IPCC, whose 2007 report insisted that the glaciers—which feed the rivers that in turn feed much of South Asia—were very likely to nearly disappear by the year 2035. "The receding and thinning of Himalayan glaciers," it wrote in its supposedly definitive report, "can be attributed primarily to the [sic] global warming due to increase in anthropogenic emission of greenhouse gases." It turns out that this widely publicized prediction was taken from a 2005 report from the World Wildlife Fund, which based it on a comment by Indian glacier expert Syed Hasnain from 1999. Mr. Hasnian now says he was "misquoted." Even more interesting is that the IPCC was warned in 2006 by leading glaciologist Georg Kaser that the 2035 forecast was baseless. ...Mr. Kaser told the Agence France-Presse. "It is so wrong that it is not even worth discussing."
    http://online.wsj.com/article/SB10001424052748703837004575013393219 835692.html

Then we have the revelation that the Chairman of the IPCC used (and almost certainly was aware that he was using) totally dishonest assertions to fleece donors - including gullible American foundations and oppressed European taxpayers. Chairman Pachauri already has been appropriate mocked for his giant "carbon footprint" due to his globe trotting (in first class, of course). Now he's catching some much-deserved flak for lining his pockets while pimping for the IPCC hucksters:

    The chairman of the UN's Intergovernmental Panel on Climate Change (IPCC), has used bogus claims that Himalayan glaciers were melting to win grants worth hundreds of thousands of pounds. Rajendra Pachauri's Energy and Resources Institute (TERI), based in New Delhi, was awarded up to £310,000 by the Carnegie Corporation of New York and the lion's share of a £2.5m EU grant funded by European taxpayers. It means that EU taxpayers are funding research into a scientific claim about glaciers that any ice researcher should immediately recognise as bogus. ...In one presentation at last May's launch, Anastasios Kentarchos, of the European Commission's Climate Change and Environmental Risks Unit, specifically cited the bogus IPCC claims about glacier melt as a reason for pouring EU taxpayers' money into the project. ...questions remain. One of the most important is in connection with Pachauri's earnings. In an interview with The Sunday Times he said his only income came from his salary at TERI. However TERI does not publish his salary and he refused to divulge it. In India questions are also being asked about Pachauri's links with GloriOil, a Houston, Texas-based oil technology company that specialises in recovering extra oil from declining oil fields . Pachauri is listed as a founder and scientific advisor.
    http://www.timesonline.co.uk/tol/news/environment/article6999975.ece

But you have to give the guy credit for cojones. An article in the Times of India reports that, "...while his credibility and that of the IPCC has taken a battering, Pachauri maintains his chutzpah in the face of growing skepticism, arguing that his acceptance that the research on glaciers had been dodgy had actually somehow enhanced the credibility of the body."

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Thursday, January 28, 2010 ~ 11:02 a.m., Dan Mitchell Wrote:
America Is Less Free than Canada?!?
My favorite Heritage Foundation publication (other than the papers I wrote, of course) is the Index of Economic Freedom. The 2010 Index was just released and it is bad news for America. The United States moved significantly in the wrong direction, dropping 2.7 points (on a 0-to-100 scale), which was almost as bad as the reduction of 2.8 points in the thugocracy known as Venezuela. America now ranks below Canada, which is rather embarrassing, and has dropped from "free" to "partly free" in the overall ratings. These findings echo the data in the Fraser Institute's Economic Freedom of the World (co-published by Cato), which also show a decline in America's score (as an aside, I will brag that the EFW must be a bit more accurate than the IEF since it was quicker to show America (see page 185) becoming less free during the big-government Bush years). The new Heritage Index has lots of fascinating information, including Chile's top-10 ranking, making it far and away the freest economy in Latin America. Montenegro enjoyed the biggest jump in the yearly rankings, climbing by 5.4 points (though it still ranks only #68), and Timor-Leste (wherever that is) had the biggest fall, dropping by 4.7 points (are they getting advice from Obama's economic team?). One final thing worth noting, as seen below, is that the United Kingdom and six of its former colonies dominate the top 10.

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Wednesday, January 27, 2010 ~ 3:33 p.m., Dan Mitchell Wrote:
A Victory for the Rule of Law over IRS Bullying.
A Swiss court just threw a wrench in the gears of an IRS effort to impose bad US tax law on an extraterritorial basis, ruling that UBS does not have to hand over data to the American tax authorities. This ruling nullifies an agreement that the Swiss government was coerced into making with the US government last year. In typical arrogant fashion, the IRS already has indicated that it still expects acquiescence, notwithstanding Switzerland's strong human rights policy on personal privacy. The Bloomberg story excerpted below has the details, but it's worth noting that this entire fight exists solely because the internal revenue code imposes double taxation on income that is saved and invested and imposes that bad policy on economic activity outside America's border. But just as other governments should not have the right to impose their laws on things that happen in America, the United States should not have the right to trample the sovereignty of other nations:

    A UBS AG account holder won a Swiss court case preventing data from being disclosed in a ruling that may impede a U.S. crackdown on overseas tax evasion. The failure by U.S. citizens to complete certain tax forms or declare income doesn't constitute "tax fraud" that would require Switzerland to disclose account data, the country's Federal Administrative Court ruled in a judgment released today. ..."The prosecutors at the Justice Department are not going to be happy with this opinion," Namorato said in an interview in Washington. "It guts the settlement that they negotiated with the Swiss authorities." ...The Swiss government said in a statement that it will decide Jan. 27 how the Swiss-U.S. agreement can be implemented in light of the ruling. U.S. Justice Department spokesman Charles Miller declined to comment. ...The Internal Revenue Service said in a statement that while the agency hadn't reviewed the ruling it "had every expectation that the Swiss government will continue to honor the terms of the agreement." ...Today's ruling involved a single test case, and the court said there were 25 more involving similar claims that it will ask the Swiss tax authority to review. "It's a landmark decision," said Bernhard Loetscher a partner at Zurich-based law firm CMS von Erlach Henrici AG. "The court considers the case so crystal clear that it invited the SFTA to withdraw the 25 other claims." ...Under the 1996 double taxation treaty, "tax fraud and the like" means fraudulent behavior that causes or attempts an illegal and important reduction in tax owed. Examples included keeping separate accounts of incorrect profit, losses and orders, as well as a scheme of lies. Switzerland distinguishes between tax fraud, which is a crime, and tax evasion, which is a civil offense. "The U.S. will soon start to renegotiate the double taxation treaty, to give up the distinction between tax evasion and tax fraud," said Zurich lawyer Wolfram Kuoni. "The key battle will be if it will apply retrospectively."
    http://www.bloomberg.com/apps/news?pid=20601087&sid=ahda1JxPJaU8

This battle is part of a broader effort by uncompetitive nations to persecute "tax havens." Creating a tax cartel for the benefit of greedy politicians in France, Germany, and the United States would be a mistake. An "OPEC for politicians" would pave the way for higher taxes, as explained here, here, and here. But this also is a human rights issue. Look at what happened recently in the thugocracy known as Venezuela, where Chavez began a new wave of expropriation. The Venezuelans with money in Cayman, Miami, and Switzerland were safe, but the people with assets inside the country have been ripped off by a criminal government. Or what about people subjected to persecution, such as political dissidents in Russia? Or Jews in North Africa? Or ethnic Chinese in Indonesia? Or homosexuals in Iran? And how about people in places such as Mexico where kidnappings are common and successful people are targeted, often on the basis of information leaked from tax departments. This world needs safe havens, jurisdictions such as Switzerland and the Cayman Islands that offer oppressed people the protection of honest courts, financial privacy, and the rule of law. Heck, even the bureaucrat in charge of the OECD's anti-tax competition campaign admitted to a British paper that "tax havens are essential for individuals who live in unstable regimes." With politicians making America less stable with each passing day, let's hope this essential freedom is available in the future.

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Wednesday, January 27, 2010 ~ 1:22 p.m., Dan Mitchell Wrote:
Obama's Spending Freeze: Wait for the Fine Print.
As reported by the Wall Street Journal, the Obama Administration will propose a three-year freeze for a portion of the budget known as "non-defense discretionary" spending. Many critics will correctly note that this is like going on a drunken binge in Vegas and then temporarily joining Alcoholics Anonymous. Others will point out that more than 80 percent of the budget has been exempted, which also is an accurate criticism. Nonetheless, even a partial freeze would be a semi-meaningful achievement. But don't get too excited yet. It is not clear whether the White House is proposing a genuine spending freeze, meaning "budget outlays" for these programs stay at $477 billion for three years, or a make-believe freeze that applies only to "budget authority." This is an enormously important distinction. Budget outlays matter because they represent the actual burden of government spending. Budget authority, by contrast, is a bookkeeping measure that - at best - signals future intentions. During the profligate Bush years, for instance, apologists for the Administration tried to appease fiscal conservatives by asserting that budget authority was growing at ever-slower rates. In some cases, they were technically correct, but their arguments were deceptive because real-world spending kept climbing to record levels. And needless to say (but I'll say it anyhow), future intentions never became reality. Domestic discretionary spending soared from less than $350 billion to more than $600 billion during the Bush years (and rose almost another $100 billion in Obama's first year!). If the Obama Administration proposes a genuine outlay freeze, he will be taking a genuine (albeit small) step in the right direction. If the "freeze" applies only to budget authority, however, that will be a pretty clear indication we are in George W. Bush's third term.

    To attack the $1.4 trillion deficit, the White House will propose limits on discretionary spending unrelated to the military, veterans, homeland security and international affairs, according to senior administration officials. Also untouched are big entitlement programs such as Social Security and Medicare. The freeze would affect $447 billion in spending, or 17% of the total federal budget, and would likely be overtaken by growth in the untouched areas of discretionary spending. It's designed to save $250 billion over the coming decade, compared with what would have been spent had this area been allowed to rise along with inflation. ...administration officials acknowledged the freeze is directed at only a small part of overall spending, but that fiscal discipline has to start somewhere. President Obama had requested a 7.3% increase last year in the areas he now seeks to freeze.
    http://online.wsj.com/article/SB10001424052748703808904575024772877 067744.html

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Tuesday, January 26, 2010 ~ 6:34 p.m., Dan Mitchell Wrote:
The Pampered and Insulated Life of Unionized Government Workers.
New data from the Bureau of Labor Statistics shows that only 7.2 percent of private-sector workers belong to unions, which makes sense since unions behave in a myopic fashion and undermine competitiveness (and thus reduce jobs in the long run). On the other had, insulated from competition, 37.4 percent of bureaucrats are unionized. Moreover, because the burden of government has been climbing so fast during the Bush-Obama spending binge, this has resulted in bloated government payrolls. One consequence is that a majority of union workers, for the first time in American history, are now bureaucrats. The New York Times has the story, including a good observation by a scholar that there is a corrupt relationship between Democrats and bureaucrats that is leading to huge burdens on taxpayers:

    For the first time in American history, a majority of union members are government workers rather than private-sector employees, the Bureau of Labor Statistics announced on Friday. In its annual report on union membership, the bureau undercut the longstanding notion that union members are overwhelmingly blue-collar factory workers. It found that membership fell so fast in the private sector in 2009 that the 7.9 million unionized public-sector workers easily outnumbered those in the private sector, where labor's ranks shrank to 7.4 million, from 8.2 million in 2008. ...According to the labor bureau, 7.2 percent of private-sector workers were union members last year, down from 7.6 percent the previous year. That, labor historians said, was the lowest percentage of private-sector workers in unions since 1900. Among government workers, union membership grew to 37.4 percent last year, from 36.8 percent in 2008. ...government employment grew last year, inching up 16,000, to 22,516,000, according to the bureau. ...Fred Siegel, a visiting professor of history at St. Francis College in Brooklyn and a senior fellow at the Manhattan Institute, a conservative research organization, said, "There were enormous political ramifications" to the fact that public-sector workers are now the majority in organized labor. "At the same time the country is being squeezed, public-sector unions are a rising political force in the Democratic Party," he said. "They depend on extra money for the public sector, and that puts the Democrats in a difficult position. In four big states — New York, New Jersey, Illinois and California — the public-sector unions have largely been untouched by the economic downturn. In those states, you have an impeding clash between the public-sector unions and the public at large."
    http://www.nytimes.com/2010/01/23/business/23labor.html

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Tuesday, January 26, 2010 ~ 11:39 a.m., Dan Mitchell Wrote:
Good Advice for Republicans from Tom Sowell.
I've always been mystified by GOP politicians, pollsters, and consultants who argue that the GOP needs to support big government in order to win votes. The biggest victories for Republicans in living memory, after all, are the 1980 and 1994 landslides, when the GOP was most aggressive in promoting an anti-government message. The big-government, compassionate-conservative message of Bush, by contrast, led to electoral debacles in 2006 and 2008. Tom Sowell has been addressing the strange predilection of some Republicans to tack left. In his third column of the series, Sowell explains that the GOP should use an explicitly conservative message to appeal to black voters rather than foolishly assuming that a "me-too" platform will somehow work:

    One of the things that is long overdue is some Republican re-thinking-- or perhaps thinking for the first time-- about the approach that they have been using, with consistently disastrous results, for trying to get the black vote. ...There is no point today in Republicans continuing to try to win over the average black voter by acting like imitation Democrats. Those who like what the Democrats are doing are going to vote for real Democrats. ...[Blacks] want their children to get a decent education, which they are unlikely to get so long as public schools are a monopoly run for the benefit of the teachers' unions, instead of for the education of the children. Democrats are totally in hock to the teachers' unions, which means that Republicans have a golden opportunity to go after the votes of black parents by connecting the dots and exposing one of the key reasons for bad education in inner cities and the bad consequences that follow. But when have you ever heard a Republican candidate get up and hammer the teachers' unions for blocking every attempt to give parents-- black or white-- the choice of where to send their children? The teachers' unions are going to be against the Republicans, whether Republicans hammer them or keep timidly quiet. Why not talk straight to black voters about the dire consequences of the pubic school monopoly that the teachers' unions and the Democrats protect at all cost, even though many private schools-- notably the KIPP schools in various states-- have achieved remarkable success with low-income and minority youngsters?
    http://townhall.com/columnists/ThomasSowell/2010/01/21/are_republicans_du e_part_iii

In his fourth column in the series, Sowell makes the common-sense point that a squishy, moderate message winds up appealing to nobody. That doesn't guarantee a lost election, to be sure. As Bush and Nixon showed, a milquetoast Republican can prevail if facing an incompetent Democrat in the right national climate, but those often turn out to be Pyrrhic victories since they often set the stage for big Democratic victories in the future. As Sowell notes, Reagan is the right model for the GOP:

    A long-standing battle within the Republican Party, going back at least as far as the 1940s, is between those who want the party to clearly differentiate itself from the Democrats and those who seek a broader appeal by catering to a wider spectrum of social and ideological groups. The "smart money" advocates a "big tent" and deplores those who want a clearer adherence to the kinds of ideas espoused by Ronald Reagan. What the "smart money" fails to explain is how Reagan won two landslide presidential elections in a row. He certainly didn't do it by trying to act like Democrats. That's how the Republicans later turned off their own supporters, without gaining enough other voters to keep from being wiped out by the Democrats in two consecutive elections. ...When you try to waffle and be all things to all people, you can end up being nothing to anybody. That is where the "smart money" crowd have gotten the Republicans in recent years.
    http://townhall.com/columnists/ThomasSowell/2010/01/22/are_republicans_du e_part_iv

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Monday, January 25, 2010 ~ 9:10 a.m., Dan Mitchell Wrote:
Replace TSA Incompetence with Market Efficiency.
Arnold Kling and Nick Schulz have a great column in USA Today explaining why we should let private companies be in charge of airline security. As a frequent traveler, I wish this would happen, but governments rarely give up power once they have expanded into a new area:

    After the underwear bomber's attempted mass murder, Americans are losing patience with the airline security system. It is bad enough that our screening process makes innocent people work far too hard to prove that they are not terrorists. It also manages to make it too easy for actual terrorists to be treated as innocent. ...The security process needs several things it is lacking. It needs continuous adaptation, with a strong focus on satisfying customers and improving results. It needs to find new and better methods of meeting the demands of customers who value safety as well as speed and efficiency. It needs to function in a dynamic environment, disciplined by rigorous competitive pressure. In short, it needs the market. ...Responsibility for the design and implementation of airline security should be handed back to the private sector. ...A post-9/11 market system would combine the benefits of a competitive system with the much-stricter federal oversight necessary to ensure a basic standard of travel security. Airlines would select firms to screen passengers who will fly on their planes. Let's say that it would be up to each airline to contract with at least one security firm at each airport. The airline would pay the firm a set dollar amount per passenger, and this cost would be passed along through ticket prices. ...Several incentive mechanisms, some of them market-based, would keep private sector firms focusing on safety. First of all, the flying public may show a preference for airlines that employ security firms with rigorous procedures just as today many drivers prefer safer cars that get lower gas mileage. Second, if a private firm were to allow a single failure or even a near-miss, it would immediately lose the confidence of fliers. Airlines would switch to other suppliers, and the flawed firm would go out of business. Security companies also could be required to be liable for damages up to, say, $25 million from terrorism, and to post bond to cover that liability. (It is harder to sue the government for damages than the private sector.) The government's role would include two functions. It would collect intelligence on high-risk suspects (as it does today) and share this intelligence with private airline security firms — which will require the firms to have robust data security. And government would audit private security companies, with the power to impose fines if lapses are found. The government could still ensure, for instance, that every firm at least meet the minimum standards that the TSA employs today. ...good solutions are more likely to emerge regularly and consistently under a robust market dynamic than under government monopoly. Competition will force even the lowest-quality provider to raise standards year after year by adopting the good ideas that emerge from their competitors. This is why even a cheap automobile today has more amenities than a luxury car of 30 years ago.
    http://blogs.usatoday.com/oped/2010/01/column-airline-security-lets-go-priva te-.html

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Monday, January 25, 2010 ~ 8:50 a.m., Dan Mitchell Wrote:
Statism Update from Brussels.
It seems that the European Union's governing entities, the European Commission and the semi-ceremonial European Parliament, combine the worst features of statism and collectivism from the entire continent. The Euro-crats make lots of noises about subsidiarity and other policies to leave decision making in the hands of national and local government, but it seems every policy coming from Brussels is a new power grab for unelected and unaccountable bureaucrats. The latest example is possible EU-wide driving laws for the purposes of imposing absurdly low speed limits and to requiring foolish rules against more comfortable and safer large cars. Here's what the UK-based Express wrote about the topic:

    Brussels bureaucrats want to slap draconian European Union driving laws on Britain's roads in a new "green" campaign on motorists, it emerged last night. Measures being considered include a barrage of new maximum speed limits in town and city areas. British motorists could also be forced to undertake exams in "environmentally-friendly" road skills as part of an EU-wide overhaul of driving tests. And many large cars and other so-called gas-guzzling vehicles face being banned from newly-declared "green zones" in urban centres. The latest threat of meddling from Brussels comes in an Action Plan on Urban Mobility drawn up by European Commission transport chiefs. ...Mats Persson, of the Euro-sceptic think tank Open Europe, commented: "This illustrates that the EU simply can't stop interfering in every aspect of people's lives."
    http://www.express.co.uk/posts/view/153073/Europe-plots-green-blitz-on-Br itish-roads

Meanwhile, a different tentacle of the European octopus is proposing that the European Union be given the power to audit budget numbers from member nations. Given the fiscal fiasco in Greece, this seems like it might be a reasonable step - until one remembers that the EU's auditors every year give a failing grade to the EU's own budget practices. The EU Observer reports on the issue, but the phrase "blind leading the blind" somehow did not get included:

    ...the European Commission has indicated it will seek audit powers for the EU's statistics office, Eurostat, in order to verify elements of national government accounts. ...Speaking to journalists after a meeting of EU finance ministers on Tuesday (19 January), outgoing EU economy commissioner Joaquin Almunia said greater Eurostat auditing powers could have avoided the mistakes that led to the Greek revision. He said the commission will propose "a new regulation in order to obtain powers, which we've already requested, to give Eurostat the possibility of carrying out audits."
    http://euobserver.com/9/29302

Last but not least, that same EU Observer story has a tiny bit of good news, or at least a dark cloud with a silver lining. Some of Europe's governments want to impose an EU-wide tax on banks. This certainly fits the theme of ever-growing levels of bureaucracy and interference from Brussels, but the good news is that there is still (even under the statist Lisbon Treaty) a national veto on tax matters. So even though some of the big nations in Europe want to demagogue against the financial sector, the EU's taxation commissioner (and former communist from Hungary) sadly indicated that such a tax probably would not make it through the process:

    While discussion on Greece took up considerable time, EU finance ministers did have an opportunity to discuss a Swedish proposal for an EU-wide bank levy to mitigate the effects of future financial crises. ...British, Belgian and German ministers were amongst those who showed moderate support for the idea. However, outgoing EU taxation commissioner Laszlo Kovacs said it was unlikely to fly because of EU unanimity voting in the area of taxation.

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Sunday, January 24, 2010 ~ 6:16 p.m., Dan Mitchell Wrote:
Sometimes the French Oppose Harmonization.
The French government is relentlessly awful in its support for tax harmonization, regulatory harmonization, and other policies to drag other nations into the cesspool of statism. But France's desire for a one-size-fits-all approach miraculously vanishes when it comes to language. Even though English is now the world's language, especially for commerce, the French are resorting to coercion and protectionism to protect against - gasp! - English words. I greatly enjoyed this column about France's fight against modernity:

    A French group entitled Avenir de la Langue Française (Future of the French Language) has claimed that the invasion of English words poses a greater "threat" to France's national identity than the imposition of German under the Nazis. Writing recently in Le Monde and l'Humanite, the group, supported by eight other patriotic organizations, has called on the Sarkozy government to turn back the English flood. "There are more English words on the walls of Paris," they state, "than German words under the Occupation." ...English has became the dominant language of the Internet, air traffic control, computers, international business and by 2030 more Chinese people will be able to speak it than there are Americans. Already by 2001, English was being spoken by more than one in three of the 350 million citizens of the European Union, whereas fewer than one in 10 spoke French outside France itself. Even in those areas where French influence has been strong —Morocco, Algeria, Syria, Vietnam, Cambodia, Chad, and elsewhere—English has encroached very successfully. English is the official language used by the Organisation of the Petroleum Exporting Countries, and the only working language of the European Free Trade Association, the Baltic Marine Biologists Association, the Asian Amateur Athletics Association, the African Hockey Federation, while it is the second language of bodies as diverse as the Andean Commission of Jurists and the Arab Air Carriers Organization. ...France's traditional response to this linguistic "Anglobalization" has been to attempt a form of legal protectionism against the steamroller tongue of "les rosbifs" and "les Anglo-Saxons". In 1994 the French Assemblée Nationale passed the Loi Toubon, which was signed into law by President François Mitterand. Named after Jacques Toubon, the culture minister, it stipulated that "French shall be the language of instruction, work, trade and exchanges and of the public services. "The use of French shall be mandatory for the designation, offer, presentation, instructions for use, and description of the scope and conditions of a warranty of goods, products and services as well as bills and receipts. The same provisions apply to any written, spoken, radio and television advertisement" and so on for another 21 highly prescriptive clauses. The law has been used against American and British companies, such as Disney and the Body Shop on the Champs Elysées that had labels in English. ...In two centuries, French may have to be protected as a linguistic curio, like Britain does with Cornish or Manx. Until then, the French must learn to be bilingual, or risk being left behind in the global market-place, gasping outraged complaints in a tongue fewer and fewer people understand.
    http://online.wsj.com/article/SB10001424052748703837004575013033899 213088.html

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Sunday, January 24, 2010 ~ 4:54 p.m., Geoff MacLeay Wrote:
Democratic attacks on Wall Street hurt American global competitiveness.
In a National Review Online article, Kevin Williamson notes that a proposed federal banking tax seems purely inspired by vilification politics, but will none-the-less put American banks at a very real competitive disadvantage in the global market:

    The new proposed tax on banks — 15 basis points on all liabilities — is not about revenue or responsibility: It's about politics. President Obama is running away from Wall Street as fast as he can, but Wall Street has a funny way of catching up with him…  

    …The bank tax is not only a new and unneeded burden on our struggling financial sector, it's also a long-term competitive disadvantage for American industry: Finance is a cutthroat world, and New York City is in a constant battle with London, Shanghai, and other financial centers for jobs and investment. If it inspires even a handful of firms to relocate, Obama's new tax could end up costing the government money in the form of forgone revenue from personal-income taxes, corporate-income taxes, and capital-gains taxes. Wall Street's loss will be the City of London's gain. The real mystery is why Wall Street is still paying for the privilege of being scourged.
    http://article.nationalreview.com/?q=NThhNDZkZmQxNjcxZDExYWRjNTJ kYmQ4YTFmNjFjNzU=

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Saturday, January 23, 2010 ~ 5:23 p.m., Dan Mitchell Wrote:
Germany Opposes EU-Wide Tax.
German politicians are notoriously bad on European issues, almost always pushing for more centralization, harmonization, and bureaucracy. So it is surprising to see that the German government is rejecting a Luxembourg proposal to give the EU a direct source of tax revenue. This may just be a case of a stopped clock being right twice a day, but it is refreshing to see Germany on the right side for once:

    Germany opposes a proposal to introduce a European Union-wide tax because the bloc already has sufficient funds, the finance ministry said Monday. The comments come ahead of a meeting of euro-zone and EU finance ministers in Brussels later Monday and Tuesday. Ministers are expected to discuss economic policy coordination. Luxembourg's Finance Minister Luc Frieden has proposed the introduction of a European tax, with proceeds going directly into the EU budget. ...The German finance ministry said "such a tax is not necessary because existing funding rules already ensure sufficient own funds for the EU." The ministry said such a tax would complicate the existing financial funding system of the EU, which is based on revenues from custom duties and the EU's shares in the member states' value-added tax and gross national income.
    http://online.wsj.com/article/BT-CO-20100118-705000.html

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Saturday, January 23, 2010 ~ 4:07 p.m., Geoff MacLeayWrote:
Oregon contemplates digging their hole deeper.
Oregon voters are currently deciding on personal and business income tax increases.  Should the tax hikes pass, look for Oregonian businesses to avail themselves of the advantages of tax competition and move to other states, such as nearby Washington:

     A great beauty of the American federal system is that any of the 50 states can offer its policies as an experiment for others. So the nation owes some gratitude to Oregon for testing whether it is possible for a state to tax its way from deep recession to prosperity.Oregon's unemployment rate is 11.1%, among the nation's highest. But Oregonians are now voting by mail whether to endorse a pair of tax increases passed by the legislature last year: one to raise the state's top personal income tax, to 11% from 9%, and another to raise the business income tax, to 7.9% from 6.6%. Both tax hikes would be retroactive to January 1, 2009…

    … the liberal Portland Oregonian has editorialized against the new taxes, which it says would target "the very businesses and employers that Oregon is depending on to lead an economic recovery, start hiring again and pay the wages that support state services."The battle in Oregon is a case study in the political drama now unfolding in many states. Essentially, it's about whether a state's wealth belongs to its public employee unions or to everyone.

    The public unions are the primary drivers behind the Oregon tax hike campaign. In recent weeks, national powerhouses AFSCME and the SEIU have poured close to $1 million into the state campaign to secure passage. Oregon's public employees have one of the sweetest deals in America. Their average pay is about one-third higher than that of private Oregon workers, and Oregon public employees don't have to pay anything toward their health-care benefits…

    …The 11% income tax rate will make Oregon's income tax about twice as high as the national average. Businesses in Portland can move across the Columbia River to Vancouver, Washington and pay zero income tax. Oregonians used to argue they didn't have to pay a state sales tax. But the current tax proposal imposes a first-ever "gross receipts tax" on certain retail and wholesalers. This is a disguised sales tax.
    http://online.wsj.com/article/SB10001424052748704281204575003120650 806714.html?mod=WSJ_Opinion_MIDDLETopOpinion

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Friday, January 22, 2010 ~ 5:51 p.m., Dan Mitchell Wrote:
The American People Reject Big Government.
According to a Washington Post story, Obama wants to be the anti-Reagan, a President who permanently changes the American people's attitude about big government. Obama's efforts to make statism popular, however, are not exactly working out as he hoped. According to a new Washington Post-ABC poll, the American people have become much more libertarian when asked if that want a bigger government with more services or a smaller government with fewer services. But this is just part of the story. As David Boaz points out, more accurate polling data, which mentions that bigger government also means higher taxes, reveals that support for small government becomes even more pronounced:

    Could he restore confidence in government, even as he was proposing the biggest federal intervention in the domestic economy in a generation? ...As Obama marks the first anniversary of his inauguration on Wednesday, that question remains one of the most politically charged of his presidency -- and central to the politics of this election year -- and will hinge on how Americans judge Obama and his policies. Will the public conclude that his policies worked, however much they may cost and however much they may entail more government intervention in the economy? Or will they regard his agenda as intrusive and ineffective big government? What steps may Obama take to alleviate public discontent over these first-year decisions? ...Obama receives mixed reviews for his first-year performance, according to a new Washington Post-ABC News poll. His approval rating stands at 53 percent, with 44 percent disapproving. Among independents, 49 percent approve, the lowest of any of his recent predecessors at this point in their presidencies. ...The poll also shows how much ground Obama has lost during his first year of trying to convince the public that more government is the answer to the country's problems. By 58 percent to 38 percent, Americans said they prefer smaller government and fewer services to larger government with more services. Since he won the Democratic nomination in June 2008, the margin between those favoring smaller over larger government has moved in Post-ABC polls from five points to 20 points. ...
    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/16/AR2010 011602950.html

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Friday, January 22, 2010 ~ 2:45 p.m., Dan Mitchell Wrote:
An Omen for America?
This has a similar title to an earlier blog post, but the topic is completely different. The U.K.-based Times has a fascinating story about how tax rates are driving business out of London, thus showing the insanity of class-warfare tax policy. Two excerpts are must reading, though the message will fall on deaf ears at the White House. The first looks at the big picture, noting how Switlzerland is very attractive because of reasonable tax rates and political stability:

    As the financial weather worsens in Britain — bankers are being taxed 50% on this year's bonuses, and from April half of any income over £150,000 will go straight to the Inland Revenue — many of our super-rich are threatening to abandon London. Discreet advisers in Geneva, Zurich and the high-end Swiss ski resorts say that a steady trickle of wealthy Brits have either made the move or are strongly considering a new life in the mountains. In December alone eight British-based hedge funds decided to move there. "They want to be out of the UK by April," says David Butler of Kinetic, which provides services for hedge funds. "There's a lot of momentum to leave. Geneva is the most popular choice. These people are a kind of club: they go where the others are." He predicts that up to 150 funds will follow. ...Switzerland is also enormously stable: 100-year mortgages are common, property is a safe investment, and the average income is $68,000, against $44,000 in the UK. The Swiss are unlikely to bring in the kind of arbitrary tax changes that have made London's bankers so jumpy. ...The fear for the British Treasury is that a big international investment bank might relocate. So far, that has not happened. But Bob Diamond of Barclays Capital, one of Britain's highest-paid bankers, warned last month: "Both financial capital and human capital are extremely mobile."

The second excerpt is based on two conversations with former British residents, both of whom are no longer being raped by Gordon Brown and his crowd of redistributionists. This should be a warning to Obama and his crowd, but England actually is not as bad as America in one key respect - investors and entrepreneurs can leave the United Kingdom without being ransacked at the border. People leaving the United States, by contrast, has subject to onerous exit taxes (disturbingly akin to the policies imposed by the Soviet Union and Nazi Germany, albeit motivated by greed and envy rather than hate):

    As a British citizen, "I'd get totally clobbered by the taxman if I came back to London", he admits. He is not wrong. Mike Warburton, tax director at Grant Thornton accountants, says: "If he returned to the UK, he would be taxed on his worldwide income and gains as a UK resident domiciled individual." Say James has £40m invested, and is getting a paltry return of 2% a year (£800,000); it would give him a tax bill of around £400,000. He would also be clobbered, says Warburton, "on income and gains arising after his return to the UK from any capital built up while he was overseas, and gains are taxable at 18%. Even if he put the capital into an offshore trust, he would still be caught by tax-avoidance rules in the UK. Not an appealing prospect." In Switzerland, by contrast, life is sweet. All that is required is a deal with the local canton to pay a flat yearly forfait (forfeit). Happily for bankers, it is all negotiable: the better connected your tax lawyer is with the local canton official, the better your deal. The Swiss are famously good at keeping financial secrets, so there is no published list of which canton charges what, but the going rate in Geneva, the most expensive one, is about £180,000 a year. ...Another option is to become a resident, which is fairly simple as long as you are rich and from America or the EU, then pay tax at the local rates, which are linked to the value of property and are typically only 20% of income. ...Might her London banking friends follow her out here? "Sure, why not?" she says, sipping white wine. "They're all pretty pissed off at the tax on bonuses and the new top rate of 50%. People like me, we're motivated by money. If you take so much away in tax, there's no incentive." Just look at the tax on a bonus of £200,000. First, there is the new bonus tax of 50%, which costs the company another £87,500. Then there is employer's National Insurance of £25,600. Then the employee pays income tax at 40% on the £200,000, which is £80,000, and employee's NI, another £2,000. So the total tax is a whopping £195,100. This represents a 98% tax burden on the net payment of £200,000 to the employee.
    http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_fin ance/article6986976.ece

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Thursday, January 21, 2010 ~ 12:38 p.m., Andrew Quinlan Wrote:
Obama's bank tax creates all of the wrong incentives.
In a recent National Review Online article, Larry Kudlow points out that President Obama's proposed bank tax punishes winners and rewards losers.  In other words it goes in the face of market based incentives. A recent CF&P Foundation video covered "Moral Hazard" in government policies such as subsidized mortgages and bank bailouts. This bank tax goes even farther by not just creating incentives for bad decisions but also punishing good ones.

    President Obama's misbegotten bank tax is precisely the wrong policy at precisely the wrong time. It will wind up backfiring across the board. Why? Because bank consumers and borrowers are the ones who will wind up paying this tax, creating an obstacle to economic recovery.

    Obama is actually rewarding losers and punishing winners — exactly the reverse of free-market capitalism.

    Who's being rewarded? Obama's bank-tax penalty is being used to finance the failed government takeovers of GM, GMAC, and Fannie and Freddie. And let's not forget the $75 billion failure of the so-called foreclosure loan-modification program. To this day, no one knows where that money went. But the big banks are going to be forced to finance this through a tax that will damage lending, stockholders, and consumers.

    This is sheer political favoritism. Crony capitalism at its worst, with a sub-theme of bailing out Obama's Big Labor political allies. It's just like his bailout of the unions by exempting them from the so-called Cadillac insurance tax until 2018, all while the rest of us may have to suffer under that tax.

    Speaking of political unfairness and favoritism, mortgage giants Fannie and Freddie will not pay a nickel of this tax. These government-sponsored enterprises were at the very center of the financial maelstrom, financing the government's quotas and targets for unaffordable mortgages.

    Think about this for a second. President Obama is out there bashing away at excessive bonuses. And yet Fannie and Freddie's CEOs stand to make $6 million in the next year or two. Huh? These are big-government-owned bureaucrats. They ought to be paid like GS-18s.
    http://article.nationalreview.com/?q=ZTMwMDlhNmJhMTk4ZTk1YjkwYzZ mOGVhYWM2ZGU5ZTM=

 

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Thursday, January 21, 2010 ~ 11:23 a.m., Dan Mitchell Wrote:
Omen for Massachusetts?
As reported by the Financial Times, Sebastian Pinera, the brother of Cato's Jose Pinera, was elected President of Chile this weekend. The press is viewing Pinera's election through the right-left lens of Latin American politics, but this is a bit misleading since Chile has remained a very pro-market nation during nearly two decades of supposedly left-wing rule. According to Economic Freedom of the World, Chile was the world's fifth-most free-market nation as of 2007, ranking above the United States, Australia, and Estonia. The new president hopefully will push Chile even farther in the right direction, but the real lesson from Chile is that free markets boost prosperity regardless of which political party is in charge. That being said, hopefully this is a harbinger of good election results elsewhere in the world:

    Sebastián Piñera, a billionaire businessman, has defeated Chile's ruling leftist coalition to return the right to power for the first time since the return of democracy after General Augusto Pinochet's dictatorship in 1990. With 99.2 per cent of the vote counted, giving Mr Piñera a lead of 51.61 per cent to Mr Frei's 48.38 per cent, the former president conceded defeat. It was the right's first victory at the ballot box in Chile since 1958 and bucks a South American trend with the left in power in many countries from Venezuela to Brazil to Argentina.
    http://www.ft.com/cms/s/0/2585ae7e-0376-11df-a601-00144feabdc0.html

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Thursday, January 21, 2010 ~ 9:45 a.m., Dan Mitchell Wrote:
Sounds Like the School Bureaucrats Need Counseling, not the Student.
This story from San Diego seems like a typical case of bureaucratic over-reaction. A school vice principal decided that a student's science project may have been a bomb, so he set in motion events leading to a school evacuation. Without knowing further details, that decision may have been at least somewhat reasonable, but the part of the story that seems completely absurd is that the authorities (not clear whether the story is talking about school authorities or local cops, or whoever) want the student and parents to get counseling - even though it was determined that the science project was harmless and that a search of the home revealed nothing hazardous. I first saw this story on Instapundit and I fully agree that the student's family should sue the school:

    Students were evacuated from Millennial Tech Magnet Middle School in the Chollas View neighborhood Friday afternoon after an 11-year-old student brought a personal science project that he had been making at home to school, authorities said. ...The school, which has about 440 students in grades 6 to 8 and emphasizes technology skills, was initially put on lockdown while authorities responded. Luque said the project was made of an empty half-liter Gatorade bottle with some wires and other electrical components attached. There was no substance inside. ...A MAST robot took pictures of the device and X-rays were evaluated. About 3 p.m., the device was determined to be harmless, Luque said. Luque said the project was intended to be a type of motion-detector device. Both the student and his parents were "very cooperative" with authorities, Luque said. He said fire officials also went to the student's home and checked the garage to make sure items there were neither harmful nor explosive. "There was nothing hazardous at the house," Luque said. The student will not be prosecuted, but authorities were recommending that he and his parents get counseling, the spokesman said. The student violated school policies, but there was no criminal intent, Luque said. ...Luque said both the student and his parents were extremely upset. "He was very shaken by the whole situation, as were his parents," Luque said
    http://www.signonsandiego.com/news/2010/jan/15/students-evacuated-school -chollas-view/

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Wednesday, January 20, 2010 ~ 3:07 p.m., Dan Mitchell Wrote:
Four Lessons from Massachusetts.
While there is always a tendency in Washington to over-analyze the meaning of elections, I think that we can draw the following conclusions from Scott Brown's victory:

    1. Obamacare is an albatross for the Democrats. The White House wants to blame Coakley for being a bad candidate, but Massachusetts is a very left-wing state. Every single member of its congressional delegation is a Democrat. It went for Obama by 26 percentage points. It has sent reflexive statists like Ted Kennedy and John Kerry to the Senate for decades. Yes, Scott Brown was a good candidate, but good GOP candidates normally lose 60-40 in the Bay State. It's hard to draw any conclusion other than the fact that voters were registering disapproval with what is happening in Washington, and healthcare was at the top of their list.

    2. Democrats should ram through government-run healthcare. I hope they don't, of course, but smart Democrats understand that Obamacare is not (and never has been) about health care, but rather about creating more dependency on government. Yes, Democrats will lose more seats in November if they move forward, but they presumably will strengthen their long-term political status by making more people rely on politicians.

    3. Obama is not a centrist. A few people were under the illusion that Barack Obama was something other than a doctrinaire statist. This always struck me as absurd, since a quick look at the NTU vote ratings reveals that he received an "F" every single year and generally was graded as being worse than even Ted Kennedy. I suppose the charitable interpretation of why people got snookered is that Obama's rhetoric during the presidential election was very bland and he projects a thoughtful demeanor. But so what? Obama and his strategists knew the Republicans had spent their way into a ditch and that voters wanted a change. Obama simply had to appear semi-reasonable to win, and that's exactly what he did. Ever since he took office, though, he has pushed to make government bigger and more oppressive. Voters don't like that. They rejected Republicans for being for big government. Now they're rejecting Democrats for the same reason.

    4. The GOP succeeds when it presents a conservative alternative. Scott Brown is presumably not another Jim DeMint, but his campaign rhetoric was very conservative by Massachusetts standards: For lower taxes, against government-run healthcare, for less spending. That message has worked very well for the GOP when it is a national theme, as it was in 1980 and 1994. When Republicans try to be "compassionate" (with other people's money, of course), by contrast, they get debacles like what happened in 1992, 2006 and 2008. This doesn't mean Republicans will always win by being conservative and it doesn't mean squishy Republicans never win, but it does mean that the GOP's long-term success is tied to whether taxpayers perceive Republicans as protecting America from big government. I'm not sure the national GOP really understands this, but they're at least pretending to be for small government again. That's a start.

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Wednesday, January 20, 2010 ~ 3:00 p.m., Dan Mitchell Wrote:
The First Shot of the Second American Revolution.
I must confess that I didn't think Scott Brown was going to win the election in Massachusetts, even though I predicted a 50-48 GOP victory. This is a monumental development. It doesn't necessarily mean Obamacare can be stopped. And it may be that Brown turns out to be a big government squish, like Snowe in Maine. But his election does show that the American people do not want Obama's statist agenda. The interesting thing to watch now is whether Democrats flee Obama's sinking ship and scuttle the statist healthcare scheme. Here's an AP report on Brown's upset:

    In an epic upset in liberal Massachusetts, Republican Scott Brown rode a wave of voter anger to defeat Democrat Martha Coakley in a U.S. Senate election Tuesday that left President Barack Obama's health care overhaul in doubt and marred the end of his first year in office. The loss by the once-favored Coakley for the seat that the late Sen. Edward M. Kennedy held for nearly half a century signaled big political problems for the president's party this fall when House, Senate and gubernatorial candidates are on the ballot nationwide. More immediately, Brown will become the 41st Republican in the 100-member Senate, which could allow the GOP to block the president's health care legislation and the rest of Obama's agenda. Democrats needed Coakley to win for a 60th vote to thwart Republican filibusters.
    http://news.yahoo.com/s/ap/us_massachusetts_senate

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Wednesday, January 20, 2010 ~ 1:40 p.m., Geoffrey MacLeay Wrote:
ObamaCare's unintended consequences.
In a recent Wall Street Journal article, Steve Moore notes that the proposed health care bill creates incentives for dual income couples to avoid marriage:

    Marriage is a revered institution in America but not apparently under the Congressional health care legislation, which contains steep "marriage penalty" taxes, i.e. tax burdens that only get heavier when a couple says, "I do."

    Under the Senate bill, if family income rises above a certain level, couples lose benefits or have to pay higher taxes. That's an incentive for dual-income couples to skip the marriage ceremony altogether and continue to file as singles. For cohabitators, the savings could amount to thousands of dollars a year.

    Take two low-wage workers who are considering marriage. In 2016, if each has an income $11,800, they would each have to pay $248 as singles for government-approved health insurance. Married, their joint income climbs to $23,600 and they would have to pay $1,109 -- a ding of more than $600 annually.

    Middle-class workers could get hit even harder. According to the Congressional Budget Office, a single individual earning $35,400 -- three times the poverty rate -- would be obligated to pay $3,611 for mandatory health insurance. But two such individuals, if married, would lose their eligibility for government subsidies and their mandatory health insurance payments would rise to $13,100 -- a whopping $5,878 annual marriage penalty.

    An analysis done by Senator Charles Grassley of Iowa, ranking Republican on the Senate Finance Committee, finds that the Senate health bill "will cause the 7% of Americans who are eligible to receive the subsidy to pay more for health insurance just by getting married." Call it marital non-bliss.

    "I've always argued," fumes former House Majority Leader Dick Armey, "that our tax code rewards vice and punishes virtue," with the marriage penalty being a typically perverse example. And ObamaCare would only make it worse.
    http://online.wsj.com/article/SB10001424052748704281204575003120650 806714.html?mod=WSJ_Opinion_MIDDLETopOpinion

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Wednesday, January 20, 2010 ~ 11:44 a.m., Dan Mitchell Wrote:
IRS Commissioner Uses Professional Tax Preparer.
The internal revenue codes is so mind-numbingly complex that even the head of the IRS uses a professional tax preparer. But that's hardly a surprise. What is a bit shocking, though, is that Commissioner Shulman has the gall to claim that he favors tax code simplification when his IRS has been promulgating rules and regulations to make the tax system even more onerous and oppressive:

    During an interview on C-SPAN's "Newsmakers" program that aired on Sunday, Shulman said he uses a tax preparer for his own returns. "I've used one for years. I find it convenient. I find the tax code complex so I use a preparer," Shulman said. Pressed on how he would make the tax code simpler, Shulman responded, "I don't write the tax laws. Congress writes the tax laws so that's a whole different discussion." ...Later in the C-SPAN interview, Shulman downplayed his use of a tax preparer, saying he has used one for 10 years. He noted that he and President Barack Obama are proponents of simplifying the tax code. Shulman said about 60 percent of Americans use tax preparers and another 20 percent use software to file their returns.
    http://thehill.com/blogs/blog-briefing-room/news/75119-irs-commissioner-doe snt-file-his-own-taxes

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Wednesday, January 20, 2010 ~ 10:12 a.m., Dan Mitchell Wrote:
Does TSA Stand for Three Stooges Association.
The government is so incompetent that it never put the Christmas-day underwear-bomber on the no-fly list - even though the nutjob's father reported his son's radical views to American authorities. But the TSA for several years has targeted Mikey Hicks, a cub scout from New Jersey who is eight years old. Nobody got fired after 9-11. Nobody got fired for this latest screw-up. Must be nice to have a government job:

    Travel is a hassle for an 8-year-old Cub Scout from New Jersey. That's because Mikey Hicks shares the same name of a person who has drawn the suspicion of the Homeland Security Department. His mother tells The New York Times she sensed trouble when her son was a baby and she couldn't get a seat for him at a Florida airport. She says airline officials explained his name "was on the list." ...TSA officials have been under fire of late, after the failed Christmas Day terror plot aboard a U.S.-bound plane and a complete security breach led to a chaotic breakdown at Newark Liberty International Airport.
    http://wcbstv.com/local/8.year.old.2.1425568.html

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Tuesday, January 19, 2010 ~ 8:45 p.m., Dan Mitchell Wrote:
Tom Sowell vs. Empty Pseudo-Intellectualism.
Do stores in low-income neighborhoods charge higher prices because of racism, or greed? That's what some academics argue, but Tom Sowell points out that there are real economic factors that drive pricing decisions. The example below is about stores, but his IBD column also has a great example using financial services:

    Low-income neighborhoods tend to have their own economic characteristics, one of the most salient of which is that prices tend to be higher there than in other neighborhoods. Intellectuals' discussions of the fact that "the poor pay more" are often indignant indictments and condemnations of those who charge higher prices to people who can least afford to pay them. The causes of those high prices are implicitly assumed to originate with those who charge them, and in particular to be due to malign dispositions such as "greed," "racism" and the like. ...Among the underlying realities in many low-income neighborhoods are higher rates of crime, vandalism and violence, as well as a lack of the economic prerequisites for the economies of scale which enable big chain stores to charge lower prices and make profits on higher rates of inventory turnover in more affluent neighborhoods. But such mundane considerations do not present intellectuals with either an opportunity to display their special kind of knowledge or an opportunity to display their presumptions of superior virtue by condemning others. ...With intellectuals who consider themselves knowledgeable, as well as compassionate, it would seldom occur to them to regard themselves as interfering with things of which they are very ignorant — and doing so at costs imposed on people far less fortunate than themselves.
    http://www.investors.com/NewsAndAnalysis/Article.aspx?id=518021

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Tuesday, January 19, 2010 ~ 2:56 p.m., Dan Mitchell Wrote:
The English Have Gone Bonkers.
This blog periodically makes fun of England (even though it is one of my favorite nations) for big government and political correctness, but these two stories caused my jaw to drop. First, the Daily Mail reports that a man was jailed for several hours because he was falsely suspected of writing an email that indirectly may have made an un-PC reference to Gypsies. Yes, you read correctly. It is a crime to utter bad thoughts in the nation that gave the world the Magna Carta. To add insult to injury, the investigation cost taxpayers more than $15,000:

    A...businessman was arrested at home in front of his wife and young son over an email which council officials deemed 'offensive' to gipsies – but which he had not even written. ...The 45-year-old IT boss was held in a police cell for four hours until it was established he had nothing to do with the email, which had been sent by one of his then workers, Paul Osmond. But police had taken his DNA and later confirmed they would be holding it indefinitely. The businessman, who has asked not to be named, was also fingerprinted in the police investigation estimated to have cost taxpayers up to £12,000. He said two uniformed officers came to his house on a Sunday afternoon and said he would be handcuffed if he did not accompany them to the police station. His computer and other internet equipment were also seized.
    http://www.dailymail.co.uk/news/article-1241994/Businessman-arrested-wife- son--anti-gipsy--email-didn-t-write.html#ixzz0cVncKWLW

This next story may be even crazier. The Guardian reports that a woman - alone with her daughter inside her own home - was warned by police for waving a knife at some thugs who were looking in her window. The police (and this is not a joke) told her that you're not allowed to protect yourself against an intruder. Gee, that must be very comforting for the rape, assault, and burglary victims in the United Kingdom. Let's pray this level of idiocy does not cross the Atlantic:

    Myleene Klass has been warned by police for waving a knife at teenagers who were peering into a window of her house late at night. Klass was in the kitchen with her daughter upstairs when she spotted the youths in her garden just after midnight on Friday. She grabbed a knife and banged the windows before they ran away. Hertfordshire police warned her she should not have used a knife to scare off the youths because carrying an "offensive weapon", even in her own home, was illegal. ...Klass's spokesman, Jonathan Shalit, ...told the Sunday Telegraph. "...the police explained to her that even if you're at home alone and you have an intruder, you are not allowed to protect yourself,
    http://www.guardian.co.uk/uk/2010/jan/10/myleene-klass-knife-intruders

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Monday, January 18, 2010 ~ 7:09 p.m., Dan Mitchell Wrote:
Clueless English Government Raises Tax Rates, then Wonders Why Compliance Is a Problem.
Academic research is fairly unanimous that high tax rates cause tax avoidance and tax evasion. Not many people, after all, are going to take big risks or engage in inefficient tax planning to escape Hong Kong's low-rate flat tax. But people begin to figure out ways of keeping more of their money as tax rates climb above 20 percent and they are very interested in protecting their income when tax rates reach confiscatory levels. In the United Kingdom, for instance, the top tax rate is being raised from 40 percent to 50 percent, which will almost certainly lead to more tax dodging. So now the U.K. government is setting up a panel to figure out how to reduce the "tax gap." Sadly, it's a near certainty that the only good answer - lower tax rates - will not be one of their suggestions:

    The UK government has announced the formation of a new panel of experts to recommend changes that aim to reduce the size of the 'hidden' economy and the 'tax gap' between taxes legally owed and those actually paid. ...Mike Eland, HMRC's Director General of Enforcement and Compliance...commented: "We estimate that the hidden economy contributes to around 7.5% of the net tax gap, which means we could be losing in the region of GBP3bn a year from people who are living and working in the hidden economy. They also gain an unfair competitive advantage over businesses that pay their taxes. This new group of experts with a variety of experience will identify new practical steps to tackle this problem."
    http://www.tax-news.com/asp/story/UK_To_Tackle_Hidden_Economy_xxxx 41035.html

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Monday, January 18, 2010 ~ 4:23 p.m., Dan Mitchell Wrote:
Dog Bites Man: French Push Bad Tax Policy.
Since I said something semi-nice  [http://www.freedomandprosperity.org/blog/2010-01/2010-01.shtml#121] about the French a couple of days ago, let me now revert to form and bash French politicians for their reflexive desire to tax and tax and tax again. The first example is from Tax-news.com, which reports that the French government wants to tax Google and other online companies in order to subsidize politically-approved news outlets: 

    A report presented recently to the French Culture Ministry has proposed a series of measures designed to improve the legitimate supply of cultural services provided over the Internet and their financing, including most notably the introduction of a new tax to be levied on the online advertising revenue derived by Internet giants such as Google. ...In order to finance the proposals, estimated at around EUR50m in 2010, and between EUR35m and EUR40m a year in 2011 and 2012, the report advocates the introduction of a levy imposed on online advertising revenue. Dubbed the "Google tax" by one of the main authors of the report, Jacques Toubon, himself a former French Culture Minister, the levy is designed to support creative industries and online press sites. A threshold level for the tax would ensure that the levy only affects large companies such as Google, Microsoft, AOL, Yahoo, and Facebook.
    http://www.tax-news.com/asp/story/France_Proposes_Google_Tax_To_Prot ect_Cultural_Heritage_xxxx41051.html

If the French politicians limited to themselves to raping French citizens, that would be reprehensible, but not exactly a reason for the rest of the world to be upset. Unfortunately, the French government has a misery-loves-company attitude and is always trying to export bad policy to other nations. France, for instance, is a leading supporter of the OECD's anti-tax competition crusade (not surprisingly, the OECD is based in Paris even though the US pays one-fourth of the bureaucracy's bloated budget). Another example is France's campaign to impose an EU-wide carbon tax, which combines the worst aspects of big government, protectionism, and enviro-radicalism. The EU Observer reports:

    France intends to push for a tax on carbon emissions across the European Union, President Nicolas Sarkozy said on Wednesday (6 December), a week after his country's top court struck down an attempt to introduce just such a tax domestically. Mr Sarkozy also wants to see carbon "tariffs" slapped on products entering the EU from countries with weaker environmental legislation. ...Any carbon tariff move is likely to meet with stiff resistance from other EU member states, particularly the more free-trade oriented nations, who would view such a levy as a form of protectionism. When an EU carbon tax imposed at the borders of the bloc was first mooted at a meeting of European environment ministers last July, the idea was given a frosty reception, particularly by Germany. ...In response, the French government is to present a re-edited version of the bill on 20 January, taking into consideration the court's objections. On Tuesday, French finance minister Christine Lagarde said that the new law would would involve a progressive tax, with different brackets similar to income taxation.
    http://euobserver.com/9/29221

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Sunday, January 17, 2010 ~ 2:00 p.m., Dan Mitchell Wrote:
Big Government Means Big Corruption.
The Washington Times has an article exposing how a law firm is simultaneously doing legal work on a program for the government while also lobbying for more handouts from that program. Here's an excerpt from the expose:

    One of the law firms hired to provide legal work for the Treasury Department on a multibillion-dollar federal loan program also lobbied Congress for a private client pushing to expand the same government initiative, records show. The Treasury Department retained Sonnenschein, Nath & Rosenthal LLP more than a year ago to provide legal advice on the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF), a program aimed at boosting lending to small businesses and consumers. While advising the government on TALF last year, the law firm also lobbied Congress for the Recreational Vehicle Industry Association (RVIA), an industry group seeking to expand TALF to include recreational vehicle loans. ...Treasury said its officials did not know about the firm's lobbying work. "Sonnenschein did not notify Treasury about its work on behalf of the RVIA," spokesman Andrew Williams said when first contacted last year about the arrangement. In addition, Mr. Williams said, Treasury officials met with the firm "to discuss the issue and our expectations regarding notification of actual or potential conflicts of interest." ...According to a federal contracting database, the government has awarded more than $3 million to the firm in connection with its legal work on both TALF and auto-loan programs.
    http://www.washingtontimes.com/news/2010/jan/07/law-firm-finds-work-both -sides-feds-loan-program/

The broader lesson from this article is that big government creates big opportunities for corruption. This video explains why Washington is a rat's nest of special interest deal making.


http://www.youtube.com/watch?v=SovALlOhSg8

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Sunday, January 17, 2010 ~ 10:13 a.m., Dan Mitchell Wrote:
Outside the Beltway, Some Democrats Protect Taxpayers.
The Wall Street Journal opines about the good work of Democratic Governor Brian Schweitzer of Montana. As the excerpt below notes, Schweitzer has vetoed wasteful spending and balanced the state budget without adding to the tax burden. Too bad there aren't Democrats like him in Washington:

    Governor Brian Schweitzer this week ordered a 5% across the board cut in state agency spending. The Governor, a Democrat, called the spending cuts "pro-active measures to make sure we live within our means." Imagine that. More remarkable is that Montana is one of three states—North Dakota and Texas are the others—without a budget deficit. They are all states that benefit from high oil and energy prices, but Mr. Schweitzer wants to continue his state's habit of balancing the books during the economic downturn without a tax increase. In 2007 he offered a $400 per homeowner property tax cut. The former rancher and businessman has also cancelled low-priority renovations and decorations on state buildings, cut state agency travel budgets by 35% in favor of video conferencing, and nearly eliminated state printing costs by posting state documents online. He's vetoed more than 30 spending bills and has been one of the loudest critics of the pork projects that have been funded with federal stimulus money. ...If President Obama and other Democrats want to rehabilitate themselves in 2010, they could do worse than follow Mr. Schweitzer's common-sense lead and cut federal agency spending by 5%.
    http://online.wsj.com/article/SB10001424052748704130904574644510559 988716.html

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Saturday, January 16, 2010 ~ 4:32 p.m., Dan Mitchell Wrote:
H&R Block and the IRS: An Unholy Alliance to Ransack Taxpayers.
The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on "regulatory capture," which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets. A perfect (and distasteful) example of this can be found in the Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market. The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice repeatedly has shown such rules are designed to benefit insiders rather than consumers. Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals - such as CPAs, tax lawyers, and enrolled agents - were unable to figure out how to correctly fill out a hypothetical family's tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?

    The Internal Revenue Service plans to test, register and screen people who get paid to prepare tax returns, stepping into a virtually unregulated business on which millions of Americans depend for crucial financial services. The agency wants to crack down on preparers who do shoddy or fraudulent work and create a way for consumers to make more informed choices -- though the moves could increase the cost of having tax returns prepared. "In most states you need a license to cut someone's hair," but today "most tax-return preparers don't have to meet any standards when they sit down and prepare a federal tax return for an American taxpayer," IRS Commissioner Douglas Shulman said in an interview Monday. ...Starting with the 2011 tax season, the IRS plans to require paid preparers to register with the agency. Subsequently -- the timeline is not yet firm -- they will be required to pass competency tests and receive continuing professional education. ...The new testing and education standards will exempt certified public accountants, lawyers, and tax practitioners known as "enrolled agents," who are cleared to represent taxpayers in dealing with the IRS and are already subject to professional or government requirements. ...Tax prep giants H&R Block and Jackson Hewitt expressed support for the requirements announced Monday. Under the new rules, H&R Block "won't be competing against people who aren't regulated and don't have the same standards as we do," said Kathryn Fulton, senior vice president for government relations. ...Citing a gap in the agency's plan, Fulton said the IRS should impose the same rules on unpaid preparers of tax returns. ...In field tests, the IRS noted Monday, tax-return preparers often gave bad advice. In a 2006 study in which employees of the Government Accountability Office posed as taxpayers and visited outlets of tax prep chains, all 19 preparers made mistakes, the IRS reported. ...It is unclear how much of the blame rests with the tax code's confusing nature, a perennial target of politicians' criticism. Do regulated professionals such as CPAs perform better than their unregulated counterparts? The IRS commissioner said the agency does not have the data to answer that question.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/01/04/AR2010 010401651.html

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Friday, January 15, 2010 ~ 6:21 p.m., Dan Mitchell Wrote:
Don't Trust Economists.
Sometimes a picture really does tell a thousand words.

Here's a chart, based on data from the Philadelphia Fed, showing actual economic results compared to the predictions of professional economists. As you can see, my profession does a wretched job. Comparisons based on predictions from the IMF, OECD, CBO, and OMB doubtlessly would generate equally embarrassing results. This does not mean economists are idiots (insert obvious joke here), but it is an additional reason why Keynesianism is misguided. If economists are unable to predict what's going to happen with the economy in the near future, why should we expect anything positive when politicians tinker with short-run economic performance? That's especially the case when they pass so-called stimulus legislation that increases the burden of government spending.
http://paul.kedrosky.com/WindowsLiveWriter/TheWorldAccordingtoEconomicFore castersSu_75E4/economists_2.png

h/t: James Montier,
http://behaviouralinvesting.blogspot.com/2007/09/yet-more-evidence-on-folly-of.htm l

via Paul Kedrosky
http://paul.kedrosky.com/archives/2010/01/the_world_accor_1.html

via Andrew Sullivan
http://andrewsullivan.theatlantic.com/the_daily_dish/2010/01/chart-of-the-day-1.html

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Thursday, January 14, 2010 ~ 11:19 a.m., Dan Mitchell Wrote:
The European Political Elite Will Grab any Excuse to Push Tax Harmonization.
Politicians from high-tax nations hate tax competition. It's hard to turn people into tax slaves, after all, if they can shift economic activity to a less oppressive nation. But this is old news. What is worth noting, though, is the lengths to which the statists will go to push their agenda. Euractiv.com notes that a new report from the European Parliament says politicians should take advantage of the economic crisis to push for tax harmonization. Needless to say, there is no reason to think that tax harmonization is ever a good idea, regardless of the economy's performance (though there are good reasons to fear that long-run growth would be even more anemic in Europe if taxes were harmonized - which means, not surprisingly, that nations with more reasonable tax rates would be forced to adopt the bad policies of their collectivist neighbors). It's also predictable that the political elite in Brussels was utterly insincere in their promises to Ireland that tax harmonization would not be on the agenda if the Lisbon Treaty was enacted:

    The economic crisis could present an opportunity to harmonise taxation policy across EU member states, according to officials at the European Parliament who contributed to a major report on the future development of the EU. ...The comprehensive document, released with minimal fanfare at the end of 2009, was prepared by researchers in the EU assembly's five policy departments. ...The report sets out three possible scenarios likely to emerge over the next five-to-ten years, saying further harmonisation of direct taxation would be "desirable but has not been realistic until now". Unified corporate tax rates, a long-standing target of European federalists, is set out as an objective. This will cause controversy in some corners, not least in Ireland, which last year was given assurances by European leaders that the Lisbon Treaty would not affect its relatively low corporate tax regime. The officials suggest the window of opportunity may not last long. ..."The problem with common fiscal and tax policies is that decisions in the EU are taken on a unanimity basis and the European Parliament has little legislative role," according to the report.
    http://euractiv.com/en/enterprise-jobs/parliament-sees-crisis-opportunity-tax-h armonisation/article-188615

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