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CF&P E-mail Update, January 20, 2006

Center for Freedom and Prosperity's E-mail Update

1) CF&P Foundation Study Documents OECD's Anti-U.S. Activities

2) Congress slaps down the OECD and UN

3) Richard Rahn:  IMF corruption shows inherent problems with international bureaucracies

4) Larry Kudlow: Why low tax rates (not just low taxes) are the key to growth

5) Walter Williams explains the link between big government and corrupt lobbying

6) More evidence that supply-side tax cuts boost revenue

7) Capitalism is the best system for the poor

8) Reagan did not want social engineering in the tax code

9) Time to reduce America's excessively onerous corporate income tax rate

10) German politicians launch new attack against tax competition

11) While America dithers, socialist nations cut tax rates

12) Tax competition may give Hungary a flat tax

13) The right way to harmonize taxes

 

1) CF&P Foundation Study Documents OECD's Anti-U.S. Activities: Study Finds that Taxpayers Get Poor Return On $70 Million Cost of OECD Membership

[Excerpt from Press Release:]

The Center for Freedom and Prosperity Foundation today released a Prosperitas study, entitled "The Paris-Based Organization for Economic Cooperation and Development: Pushing Anti-U.S. Policies with American Tax Dollars." The paper documents the activities and policies of the Organization for Economic Cooperation and Development (OECD) that are contrary to the interests of the United States. The OECD's conduct is particularly galling since American taxpayers fund 25 percent of the budget for the Paris-based organization.

Andrew Quinlan, president of the Center for Freedom and Prosperity Foundation, stated: "For the last decade, the OECD has endorsed and pushed bad economic policies.  It advocates a value-added tax (VAT) in the United States, and it is against tax competition. The American taxpayers should not be funding an organization that insists on pursuing a statist economic agenda."

Dan Mitchell a senior fellow at the Heritage Foundation and the author of the study, added, "The OECD wants to be a "do-tank" rather than a "think-tank," but international bureaucracies lack democratic legitimacy and should not seek to impose one-size-fits-all policies on sovereign jurisdictions. That is the theoretical problem with OECD activism. The practical problem is that the OECD's activities reflect the big-government mindset of the 23 European countries that dominate the 30-member Paris-based bureaucracy. For both theoretical and practical reasons, American taxpayers should not be compelled to fund an organization that has an anti-free market agenda." [Link to full press release and study below:]

January 12, 2006, CF&P Foundation Press Release, http://www.freedomandprosperity.org/press/p01-12-06/p01-12-06.shtml

January 2006, CF&P Foundation Prosperitas Study (Vol. VI, Issue I), By Daniel J. Mitchell, The Paris-Based Organization for Economic Cooperation and Development: Pushing Anti-U.S. Policies with American Tax Dollars
http://www.freedomandprosperity.org/Papers/oecd-funding/oecd-funding.shtml

 

2) Congress slaps down the OECD and UN

American lawmakers repeatedly have warned bureaucrats at the United Nations not to interfere with American tax law or to try to tax Americans, and now they have extended the warning to the bureaucrats at the OECD. Indeed, the most recent legislative language specifically references the importance of global tax competition, putting the US Congress on record in support of sovereignty for all jurisdictions. The Commerce, Justice, State appropriations for the 2006 fiscal year includes report language requiring the State Department to consider the anti-tax competition activities of international organizations when deciding whether to fund these groups. Since the United States funds 25 percent of the OECD, costing taxpayers more than $70 million per year, the bureaucrats in Paris should be very concerned. The language in the Commerce, Justice, State appropriations bill report states:

[Excerpt from House Report:]

The conferees remain concerned with proposals by international organizations to interfere with the sovereign right of jurisdictions to pursue low-tax policies and direct the Department of State to consider such behavior when reporting whether continued participation in that international organization serves the interests of the United States. [Link to full report below:]

November 7, 2005, House Report 109-272 - Making Appropriations for Science, The Departments of State, Justice, and Commerce, and Related Agencies for the Fiscal Year Ending September 30, 2006, and for Other Purposes
http://thomas.loc.gov/cgi-bin/cpquery/?sel=DOC&&item=&r_n=hr272.109&&&sid=cp109e k6wX&&refer=&&&db_id=cp109&&hd_count=&

 

3) Richard Rahn: IMF corruption shows inherent problems with international bureaucracies

Writing for the Washington Times, Richard Rahn unveils a sordid tale of corruption and insider-dealing at the International Monetary Fund. Along with the World Bank, the IMF is supposed to promote global growth and stability, but international bureaucracies generally pursue bad policies. It is especially frustrating that the U.S. government has failed to withdraw taxpayer support for these left-wing bureaucracies:

[Excerpt from The Washington Times:]

Many observers have noted the "moral hazard" in the IMF's practice of endorsing massive write-offs by private and taxpayer-funded creditors, while insisting that obligations to itself and the World Bank remain sacrosanct. Moreover, it is unseemly, to say the least, that the IMF executive board approved a key December 2004 agreement with Congo just weeks after the regime engaged as its adviser a Washington-based firm comprised entirely of former senior IMF officials, up to and including a former deputy managing director. As the U.N. Oil-for-Food debacle and now IMF/Congo scandal make abundantly clear, it is well beyond time for the world's multinational institutions -- including not only the U.N. and IMF, but others, such as the OECD -- to be held to the same standards of accountability regarding their performance and conflicts of interest as those to which advanced societies subject private enterprise. Many of us have been writing about the abuses in these organizations for years, but the U.S. and other governments have been AWOL in protecting their taxpayers' interests and the rule of law (with the exception of the Bush administration's appointment of the brilliant and gutsy John Bolton as ambassador to the U.N.). Effective action would include stepping on the financial windpipes of these institutions. Wake up, Congress. [Link to full article below:]

January 5, 2006, The Washington Times, By Richard W. Rahn, The IMF: Bad cop
http://www.washingtontimes.com/commentary/20060104-085708-3973r.htm

 

4) Larry Kudlow: Why low tax rates (not just low taxes) are the key to growth

In a column in the Wall Street Journal about New York state, Larry Kudlow does an excellent job of explaining the importance of good tax policy. His comments are applicable to every level of government in every part of the world. Simply stated, high tax rates are a price imposed on productive behavior. When the price goes up, there will be less productive behavior. Ironically, politicians understand this principle when they look at tobacco taxes. They raise those taxes because they want less smoking. But the same lawmakers do not understand (or pretend they do not understand) that high tax rates on work, saving, investment, and entrepreneurship have a negative impact on growth:

[Excerpt from The Wall Street Journal:]

Economic behavior, whether measured in terms of employment, work effort, saving, investment, risk-taking, entrepreneurship or capital formation, is highly responsive to changes in marginal tax rates. In other words, incentives matter. The economic power of lower tax-rate incentives has been proven at national and state levels. It is also borne out by the results of lower tax-rate systems put in place internationally. Allowing people to keep more of the extra dollar earned or the extra dollar invested, by providing a reward for incentive, is a tried-and-true prescription for economic growth. Raising after-tax rewards for work, investment and risk-taking is the surest path to long-term prosperity and competitiveness... waging class war against the wealthy is nonsensical; it merely wages war against...non-rich working people who are deprived of scarce and valuable capital that is so necessary to create new technologies, businesses, equipment, jobs and job training. [Link to full article below:]

January 18, 2006, The Wall Street Journal, By Lawrence Kudlow, Low-Tax Tiger
http://online.wsj.com/article/SB113755236319849334.html?mod=opinion&ojcontent=otep   (subscription required)

 

5) Walter Williams explains the link between big government and corrupt lobbying

The reason there are lobbyists in Washington is because government has too much power. Most lobbyists represent greedy interest groups that want to use the coercive power of government to obtain unearned wealth. But some lobbyists - for groups like the National Taxpayers Union - fight for taxpayers. Other other lobbyists, such as business trade association, sometimes lobby for handouts and sometimes lobby to fight against bad policies such as tax increases. But rather than figure out which lobbyists are good and which ones are bad, the best approach is to limit the size and power of government.

[Excerpt from Dr. William's column:]

A much better explanation for the millions going to the campaign coffers of Washington politicians lies in the awesome growth of government control over business, property, employment and other areas of our lives. Having such power, Washington politicians are in the position to grant favors. The greater their power to grant favors, the greater the value of being able to influence Congress, and there's no better influence than money. ...Campaign finance and lobby reform will only change the method of influence-peddling. If Congress did only what's specifically enumerated in our Constitution, influence-peddling would be a non-issue simply because the Constitution contains no authority for Congress to grant favors and special privileges. [Link to full article below:]

January 18, 2006, Townhall.com, By Walter E. Williams, Attacking lobbyists wrong battle
http://www.townhall.com/opinion/columns/walterwilliams/2006/01/18/182482.html

 

6) More evidence that supply-side tax cuts boost revenue

When marginal tax rates on productive behavior are reduced, this increases incentives to work, save, and invest. This concomitantly leads to more income, a portion of which is taken by government. This is why pro-growth tax cuts (as opposed to rebates and credits) have what is known as a "supply-side" effect. If the supply-side effect is large, the revenue loss of lower tax rates is small (which is why "dynamic scoring" is more accurate than "static scoring"). In rare cases, particularly over a longer period of time, a tax rate reduction can "pay for itself." The Wall Street Journal points out that the supply-side 2003 tax rate reductions had an unambiguously positive effect on state government finances. Governors and state legislators are getting a revenue windfall because supply-side federal tax cuts are generating faster growth around the nation:

[Excerpt from The Wall Street Journal:]

In order to vote for the Bush tax cuts, some liberal Republicans insisted on a $20 billion giveaway to the states to offset what they thought would be "lost" revenue. But the revenue data show that the Bush tax cuts and the economic expansion that has followed have been a windfall for state coffers. Since the tax cuts passed in mid-2003, GDP growth has averaged close to 4%, the jobless rate is down to 4.9%, and federal tax receipts have climbed at the fastest pace in more than two decades. More workers and rising incomes translate into more taxable income for states. And because most states tax investment income too, state budgets are also benefiting from an increase in corporate dividend payouts. If the states were smart, they'd offer to repay the $20 billion if Washington will make the tax cuts permanent. [Link to full article below:]

January 11, 2006, The Wall Street Journal, Review & Outlook: States of Plenty
http://online.wsj.com/article/SB113695191556343524.html?mod=opinion&ojcontent=otep   (subscription required)

 

7) Capitalism is the best system for the poor

Advocates of big government frequently justify higher taxes and higher spending on the grounds that redistribution is necessary to help people climb out of poverty. These assertions ring hollow since socialist nations suffer from economic stagnation and high unemployment. Walter Williams explains a market economy does a much better job of providing economic opportunity, and cites studies on how poor people are able to climb the ladder of economic opportunity:

[Excerpt from Townhall.com:]

Talk about the poor getting poorer tugs at the hearts of decent people and squares nicely with the agenda of big government advocates, but it doesn't square with the facts. ...The authors analyzed University of Michigan Panel Study of Income Dynamics data that tracked more than 50,000 individual families since 1968. Cox and Alms found: Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991. Three-quarters of these families had moved into the three highest income quintiles. ...Cox and Alm's findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 -- 66 percent to second and third quintiles and 15 percent to the top quintile. [Link to full article below:]

January 4, 2006, Townhall.com, By Walter E. Williams, The poverty hype
http://www.townhall.com/opinion/columns/walterwilliams/2006/01/04/180969.html

 

8) Reagan did not want social engineering in the tax code

Politicians love to micro-manage the economy with the tax code. This ability to pick winners and losers is a sure-fire way of collecting campaign contributions, but it is a terrible way to operate a tax system. George Will points out that President Reagan was sympathetic to the principles of a flat tax. This means a low tax rate, of course, but also a simple system that treats everyone equally:

[Excerpt from George Will's column:]

Reagan...disliked government's using the [tax] code to conduct industrial policy, picking commercial winners and losers, which is a recipe for what is called "lemon socialism" -- tax subsidies for failing businesses that the market says should fail. Regarding the second part of Reagan's statement, any tax code is going to shape society. But he opposed manipulating the tax code to stigmatize this or that consumer preference. ...When government uses subsidies to moralize, as with tax preferences for bonds that can be used to finance this but not that, government is speaking. It is expressing opinions about what is and is not wholesome. And once government starts venting such opinions, how does it stop? Government could spare itself the stress of moralizing about so many things if it decided that the choices people make with their money is their, not its, business. And government could avoid having opinions about so many things if it would quit subsidizing so many things. [Link to full article below:]

January 8, 2006, Townhall.com, By George Will, Hot Tubs And Cold Moralizing
http://www.townhall.com/opinion/columns/georgewill/2006/01/08/181402.html

 

9) Time to reduce America's excessively onerous corporate income tax rate

According to Kevin Hassett of the American Enterprise Institute, the corporate income tax is a huge competitive liability for U.S.-based companies. Not only does America have the highest corporate tax rate in the developed world, but the U.S. rate is about 10 percentage points higher than the average tax rate in Europe. No wonder companies face so much pressure to build factories overseas and to re-charter in jurisdictions with better tax law such as Bermuda and the Cayman Islands:

[Excerpt from Dr. Hassett's article:]

A look at the latest economic data suggests an obvious change that should have broad bipartisan appeal: a cut in the corporate tax. ...Job creation is disappointing, and it's time we put aside the blame game and try to figure out why. Some months ago, I was at a lunch attended by a number of important corporate leaders. I asked how many of them were planning to build a major facility in the U.S. None of them was. I asked how many were planning to expand overseas. Almost all of them were. The fact is, companies with only U.S. operations have a hard time competing in the global marketplace unless, like Microsoft Corp. or Amgen Inc., they have significant intellectual property that lets them fend off foreign competitors. ...The most powerful factor appears to be taxes. The U.S. has the highest corporate tax rate among the world's most developed economies. With a combined federal and state tax rate of 39.3 percent, the U.S. taxes corporations at a rate that is 10 percentage points higher than the average of other nations in the Organization for Economic Cooperation and Development. In a world of tight margins, a 10-percentage-point disadvantage is humongous. And the U.S. rate is well above that of countries such as Ireland, which has enjoyed an economic boom that coincided with a reduction in corporate taxes to 12.5 percent. ...Congress should adopt legislation to lower the tax, and the president should push for the move in his State of the Union address later this month. Unless we make a concerted effort to reduce the rate to something comparable to that of other developed nations, we can expect more bad jobs reports. [Link to full article below:]

January 9, 2006, American Enterprise Institute, By Kevin A. Hassett, Let's Cut Corporate Taxes to Create More Jobs
http://www.aei.org/publications/pubID.23656/pub_detail.asp

 

10) German politicians launch new attack against tax competition

In another sign that the Germans are surpassing the French as the biggest obstacle to economic liberalization, the EU Observer reports that the new Finance Minister is whining that taxes are too low in some European nations. Not surprisingly, some in the business community have a more sensible attitude, noting that Germany's growth will continue to suffer if other countries adopt bad tax policy:

[Excerpt from EU Observer:]

German finance minister Peer Steinbruck has urged new EU member states to raise their taxes and ensure "fair tax competition" among the 25 members of the bloc. Tax cuts in many of the new EU member countries have "nothing to do with fair tax competition and place a burden on German jobs", the minister said in an interview with German daily Die Welt. ...The combined corporate tax rate in Germany is almost 40 percent, while it is much lower in a number of countries. Slovakia has imposed a 19 percent flat tax in order to attract business and create more jobs. ...But German industry did not back the minister in his crusade to ensure what he considers fair tax competition in the EU. Tax expert Klaus Braunig from the Federation of German Industries (BDI) said the government would do better by ensuring that German tax rates are internationally competitive. "There is no guarantee that business will stay in Germany or move in, if other EU countries were forced to raise their tax levels", he noted. [Link to full article below:]

January 2006, EU Observer, German finance minister urges fairer tax competition within EU
http://euobserver.com/9/20614

 

11) While America dithers, socialist nations cut tax rates

The Republican- controlled Senate is at least temporarily incapable of extending the 15 tax rate for dividends and capital gains - even though the policy has helped trigger strong growth and job creation. Yet while the United States is mired in the swamp of class warfare economics, socialist governments in Europe continue to lower tax rates. To be sure, the lower tax rates in places such as Spain are being driven by tax competition rather than ideological conversion, but it is results that matter most. America already has the highest corporate tax rate in the developed world, and as other nations continue to cut tax rates, the U.S. will become increasing uncompetitive. Tax-news.com also reports that Spain may cut personal income tax rates:

[Excerpt from Tax-News.com:]

Spain's Economy Minister Pedro Solbes stated last week that the government will introduce proposals into parliament this month aimed at simplifying and cutting rates of taxation, including corporate tax. In an interview with the Spanish daily La Vanguardia last week, Mr Solbes revealed that the Socialist Party government wishes to unify the various rates of capital gains taxes and implement a cut in the corporate tax rate to 30%, bringing the Spanish company tax rate more into line with the European Union average. ...The minister also outlined plans to streamline and cut personal income taxes. The tax cuts will go before Spain's Parliament later this month and are expected to be implemented next year. [Link to full article below:]

January 9, 2006, Tax-News.com, by Ulrika Lomas, Spanish Government Aims To Cut Corporate Tax
http://www.tax-news.com/asp/story/story_open.asp?storyname=22310

 

12) Tax competition may give Hungary a flat tax

According to Tax-news.com, one of Hungary's leading political parties wants to scrap the nation's inefficient tax system and implement a 20 percent flat tax. In large part, this pro-growth reform proposal is driven by the competitive pressure from other Eastern European nations. But Hungarian socialists remain an obstacle, and their ideological intransigence is terrible news for workers since retention of a class warfare tax code will boost investment in neighboring flat tax nations such as Slovakia and Romania:

[Excerpt from Tax-news.com:]

Hungary's liberal SZDSZ party, a junior partner in the country's governing coalition, wants to follow the example set by many other countries in Central and Eastern Europe by introducing a flat tax following elections which are due to be held in later in the Spring. Speaking at a business conference on Monday, Hungary's youthful Economy and Transport Minister Janos Koka proposed a 20% flat tax system, including personal income tax, value-added tax and corporate tax. ...The Socialists have rejected flat taxes on the grounds that it would mean that "the head of a successful business would pay the same tax rate as a low-income worker." In June of last year, a proposal to introduce a single 21% flat-rate corporate, personal income and value added tax was rejected by the government, which has instead committed itself to a five-year programme of tax reforms designed to reduce the total burden of taxation as a percentage of the country's economy... At present, Hungary's personal income tax rates range from 18% to 36%, while corporate tax rate is levied at 16%. ...Flat taxes have become a much used tool by the former members of the Warsaw pact to raise levels of investment and attract foreign business, a trend which began in 1994 when Estonia introduced a flat tax rate of 26% for all personal income and corporate profits (which it plans to reduce to 20% this year). Since then, a number of countries in the region have followed Estonia's lead: in 1997 Russia introduced a flat tax of 13%; the Polish government has announced that it will be putting in place a single 18% rate of corporate tax, income tax, and VAT by 2008; while Hungary's neighbours in Slovakia and Romania have also forged ahead with flat taxes. [Link to full article below:]

January 18, 2006, Tax-News.com, by Ulrika Lomas, Hungary's Liberals Push For 20% Flat Tax
http://www.tax-news.com/asp/story/story_open.asp?storyname=22423

 

13) The right way to harmonize taxes

The European Commission is foolishly undermining its scheme to harmonize corporate tax regimes. The Brussels-based bureaucracy claims that it needs to impose a single definition of corporate income to lower compliance costs and facilitate a single-market. Yet the same bureaucracy is proposing a much better alternative for small companies. Known as home-state taxation, this approach preserves - indeed, even enhances - jurisdictional competition. As Tax-news.com notes, home-state taxation allows a company to use the tax rules of its home nation when paying tax on income earned in other nations:

[Excerpt from Tax-News.com:]

The European Commission on Tuesday announced that it has adopted a Communication that presents a possible solution to the compliance costs and other company tax difficulties that Small and Medium Enterprises (SMEs) face when doing business across borders. The Commission suggests that Member States allow SMEs to compute their company tax profits according to the tax rules of the home state of the parent company or head office. An SME wishing to establish a subsidiary or branch in another Member State would as a result be able to use tax rules and file tax returns in a country with which it is familiar. ...The Home State Taxation scheme would...mean that an SME's tax base (i.e. taxable profits) would be calculated in accordance with the rules of the Home State. Each participating Member State would then tax at its own corporate tax rate its share of the profits determined according to its share of the total payroll and/or turnover. [Link to full article below:]

January 2006, Tax-news.com
http://www.tax-news.com/asp/story/story.asp?storyname=22352

 

Best regards,

Andrew Quinlan
Center for Freedom and Prosperity
President
202-285-0244
quinlan@freedomandprosperity.org
www.freedomandprosperity.org

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