CF&P E-mail Update, March 9, 2005

The Market Center Blog

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Freedom and Prosperity
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Center for Freedom and Prosperity's E-mail Update

1) Richard Rahn: The hidden tax of regulation

2) Over-regulation threatening safety and soundness of banking sector

3) Dan Mitchell Warns Against European-Style Value-Added Tax

4) Leading business newspapers condemn the VAT

5) Another victory for tax competition

6) Greenspan praises tax reform, calls for elimination of double-taxation of saving and investment

7) Welfare state protects the strong and hurts the weak

8) European Union responsible for weakness in Europe and division around the world

9) Tax cuts help America grow while Europe stagnates

10) EU Constitution is bad for Europe and bad for America

11) Greenspan praises Adam Smith

12) President Bush praises Slovakian flat tax

13) Investor's Business Daily urges rejection of UN treaty

14) Higher tax rates mean less entrepreneurship

15) European Commission subverts democracy with pro-Constitution propaganda

16) Economic benefits of Social Security reform

 

1) Richard Rahn: The hidden tax of regulation

The hidden tax of regulation. Richard Rahn's Washington Times column explains that the burden of regulation usually is hidden, but that the damage to economic competitiveness can be quite severe. Consumers are the main victim since they pay higher costs. This does not mean regulation is never justified, but it surely means that regulators should be required to submit new rules to a cost-benefit test before imposing them on the productive sector of the economy:

[Excerpt from Dr. Rahn's article:]

How much lower is your real income because of excessive regulation? And how much higher is unemployment because of too much regulation? ...A more sophisticated business person might also say the regulatory costs for his particular business are not just those of equipment and employees, but the additional legal and accounting work needed to comply with the rules (often vague and subject to various interpretations). In addition, the business person might note these added costs must be passed on to the customers through higher prices. ...The additional costs to the business will mostly be tax-deductible. That, in turn, means less tax revenue for federal, state and local government. This loss in tax revenue means other taxes need to be higher to provide the same level of government service. ...If businesses are more heavily regulated in the United States than elsewhere, the additional costs will make them less competitive. Hence jobs will flow from the U.S. to more competitive countries.

A couple of years back, Congress passed the Sarbanes-Oxley bill to "improve corporate governance." The bill cost companies listed on U.S. stock exchanges enormously, so many have now de-listed (i.e., by going private) or are moving to foreign stock exchanges. These regulatory cots have cut jobs and investment. Yet no one has been able to provide proof of any benefits. Much of the anti-money laundering regulation in recent years also meant major cost increases for financial institutions and a rise in the unbanked poor. Yet again there is no sound evidence of benefits to justify all the new costs. [Link to full article below:]

February 28, 2005, The Washington Times, By Richard W. Rahn, Pricey regulatory tab
http://www.washingtontimes.com/commentary/20050227-101606-9267r.htm

The Market Center Blog, February 28, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#284

 

2) Over-regulation threatening safety and soundness of banking sector

Over-regulation threatening safety and soundness of banking sector. The UK-based Centre for the Study of Financial Innovation has released a report indicating that the biggest risk to banks is excessive red-tape from both domestic and international regulators. To reduce the risk to the banking sector - and also to lower costs for consumers, policy makers should reduce this regulatory burden. A good place to start would be anti-money laundering laws, which impose very high costs and misallocate law enforcement resources.

[Excerpt from the CFSFI press release]

The remorseless rise in regulation has become the greatest risk facing the banking sector according to the latest 'Banana Skins' survey conducted by the CSFI, the independent City of London think tank, and sponsored by PricewaterhouseCoopers. The report finds that regulatory overkill saps bank resources, reduces risk diversification and creates a false sense of security. ...John Hitchins, UK Banking Leader at PricewaterhouseCoopers, said: "Bankers have thrown down a challenge against too m, uch prescriptive regulation. Many are worried that it is beginning to stifle innovation and judgement across the industry. While few challenge the objectives of regulators, there is a clear need for further debate on how these are implemented." [Link to full article below:]

[Excerpt from the Financial Times]

The growing burden of domestic and international regulation is the biggest risk facing the world's banks in the coming year as new rules impose additional costs and create a false sense of security, according to a survey of financial executives. In its annual poll of risks facing banks, the Centre for the Study of Financial Innovation, the think-tank, found overwhelming agreement that excessive regulation is perceived as the biggest threat to the financial sector. [Link to full article below:]

February 21, 2005, Centre for the Study of Financial Innovation, Press Release:  Regulatory overkill seen as main risk facing banks New CSFI 'Banana Skins' survey pinpoints financial dangers
http://www.csfi.org.uk/Banana%20Skins%20Press%20Release.pdf

February 20 2005, Financial Times, By Peter Thal Larsen, Burden of regulation 'threatening world's banks'
http://news.ft.com/cms/s/6f103806-837f-11d9-bee3-00000e2511c8.html

The Market Center Blog, February 21, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#214

 

3) Dan Mitchell Warns Against European-Style Value-Added Tax

[Excerpt from Washington Times Column]

Tax reform is high on President Bush's list of second-term priorities. Considering the mess our tax code has become, this is welcome news. More than 90 years of social engineering and backdoor industrial policy have created a tax system that combines punitive class warfare and special-interest loopholes.

Unfortunately, this silver cloud may have a dark lining. There are signs a few Bush administration people may be sympathetic to a European-style value-added tax (VAT), a form of national sales tax imposed at each stage of the production process. Enacting such a tax in America, though, would be a tragic mistake. A VAT might have some theoretically attractive features, but it a perniciously effective way to raise revenues and inevitably leads to bigger government.

The best evidence comes from Europe. Back in the mid-1960s, the burden of government in Europe wasn't that much higher than in the United States. Tax revenues consumed about 30 percent of gross domestic product (GDP) in Europe. The United States had a small advantage: Including state and local governments, the tax burden was about 27 percent of GDP. [Link to full article below:]

February 27, 2005, The Washington Times, By Daniel J. Mitchell, Risky revenue 'VAT'
http://www.washingtontimes.com/commentary/20050226-101210-9748r.htm

 

4) Leading business newspapers condemn the VAT

Both the Wall Street Journal and Investor's Business Daily opine today that the value-added tax is a dangerous proposal that would boost the size of government. The Journal specifically warns that the VAT actually leads to higher income taxes because of class-warfare pressure to maintain distributional "progressivity," while Investor's Business Daily explains that the only good scenario for a VAT - permanent repeal of all income taxes - is an impossible dream:

[Excerpt from WSJ:]

The VAT, for the uninitiated, is essentially a hidden sales tax that originated in France and has become a favorite of legislators around the world because of its ability to stealthily raise large sums of revenue with a minimum of public outcry. ...like any tax a VAT removes resources from the dynamic private sector of the economy and places them in government hands. And in Europe it has become a major enabler of the ever-expanding, slow-growth welfare state. ...starting in 1967-68 European countries began adopting the VAT en masse, and the growth of government exploded. ...In most of the world where VATs exist, and certainly in Europe, VATs are levied in addition to, not in place of, other taxes. VATs may have the perverse effect of actually creating political pressure for other tax increases. Why? Because they place a higher relative burden on lower-income earners who spend a higher percentage of their income on consumption. So VATs have often resulted in calls for income tax rate increases to preserve the overall progressivity of the tax code. ...If the VAT is the solution to America's long-run fiscal challenges, how come the balance sheets of countries that already have this tax look no better (and in most cases much worse) than ours? Our answer is because new tax revenues never result in a happy long-run political equilibrium; they merely enable legislators to spend more here and now, before coming back for more tax revenue later. One lesson of the Medicare fiasco is that bad Congressional ideas need to be stopped before they gather too much political momentum. We hope Mr. Thomas's fellow Republicans are telling the Chairman that they didn't come to Washington to deliver to America the tax that helped create the European welfare state. [Link to full article below:]

[Excerpt from IBD:]

Washington is the home of many horrible ideas. Among the very worst is one being discussed by the capital's big thinkers: a consumption tax. ...Since 1954, when France started using a VAT, the other nations of Europe also have increasingly taxed consumption. Problem is, they kept taxing income, too. The trend accelerated in the 1970s as Europe geared up for integration and nations there decided to tap consumers to fund their ever-burgeoning welfare states. ...tax burdens in the EU have grown over the last 30 years while the burden in the U.S. has stayed about the same. ...[The VAT] represents the camel's nose under the tent for higher taxes, bigger government, rising inflation, growing unemployment and stifled business formation - just like in Europe and exactly the opposite of what any tax reform should achieve. As Heritage Foundation economist Daniel Mitchell recently noted, a VAT-like consumption tax might work if, and only if, we get rid of the income tax at the same time. Don't hold your breath. [Link to full article below:]

March 4, 2005, The Wall Street Journal, Review and Outlook, The Tax That France Built
http://online.wsj.com/article/0,,SB110989777176970233,00.html?mod=opinion&ojcontent=ot ep

March 4, 2004, Investor's Business Daily
http://www.investors.com/editorial/issues.asp?v=3/4

The Market Center Blog, March 4, 2005
http://www.freedomandprosperity.org/blog/2005-03/2005-03.shtml#045

 

5) Another victory for tax competition

Another victory for tax competition. In a decision sure to cause heartburn in Paris and Brussels, Singapore has announced that it will be lowering its top income tax rate to 20 percent. Singapore wants to stay competitive with Hong Kong, proving yet again that tax competition promotes better public policy. This presumably also will increase pressure for lower tax rates in Australia, New Zealand, Japan, Korea, and Taiwan.

[Excerpt from Financial Times:]

Singapore yesterday offered new incentives to retain its status as a leading Asian business centre, including cutting its top personal income tax to 20 per cent by 2007 to attract skilled foreigners and multinational companies. ...Corporate tax remains unchanged at 20 per cent. After last year's reduction from 22 per cent, business had been hoping for further cuts in the corporate tax rate to bring it closer to Hong Kong's 17.5 per cent. The top income tax rate would gradually fall from 22 per cent to 20 per cent over the next two years but it would still be above the personal tax rate of 18 per cent in Hong Kong, seen as a main rival to Singapore for foreign investments. [Link to full article below:]

February 19 2005, Financial Times, By John Burton, Singapore to lower top income tax rate to 20% (subscription required)
http://news.ft.com/cms/s/db61d2e0-821b-11d9-9e19-00000e2511c8,ft_acl=,s01=2.html

The Market Center Blog, February 21, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#213

 

6) Greenspan praises tax reform, calls for elimination of double-taxation of saving and investment

In his testimony to President Bush's tax reform Advisory Panel, Federal Reserve Board Chairman Alan Greenspan highlighted the benefits of tax reform and specifically noted the importance of not punishing saving and investment. While Greenspan does not endorse a specific tax reform plan, his support for consumption-base tax reform is a big boost for the flat tax:

[Excerpt from Chairman Greenspan's article:]

The U.S. economy is the world's most dynamic and flexible, and the federal government's system for raising revenue must not hinder the processes generating that economic success. ...taxpayers are again confronted with great complexity. Indeed, an individual taxpayer may have difficulty even knowing his or her marginal tax rate because of the overlapping web of deductions and exemptions and the provisions that attempt to limit those deductions and exemptions. And many taxpayers are now required to compute their liability under two systems--the regular income tax and the alternative minimum tax. Such challenges also affect lower-income households, who face the complexities of the Earned Income Tax Credit. A simpler tax code would reduce the considerable resources devoted to complying with current tax laws, and the freed-up resources could be used for more productive purposes. Thus, greater simplicity would, in and of itself, engender a better use of resources. ...As you know, many economists believe that a consumption tax would be best from the perspective of promoting economic growth--particularly if one were designing a tax system from scratch--because a consumption tax is likely to encourage saving and capital formation. ...as the baby boom generation begins to retire in a few years, it will become increasingly important for the nation to boost resources available in the future through greater national saving and enhanced incentives for participation in the labor force. The tax system has the potential to contribute importantly to those goals, and, at a minimum, tax reform should not hinder the achievement of those objectives. [Link to full article below:]

March 3, 2005, The Federal Reserve Board, Testimony of Chairman Alan Greenspan, The tax system
http://www.federalreserve.gov/boarddocs/testimony/2005/20050303/default.Htm

The Market Center Blog, March 4, 2005
http://www.freedomandprosperity.org/blog/2005-03/2005-03.shtml#043

 

7) Welfare state protects the strong and hurts the weak

A Wall Street Journal column exposes the hypocrisy of those who support the "social model" in Europe. When government makes it unprofitable to create jobs, the people on the bottom rungs of the economic ladder are most likely to lose opportunity:

[Excerpt from WSJ:]

Today, European social ministers will meet in Brussels, where they will, as usual, pledge to defend the "European social model." Along with many Socialists, Greens, unions and NGOs, they fear the recently relaunched Lisbon Agenda, with its focus on economic growth and jobs, will destroy "social" Europe. They could not be more wrong. Instead, it is their own near-Pavlovian allegiance to an outdated and ill-defined concept of a welfare state that is impoverishing the very people they claim to defend: working men and women, immigrants, children and the unemployed. ...Instead of facing the reality of globalization, many so-called social leaders prefer to impose an intolerable burden on Europe's young by encouraging governments to run unsustainable budget deficits in the futile hope of a painless Keynesian recovery. These self-styled social missionaries are in fact ideologically bound to the 19th-century... Europe's sclerotic labor markets have taken an exorbitant toll on the weakest members of our society: the young, women, low-skilled workers and immigrants. While those inside the system enjoy generous benefits and lifelong job protection, an ever-growing caste of outsiders is deprived of the professional opportunities and economic empowerment every citizen ought to be entitled to, particularly in societies that pride themselves on "social inclusion." But the fact is that nowhere else in the developed world are there so many groups of people so consistently deprived of the most basic social right: holding a job and earning a living. ...The vast majority of people who claim to be the defenders of a "social" Europe have never created a single job through honest, hard-working entrepreneurship. At public expense, they have been on generous payrolls and lifelong job protection schemes, shielded from the exorbitant taxes, collapsing pension systems and high unemployment that ordinary people face. [Link to full article below:]

March 3, 2005, The Wall Street Journal, By Ann Mettler, Pavlov's Welfare State
http://online.wsj.com/article/0,,SB110980327751868732,00.html?mod=opinion&ojcontent=ot ep (subscription required)

The Market Center Blog, March 3, 2005
http://www.freedomandprosperity.org/blog/2005-03/2005-03.shtml#036

 

8) European Union responsible for weakness in Europe and division around the world

Writing in Canada's National Post, David Frum explains how the EU is leading to sclerosis inside Europe and division with the rest of Western Civilization:

[Excerpt from David Frum's article:]

To Europeans, "strengthening Europe" tends to mean vesting more powers in the central European Union (EU) bureaucracy in Brussels. To Americans, "strengthening Europe" tends to mean increasing the wealth and security of the countries that make up the European continent. Euro-enthusiasts may believe these two definitions can co-exist. But the evidence is accumulating that they cannot--that as the EU gets stronger, European nations fall further behind. ...European productivity growth should have accelerated after 1992. Instead, it slowed--and at the same moment that U.S. productivity growth sped up. Why? The answer remains controversial--but it certainly does seem as if the advantages of the single market were more than cancelled by the burden of heavier EU regulation. ...the high-tax countries of the European Union, like Germany, are constantly pressing for the EU to force low-tax countries, such as Britain, to "harmonize" their tax rates with the others. Harmonization would insulate German industry from competition in the short run. But in the long run, it threatens to condemn the whole continent to demographic disaster. The United States and Europe, and for that matter Canada, Australia and New Zealand, share a common civilization--and share as well a long list of dangerous common enemies. The growing separation between the United States and Europe is a civilization disaster, and the attempt to build Europe into a single state is the disaster's single most important cause. Those European politicians who seek to create a new European identity to replace old national loyalties can succeed only by creating a new transatlantic "other"--a new American rival and antagonist--to lend emotion to their otherwise pallid bureaucratic project. [Link to full article below:]

February 28, 2005, National Post (Canada), By David Frum, Up with Europe. Down with the European Union
http://www.aei.org/news/newsID.22031/news_detail.asp

The Market Center Blog, March 1, 2005
http://www.freedomandprosperity.org/blog/2005-03/2005-03.shtml#014

 

9) Tax cuts help America grow while Europe stagnates

Tax cuts help America grow while Europe stagnates. The supply-side tax cuts adopted in 2003 are boosting growth, just as advocates said they would. European politicians whine about US budget deficits, but their own deficits (which are not the important variable, in any event) are often just as large. More important, high taxes are depressing European growth:

[Excerpt from WSJ:]

President Bush's tax cuts routinely come in for a whipping from Europe, Japan and former Treasury Secretary Robert Rubin, but maybe they all should think again. The U.S. economy continues its healthy expansion, while Germany and Japan announced yesterday that they spent the last portion of last year essentially in recession. ...The current growth continues the expansion that gained steam in mid-2003 as the second round of Bush tax cuts were passed. These were the tax cuts that accelerated the marginal rate income tax reductions on "the rich" and that also targeted capital investment through reductions in capital gains and dividend tax rates. Some people suggested at the time that these would spur growth, while others (we won't name names) said they would not. We are experiencing a market test of who was right. ...As Rand economist Charles Wolf also points out, this global trade and capital imbalance is much worse for the rest of the world than it is for the U.S. Without exports, especially to the U.S., Japan and Germany would barely be growing at all. If the U.S. economy slows again, their economies are in real trouble because they generate too little home-grown investment opportunity. U.S. prosperity, by contrast, is not as dependent on the kindness of strangers. [Link to full article below:]

February 17, 2005, The Wall Street Journal, Review and Outlook. Cowboynomics
http://online.wsj.com/article/0,,SB110860935981757416,00.html?mod=opinion&ojcontent=ot ep   (subscription required)

The Market Center Blog, February 18, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#184

 

10) EU Constitution is bad for Europe and bad for America

EU Constitution is bad for Europe and bad for America. A Nationalreview.com column explains that the EU's proposed Constitution is a farcical document that will undermine Europe's future - and also create future headaches for America:

[Excerpt from National Review Online:]

A little over two centuries ago, a small group of planters, landowners, merchants, and lawyers met in Philadelphia to decide how their new country was to be run. Within four months this remarkable collection of patriots, veterans, pragmatists, geniuses, oddballs, and the inspired succeeded in agreeing the extraordinary, beautiful document that, even with its flaws, was to form the basis of the most successful nation in history. On February 28, 2002, another constitutional convention began its work, in Brussels this time, not Philadelphia. Its task was to draw up a constitution for the European Union. The gathering in Brussels was chaired by Giscard D'Estaing, no Hamilton or Madison, but a failed, one-term president of France best known for his unseemly involvement with Jean-Bedel Bokassa, the cannibal "emperor" of central Africa. Giscard's convention was packed with placemen, cronies, creeps, and has-beens to make up a body where to be called second rate would have been an act of grotesque flattery. ...Once the convention had completed the draft constitution, there was further haggling over the text by the governments of the EU member states. A final version was agreed in June 2004, and what a sorry, shabby work it is, an unreadable mish-mash of political correctness, micromanagement, bureaucratic jargon, artful ambiguity, deliberate obscurity, and stunning banality that somehow limps its way through some 500 pages with highlights that include "guaranteeing" (Article II-74) a right to "vocational and continuing training," "respect" (Article II-85) for the "rights of the elderly... to participate in social and cultural life," and the information (Article III-121) that "animals are sentient beings." On the status of spiders, beetles, and lice there is, unusually, only silence. ...And it is at this point that, rather surprisingly, the Bush administration has come into the picture. Speaking a few days ago to the Financial Times, Condoleezza Rice appeared, weirdly, to give the constitution some form of endorsement: "As Europe unifies further and has a common foreign policy - I understand what is going to happen with the constitution and that there will be unification, in effect, under a foreign minister - I think that also will be a very good development. We have to keep reminding everybody that there is not any conflict between a European identity and a transatlantic identity..." ...How can I put this nicely? Well, there is no way to put it nicely. Even allowing for the necessity to come out with diplomatically ingratiating remarks ahead of a major presidential visit to the EU, the comments from Bush and Rice are either delightfully insincere or dismayingly naïve. The project of a federal EU has long been driven, at least in part, by a profound, and remarkably virulent anti-Americanism, with deep roots in Vichy-era disdain for the sinister "Anglo-Saxons" and their supposedly greedy and degenerate culture. Throw in the poisonous legacy of soixante-huitard radicalism, then add Europe's traditional suspicion of the free market, and it's easy to see how relations between Brussels and Washington were always going to be troubled. What's more, the creation of a large and powerful fortress Europe offered its politicians something else, the chance to return to the fun and games of great power politics. ...as it represents another step forward in the deeper integration of the EU, the ratification of the constitution cannot possibly, whatever Secretary Rice might say, be good news for the U.S. How deep this integration will be remains a matter of dispute. In Euro-skeptic Britain, Tony Blair's government has denied that the document has much significance at all, but without much success. [Link to full article below:]

February 22, 2005, National Review Online, by Andrew Stuttaford, Constitutionally Indisposed:  What is the Bush administration thinking about the pending EU constitution?
http://www.nationalreview.com/stuttaford/stuttaford200502220745.asp

The Market Center Blog, February 23, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#232

 

11) Greenspan praises Adam Smith

Greenspan praises Adam Smith. Federal Reserve Board Chairman Alan Greenspan heaps strong praise on the Adam Smith, who introduced the world to economic analysis in 1776 with the publication of the Wealth of Nations. As Greenspan acknowledges, Smith's explanation of capitalism's superiority are still true today:

[Excerpt from Chairman Greenspan's remarks:]

It was left to Adam Smith to identify the more-general set of principles that brought conceptual clarity to the seeming chaos of market transactions. In 1776, Smith produced one of the great achievements in human intellectual history: An Inquiry into the Nature and Causes of the Wealth of Nations. Most of Smith's free-market paradigm remains applicable to this day. ...He concluded that, to enhance the wealth of a nation, every man, consistent with the law, should be "free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of ... other ... men." "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest." The individual is driven by private gain but is "led by an invisible hand" to promote the public good, "which was no part of his intention." This last insight is all the more extraordinary in that, for much of human history, acting in one's self-interest--indeed, seeking to accumulate wealth--had been perceived as unseemly and was, in some instances, illegal. ...there can be little doubt that the Industrial Revolution and the emergence of free-market capitalism have brought civilization to a material level that could not have been imagined two centuries ago. The late eighteenth century, when the dramatic rise in standards of living and in population began after millennia of virtual stagnation, was one of the seminal turning points of history. With few exceptions, that advance has carried forward to this day. Average global real per capita GDP has risen 1.2 percent annually since 1820, enough to double standards of living every fifty-eight years. In the same period, world population has increased sixfold. In the previous two millennia average per capita incomes barely exceeded levels required to support, at minimum subsistence, a marginally noticeable rise in population. ...The marked increase in government intervention into markets, in effect a partial reversion to mercantilism, was perhaps an inevitable response to the distress of the Great Depression. At the same time, the notions of Marx gained influence in the West, perhaps because the repressions of the Soviet Union, the major avowed practitioner of Marx, were not well known before World War II. But cracks in the facade of economic management by government emerged early in the post-World War II years, and those cracks were to widen as time passed. Britain's heavily controlled economy, a carryover from the war, was under persistent stress as it encountered one crisis after another in the early postwar decades. In the United States, unbalanced macroeconomic policies led to a gradual uptrend in the rate of inflation in the 1960s. The imposition of wage and price controls to deal with rising inflation in the 1970s proved ineffective and unworkable. The notion that the centrally planned Soviet economy was catching up with the West was, by the early 1980s, increasingly viewed as dubious, though the view was not fully discredited until the collapse of the Berlin Wall in 1989 exposed the economic ruin behind the Iron Curtain. ...The incredible insights of a handful of intellectuals of the Enlightenment--especially the Scottish Enlightenment, with Smith and Hume toiling in the environs of Kirkcaldy--created the modern vision of people free to choose and to act according to their individual self-interest. As a consequence, today we enjoy material benefits and longevity that Smith's generation could not have remotely imagined. We owe them, especially Adam Smith, a debt of gratitude that can never be repaid. [Link to full article below:]

February 6, 2005, The Federal Board Reserve, Remarks by Chairman Alan Greenspan at the Adam Smith Memorial Lecture, Kirkcaldy, Scotland, Comments on Adam Smith
http://www.federalreserve.gov/boarddocs/speeches/2005/20050206/default.htm

The Market Center Blog, February 27, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#272

 

12) President Bush praises Slovakian flat tax

President Bush praises Slovakian flat tax. In a strong statement, President Bush congratulated Slovakia's Prime Minister for his nation's 19 percent flat tax. The flat tax is just one of many pro-growth reforms that have been implemented in the former communist nation, and it is good to see that it is earning international attention. But it also is good news that US policy makers are seeing real-world examples that demonstrate that it is possible to have a simple and fair tax system. Here's what President Bush had to say:

[Excerpt from President Bush's statement:]

I complimented the Prime Minister on putting policies in place that have helped this economy grow. The most important responsibility we have at home is to make sure our people can find work. And the President put a flat tax in place; he simplified his tax code, which has helped to attract capital and create economic vitality and growth. I really congratulate you and your government for making wise decisions. Slovakia is a great example of what can happen when people are set free. And this is an exciting place to be. [Link to full article below:]

February 24, 2005, The White House, From the comments of President Bush and Slovakian Prime Minister Dzurinda
http://www.whitehouse.gov/news/releases/2005/02/20050224.html

The Market Center Blog, February 25, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#255

 

13) Investor's Business Daily urges rejection of UN treaty.

Plagued by scandals and rife with anti-American, anti-market ideology, the United Nations is hardly the type of organization that should be given power over US companies and the world's oceans. But that is exactly what will happen if the US ratifies the Law-of-the-Sea treaty. The Bush Administration inexplicably is supporting this bad proposal, perhaps because the White House thinks it will appease critics abroad, but this is not an adequate reason to ratify a bad agreement:

[Excerpt from IBD:]

During her confirmation hearings, Secretary of State Condoleezza Rice was asked a question that got lost in the Barbara Boxer brouhaha: Did the administration favor the ratification of the Law of the Sea Treaty, or LOST? Rice said the administration "would certainly like to see it pass as soon as possible." Assuming she was authorized to say that by President Bush, who courageously "unsigned" the treaty creating the International Criminal Court because it would infringe on U.S. sovereignty and rights of American citizens, the question is why? ...The Convention on the Law of the Sea would do to our maritime activities -- military and economic -- what the ICC would have done to our system of criminal justice: place it under the thumb of a supranational body, in this case the discredited and corrupt U.N. ...LOST would also crimp our use of naval power. Signatory Communist China contends, for example, that the treaty bans an initiative under which we can stop and search ships on the high seas suspected of transporting WMD on behalf of terrorists. Who'd decide such a dispute? An international court, of course, specifically a Law of the Sea Tribunal with power to compel changes in our military and economic policies. The likes of Sierra Leone and Sri Lanka would have a veto over our use of the seas. When John Kerry declared that U.S. actions be subjected to a "global test," Bush rightly responded that our national security was too important to be left to bodies such as the United Nations Security Council. So why the administration support for LOST? Deep-six this treaty, Mr. President. [Link to full article below:]

February 10, 2005, Investor's Business Daily, LOST At Sea
http://biz.yahoo.com/ibd/050210/issues01_1.html

The Market Center Blog, February 19, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#203

The Market Center Blog, February 11, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#115

 

14) Higher tax rates mean less entrepreneurship

The Small Business Administration should not exist, but at least its Office of Advocacy understands the link between tax rates and entrepreneurial activity. Or at least it contracts with economists who understand this relationship. Bruce Bartlett called our attention to this new paper (http://www.trendmacro.com/a/talkingpoints/default.asp):

[Excerpt from SBA study:]

Marginal tax rates have significant effects on entrepreneurial entry and exit, suggesting that the formation and closure of small enterprises are in part determined by the handling of income from these activities in the tax code. The findings show that the level of entrepreneurial entry, exit, and duration react differently to changes in marginal rates on wage-and-salary and entrepreneurial income. Specifically, lower marginal rates on entrepreneurial income encourage more entrepreneurial entry and lower rates of exit, and lengthen the duration of spells of activity. Similarly, higher marginal rates on wage-and-salary income also increase entrepreneurial activity as more workers switch from wage-and-salary work to starting their own business. Importantly, however, the magnitude of the entry, exit, and duration effect is larger for marginal tax rates on entrepreneurial income than on wage-and-salary income. [Link to full article below:]

March 2005, Office of Advocacy, the United States Small Business Administration, By Donald Bruce and and Tami Gurley, Taxes and Entrepreneurial Activity: An Empirical Investigation Using Longitudinal Tax Return Data
http://www.sba.gov/advo/research/rs252tot.pdf

The Market Center Blog, March 6, 2005
http://www.freedomandprosperity.org/blog/2005-03/2005-03.shtml#063

 

15) European Commission subverts democracy with pro-Constitution propaganda

European Commission subverts democracy with pro-Constitution propaganda. The "information" campaign being funded by Brussels is a thinly-veiled effort to encourage ratification of the EU's statist Constitution. This adds insult to injury. Europe's taxpayers are paying money to politicians so that politicians can seek approval of a document that will increase the power of politicians:

[Excerpt from Eu Observer:]

The European Commission is this year set to pump around eight million euro into information campaigns on the EU Constitution. The money will be allocated according to various factors, including how much citizens know about the EU and how the Constitution will be ratified in a certain member state. The Commission argues that the extra funds will help national governments to raise awareness of the new treaty among their citizens. ...In what is dubbed a "second wave" of allocation, three million euro is to be distributed among the member states according to special criteria - whether these criteria are met will be judged by the Commission. ...Member states ratifying the Constitution by popular poll are also expected to receive more from the common coffers. [Link to full article below:]

February 15, 2005. EUObserver.com, Commission to spend millions on Constitution information campaigns
http://euobserver.com/?aid=18416&rk=1

The Market Center Blog, February 18, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#181

 

16) Economic benefits of Social Security reform

Economic benefits of Social Security reform. Nobel Laureate Gary Becker explains that personal retirement accounts have important economic benefits, primarily because incentives to engage in productive behavior will increase when a tax-and-transfer redistribution scheme is replaced by private saving:

[Excerpt from WSJ:]

It is true, as some critics observe, that there is no magical gain in privatizing Social Security, since all systems have to provide incomes for retired persons. By that token, however, there's no gain in privatizing a government steel plant either, since steel still has to be produced, too. Yet there are very good reasons -- with roots in political economy -- to privatize steel. And as with steel (and the like), there are excellent reasons for a privatized individual-account Social Security system. …Pay-as-you-go systems are in trouble in good part because of changes in the number of workers per retiree, but also because of politically determined decisions that altered the system from a saving system for old age to an inefficient and complicated welfare system for some of the elderly. Despite the growing mental and physical health of older persons, political pressures in all nations with such systems forced a restructuring of social security payouts to encourage retirements at earlier ages than even the originally established 65. In the U.S., many retirements occur at 62 or earlier, while Italians retire frequently while in their mid-50s. Very early retirement is common in Germany, Belgium and other European countries. In addition, the link between contributions and benefits has been separated, so that each additional dollar contributed in taxes pays no more than about 40 cents in additional benefits. Hence, the social security system has evolved into two largely independent systems: a sizeable tax on wages, starting with the first dollar earned; and retirement benefits that are "guaranteed" by the government. There is only a modest link from an individual's accumulated tax payments on his earnings to these "guarantees." [Link to full article below:]

February 15, 2005, The Wall Street Journal, By Gary Becker, A Political Case for Social Security Reform
http://online.wsj.com/article/0,,SB110843031022454778,00.html?mod=opinion&ojcontent=ot ep   (subscription required)

The Market Center Blog, February 15, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#155

The Market Center Blog, February 19, 2005
http://www.freedomandprosperity.org/blog/2005-02/2005-02.shtml#194

 

Best regards,

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

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