CF&P E-mail Update, October 29, 2004

The Market Center Blog

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Center for Freedom and Prosperity's E-mail Update

1) Coalition for Tax Competition Says American Taxpayers Should Not Subsidize OECD's Anti-Market Activities

2) OECD Funding Under Attack for Anti-American Tax Policies

3) Senior Member of W&M Committee Urges Withdrawal of IRS's Interest Reporting Regulation

4) Wall Street Journal trumpets liberalizing impact of jurisdictional competition

5) Tax Haven Policy Helps United States Attract Record Levels of Foreign Capital

6) Pro-Growth Harmonization? In a WSJ editorial, Dan Mitchell explains that it is possible to have a harmonized tax base while still preserving tax competition.

7) 2004 Nobel Prize Winner for Economics Explains Importance of Low Tax Rates

8) Dan Mitchell:  Information exchange is an indirect form of tax harmonization

9) Dan Mitchell:  UN Global Tax Scheme Unmasked

10) States with no income tax rank as most competitive

11) Richard Rahn:  Kerry's tax plan spares the rich, but punishes those who want to become rich

12) Kerry tax plan will hurt US competitiveness

13) Glenn Hubbard: Taxing the "rich" punishes everyone else

14) Veronique De Rugy: Politicians putting pork before security

15) Government programs discourage saving and hurt economic growth

16) Dan Mitchell applauds President Bush's Defense of U.S. Sovereignty

17) As predicted, EU savings tax directive was just the first step: Bureaucrats in Brussels planning new attack on low-tax jurisdictions

 

1) Coalition for Tax Competition Says American Taxpayers Should Not Subsidize OECD's Anti-Market Activities

The Center for Freedom and Prosperity, joined by more than 30 of the country's largest and most influential free-market groups, announced opposition to U.S. subsidies for the Paris-based Organization for Economic Cooperation and Development (OECD). The organizations, which participate in a Coalition for Tax Competition, shared their views with Senator Judd Gregg of New Hampshire and Congressman Frank Wolf of Virginia. Both lawmakers serve as Chairmen of their respective Appropriations Subcommittees in charge of funding Commerce, State and Justice. Most OECD funding comes from the Department of State.

The letter to Chairmen Gregg and Wolf stated, "Even if we had a balanced budget, OECD funding would deserve scrutiny. The Paris-based bureaucracy increasingly promotes economic policies that are contrary to America's interests. We are particularly disturbed that the OECD has a 'harmful tax competition' project that seeks to hinder the flow of jobs and capital to low-tax nations. And since the United States is the world's biggest beneficiary of international capital flows and tax competition, it certainly seems ill advised for the American taxpayer to finance this effort." Full text of the letter is below. [Link to full letter and press release below:]

Press release on Coalition letter:
http://www.freedomandprosperity.org/press/p10-21-04/p10-21-04.shtml

Link to the full text of the Coalition for Tax Competition Letter:
http://www.freedomandprosperity.org/ltr/ctc-gregg-wolf/ctc-gregg-wolf.shtml

PDF Version of Coalition Letter:
http://www.freedomandprosperity.org/ltr/ctc-gregg-wolf/ctc-gregg-wolf.pdf

October 28, 2004, Tax-News.com, by Mike Godfrey, Coalition For Tax Competition Urges US Government To Cut OECD Funding
http://www.tax-news.com/asp/story/story.asp?storyname=17742

 

2) OECD Funding Under Attack for Anti-American Tax Policies

[Excerpt from Tax Notes International's Worldwide Tax Daily:]

... Dan Mitchell, an economist at the conservative Heritage Foundation think tank in Washington, and Andrew Quinlan, president of the Center for Freedom and Prosperity, along with a contingent of pro-market tax groups, have been lobbying the U.S. government for several years to take the OECD to task for what Mitchell calls its "anti-U.S. agenda." Nevertheless, the Senate committee's action took them all by surprise.

"Our goal was to influence whatever happens next year in terms of the budget introduced by the administration and the outcome of the appropriations process," Mitchell said. "But because there's been such receptivity to our message even without us asking, things have started moving along much faster than we thought, and that's why we have this Senate committee language."

Mitchell said. ". . . the whole purpose is to send a shot across the bow and let the OECD know that we're getting a little bit tired that they continue to push these antimarket initiatives."

... If the language restricting U.S. funding for the OECD survives in the appropriation bill that is eventually enacted, the potential resulting loss of 25 percent of its funding could be devastating to the OECD. "The OECD does a lot of good things," Quinlan said, "but the people we talked to [in Congress] feel the [OECD's] Fiscal Affairs Committee has gone rogue and needs to be pulled back."

Link to larger excerpt of article:
http://www.freedomandprosperity.org/Articles/wtd10-08-04/wtd10-08-04.shtml

Contact Tax Notes International to get full copy of the article at:
http://www.taxanalysts.com/www/website.nsf/Web/TaxNotesInternational?OpenDocumen t

 

3) Senior Member of Ways & Means Committee Urges Withdrawal of IRS's Interest Reporting Regulation: IRS Should Propose Legislation if it wants to Overturn Existing Law

Florida Congressman Clay Shaw, the third most senior Republican on the Committee on Ways and Means, and chairman of the Social Security Subcommittee, urges Treasury Secretary John Snow to withdraw an Internal Revenue Service proposed regulation that requires banks to report deposit interest paid to nonresident aliens.  Excerpts from Chairman Shaw's letter:

Contrary to America's National Interests

This proposed rule is contrary to America's national interests and could lead to substantial capital flight from US banks. The Mercatus Center, for instance, estimates the regulation if implemented would cause $87 billion of capital to flee the US economy.

Threatens America's Economic Recovery

This is an unacceptable risk and could threaten the nation's economic recovery. My state of Florida would be particularly impacted, especially if the IRS follows through on its reported intention to apply the regulation to depositors from Latin America.

Overturns 83 Years of Existing Law

This regulation also should be withdrawn since it seeks to use regulatory decree to overturn 83 years of existing law. If the IRS truly believes that foreign governments should be able to double-tax income earned in America, it should submit legislation rather than pursue a policy change through the regulatory process. [Full text of letter below:]

Link to Rep. Shaw's letter:
http://www.freedomandprosperity.org/ltr/shaw-irs/shaw-irs.shtml

PDF version of Shaw letter:
http://www.freedomandprosperity.org/ltr/shaw-irs/shaw-irs.pdf

More information on the regulation:
http://www.freedomandprosperity.org/update/irsreg/irsreg.shtml

Complete list of opposition to proposed regulation:
http://www.freedomandprosperity.org/update/irsreg/against-irsreg.pdf

Summary of letter:
http://www.freedomandprosperity.org/press/p10-13-04/p10-13-04.shtml

 

4) Wall Street Journal trumpets liberalizing impact of jurisdictional competition

George Melloan of the Wall Street Journal notes that competition between nations plays a critically important role in promoting good economic policy. It is encouraging that so many experts - both inside and outside of government - understand the value of competition in the United States, but it is still worrisome that international bureaucracies like the European Union and the Organization for Economic Cooperation and Development prefer statist policies such as tax harmonization

[Excerpt from Wall Street Journal article:]

Just as U.S. states once did -- and still do -- national governments are increasingly forced to adopt policies that recognize the need to compete with other governments. This competition among governing entities to make their jurisdictions good hosts to business is fostering global economic development in much the same way that it once fostered the growth of the now-robust U.S. economy. As with other organizations, governments need competition to force greater efficiency. It also helps control the natural tendency -- dating back to the larcenous kings of centuries ago -- to pry open the cash boxes of the private sector. That's why globalization is hated by socialists and other worshipers of state ascendancy the world over. They don't like these constraints but know that the penalty for resisting them is severe. [Link to full article below:]

October 26, 2004, The Wall Street Journal, By George Melloan, In Economic Terms at Least, It's a Good World
http://online.wsj.com/article/0,,SB109875358196655508,00.html?mod=opinion (subscription required)

 

5) Tax Haven Policy Helps United States Attract Record Levels of Foreign Capital

New U.S. Treasury data shows that America's low-tax advantage and tax haven policies have helped attract $2.5 trillion of foreign capital, including more than $1 trillion from Caribbean banking centers. [Treasury link below:]

October 2004, U.S. Treasury, U.S. Liabilities to Foreigners Reported by U.S. Banks, Brokers and Dealers with Respect to Selected Countries
http://www.treas.gov/tic/exhibitsa-d.pdf

 

6) Pro-Growth Harmonization? In a Wall Street Journal editorial, Dan Mitchell explains that it is possible to have a harmonized tax base while still preserving tax competition.

[Excerpt from the Wall Street Journal:]

Multinational companies in Europe enjoy the ability to easily operate in 25 EU nations. That's the good news. The bad news is that have to fill out 25 different tax returns for those 25 different nations. This is a paperwork nightmare, and dealing with varying tax rates is just the tip of the iceberg.

The biggest challenge is that every nation has a different measure of income. This creates a huge compliance burden since corporate tax law is far more complicated than individual tax law. Moreover, this system misallocates resources since many productive people in a firm spend their time and energy preparing multiple tax returns using multiple definitions of taxable income. Company officials also must engage in extensive tax planning to ensure that only one government is taxing each unit of income.

Even though the business community is justifiably concerned that European politicians want to thwart tax competition in order to facilitate higher taxes, this convoluted system of multiple tax returns based on different rules is so frustrating that a number of industry representatives have decided that some form of harmonization of the "tax base" is the lesser of two evils. In other words, the thirst for simplification is so strong that many companies are willing to let European politicians choose a universal definition of taxable income. This would not necessarily eliminate the need to file 25 tax returns, but at least it would greatly simplify the process.

Companies may get their wish. High-tax nations like Germany and France favor a common tax base as part of their overall pro-harmonization efforts, and the European Commission already has endorsed tax-base harmonization and may put forth a proposal later this year. [Link to full article below:]

September 6, 2004, The Wall Street Journal, By Daniel J. Mitchell, The Right Way to Harmonize Taxes
http://www.freedomandprosperity.org/Articles/wsje09-06-04/wsje09-06-04.shtml

 

7) 2004 Nobel Prize Winner for Economics Explains Importance of Low Tax Rates

Writing in the Wall Street Journal, Edward Prescott, 2004 Nobel Prize winner for economics, reviews international evidence to demonstrate that high tax rates encourage unemployment and drive workers into the underground economy. He endorses recent tax rate reductions, and urges further tax rate reductions to bring the top rate down to less than 30 percent.

[Excerpt from Wall Street Journal article:]

Here's a startling fact: Based on labor market statistics from the Organization for Economic Cooperation and Development, Americans aged 15-64, on a per-person basis, work 50% more than the French. Comparisons between Americans and Germans or Italians are similar. What's going on here? What can possibly account for these large differences in labor supply? It turns out that the answer is not related to cultural differences or institutional factors like unemployment benefits, but that marginal tax rates explain virtually all of this difference. ...Let's take another look at the data. According to the OECD, from 1970-74 France's labor supply exceeded that of the U.S. Also, a review of other industrialized countries shows that their labor supplies either exceeded or were comparable to the U.S. during this period. Jump ahead two decades and you will find that France's labor supply dropped significantly (as did others), and that some countries improved and stayed in line with the U.S. Controlling for other factors, what stands out in these cross-country comparisons is that when European countries and U.S. tax rates are comparable, labor supplies are comparable. ...I would add another data set for certain countries, especially Italy, and that is nontaxable market time or the underground economy. Many Italians, for example, aren't necessarily working any less than Americans -- they are simply not being taxed for some of their labor. Indeed, the Italian government increases its measured output by nearly 25% to capture the output of the underground sector. Change the tax laws and you will notice a change in behavior: These people won't start working more, they will simply engage in more taxable market labor, and will produce more per hour worked. ...we should stop focusing our attention on the recent tax cuts and, instead, start thinking about tax rates. And that means that we should roll back the 1993 tax rate increases and re-establish those from the 1986 Tax Reform Act. Just as they did in the late 1980s, and just as they would in Europe, these lower rates would increase the labor supply, output would grow and tax revenues would increase. ...The important thing to remember is that the labor supply is not fixed. People, be they European or American, respond to taxes on their income. Just one more example: In 1998, Spain flattened its tax rates in similar fashion to the U.S. rate cuts of 1986, and the Spanish labor supply increased by 12%. In addition, Spanish tax revenues also increased by a few percent. [Link to full article below:]

October 21, 2004, The Wall Street Journal, By Edward C. Prescott, Why Do Americans Work More Than Europeans?
http://online.wsj.com/article/0,,SB109830788286551061,00.html?mod=opinion (subscription required)

 

8) Dan Mitchell: Information exchange is an indirect form of tax harmonization

[Excerpt from TechCentralStation.com:]

Tax competition exists when people can reduce tax burdens by shifting capital and/or labor from high-tax jurisdictions to low-tax jurisdictions. This migration disciplines profligate governments, largely because politicians realize that they will have less money to redistribute if they scare away the geese that lay the golden eggs. Tax competition also rewards nations that lower tax rates and engage in pro-growth tax reform, thus creating a virtuous global contest for better tax policy. High-tax nations despise this liberalizing process, and they advocate tax harmonization so that taxpayers are subject to similar tax rates no matter where they work, save, shop, or invest. The geese are less likely to flee, after all, if all nesting sites are equally unattractive.

The good news is that tax competition has been winning, both substantively and politically. On the substance side, major reforms like the Reagan/Thatcher tax cuts, the Irish corporate tax rate reduction, and the Russian flat tax have compelled other nations to implement similar "supply-side" changes -- albeit often with great reluctance. On the political side, the tax harmonization schemes of the European Union and the Organization for Economic Cooperation and Development have been either defeated or stymied. Perhaps even more important, high-tax nations failed in their efforts to stick anti-tax competition provisions in the proposed EU Constitution.

But this silver cloud may have a dark lining. Having failed to impose tax harmonization through the front door, politicians from high-tax nations are trying to sneak in the back door. Specifically, they want low-tax nations to act as deputy tax collectors by collecting the private financial data of nonresident investors and then sharing that information with foreign tax authorities. The foreign tax authorities, not surprisingly, want this information so they can tax flight capital. Having failed in their efforts to explicitly harmonize tax rates, both the European Union and the Organization for Economic Cooperation and Development are now advocating this policy of "information exchange." {link to full article below:]

October 20, 2004, Tech Central Station, by By Daniel J. Mitchell, Backdoor Plan,
http://www.techcentralstation.com/102004A.html

 

9) Dan Mitchell: UN Global Tax Scheme Unmasked

[Excerpt from Washington Times article:]

At the risk of stating the obvious, the United Nations hasn't been America's friend in recent years.

It has obstructed the war on terrorism. It has honored corrupt dictatorships with seats on its Human Rights Commission. Its budget is riddled with waste and fraud, and the United States pays the lion's share of the tab. And it serves as a platform for anti-American rhetoric, much of it from governments that receive U.S. foreign aid.

But this situation may be about to worsen. Led by France and Brazil, the United Nations now wants to impose global taxes. At a recent U.N. summit meeting, politicians from more than 100 nations endorsed a $50 billion global tax to finance even more foreign aid. Not surprisingly, the bureaucrats have many different schemes to fleece the world's taxpayers.

One of the most popular ideas is a tax on financial transactions. This would have an especially adverse effect on the United States, which has the world's largest financial system.

Americans probably don't want to pay a tax to the U.N. every time they use their ATM cards, but that would be only the tip of the iceberg. U.N. kleptocrats also are considering a tax on energy use. So if you use your ATM card to get money to fill your car with gas, you might pay twice. But don't let this upset you too much, because if you go online to complain to your member of Congress, you could pay another tax -- since taxing Internet use is another U.N.-contemplated global tax. [Link to full article below:]

October 12, 2004, The Washington Times, By Daniel J. Mitchell, An OPEC for politicians
http://www.washingtontimes.com/commentary/20041011-085221-7961r.htm

 

10) States with no income tax rank as most competitive

The Tax Foundation has just released a major study comparing state tax systems. Not surprisingly, the states without income taxes dominate the top 10. Indeed, the seven most competitive states do not tax income. The least competitive states, not surprisingly, are the ones with high-rate income taxes.

[Excerpt from Tax Foundation study:]

The ten states that began 2004 with the most business-friendly tax systems are: South Dakota, Florida, Alaska, Texas, New Hampshire, Nevada, Wyoming, Colorado, Washington and Oregon. "Nearly all of the best states raise sufficient revenue without imposing at least one of the three major state taxes-sales taxes, personal income taxes and corporate income taxes," said Hodge. Four of the top 10-Alaska, South Dakota, Washington and Wyoming-have only one of the three. The ten states with the least hospitable business tax climates are: Hawaii, New York, Minnesota, West Virginia, Rhode Island, Vermont, Kentucky, Arkansas, Maine and Wisconsin.

The worst state tax codes tend to have: complex, multi-rate corporate and individual income taxes with above-average tax rates; above-average sales tax rates that don't exempt business-to-business purchases; complex, high-rate unemployment tax systems; and high overall state tax collections with few tax or expenditure controls. [Link to full study below:]

October 14, 2004, Tax Foundation, Study Reveals Which States Have Business-Friendly Tax Climates, Which Don't
http://www.taxfoundation.org/sbtci.html

 

11) Richard Rahn:  Kerry's tax plan spares the rich, but punishes those who want to become rich

Richard Rahn writes in the Washington Times that Senator Kerry's tax plan would have only a very modest impact on the ultra-wealthy. Those seeking to climb the economic ladder, by contrast, would be confronted by significantly higher tax rates.

[Excerpt from Richard Rahn's article:]

According to an analysis by the Argus Group, a well respected tax law and economics firm, the Kerrys' average tax rate would only increase by 1.8 percentage points to 15.2 percent under the senator's plan, while many small business people would see their average rate rise by 4.0 percentage points, resulting in effective rates as high as 35 to 40 percent... As Mr. Kerry's own tax situation shows, he is not proposing increased taxes on those who are already rich - through inheritance, hard work, luck or marrying a rich woman - but is proposing increasing taxes on those who are trying to become rich. His plan proposes to make it more difficult for people to join his club of the very wealthy. If you are already rich, you can tax shelter much of your income, but if you have little in the way of assets, it is almost impossible to shelter your earnings from taxes. Mr. Kerry's running mate, Sen. John Edwards, also shares this tax hypocrisy. Last year, Mr. and Mrs. Edwards paid an average tax rate of only 5.1 percent on their reported $434,000 of income, or less than one-third of what the average taxpayer pays.  [Link to full article below:]

October 27, 2004, The Washington Times, By Richard W. Rahn, Tax hypocrisy
http://www.washingtontimes.com/commentary/20041026-090701-1395r.htm

Recent Richard Rahn op-eds:

October 19, 2004, The Washington Times, By Richard W. Rahn, How to deal with evil
http://www.washingtontimes.com/commentary/20041018-093520-2036r.htm

October 7, 2004, The Washington Times, By Richard W. Rahn, Taxing questions . . . and misfires
http://www.washingtontimes.com/commentary/20041006-101945-8967r.htm

October 2, 2004, The Washington Times, By Richard W. Rahn, TV news: blind to market?
http://www.washingtontimes.com/commentary/20041001-084112-6280r.htm

September 23, 2004, The Washington Times, By Richard W. Rahn, Consent of the governed
http://www.washingtontimes.com/commentary/20040922-091143-1836r.htm

September 16, 2004, The Washington Times, By Richard W. Rahn, Taxes, truth and CBS
http://www.washingtontimes.com/commentary/20040915-090154-6603r.htm

September 9, 2004, The Washington Times, By Richard W. Rahn, Out to lunch at Treasury?
http://www.washingtontimes.com/commentary/20040908-085554-6733r.htm

 

12) Kerry tax plan will hurt US competitiveness

Senator Kerry's tax scheme has some major drawbacks, including higher marginal tax rates on entrepreneurs and investors. Another significant shortcoming is his plan to increase the level of double-taxation on US companies trying to compete in global markets. The Bureau of National Affairs reports that multinational firms are warning that this would mean job losses in America:

[Excerpt from BNA:]

A coalition of 26 large U.S. multinational companies Sept. 23 argued that a proposal by Democratic presidential nominee Sen. John Kerry (Mass.) to eliminate the ability of companies to defer payment of U.S. taxes on foreign income would result in the loss of domestic jobs. The Coalition for Fair International Taxation cited a study by Dartmouth University professor Matt Slaughter that concluded that, for every job that U.S.-based global employers create in foreign markets, almost two are established within U.S. borders. "Million of good U.S. jobs depend on American companies being able to compete with foreign-based companies to serve consumers in markets around the world," the group said. ...The group said the imposition of the U.S. rate of tax on foreign earnings of U.S. companies would leave them at a competitive disadvantage in the world marketplace. "Because our foreign competitors do not pay this heaving burden in these foreign markets, U.S. companies would be left to make up the difference by raising prices or reducing other costs," CFIT said. "This is a recipe for cutting growth and jobs in the United States--precisely the wrong policy."

September 30, 2004, Bureau of National Affairs, By Katherine M. Stimmel, Multinational Group Criticizes Kerry Proposal To End U.S. Tax on Foreign Income Deferral
http://pubs.bna.com/ip/BNA/der.nsf/is/a0a9w4j1y0   (subscription required)

 

13) Glenn Hubbard: Taxing the "rich" punishes everyone else

High tax rates on personal and business income discourage job-creation and economic growth. Glenn Hubbard of Columbia University explains that this is why good tax policy is especially important to improve the lives of those at the bottom of the economic ladder.

[Excerpt from the Wall Street Journal:]

Tax policy can play a significant role in encouraging -- or discouraging -- entrepreneurial risk-taking. It is startling how many entrepreneurs starting a business are subject to the individual income tax (as sole proprietorships, partnerships, or S corporations). Because entrepreneurship is a risky undertaking, prospective entrants evaluate possible after-tax returns from success and failure in deciding whether to start a business. The income tax weighs in because the government is not an equal partner in success and failure. While the government does not grant a complete offset for business losses, the progressive income tax imposes a "success tax" on a good outcome. If this success tax is high enough, a prospective entrepreneur may forego a risky venture to continue working for someone else. How important is this effect. Using data on U.S. households, William Gentry and I found that the "success tax" has a potent negative effect on entry into entrepreneurship. We estimated that President Clinton's 1993 tax increase, which raised substantially the top individual income-tax rate, reduced the probability of entry for upper-middle-income households by as much as 20%. Should Mr. Kerry reverse the president's tax cuts, that estimate suggests an important hit to new entrepreneurial activity. ...How many new jobs do entrepreneurs create for others? Because, again, the individual income tax applies to many starting business owners, changes in tax rates affect the cost of hiring additional employees. In an important paper, Robert Carroll (now deputy assistant secretary of the Treasury), Douglas Holtz-Eakin (now the director of the Congressional Budget Office), Mark Rider (now with Georgia State University, formerly with Treasury's Office of Tax Analysis), and Harvey Rosen (now a member of the White House Council of Economic Advisers) found that higher taxes on business owners lower the probability that their firms will hire workers. Tax increases also cause those entrepreneurs to decrease their wage payments to workers. [Link to full article below:]

September 8, 2004, The Wall Street Journal, By R. Glenn Hubbard, Let's Talk Taxes
http://online.wsj.com/article/0,,SB109459826041011771,00.html?mod=opinion (subscription required)

 

14) Veronique De Rugy: Politicians putting pork before security

Veronique de Rugy's Washington Times column explains that big boosts in homeland security spending are not making America safer because politicians are allocating the money based on political criteria.

[Excerpt from the Washington Times:]

On the rare occasions that presidential candidate John Kerry talks about homeland security, he criticizes President Bush for not spending enough money on it. This is surprising because proposed funding of homeland security for fiscal year 2005 is $47 billion, a staggering 180 percent increase since 2001. Mr. Kerry's knee-jerk instinct to spend more is hardly unusual. Too many politicians in Washington focus on the level of spending and very few bother considering the quality of spending. ...much of homeland security money is spent on grants to state and local governments that won't have any impact on terrorism. The formula used by DHS to spread federal funds provides every state with a guaranteed minimum amount regardless of risk or need. So, states in rural areas receive a disproportionate amount of grant money. Incredibly, among the top 10 money-receiving states, only the District of Columbia also appears on a list of the top 10 most at-risk places. And while state officials are fighting over who will get the biggest share of the security money, reports demonstrate that they are spending these grants on pet projects that have little to do with homeland security. The District used the region's first wave of DHS aid to fund leather jackets for its police force, a computerized car towing system from the mayor's wish list and summer jobs programs. ...Spreading pork, opposing rational cost-benefit analysis and creating unionized federal employees won't make us safer. Is it too much to ask that homeland security spending actually have some connection with policies that reduce the threat of terrorism? Is creating union jobs more important than having the best screeners possible? Let's hope Mr. Kerry is forced to answer these questions during the second presidential debate.

October 6, 2004, Washington Times, By Veronique de Rugy, What's Kerry's plan?
http://washingtontimes.com/op-ed/20041005-095953-7690r.htm

 

15) Government programs discourage saving and hurt economic growth

One of the most dangerous economic myths is the notion that people need to "spend" money on consumer goods to keep the economy going. This is nonsensical. Money that is saved is not lost; instead it is spent on investment goods rather than consumer goods - and this helps boost long-run growth (and long-run consumption). A Techcentralstation.com article explains that saving is good, but warns that government programs are undermining incentives to save.

[Excerpt from Tech Central Station article:]

Social Security has a built-in bias against saving. This was deliberate, based on a Keynesian distrust of thrift. Economists no longer believe that saving is contractionary. Government's largest program is designed to implement a theory that is decades out of date. Other government policies that punish thrift reflect even older prejudices. Because we tax income rather than consumption, a worker who earns $50,000 a year and saves $10,000 will end up paying much more in taxes over her lifetime than a worker who earns $50,000 a year and spends all of it. The income tax reflects Marxist theories that saving is done by a capitalist "class" that exploits workers. ...What Gross is suggesting is that the United States is headed for a government-dominated economy. The loss of economic dynamism and personal freedom under such a scenario would be tragic. The European scenario can be avoided if the American people can be persuaded to maintain financial independence through prudent saving. The more that people save for contingencies such as job transitions, retraining, college education, retirement, and health care, the lower will be the tax burden on the hard-working and the thrifty. Economists are coming around to the view that people should not be encouraged to spend freely in order to "keep the economy strong." Instead, particularly because of longer lifespans and more spending on health care, increased personal savings are required both to strengthen our economy and to maintain a system of individual liberty. [Link to full article below:]

October 5, 2004, Tech Central Station, By Arnold Kling, Saving Freedom
http://www.techcentralstation.com/100504C.html

 

16) Dan Mitchell applauds President Bush's Defense of U.S. Sovereignty

[From the Washington Post:]

"I like the [president's] muscular defense of U.S. sovereignty," says Daniel Mitchell, senior fellow at Heritage. "Kyoto. Tax harmonization proposals. These ideas are coming from countries and international bureaucracies that have less of a laissez-faire approach than we do and view international agreements as a way to let governments rather than markets allocate resources."

October 17, 2004, The Washington Post, By Dan Morgan, Even Bush Submits To These Global Tests
http://www.washingtonpost.com/wp-dyn/articles/A37155-2004Oct15.html

 

17) As predicted, EU savings tax directive was just the first step: Bureaucrats in Brussels planning new attack on low-tax jurisdictions

Using a combination of bribes and extortion, the bureaucrats in Brussels are putting together a new campaign against so-called tax havens. This is not a surprise. The EU's statist politicians always viewed the savings tax directive as just the first of many steps in a long effort to destroy tax competition.

[Excerpt from This is London:]

Britain's Caribbean tax havens are set to come under renewed pressure from Brussels to lift their jealously guarded banking secrecy. In a document on corporate and financial malpractice, the European Commission has called time on the opaque financial laws of such offshore investment magnets as the British Virgin Islands and the Cayman Islands. ...It suggests introducing banking transparency into existing EU trade and aid deals with African, Caribbean and Pacific countries and territories. This would give Brussels the power to use such things as banana quotas and development grants as bargaining chips over access to financial information. Brussels is also offering 'economic support' to help 'co-operative' territories that open up their financial sectors to scrutiny.

 

Best regards,

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

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