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CF&P E-mail Update, November 14, 2005

Center for Freedom and Prosperity's E-mail Update

1) Remembering the 25th anniversary of Reagan's election

2) Article in leading Australian paper slams OECD's anti-tax competition campaign

3) Europe's house-of-cards is tumbling down

4) Senator Coleman warns against U.N. scheme to control the Internet

5) Leading House Republican blames Tax Reform Panel for missed opportunity

6) Tax reform means a bigger economy

7) The gap between America and Europe grows even larger

8) European politicians seeking more taxes - and tax harmonization - for alcohol

9) Richard Rahn: Not all of Europe is on the wrong side

10) Anti-money laundering laws are a stupid way to fight terrorism

 

1) Remembering the 25th anniversary of Reagan's election

Young people are lucky that they did not have to endure the 1970s. America was in a tailspin as big government politicians like Nixon and Carter helped drive the economy into the gutter. Many people believed that the United States was suffering an inevitable and irreversible decline. But then Ronald Reagan burst on the scene, and he single-handedly rescued America. Two columns, one by James Pinkerton on Techcentralstation.com and one by Newt Gingrich and Craig Shirley at aei.org, explain how lucky America was on November 4, 1980.

[Excerpt from TCS Daily]

...for most of the American elite, the "stagflation" of the 70s was viewed not as a decade-long dip in the economy, but instead as the new and permanently lower plateau of economic performance. ...Reagan knew better. ...the supply-side tax cuts kicked in, combined with other Reaganite reforms, including spending cuts, the deregulation of the oil industry, and tight money. The economy came roaring back... the gross domestic product of the country, adjusted for inflation, grew by more than 30 percent in Reagan's eight years in office. Yet at the same time, in contravention of gloom-and-dooming Phillips-Curving Keynesians, unemployment fell by a quarter during the Reagan 80s, and inflation fell by more than two-thirds. And of course, the economy has been booming ever since. [Link to full article below:]

[Excerpt from the Union Leader]

...it is hard to remember just how bad things were shortly before former Gov. Reagan became President. In 1980, President Jimmy Carter and the liberal Democrats had led America into a series of disasters. Inflation was at 18 percent. Interest rates peaked at 22 percent. Unemployment was growing toward the deepest recession since the Depression. The Soviet Union was on offense in Afghanistan, Angola, Mozambique, Grenada, Nicaragua and El Salvador. Intellectuals wrote about the death of democracy. There were gasoline lines everywhere and people were told they should get used to rationing. President Carter addressed the nation and suggested our future was inherently limited, malaise was a condition we had brought on ourselves, and that we should get used to lowering our expectations. ...Today's Republican Party would do well to regain the firm, courageous, "no pale pastels" clarity which was the hallmark of Reagan's leadership. They would also do well to remember that Reaganism is about real change both at home and overseas and that real change requires upsetting the entrenched interests feeding at the public trough. [Link to full article below:]

November 4, 2005, TCS Daily, By James Pinkerton, Happy Anniversary, Reaganites! http://www.techcentralstation.com/110405E.html

November 1, 2005, Union Leader (Manchester, New Hampshire), By Newt Gingrich, Craig Shirley, Republicans Need to Relearn Lessons of the Reagan Revolution

http://www.aei.org/publications/pubID.23415/pub_detail.asp

 

2) Article in leading Australian paper slams OECD's anti-tax competition campaign

Dan Mitchell of the Heritage Foundation explains that the Organization for Economic Cooperation and Development's "harmful tax competition project" means the Paris-based bureaucracy is siding with high-tax welfare states over global economic growth. Over the next 12-days, Dan and I will be discussing this topic in detail at conferences in Melbourne, Sydney and Wellington, New Zealand (link: http://www.cis.org.au/). Here is a short excerpt from Dan's column on the OECD:

[Excerpt from Australian Financial Review]

The OECD was created to be a market-oriented think tank for 30 of the world's industrialised nations, but the international bureaucracy is now controlled by countries such as France and Germany and is pursuing tax-harmonisation policies designed to stem the flight of capital from high-tax countries to low-tax countries. …The latest chapter in this battle will take place in Melbourne next week. …The OECD is hosting a global forum so its bureaucrats can team up with representatives from tax authorities of member countries, including Australia , in an effort to convince so-called tax havens to act as deputy tax collectors for high-tax nations. (It is worth noting that this project is riddled with hypocrisy since many OECD member nations, such as the United States, the United Kingdom, Switzerland, Luxembourg, Austria, and Belgium, are "tax havens", according to the OECD's own definition, yet they are not being asked to emasculate their attractive tax and privacy laws.) …The OECD's anti-tax competition project is fundamentally inconsistent with good tax policy. Public finance experts almost universally recognise that an ideal tax system is characterised by low tax rates and the absence of a bias against saving and investment. …Tax competition has helped encourage governments to shift policy in this direction. Simply stated, if politicians are afraid that jobs and capital will escape across the border, they are more likely to lower tax rates and implement tax reform. [Link to full article below:]

November 10, 2005, Australian Financial Review, By Daniel J. Mitchell, Tax competition promotes good policy
http://www.cis.org.au/exechigh/Eh2005/EH31505.htm

 

3) Europe's house-of-cards is tumbling down

A column in the Washington Times comments on Europe's bleak future. To summarize: Big government is crippling the continent. Globalization is exposing these flaws. And demographic changes are hastening the downfall. To be sure, there are a handful of countries - such as Ireland, Estonia, and Slovakia - that have made important free market changes, but the rest of the continent seems to be a total loss. France and Germany are hopeless. Italy is teetering on the edge, and the United Kingdom is galloping in that direction thanks to a huge expansion in government spending (even worse than what has happened under Republicans in the US!):

[Excerpt from The Washington Times]

Europeans of all political persuasions have long shared a belief in the virtues of the "social market economy." By this, they meant a modified capitalist system, characterized by considerable state intervention and the fabled "social safety net." It was an arrangement intended to guarantee economic growth and prosperity, on the basis of harmonious labor relations, social cohesion and economic solidarity between the classes. Today, however, the European project is in shambles. ...The future looks even bleaker. Structural problems are likely to limit EU growth to 11/2 percent at most by 2015 and even less thereafter. All this points to a sobering conclusion few in Europe are willing to admit: The vaunted social market is at the end of the line in the information and globalization age. [Link to full article below:]

November 10, 2005, The Washington Times, By Frank J. Gaffney Jr./Alex Alexiev, Farewell to Europe?
http://www.washingtontimes.com/commentary/20051109-100630-9895r.htm

 

4) Senator Coleman warns against U.N. scheme to control the Internet

Writing in the Wall Street Journal, Minnesota Senator Norm Coleman correctly explains that it would be absurd to cede control of the Internet to a corrupt bureaucracy like the United Nations. This effort to politicize the Internet is driven by Europeans who are envious of U.S. economic prowess and dictatorships that want to undermine the free flow of ideas. Fortunately, there is strong bipartisan opposition to this proposal in Congress. But good rhetoric today is hardly a guarantee of the right outcome in the future. The Senate unanimously expressed its opposition to the Kyoto Treaty last decade, for instance, but many politicians now are trying to push legislation to implement the treaty and the Environmental Protection Agency is trying to impose similar policies through regulation. Even Senator Coleman, who has been a hero on the Internet issue, suggests that he might be willing to give the U.N. more power if the bureaucracy implemented some reforms (which almost surely would be cosmetic).

[Excerpt from The Wall Street Journal]

The Internet faces a grave threat. We must defend it. We need to preserve this unprecedented communications and informational medium, which fosters freedom and enterprise. We can not allow the U.N. to control the Internet. ...Allowing Internet governance to be politicized under U.N. auspices would raise a variety of dangers. First, it is wantonly irresponsible to tolerate any expansion of the U.N.'s portfolio before that abysmally managed and sometimes-corrupt institution undertakes sweeping, overdue reform. [Link to full article below:]

November 7, 2005, The Wall Street Journal, By Norm Coleman, Beware a 'Digital Munich'
http://online.wsj.com/article/SB113133007519089738.html?mod=opinion&ojcontent=otep (subscription required)

 

5) Leading House Republican blames Tax Reform Panel for missed opportunity

Writing in the Washington Post, Tom DeLay criticizes the President's Tax Reform Panel for timidity. Congressman DeLay certainly is correct that that nine-member Panel could have - and should have - been bolder. But he also should look in the mirror when assigning blame since the battle for genuine tax reform has been undermined by record spending increases implemented by the Republican Congress.

[Excerpt from Rep. DeLay's Column]

This panel -- its deliberations and report -- provided an unprecedented opportunity to publicize and advocate the cause of fundamental tax reform of the sort that could expand our economy, meet our growing fiscal needs and provide a simplified, streamlined tax system for every American. This was a chance to scrap the Internal Revenue Code -- the 5-million-word monstrosity that costs American businesses and families billions of dollars and billions of hours to comply with -- once and for all. The president gave the panel a golden opportunity to bring about vital, comprehensive reforms. Instead, it proposed an array of incremental policy tweaks of the kind that one might expect to be presented in the president's annual budget. ...Recommendations such as the reduction of the mortgage interest deduction and elimination of the state and local tax deductions may have sound economic arguments on their side, but they're an awfully bitter pill for Americans to swallow if all they get in return is a few deck chairs moved around on the Titanic. [Link to full article below:]

November 4, 2005, The Washington Post, By Tom DeLay, A Swing and A Miss on Tax Reform
http://www.washingtonpost.com/wp-dyn/content/article/2005/11/03/AR2005110301970.html

 

6) Tax reform means a bigger economy

Glenn Hubbard, the former Chairman of the Council of Economic Advisers, explains in the Wall Street Journal that eliminating the double-taxation of saving and investment could boost living standards by almost 10 percent. This analysis does not even count the pro-growth impact of lower tax rates or the beneficial effect of resources being more productively allocated in the absence of special tax loopholes. The hate-and-envy crowd argues that capital income would escape taxation under plans like the flat tax, but such comments are either stupid or dishonest. As Professor Hubbard notes, all income is taxed once under policies like the flat tax.

[Excerpt from Dr. Hubbard's column]

Recent studies, by Alan Auerbach of the University of California at Berkeley and others, suggest that true reform -- changing to a broad-based income or consumption levy that taxes income only once -- could yield once-and-for-all annual household income gains of 9%. A key lesson from economic research is that the bulk of the gain from tax reform comes from reducing the bias against saving and investment, which slows capital formation and wage growth. Some years ago, Jonathan Skinner of Dartmouth College and I concluded from empirical studies that reducing the tax burden on saving can have significant positive effects on household saving. And, studying firms' investment decisions during previous tax reforms, Kevin Hassett of the American Enterprise Institute and I estimated large effects of tax changes on business investment. The direction for saving-and-investment reform is clear. Any plan -- whether aiming for a broad tax on income or consumption -- should remove investor-level taxes on dividends, capital gains and interest. That does not imply that capital income escapes taxation. All income would be taxed once -- wages at the household level and business income at the business level. [Link to full article below:]

November 2, 2005, The Wall Street Journal, By R. Glenn Hubbard, Triple Jeopardy
http://online.wsj.com/article/SB113089548700085877.html?mod=opinion&ojcontent=otep (subscription required)

 

7) The gap between America and Europe grows even larger

A reporter for the German edition of the Financial Times notes that Americans are 40 percent richer than the French and that we will be twice as rich as the Germans in about 20 years if current trends continue. Amazingly, there are still some politicians such as John Kerry and Hillary Clinton who think that we should be mimicking European economic policy.

[Excerpt from Red America, Blue Europe]

Adjusted for differences in price levels, per capita income in the United States now exceeds France by close to 40 percent. Germany and Italy lag even further behind. ...If labor productivity in Germany and in the U.S. continues on the same path as from 1996 to 2003, per capita income in Germany will grow by only 44 percent by the time American incomes double in 2026. Put differently, within a generation, Americans will enjoy twice the economic status that Germans do. [Link to full article below:]

October-December 2005, Red America, Blue Europe, By Olaf Gersemann, Europe's Not Working
http://taemag.com/issues/articleid.18719/article_detail.asp

 

8) European politicians seeking more taxes - and tax harmonization - for alcohol

The desire to impose one-size-fits-all policies continues to be the trademark of European Union bureaucrats. Not surprisingly, harmonization means more than just the same level of taxes. It also means higher taxes. Once governments create a cartel - an OPEC for politicians - they can more easily boost the tax burden since citizens no longer have a way of escaping. In other words, once the opportunity to work, save, shop, or invest where taxes are lower is taken away, governments can act like monopolists and boost the overall tax burden. The latest example, as reported by the EU Observer, is a European scheme to harmonize alcohol taxes.

[Excerpt from EU Observer]

Brussels is set to produce a new "white book" on the EU's alcohol policy in early 2006, with a set of measures harmonising the rules on use, sales and advertising of alcohol across the continent. It will also recommend a rise in member states taxes on alcohol, including wine and beer... The study was masterminded by Peter Anderson, a consultant and former anti-alcohol activist, and will be presented later this month. "The evidence shows that a policy on alcohol in one country can influence to a great deal the situation in other states. And there is therefore a sound argument for a common approach at the EU level," Mr Anderson told the EUobserver. [Link to full article below:]

November 2005, EU Observer, Brussels is facing resistance to new alcohol policy
http://euobserver.com/?aid=20264&rk=1

 

9) Richard Rahn: Not all of Europe is on the wrong side

The European Union is the U.S.'s largest trading and investment partner. Unfortunately for America, the E.U. acts like a dysfunctional family.  In his weekly Washington Times column, economist Richard Rahn illustrates the differences in economic thought between old-Europe and new-Europe and explains why the U.S. should be concerned with which side wins.

[Excerpt from Dr. Rahn's column]

The EU has roughly the same GDP as the U.S. -- each producing almost 30 percent of the world's GDP. But the EU has a third again as many people as the U.S., and hence the average European only has about two-thirds the income of the average American. The 25 nation EU, taken as whole, is America's biggest trading and investment partner, far outstripping China or Japan. Thus Americans and Europeans have an enormous interest in each others' economic well-being, because an economic "cold" on one side of the Atlantic will almost always be "caught" on the other side. ... The high growth countries of Europe understand that high taxes, particularly on capital and labor, kill incentives and lead to economic stagnation. France, Germany and some others, fearing productive tax competition, have pushed for "tax harmonization," which is nothing more than a code word for a high tax cartel. The outcome of these tax and regulation struggles within Europe will determine whether Europe as a whole remains one of the two great economic powers on the globe, or slowly slips behind China and the other Asian countries. [Link to full article below:]

October 31, 2005, The Washington Times, By Richard W. Rahn, Europe vs. Europe
http://www.washingtontimes.com/commentary/20051030-100355-1298r.htm

 

10) Anti-money laundering laws are a stupid way to fight terrorism

The Economist is hardly a left-wing, anti-business magazine, so it is particularly noteworthy that it has an article explaining how anti-money laundering laws – and specifically laws and regulations against terrorist financing – are a gross misallocation of resources. There also is a story behind the story on this issue. High-tax nations such as France and Germany are using the money laundering issue as a way of attacking financial privacy in places like Switzerland and the Cayman Islands, even though so-called tax havens actually have better track records in blocking dirty money. Indeed, the Economist points out that money laundering is more common in places like New York City and London:

[Excerpt from The Economist]

The private sector bears the major burden of the effort to choke off funding for terrorists. … Millions of prospective and current customers are hampered by tougher compliance standards. … The compliance costs for financial institutions are substantial. … The total cost of complying with anti-terror financing regulations is difficult to determine… According to a global study of about 200 banks last year by KPMG, those interviewed increased investments on anti-money-laundering activities by an average of 61% in the prior three years. …Yet all this effort has yielded depressingly few tangible results. America's Treasury says more than 1,000 grand-jury subpoenas and more than 150 indictments have been handed down, although there has been nothing like that many convictions. … Many experts, both in government and the private sector, admit that the chances of detecting terrorists' funds in a bank sufficiently far in advance of a planned attack that it can be prevented are incredibly small. "In my view, it's hardly worth the effort," says one banking industry official in Europe. Critics note that a number of terror attacks have occurred this year—in Saudi Arabia, Jordan, Russia, Egypt, Britain, Bali (again), not to mention Iraq—and they often seem to involve very little money. … international regulators keep layering on new laws and recommendations in an effort to keep pace. The result is what Mr Passas calls a "regulatory tsunami". … experts admit that big financial centres such as London and New York—by virtue of the huge money flows going through them—are probably still major hubs for laundered funds and terror financing. … For KPMG's Mr Dillon, the resources already spent on the effort have handed a victory to the terrorists. "The cost to our global economy is so large, they've already had the effect they wanted," he says. "The increasing costs of compliance and technology are a form of terrorism. We're damaging ourselves." [Link to full article below:]

October 10, 2005, The Economist, Financing terrorism: Looking in the wrong places
http://economist.com/displaystory.cfm?story_id=5053373

 

Best regards,

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

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