Battling Hurricanes and Fiscal Imperialism

I'm at the Denver Airport, waiting to fly to Phoenix and then on to Los Cabos, Mexico. But I'm not going for sun and fun. In part, this is because Los Cabos is facing a hurricane watch. But the main reason is that I'm going to Mexico to help low-tax jurisdictions fight against fiscal imperialism. The Organization for Economic Cooperation and Development (OECD), an international bureaucracy based in (where else) Paris, is persecuting so-called tax havens because they are attracting jobs and investment from high-tax welfare states such as France and Germany. This fight has been going on for about 10 years, and we've done a fairly decent job of thwarting the bureaucrats (who, by the way, get tax-free salaries). But the election of Obama has given the OECD some momentum. This raises the risk that the bureaucrats will succeed in imposing a global tax cartel - sort of an "OPEC for politicians."

Like most government entities, the OECD does not believe in open and fair discussion. The bureaucrats already have used their leverage to kick our delegation out of the main conference hotel (though delegation is probably an overstatement since it is just me and Andy Quinlan of the Center for Freedom and Prosperity.

Maybe the huuricane will thwart the OECD's pernicious plans to impose bad tax policy on free-market jurisdictions. If not, keep your fingers crossed that Andy and I somehow can throw sand in the gears and defend tax competition, fiscal sovereignty, and financial privacy.

Taxes Are for Peasants in the Private Sector, not High-Ranking Democratic Officials

We all know about Tim "turbotax" Geithner, our Treasury Secretary who failed to pay tax on a huge sum of money (more than the average household earns in one year). Because he's a political insider, he got a get-out-of-jail-free card. Now another senior Democrat has been exposed as a tax scofflaw. The Chairman of the House tax-writing committee seems to have treated his personal tax bill as an optional obligation - yet he's the guy pushing higher tax rates for the rest of us. Maybe the fact that they don't pay their own bills is the reason Democrats think taxes have no impact on the economy? Anyhow, the Wall Street Journal has the details on Congressman Rangel's shenanigans:

When normal people happen to "find" their own money, it might mean a twenty left in a winter coat, or discovering change beneath the sofa cushions. But if you're Charlie Rangel, it means doubling your net worth. Earlier this month the Chairman of the tax-writing Ways and Means Committee "amended" his 2007 financial disclosure form—to the tune of more than a half-million dollars in previously unreported assets and income. That number may be as high as $780,000, because Congress's ethics rules only require the Members to report their finances within broad ranges. This voyage of personal financial discovery brings Mr. Rangel's net worth for 2007 to somewhere between $1.028 million and $2.495 million, while his previous statement came in at $516,015 and $1.316 million. When you're a powerful Congressman and working diligently to increase tax rates to pay for President Obama's health-care plan, we suppose it's easy to lose track of one of your checking accounts. That would be the one at the federal credit union with a balance somewhere between $250,001 and maybe as high as $500,000. And when you're crunched for time and pulling together bills to pass in a rush, we guess, too, that you might overlook several other investment accounts, even if some of them are sizable, such as the ones Mr. Rangel missed at JP Morgan, Merrill Lynch, Oppenheimer and BlackRock. Oh, and those vacant properties in Glassboro, in southern Jersey? ...The Chairman probably isn't doing a lot of dining at KFC, Pizza Hut, Taco Bell or Long John Silver's, either, which may explain why he didn't disclose the $1,001 to $15,000 in stock he owns in Yum Brands, the conglomerate that runs those chain restaurants. Compared to his undisclosed portfolio stake in PepsiCo—$15,001 to $50,000—that's practically a rounding error. ...Among other issues, Mr. Rangel is currently under investigation regarding his use of four rent-stabilized apartments at New York City's tony Lenox Terrace and soliciting donations with his official letterhead for the Charles B. Rangel Center for Public Service at City College of New York, which was itself built with a $1.9 million earmark. Yet another part of the probe is his failure to report $75,000 in income from a rental villa at the beachfront Punta Cana Yacht Club, in the Dominican Republic. Mr. Rangel blamed that last one on the language barrier because he doesn't speak Spanish. We can only imagine what language he speaks with his accountants and tax attorneys.

Great Video (sadly, not one of mine)

I'm jealous that this video is relatively new and already has more views than any of mine, but it is quite amusing. Enjoy.

Government Handouts to Murderers and Rapists

There's really no much commentary needed for this story. President Obama's so-called stimulus proposals was designed to shovel money out the door in hopes that consumers would somehow jumpstart the economy. The Boston Herald reports that the politicians in Washington were so anxious to buy votes...oops, I mean to "stimulate" consumer spending...that they even sent a couple of thousand checks to criminals:

One day after the Herald reported some surprised Bay State inmates - including murderers and rapists - were cashing in $250 stimulus checks, federal officials revealed the same behind-bars bonus was mailed to nearly 4,000 cons nationwide. …It’s all part of the massive American Recovery and Reinvestment Act of 2009 - and what is becoming an accounting nightmare for red-faced feds. …Nationally, about 2,200 inmates who were mailed checks are entitled to the payments because they were not in prison and lawfully collecting Social Security at some point between November 2008 and January, Richardson said. The federal goverment is examining whether the payment was due to the remaining 1,700 inmates because they were not identified as prisoners in the Social Security system, Richardson said.

When Governments Are Forced to Compete, the Result Is Better Policy and More Liberty

A story in USA Today is a perfect illustration of the liberalizing power of tax competition. In an effort to attract more jobs and investment, states are competing with each - even taking the aggressive step of advertising in high-tax states. This does not guarantee that states will always use the best approach since states sometimes try to lure companies with special handouts, but tax competition generally encourages states to lower tax rates and control fiscal and regulatory burdens. The same process works internationally, which is precisely why international bureaucracies controlled by high-tax nations are seeking to thwart fiscal competition between nations:

Las Vegas is running ads in California warning businesses they can "kiss their assets goodbye" if they stay in the Golden State. In New Hampshire, economic development officials pick up Massachusetts business owners at the border in a limousine and give them VIP treatment and a pitch about why they should relocate there. Indiana officials, using billboards at the borders and direct appeals to businesses in neighboring states, are inviting them to "Come on IN for lower taxes, business and housing costs." As states struggle to keep jobs in a continuing recession, they are no longer hoping businesses in other states happen to notice their lower taxes, cheaper office space and less-stringent regulations. They are taking the message directly to them and taking shots at their neighbor's shortcomings. ...No one does it more unapologetically than the Nevada Development Authority. The agency has picked on California before, but its $1 million campaign, launched this month, ratchets up the mockery of California's budget deficits and IOU paychecks. "It's all done tongue-in-cheek. But the underlying deal is, we want this business," Nevada Development Authority President and CEO Somer Hollingsworth said. ..."They do mask the nastiness of their message with humor, but this time, their ads are over the top," said [California Assemblyman] Solorio, a Democrat from Santa Ana.

Wall Street Journal Highlights Importance of Privacy Havens to Protect People from Government Extortion and Incompetence

Wall Street Journal Highlights Importance of Privacy Havens to Protect People from Government Extortion and Incompetence. In an important shift, the Wall Street Journal takes a more sympathetic view of bank secrecy. The WSJ's editorial page has always been an excellent source for pro-market opinion, but the editors were not overly sympathetic to some aspects of tax competition. But Holman Jenkins' column highlights key moral and economic reasons for financial privacy:

That's the paradoxical virtue of Swiss banking secrecy, which has protected both greedy tax scofflaws and those merely trying to save something for the next generation when politicians are burning down the economy back home. ...A decade ago, this column took a more sanguine view of this gradual erosion than we might today. Then, we noted that the world was moving toward democracy and rule of law. Governments were dismantling senseless regulations and tax rates so high they inhibited growth and collected less revenue than government would have collected with lower rates. The world was becoming more like the Swiss, we said at the time—i.e., sane. A similar judgment does not leap from our lip today, not after two years so reminiscent of the omen-filled early 1930s. ...today's IRS war on Swiss banking secrecy does not occur in a vacuum. In 1934, Swiss politicians were legislating in response to specific events abroad: a Nazi law that made it a death-penalty crime to hold assets outside the country; a scandal stoked by French socialist politicians over Swiss bank accounts held by prominent citizens. The Swiss looked out and saw a world gone mad: bank failures, depression, militarism, fascism, communism. The new law was meant to buttress the world's confidence in the privacy and security of a Swiss bank account. Today, the world is at least slightly deranged, with the possibility of getting very much worse. Democrats in Congress, in the face of every economic lesson, want to push marginal tax rates back up to confiscatory levels.

Europe's Super-Bureaucrats Cash In When Leaving Office

American politicians have learned to feather their own nests, but the European Commission must be the most self-indulgent bureaucracy in the world. In addition to lavish pay and an extravagent penion, the Commissioner from Ireland is getting the equivalent of about $500,000 to ease his "re-entry" into private life. And this is on top of two taxpayer-financed pensions from the Irish taxpayers. Geesh, nice work if you can get it. The Irish Independent has the sordid details of politicians

European Commissioner Charlie McCreevy is poised to get almost €400,000 to resettle in Ireland when he leaves his post this autumn. ...The Irish Independent has learned Mr McCreevy will be entitled to a transitional allowance for a total of three years when he leaves Europe. The allowance, which aims to help commissioners with their "re-entry" into the non-EU world, is calculated as 50pc of Mr McCreevy's €238,919-a-year salary. It is paid the day he leaves office and works out at €119,459.50 a year -- with the final three-year tally in the region of €358,378. On top of this he will be entitled to receive a resettlement allowance worth €19,909.89 -- equal to a month's salary. And he will also be allowed to fly his family back to Ireland by business class and will be reimbursed for any moving costs he incurs. ...Last night Mr McCreevy's spokesman refused to answer repeated calls and emails from the Irish Independent to confirm if he would be taking the payments. He also refused to answer questions to confirm if Mr McCreevy is still taking his ministerial and Oireachtas pensions this year. Last year he was paid an Oireachtas pension of €52,213 for his time as a Fianna Fail TD for Kildare and a ministerial pension of €75,003 for serving as Finance and Enterprise Ministers.

Is Viagra a Secret Weapon for Social Security Reform?

A weird headline for a blog post, to be sure, but that's the implication of this report from Brazil. Older men are marrying young ladies, who then become eligible for decades of government pension payments when their husbands die. This is apparently so common that it has become a large fiscal drain and politicians feel pressure for reform. It is highly unlikely that Brazil's politicians will choose the right reform, but hope springs eternal. Perhaps if they pop some little blue pills before the debate, they'll be willing to do something...um...manly, such as personal retirement accounts:

The widespread tendency in Brazil for men to remarry women several decades younger -- called the "Viagra effect" -- is undermining the country's pension system, researchers warned Tuesday. The report, by Brazil's National Social Security Institute (INSS), showed that a trend of men in their 60s marrying women half their age was leaving a big pool of young widows collecting benefits for much longer than anticipated. "The social security system was planned so that the wife receives her husband's pension for only 15 years or so. With growing life expectancy and remarriages with much younger women, benefits today stretch out over 35 years," the author of the study, Paulo Tafner, explained to AFP. He said the younger-wife phenomenon was commonly called the "Viagra effect." ...Of the separated men, 64 percent of those aged over 50 remarry women younger than them. In the 60-64 age range, the proportion is 69 percent. And the marked preference is for women aged 30 years younger. ...Under current laws, when a retired man dies, his wife continues to receive his full pension until her own death. According to the INSS, 94 percent of pensions go to women. "This is a grave and serious challenge for the future of the country, and it's going to require a reform of the pension system," Tafner said.

Powerful Evidence for School Choice

The Mayor of Stockholm gave some brief remarks at the closing dinner of the Mont Pelerin Society meeting and mentioned that the number of students in private schools had skyrocketed after the implementation of Sweden's school choice program. Intrigued, I emailed the folks at one of the nation's research organizations to ask for some details.

The figures are impressive. The number of students attending private high schools has jumped from 1.7 percent in 1992 to 19.5 percent in 2008. Not surprisingly, the quality of education is high. Indeed, researchers have looked at the data and concluded that, "Our findings support the hypothesis that school results in public schools improve due to competition."

Talking to the French about Tax Competition, Tax Havens, Money Laundering, and Obama's Fiscal Profligacy

In this short video produced by the French free-market website, Un Monde Libre, I wax poetic about the need to restrain the greed of the political class.

Weekly Political Joke

An Indian walks into a café with a shotgun in one hand and a bucket of buffalo manure in the other. He says to the waiter, "Me want coffee." The waiter says, "Sure Chief, coming right up." He gets the Indian a tall mug of coffee, and the Indian drinks it down in one gulp, picks up the bucket of manure, throws it into the air, blasts it with the shotgun, then just walks out.

The next morning the Indian returns. He has his shotgun in one hand and a bucket of manure in the other. He walks up to the counter and says to the waiter, "Me want coffee."

The waiter says, "Whoa, Tonto. We're still cleaning up your mess from the last time you were here. What the heck was all that about, anyway?"

The Indian says, "Me in training for government job. Drink coffee, shoot the shit, and disappear for rest of the day!"

The Value-Added Tax Would Be a Money Machine for Big Government

Appearing on Bloomberg TV, I trash the value-added tax (VAT).

The Moral Case Against Government Control of Health Care

With his usual clarity, Tom Sowell explains why people who earn money should be allowed to spend it on their loved ones - notwithstanding the uninformed opinions of bureaucrats who think "society's resources" should be allocated in different ways:

The medical care stampede is about much more than medical care, important as that is. It is part of a whole mindset of many on the left who have never reconciled themselves to an economic system in which how much people can withdraw from the resources of the nation depends on how much they have contributed to those resources. Despite the cleverness of phrases about people who "happen to have money," very few people just happen to have money. Most people earned their money by supplying other people with goods or services that those people were willing to pay for. Since it is their own money that they have earned, these people feel free to spend it to give their 80-year-old grandmother another year or two of life, or to pay for a hip replacement operation for their mom or dad, even If some medical "ethicist" might say that the resources of "society" would be better used to allow some 20-year-old to talk over his angst with a shrink. ...More is at stake than the outcomes of medical decisions, extremely important as those are. What is also at stake is freedom and the dignity of individuals who do not live their lives as supplicants of puffed-up power holders who are spending the money taken from them in taxes.

Examining Swedish Models

No, not these kind. Instead, I'm in Stockholm for a meeting of the Mont Pelerin Society, and this gathering of classical liberals (i.e., the Adam Smith types that believe in freedom, not the modern liberals that favor collectivism) has featured some discussion of the Scandinavian social welfare state - often referred to as the Swedish Model.

What is particularly interesting is that Sweden is not the left-wing paradise that some imagine. Yes, government is far too big, consuming about 50 percent of economic output. But Sweden also has an extensive system of school choice. Equally remarkable, Sweden has a system of personal retirement accounts. Indeed, if one removed fiscal policy variables from the ratings, Sweden would be more free market than the United States in the Economic Freedom of the World rankings.

But even in the area of fiscal policy, Sweden is making progress. In recent years, policy makers have abolished both the death tax and the wealth tax. And the corporate tax rate has been reduced significantly below the U.S. level.

Sweden often is cited as an example of a nation that proves a big welfare state is not an obstacle to being a rich society. But as I wrote in my study comparing the United States and the Nordic nations:

Many prosperous nations in Western Europe have large welfare states. This leads unsophisticated observers to sometimes assume that high tax rates and high levels of government spending do not hinder growth. Indeed, they sometimes even conclude that bigger government somehow facilitates growth. ...This analysis puts the cart before the horse. It is possible for a nation to become rich and then adopt a welfare state. ...A poor nation that adopts the welfare state, however, is unlikely to ever become rich. Before the 1960s, Nordic nations had modest levels of taxation and spending. They also enjoyed—and still enjoy—laissez-faire policies and open markets in other areas. These are the policies that enabled Nordic nations to prosper for much of the 20th century. Once their countries became rich, politicians in Nordic nations focused on how to redistribute the wealth that was generated by private-sector activity. This sequence is important. Nordic nations became rich, and then government expanded. This expansion of government has slowed growth, but slow growth for a rich nation is much less of a burden than slow growth in a poor nation.

How and Why Government Spending Diminishes Economic Performance

In a new mini-documentary released by the Center for Freedom and Prosperity, I explain several of the ways that government spending hinders economic growth.

Coming to a Neighborhood Near Your: Government Racism and Social Engineering

The Wall Street Journal opines about the Department of Housing and Urban Development extorting a local community into engaging in a perverse form of racial/social engineering. Apparently, the bureaucrats in Washington are upset that people self-segregate on the basis of income (which the pencil-pushers magically equate with racism even though well-to-do minorities have no problem living in nicer neighborhoods. The real lesson here, though, is that the Department of Housing and Urban Development should be dismantled. It is not the job of the federal government to subsidize housing. The nanny-state social engineering is just the insult added to injury:

The bad news is that Westchester County, the sprawling suburb just north of New York City, has been pressured to settle a federal lawsuit brought by liberal activists over "affordable" housing. The worse news is that the Obama Administration wants the settlement to be a template for the rest of the nation. The three-year-old lawsuit alleged that Westchester had accepted federal housing funds but failed to provide enough affordable housing and reduce segregation in some of its wealthier communities, such as Scarsdale and Chappaqua, home to Bill and Hillary Clinton. In February a U.S. District Court judge in Manhattan ruled that Westchester's integration efforts were insufficient, and rather than risk losing out on more federal money, county officials struck a deal with the Department of Housing and Urban Development this week. Within seven years, the county will construct or acquire 750 homes or apartments, 630 of which must be located in communities that are less than 3% black and 7% Hispanic. "We're clearly messaging other jurisdictions across the country that there has been a significant change in the Department of Housing and Urban Development, and we're going to ask them to pursue similar goals as well," said HUD Deputy Secretary Ron Sims. ...Blacks have long populated Westchester towns such as White Plains, New Rochelle and Mount Vernon, and the Administration is assuming that low percentages of racial and ethnic minorities in places like Scarsdale are a result of discrimination. Yet there's no pattern of fair housing complaints or other evidence showing that black families with incomes similar to whites in more upscale neighborhoods were barred from those jurisdictions. History also demonstrates that racial and ethnic minorities have incurred far less resistance when they move into neighborhoods where they can afford to live. The black and Latino suburban population is increasing steadily as the household incomes of those groups rise. But social engineers who want to force the issue risk creating more problems than they solve. Most people believe in integrated neighborhoods provided they're a consequence of genuine choice, not the government deciding where it wants people to live.

Another Example of Washington Corruption

Politicians almost always engage in sleazy behavior, but it is especially reprehensible when big business and big government conspire to screw ordinary people. John Stossel's Townhall.com column explains how pharmaceutical companies have made a deal with the devil. The politicians sooner or later (probably sooner) will stab the companies in the back. In the meantime, though, there is an insider deal to push through government-run health care (or lack thereof):

Although President Obama and big-government activists demonize health-insurance companies, the companies "are still mostly on board with the president's effort to overhaul the U.S. health-care system," the Wall Street Journal reports; and ... Although the activists criticize Big Pharma, "The drug industry has already contributed millions of dollars to advertising campaigns for the health care overhaul through the advocacy groups like Healthy Economies Now and Families USA. It has spent about $1 million on similar advertisements under its own name," the Times reports. Big Pharma and Big Insurance want Obama-style health-care reform? ...It illustrates economist Steven Horwitz's First Law of Political Economy: "No one hates capitalism more than capitalists." In this case, big business wants to shape -- and profit from -- what inevitably will be an interventionist health-care reform. Can you think of the last time a major business supported a truly free market in anything?

The Right Kind of Gun Control Is...Being Able to Hit the Bad Guys

I saw a link to this story on Instapundit. The New York Times reports that a couple of thugs got what they deserved when they tried to rob a 72-year old storeowner in Harlem. The only injustice is that city bureaucrats are considering a possible weapons charge against the man who defended his life and property:

They strode into the restaurant supply store in Harlem shortly after 3 p.m. on Thursday, four young men intent on robbery, one with a Glock 9-millimeter pistol, the police said. The place may have looked like an easy mark, a high-cash business with an owner in his 70s, known as a gentle, soft-spoken man. But Charles Augusto Jr., the 72-year-old proprietor of the Kaplan Brothers Blue Flame Corporation, at 523 West 125th Street, near Amsterdam Avenue, had been robbed several times before, despite the fact that his shop is around the corner from the 26th Precinct station house on West 126th Street. There were no customers in the store, only Mr. Augusto and two employees, a man and a woman. The police said the invaders announced a holdup, approached the two employees and tried to place plastic handcuffs on them. The male employee, a 35-year-old known in the community as J. B., struggled with the gunman, who then hit him on the head with the pistol. Watching it happen, Mr. Augusto, whom neighborhood friends call Gus, rose from a chair 20 to 30 feet away and took out a loaded Winchester 12-gauge pump-action shotgun with a pistol-grip handle. The police said he bought it after a robbery 30 years ago. Mr. Augusto, who has never been in trouble with the law, fired three blasts in rapid succession... The first shot took down the gunman at the front. He died almost immediately, according to the police, who said he was 29 and had been arrested for gun possession in Queens last year and was the nephew of a police officer. Mr. Augusto’s other two blasts hit all three accomplices, who stumbled out the door, bleeding. One of them, a 21-year-old, staggered across 125th Street and collapsed in front of the General Grant Houses, a nine-building complex with 4,500 residents, one of the city’s biggest housing projects. Someone called 911, and an ambulance rushed him to St. Luke's-Roosevelt Hospital Center, where he was dead on arrival. The police said he had a record of arrests for weapons possession and robbery. ...Gene Hernandez, 47, sympathized with Mr. Augusto, but not with the would-be robbers. “If I were him, I would kill a dozen of them,” he said. “You have to protect your workers and your family. Case closed.” ...Venus Singleton, 51, said she hoped that Mr. Augusto would not get into trouble over the shootings. ...Paul J. Browne, chief spokesman for the Police Department, said that Mr. Augusto had not been arrested or charged. He was being treated like a witness and was still being questioned early Friday at the station house. ...A law enforcement official said that the district attorney was considering a possible misdemeanor weapons charge against Mr. Augusto, indicating that he did not have a permit for the shotgun.

More Congressional Sleaze

More Congressional Sleaze. John Fund explains in the Wall Street Journal that many politicians not only take vacations at our expense, but also line their pockets with taxpayer-provided per-diem allowance. The problem apparently has gotten worse since the Democrats took over, but this is a bipartisan problem. The longer people stay in Washington, the more corrupted they become:

The total cost for congressional overseas travel is never made public because the price tag for State Department advance teams and military planes used by lawmakers are folded into much larger budgets. Members of Congress must only report the total per diem reimbursements they receive in cash for hotels, meals and local transport. They don’t have to itemize expenses—a convenient arrangement since most costs are covered by the government or local hosts. Some trips subtract some hotel and meal costs from the per diems, others do not. “The policy is completely inconsistent,” one House member told me. Total per diem allowances (per person, including staff) can top $3,000 for a single trip. Unused funds are supposed to be given back to the government, but congressional records show that rarely happens. ...The House’s official handbook requires that lawmakers use regular U.S. airlines “whenever possible, unless such service is not reasonably available.” But congressional records show members routinely take military planes to London, Paris and other well-served locales. Members can fly for free with their spouses on military aircraft.

Saying No to Obama's Fiscal Imperialism

I explain why the Obama Administration should not export America's wretched internal revenue code to other nations that have better tax policy and more respect for human rights.

Punitive Corporate Tax Rate Hurts Jobs and Investment in America

It is somewhat disconcerting that every single European welfare state - even France and Sweden - has a lower corporate tax rate than the United States. But embarrassment is the least of the problems. The real issue is that a high corporate tax rate means it is more likely that jobs will migrate to nations that don't treat companies as milk cows to nourish big government. As Investor's Business Daily explains, a high corporate tax rate means less investment:

Four more developed nations have cut their corporate tax rates this year. Yet the U.S. sticks with second-highest corporate rate among OECD nations. This puts us at a competitive disadvantage. Only Japan, at 39.54%, has a higher corporate rate than the U.S., which at 39.1% is a bit lower than last year but still far higher than the average (26.29%) of the 30 Organization for Economic Cooperation and Development nations. That average was brought down from 26.55% after the Czech Republic, Sweden (yes, the country where soft socialism has supposedly been perfected), Canada and South Korea cut their rates. ...High corporate rates are unwanted — or should be unwanted — because they put a drag on a nation's capital stock. An economy needs investment to increase jobs and pump productivity. High corporate tax rates repel rather than attract foreign companies and can even send domestic firms overseas. Capital flows easiest where the resistance is light. This is not our fantasy but an outcome that's been observed in the real world. In 2003, economists Ruud de Mooij and Sjef Ederveen found that if a country cuts its corporate rates by a single percentage point, it can expect to boost capital investment by about three percentage points.

The Center for Freedom and Prosperity's first video also addressed these issues. And while the production values and quality leave a bit to be desired, the message is very timely.

New Laffer Curve Paper Shows Why Obama's Proposed Higher Tax Rates Are so Misguided

The Center for Freedom and Prosperity just released a paper analyzing the Laffer Curve.

The central lesson is that tax increases do raise more revenue in most cases, but at a very high cost in terms of economic growth. However, the tax increases proposed by the Obama Admininstration - based on class-warfare ideology - are especially destructive and may actually lose revenue if taxable income falls enough to offset the impact of the higher tax rate.

The three-part video series on the Laffer Curve can be seen here.

Another Indictment of the Bush-Obama Years

Here's a depressing little blurb from the New York Times about the disparity between anemic job growth in the private sector and rising payrolls in the bureaucracy.

For the first time since the Depression, the American economy has added virtually no jobs in the private sector over a 10-year period. The total number of jobs has grown a bit, but that is only because of government hiring. ...For the decade, there was a net gain of 121,000 private sector jobs, according to the survey of employers conducted each month by the Bureau of Labor Statistics. In an economy with 109 million such jobs, that indicated an annual growth rate for the 10 years of 0.01 percent.

At some point, of course, the rising number of people dependent on government will overwhelm the shrinking number of people producing real wealth in the private sector. Nations such as France and Italy are perilously close to that tipping point. Yet since politicians rarely think beyond the next election cycle, they have little incentive to arrest the downward slide. Instead, as the current health care debate demonstrates, they seek to add more fuel to the fire.

America Does Not Have a Free Market Health Care System

Philip Klein of the America Spectator has an excellent article puncturing some of the myths in the health care debate. He was particularly eloquent in his debunking of the claim that America relies on free markets for health care:

Both in terms of direct spending and regulation, government plays a dominant role in health care and impedes the formation of a marketbased system in the U.S. In 2007, the cost of all government health care programs at the federal, state, and local level added up to more than $1 trillion, representing 46 percent of the $2.4 trillion in total U.S. health care expenditures, according to the Centers for Medicare & Medicaid Services. That same year, an analysis of Kaiser Family Foundation data shows, 31 percent of those covered received their health insurance through the government. While the rest of the nation obtains its health care privately, government policies still distort the insurance market. The most significant way the government meddles in the market is through the tax code, which discriminates against those who purchase insurance on their own to the benefit of those who are insured through their employers. The policy dates back to 1943, when the Internal Revenue Service ruled that workers did not have to pay taxes on health benefits purchased through their employers. With wage and price controls in place during World War II and labor scarce, many employers took advantage of the favorable tax status and offered health benefits to attract workers, and this later became enshrined in the tax code. As a result, by 2007, 63 percent of the insured population was receiving their coverage through their employers. Having such a system restricts choice, because workers are limited to whatever health benefits are offered. It impedes mobility, because insurance cannot be taken from job to job. It compounds the problem of unemployment, because losing a job often means losing one’s health care. And ultimately, it drives up spending—since most Americans don’t have to pay the out-of-pocket costs for their medical care. Roughly 6 percent of the covered population purchases its own insurance without the tax advantages enjoyed by those who obtain it through their employers, but even then they must navigate a highly regulated individual market that leaves them with few options. Many states impose onerous regulations on insurers requiring them to provide certain benefits. Some of the benefits insurance companies have been forced to cover include in vitro fertilization, morbid obesity treatment, and lockjaw disorders. Currently there are nearly 2,000 benefit mandates nationwide, according to the Council for Affordable Health Insurance, driving up the cost of polices by 20 to 50 percent, depending on the nature of the mandate. That means that even if a person who is relatively healthy wants a cheaper, basic plan that would cover him in the event of a sudden catastrophic illness or freak accident, he’s still forced either to purchase expensive comprehensive coverage or go uninsured. However one would describe the convoluted U.S. health care system, a free market it is not.

The right lesson to learn from Klein's article is that the flaws in our health care system exist because of government intervention. Yet President Obama wants to expand the policies that have caused som many problems. More government does not solve the problems caused by too much government in the first place.

Weekly Political Joke

According to rumor, this is a transcript of an actual interview between a female broadcaster and an Army General who was about to sponsor a Boy Scout Troop visiting his military installation. I assume it is just an urban legend, but one certainly can imagine such an interview taking place.

INTERVIEWER: “ So, General Reinwald, what things are you going to teach these young boys when they visit your base?”

GENERAL REINWALD: ‘We’re going to teach them climbing, canoeing, archery, and shooting.”

INTERVIEWER: “Shooting! That’s a bit irresponsible, isn’t it?”

GENERAL REINWALD: “I don’t see why, they’ll be properly supervised on the rifle range.”

INTERVIEWER: “Don’t you admit that this is a terribly dangerous activity to be teaching children?”

GENERAL REINWALD: “I don’t see how. We will be teaching them proper rifle range discipline before they even touch a firearm.”

INTERVIEWER: “ But you’re equipping them to become violent killers.”

GENERAL REINWALD: “Well, you’re equipped to be a prostitute, but you’re not one, are you?”

The radio went silent and the interview ended.

How Government Screws Up the Health Care System

How Government Screws Up the Health Care System. Professor Dwight Lee has an excellent column in Investor's Business Daily explaining how government subsidies increase the total cost of health care by reducing the out-of-pocket cost for consumers:

Government expansion of the medical system has increased health care costs because it has ignored the distinction between marginal and average costs of health care. ...Government expansion in medical insurance, while claiming to reduce costs, has consistently increased the average cost of health care by reducing its marginal cost. The marginal cost has been lowered with a combination of government subsidies and low-deductible health insurance, leaving direct payment for additional insurance an ever smaller percentage of the total cost. As the marginal cost for medical insurance declined, individuals quite rationally gave less thought to cost and consumed more medical care. Of course, this drove up the average cost of medical insurance, most of which was being paid for with increasing taxes and premiums. But people recognized that their extra consumption had no noticeable effect on their taxes or insurance premiums. They also knew that any savings in taxes and premiums resulting from shopping more carefully would be captured almost entirely by others. So while people complained as average costs increased, they continued making their medical decisions in response to lower marginal costs. Politicians respond to public complaints about increasing medical costs, but they invariably do so by trying to disguise the costs with more subsidies and convince voters that any costs not covered by reductions in waste and fraud will be paid with higher taxes on the rich. The medical plan receiving the most attention in Congress is no exception.

Professor Lee specifically shows how the government's tax preference for employer-provided care has distorted the health care market - especially for insurance. Unfortunately, he notes, the President's plan makes a bad situation even worse:

The right reason for taxing the value of health insurance is that leaving it untaxed motivates people to pay for medical care with before-tax dollars by purchasing low-deductible policies through their employers. While this makes sense for each employee, it guarantees higher average medical cost for everyone by reducing the marginal cost paid by most Americans — those with employer-provided health insurance. Taxing health insurance would eliminate the tax advantage of low-deductible policies. The shift to high-deductible policies, with lower premiums, would confront people with higher marginal medical costs and motivate more cost-conscious medical decisions. This would reduce the average cost of health care and lead to further reductions in insurance premiums without government mandates and rationing. Unfortunately, Obama's sudden interest in taxing employer-provided health insurance is motivated by the desire to finance the large increase in subsidies central to his medical plan. By lowering the marginal cost of medical insurance, these subsidies would offset the cost-reducing effect of taxing employer-provided health insurance. If Obama really wants to lower costs in ways consistent with consumer choice, and also stimulate economic activity, he should recommend taxing health insurance and using the revenues to reduce marginal tax rates. This would result in two marginal changes that would generate improvement in economic productivity. First, higher marginal costs for medical insurance would reduce the average cost. Second, higher marginal returns to creating wealth would increase prosperity.

If Government-Run Toilet Paper Doesn't Work, Imagine What Will Happen with Government-Run Health Care

The socialist paradise off the coast of Florida is having a slight problem with toilet paper. But since the Cuban government has a hard time providing any basic necessity, that is hardly a surprise. What is remarkable, though, is that there are some people who think that it is a good idea to put politicians and bureaucrats in charge of health care:

Cuba, in the grip of a serious economic crisis, is running short of toilet paper and may not get sufficient supplies until the end of the year, officials with state-run companies said on Friday. ...Cuba's financial reserves have been depleted by increased spending for imports and reduced export income, which has forced the communist-led government to take extraordinary measures to keep the economy afloat. "The corporation has taken all the steps so that at the end of the year there will be an important importation of toilet paper," an official with state conglomerate Cimex said on state-run Radio Rebelde.

Government-Run Health Care Will Cost Much More than the Politicians Are Telling Us

As my Cato colleague Chris Edwards has documented, government programs and contracts inevitably cost much more than first projected. This pattern of inaccuracy exists for several reasonsis, including the fact politicians have an incentive to lowball cost figures. But a big reason for the mistaken numbers is that government budget estimators do not understand the degree to which people will alter their behavior to get their hands on other people's money. I explained recently on Fox Business network that this means any government-run health care scheme will be much more expensive than we are being told today.



Our friends at Reason TV address this issue in a very compelling three-minute video that looks at how government programs - especially for health care - have cost several times more than politicians claimed when the legislation was first adopted.

Why I Despise Government, Reason 9,358

Leaving work yesterday for some softball games, I wound up caught in terrible traffic on 15th Street, which is a major artery for commuters going to Viriginia. This is never a good street to be on since it carries people looking to head south on I-395 and those who want to turn right on Constitution Avenue and then go west into Virginia. After a 30-plus minute crawl to travel three blocks, I finally got close to Constitution Avenue, where the road widens to three lanes, one of which is only for right turns. But since a large number of drivers want to turn right, it is very common for drivers also to turn right from the center lane - which normally is very efficient since Constitution Avenue has three lanes and the traffic flows more smoothly with two lanes of traffic making the right turn.

But when I made the right turn, I discovered why traffic was so snarled on 15th Street. There was a cop standing in the middle of Constitution Avenue waiting to snare drivers turning right from the center lane. Along with many other drivers that day, I got caught and lost another 10 minutes waiting for a ticket. But the $25 ticket is not what got me so irritated. It was the fact that thousands of commuters had to deal with horrible traffic (not only because people like me suddenly got stopped and traffic behind us also had to stop, but also because people in the right-turn-only lane also could not move with the cop blocking traffic) because some bureaucrat from the National Park Police found an easy way to fill his ticket quota.

If the private sector operated the roads (permit me to engage in some libertarian fantasizing), this would never happen. Indeed, because of a desire to please drivers (customers), the folks in charge of the road would have made right turns an option from the center lane. But when government sees a bottleneck, the reaction of politicians and bureaucrats is to figure out how to fleece people for more money - not to make travel safer and quicker.

Now, perhaps, you will understand why I chose this license plate.

Great Moments in Local Government

This may not be as important as an IRS agent killing a small business with an audit. And we can certainly imagine dismal scenes of bureaucrats denying health care to sick people in America's future, and those also would be more important. But when a city official shuts down a lemonade stand because an eight-year old girl did not have a license to operate a busines, that surely is a symbol of government that is both stupid and overbearing:

Eight-year-old Daniela Earnest has made lemonade out of lemons in more ways than one this week. Hoping to raise money for a family trip to Disneyland, the Tulare girl opened a lemonade stand Monday. But because Daniela didn't have a business license, the city of Tulare shut it down the same day. ...The story began Monday morning when Daniela and her stepmother, Marisa Earnest, set up shop at Cartmill Avenue and Hillman Street in north Tulare. The lemonade was freshly squeezed and priced at $2 for a 32-ounce plastic cup. Richard Garcia, a Tulare code enforcement officer, happened to be at the same intersection... Garcia told Daniela and her stepmother that their lemonade stand — on the northwest corner of the busy intersection — was not safe, and also that they needed a business license to sell lemonade.

Barney Frank Endorses Regulatory Protectionism

When a government increases the burden of taxes, spending, and/or regulation, this makes it more likely that productive resources - on the margin - will gravitate to jurisdictions with better economic policy. Crafty politicians understand that the freedom to cross borders is a threat to statist policies, which is why international bureaucracies dominated by high-tax nations, such as the Organization for Economic Cooperation and Development, are trying to undermine tax competition between nations by imposing fiscal protectionism. The same is true for regulation. The Chairman of a key House committee wants to impose regulatory protectionism to restrict the ability of Americans to patronize banks and other financial services companies based in jurisdictions with more laissez-faire policies. The Financial Times has the unsavory details:

Barney Frank, chairman of the House financial services committee, said he was concerned the new US push to regulate banks and brokers more rigorously could put it at a competitive disadvantage if other countries did not follow suit. As a result, he would like to ban US banks from doing business with countries not subject to similarly tough standards on everything from leverage limits and capital requirements to rules on transparency and clearing of derivatives. “Once we have rules  . . . we will say to anybody who wants to be an outlier, ‘you forfeit your right to participate in the American system’,” Mr Frank told the Financial Times. “We will instruct the [Securities and Exchange Commission] and Treasury and the Fed to deny access to the American financial system to any country that holds itself out as a haven to escape our financial regulation.” ...While Mr Frank is a powerful committee chairman, he would have to win over the rest of Congress and the administration to get his idea made into law. He is also certain to face strong opposition both inside and outside the US. “It is absolutely the wrong approach,” said a top industry lawyer, who did not want to be identified criticising Mr Frank. “The assumption is that everybody has to do business in the US and we can set global standards. That is absolute nonsense. There are alternatives, including Hong Kong,” the lawyer added. ...Tim Ryan, president of the Securities Industry and Financial Markets Association, said that US regulations should not be imposed on other countries. ...The European Commission has an exclusion provision in its proposed directive on alternative investment managers. Outside managers and funds would be excluded if their home states did not offer comparable levels of regulation and tax co-operation. That proposal is seen as a protectionist effort to box out US groups and may be revised. Mr Frank’s interest in banning groups from non-co-operating countries stems in part from the US experience after it adopted the Sarbanes-Oxley corporate accountability law. Many overseas companies opted to list outside the US rather than comply with Sarbox requirements.

Junkets in Style: Politicians Use Our Money to Buy Three Luxurious Private Jets.

I have no objection to extravagent consumption so long as people are spending their own money. But when elitists in Washington want to enjoy "lifestyles of the rich and famous" by using our money, that is an outrage. Politicians already get to vote themselves hefty salaries and gold-plated benefit packages. They already pass laws and exempt themselves. Is it too much to ask that they fly commercial aircraft when going on their junkets? Heck, maybe if they had to deal with the mindless bureaucrats at the TSA, we might get some common-sense reforms so that going to the airport was not like a visit to the motor vehicles department. Rollcall.com has the story:

Last year, lawmakers excoriated the CEOs of the Big Three automakers for traveling to Washington, D.C., by private jet to attend a hearing about a possible bailout of their companies. But apparently Congress is not philosophically averse to private air travel: At the end of July, the House approved nearly $200 million for the Air Force to buy three elite Gulfstream jets for ferrying top government officials and Members of Congress. ...The Gulfstream G550 is a luxury business jet, which the company advertises as featuring long-range flight capacity that “easily links Washington, D.C., with Dubai, London with Singapore and Tokyo with Paris.” The company’s promotional materials say, “The cabin aboard the G550 combines productivity with exceptional comfort. It features up to four distinct living areas, three temperature zones, a choice of 12 floor plan configurations with seating for up to 18 passengers.”

Over-Sensitivity Alert

I was not a fan of President Bush. His economic policy was a sordid mix of wasteful spending and corrupt intervention, and I am very glad that I can say that he never received my vote. But even if Bush was Reagan, I would not have lost any sleep if opponents had lampooned him using art. So it is with some detachment that I comment on the current controversy about the "Joker" poster of President Obama that is appearing in Los Angeles.













According to some overly-sensitive souls, this satirical poster is racist. Indeed, a blogger in L.A. said "The only thing missing is a noose."

Yet if the poster is racist, then what is the ruling on this similar image of Bush? Is it also a racist caricature?



















Looking at an image of the "real" Joker, played by Heath Ledger, it seems overwhelming obvious that both the anti-Obama and anti-Bush satirists want to lampoon their targets. To impute racist motives to the anti-Obama satirist is a huge leap. This does not mean that this mystery person (still unidentified) is not a racist, to be sure, but it is absurd to make that accusation with zero supporting evidence.

New Scientific Discovery!

A major research institution has recently announced the discovery of the heaviest chemical element yet known to science. The new element has been tentatively named "Governmentium". Governmentium has one neutron, 12 assistant neutrons, 75 deputy neutrons, and 11 assistant deputy neutrons, giving it an atomic mass of 312. These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called peons. Since Governmentium has no electrons, it is inert. However, it can be detected as it impedes every reaction with which it comes into contact. A minute amount of Governmentium causes one reaction to take over four days to complete when it would normally take less than a second. Governmentium has a normal half-life of three years; it does not decay, but instead undergoes a reorganization in which a portion of the assistant neutrons and deputy neutrons exchange places. In fact, Governmentium's mass will actually increase over time, since each reorganization will cause more morons to become neutrons, forming isodopes. This characteristic of moron-promotion leads some scientists to speculate that Governmentium is formed whenever morons reach a certain quantity in concentration. This hypothetical quantity is referred to as "Critical Morass". You will know it when you see it.

"Cash for Clunkers" Symbolizes Government Stupidity

A fallacy (one of many) of Keynesian economics is that it incorrectly assumes that consumption is the cause of economic growth rather than the result of economic growth. This leads advocates of this misguided theory to adopt policies designed to get people to spend more - even though economic growth (by definition) is the result of people earning more income. This absurd logical mistake is evident in the cash-for-clunkers debacle, as I explain to Foxnews.com:

...critics have a different view. "This is not good for economic growth," said Dan Mitchell, a senior fellow in economics at the Cato Institute. "You're simply getting people to use existing income to spend on cars. Getting people to spend more of their money on cars mean they will have less money to spend on other things." Economic growth, Mitchell argued, is not getting people to spend more money on products, it's getting them to have more income. Mitchell also believes the program is counterproductive for the auto industry down the road because the acceleration in car purchases will precede a "big downturn in the future." "Giving someone a shot of heroin is not good for their long term health," he told FOXNews.com. The program, Mitchell added, shows that the government is "incompetent."

The Wall Street Journal has the same perspective, noting that the policy is not a success - unless one defines success as getting people to buy things with other people's money:

What the clunker policy really proves is that Americans aren’t stupid and will let some other taxpayer buy them a free lunch if given the chance. The buying spree is good for the car companies, if only for the short term and for certain car models. It’s good, too, for folks who’ve been sitting on an older car or truck but weren’t sure they had the cash to trade it in for something new. Now they get a taxpayer subsidy of up to $4,500, which on some models can be 25% of the purchase price. It’s hardly surprising that Peter is willing to use a donation from his neighbor Paul, midwifed by Uncle Sugar, to class up his driveway. On the other hand, this is crackpot economics. The subsidy won’t add to net national wealth, since it merely transfers money to one taxpayer’s pocket from someone else’s, and merely pays that taxpayer to destroy a perfectly serviceable asset in return for something he might have bought anyway. By this logic, everyone should burn the sofa and dining room set and refurnish the homestead every couple of years.

Last but not least, the CEO of Edmunds, the company that publishes leading car-buying guides, has a column in the Wall Street Journal explaining that even auto companies may come to regret this policy since the net effect seems to be that consumers either postponed or accelerated purchases that would have occurred anyway:

...it’s not clear that cash for clunkers actually increased sales. Edmunds.com noted recently that over 100,000 buyers put their purchases on hold waiting for the program to launch. Once consumers could start cashing in on July 24, showrooms were flooded and government servers were overwhelmed as the backlog of buyers finalized their purchases. Secondly, on July 27, Edmunds.com published an analysis showing that in any given month 60,000 to 70,000 “clunker-like” deals happen with no government program in place. The 200,000-plus deals the government was originally prepared to fund through the program’s Nov. 1 end date were about the “natural” clunker trade-in rate.

Superb Defense of Tax Sovereignty in New York Times

Superb Defense of Tax Sovereignty in New York Times. My friend Pierre Bessard of Switzlerand's Liberales Institut has a column in today's New York Times defending financial privacy from the predations of both international bureaucracies and American tax collectors. Pierre sagely notes that the Swiss system respects the privacy of citizens, unlike the "Orwellian" systems in places like America. This approach results in a very high level of tax compliance in Switzerland, and also provides a refuge for oppressed people around the world:

...for us here in Switzerland, our financial privacy laws are a foundation for individual dignity and basic property rights. Unfortunately, the confidentiality that is the hallmark of Swiss banking is coming under increasing pressure. ...Earlier this year, Switzerland was put on a “gray list” by the Organization for Economic Cooperation and Development and threatened with financial sanctions, leading the government to provisionally renegotiate tax agreements with a dozen countries so far. ...Switzerland, which is home to an impressive number of global corporations, has also come under fire from the European Union for offering too-favorable tax rules, including exemptions for income earned abroad. But what critics forget is that these practices also benefit other countries. Swiss firms alone employ hundreds of thousands of people in the United States and Germany, for example. Subsidiaries of multinational corporations usually pay income taxes where they operate, so having their headquarters in Switzerland can help companies avoid multiple taxation in high-tax countries, thereby safeguarding productive capital for investment. ...We think government exists to serve us, not the other way around. We understand that we have to pay taxes — and we do, with numerous studies showing that the Swiss are extraordinarily honest about paying what we owe — but we do not think it is the government’s role to intrude on our privacy and wrench them from us. This attitude goes back to Switzerland’s founding in the 13th century. The original Swiss communities’ resentment of what they saw as the Hapsburgs’ oppressive taxes helped push them to claim their independence in 1291. Today, Swiss citizens continue to vote on any tax increases in referendums (and sometimes even accept them). These healthy curbs on government contrast with the Orwellian concept of the “transparent citizen” whose every act is known to government. We see our system as a social pact between citizens and the state. Swiss privacy laws help preserve basic property rights. Bank secrecy was introduced in 1934, most notably to protect the identities and assets of Jews in Nazi Germany. ...Corruption, expropriation, crime and the persecution of various minorities remain risks in most of the world. For people threatened by such risks, financial privacy can protect their legitimate property. Some would argue that Swiss bank accounts offer the same protections to criminals, but in fact Swiss provisions against money laundering are tough. Swiss bankers are required to know their clients and the origin of the funds they accept. They must alert the regulators if they suspect criminal behavior. Banking confidentiality enjoys overwhelming support in Switzerland. According to the latest annual survey by the polling firm M.I.S. Trend, 78 percent favor maintaining the laws as they are, and 91 percent are shown to value their financial privacy.

I make many of the same points in a three-part video series produced by the Center for Freedom and Prosperity. With so-called tax havens under increasing pressure, this is a good time to review The Economic Case for Tax Havens, The Moral Case for Tax Havens, and Tax Havens: Myths v Facts.

Defending Free Markets on CNBC

I had to miss part of Cato University for this, so I hope it was worthwhile.

Talking Taxes with Investor's Business Daily

I wax poetic in a podcast discussion with the folks at Investor's Business Daily. We talk about tax competition, the Laffer Curve, American competitiveness, and the dangers of Obama's class-warfare tax policy.