Overpaid and Undertaxed

I sympathize with almost all taxpayers, but it's difficult to feel sorry for government workers who get in trouble with the IRS. Compensation packages for federal bureaucrats are twice as lucrative as those for workers in the productive sector of the economy and their pensions are similarly extravagant. Yet they often can't be bothered to fully pay their taxes, owing billions of dollars to the IRS according to a Washington Post report. Among the biggest scofflaws are the folks at the Postal Service, who have accumulated more than $283 million of unpaid taxes. Retired bureaucrats, meanwhile, have amassed nearly $455 million of back taxes. Even tax collectors sometimes fall behind. Treasury Department bureaucrats owe $7.7 million. How hard can it be for them to walk down the hallway and cough up? Or do they think they're exempt since their boss barely got a slap on the wrist after "forgetting" to declare $80,000? The most startling part of the story, though, is the degree of tax dodging on Capitol Hill. Here's an excerpt from the story.

Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year... The debt among Hill employees has risen at a faster rate than the overall tax debt on the government's books, according to Internal Revenue Service data. ...The IRS data...shows 638 employees, or about 4 percent, of the 18,000 Hill workers owe money, a slightly higher percentage than the 3 percent delinquency rate among all returns filed nationwide. ..."If you're on the federal payroll and you're not paying your taxes, you should be fired," [Congressman] Chaffetz said in an interview. He said the policy should apply across the board and "there should be no special exemptions."

The shocking part about this blurb, at least to me, is not the 638 staffers who owe money to the IRS. It's the fact that there are 18,000 bureaucrats working for Congress. Do 100 Senators and 435 Representatives really need that many attendants? How I long for the good ol' days, when each politician had about two staffers. I suspect it's no coincidence that the federal government was a much smaller burden back when there were far fewer staff.

U.N. Global Taxes on You and Me Being Decided by Statists such as George Soros and France's Finance Minister

Here's one of those "not just no, but Hell No" issues. The United Nations has put together a group of global collectivists to concoct a plan of global taxes. These new levies, on things such as airfares and energy use, would be used to finance bribes (oops, I mean foreign aid) to lure developing nations into a global warming (oops, I mean climate change) regime.

Carbon taxes, add-ons to international air fares and a levy on cross-border money movements are among ways being considered by a panel of the world's leading economists to raise a staggering $100 billion a year to fight climate change. British economist Nicholas Stern told international climate negotiators Thursday that government regulation and public money also will be needed to create incentives for private investment in industries that emit fewer greenhouse gases. In short, a new industrial revolution is needed to move the world away from fossil fuels to low carbon growth, he said. "It will be extremely exciting, dynamic and productive," said Stern, one of 18 experts in public finance on an advisory panel appointed by U.N. Secretary-General Ban Ki-moon. A climate summit held in Copenhagen in December was determined to mobilize $100 billion a year by 2020 to help poor countries adapt to climate change and reduce emissions of carbon dioxide trapping the sun's heat. But the 120 world leaders who met in the Danish capital offered no ideas on how to raise that sum — $1 trillion every decade — prompting Ban to appoint his high-level advisory group. ...The advisory panel is chaired by the prime ministers of Norway and Ethiopia and the president of Guyana. Its members include French Finance Minister Christine Lagarde, White House economic adviser Lawrence Summers, billionaire financier George Soros and public planners from China, India, Singapore and several international banks.

Forget LeBron, the U.K.'s Crazy Tax Laws Are Chasing Away the World's Fastest Man

The tax benefits of LeBron James' move to Miami have received a lot of attention, but there's an even more interesting case on the other side of the Atlantic. The tax laws in the United Kingdom are so punitive that Usain Bolt might actually lose money if he took a big check for competing in England next month. The Tax-news.com story excerpted below reveals that many global superstars already avoid or minimize their appearance in Britain. Indeed, the top English soccer league is losing players to leagues in other nations for the same reason. The only silver lining to the story is that the U.K. government has decided to grant occasional exemptions for things like the 2012 Olympics. Wouldn't it be a better idea, though, to just get rid of the bad worldwide tax policy that is causing all the mess?

World and Olympic sprint champion Usain Bolt may pull out of a major sprint meeting in London next month because of Britain’s severe tax rules for foreign sportsmen and women. Jamaican Bolt was expected to line up against fellow stars Tyson Gay and Asafa Powell at the Crystal Palace event but faces a situation whereby he may pay more in UK tax than he actually earns from appearing in the event. This situation stems from a House of Lords ruling against tennis star Andre Agassi in 2006, which allows HM Revenue and Customs to impose tax on a portion of foreign endorsement earnings relating to performance of the endorsement contract in the UK. Other sporting stars have already curtailed their appearances in the UK for the same reason, among them Spanish golf star Sergio Garcia, who now restricts his UK appearances to once per year in the British Open. There was some concern in sporting circles that the tax burden would mean that some of the world’s top stars may decide not to appear at the 2012 Olympic Games in London. HMRC has granted an exemption for this event and for next year’s Champions League Final to be held at Wembley, but refuses to grant individual exemptions. Writing in the Daily Telegraph, Mike Warburton, Tax Director at Grant Thornton, called the rule "stupid" and "damaging" to Britain's sporting reputation and its economy.

Greetings from El Salvador

I just gave a speech sponsored by the Chamber of Commerce about ideal fiscal policy. El Salvador, like many developing nations, has a small burden of government according to fiscal statistics. But that is largely because the government collects very little revenue thanks to pervasive tax evasion and a huge underground economy. I explained that there are two good ways to reduce tax evasion and one bad way to address the issue.

The bad way is to expand the size and power of the tax police. This approach may force people to be more honest about declaring their income, but it also will lead them to decide to earn less income. And since slavery is no longer legal, there's no way for a government or its tax police to force people to produce.

The two good ways of reducing tax revenue, by contrast, are desirable even if there is no tax evasion.

The first option is lower tax rates. When tax rates are low, people have much less incentive to evade and avoid. But the best thing about low tax rates is that they encourage more national income. If El Salvador wants to become more prosperous, there is no shortcut. By definition, economic growth occurs when national income rises.

The second option is to reduce the size and scope of government so that it focuses on the provision of genuine public goods such as rule of law. There is good academic evidence that people are much more likely to pay tax when they perceive that they are getting something of value in exchange for their tax dollars. Income redistribution programs fail that test. The recipients feel they are getting something of value, of course, but they are not taxpayers. The people paying taxes to finance welfare, by contrast, correctly perceive that government is spending money improperly.

These lessons are very important for developing nations such as El Salvador, but they also apply in more developed nations. Greece shows what happens when a supposedly prosperous nation goes too far down the path of tax-and-spend. Unfortunately, the United States appears to be making the same mistakes.

Should the United Nations Get to Tax the Internet, ATM Withdrawals, and Air Travel?

Here's a very disturbing report from Foxnews.com about a scheme at the United Nations to impose global taxes. This has been a long-time dream of the bureaucrats, who (naturally) are exempt from paying tax themselves. Here's a link to a study I wrote on a separate UN tax threat nearly 10 years ago, and here's an excerpt from the Foxnews.com story:

The World Health Organization (WHO), the United Nations' public health arm, is moving full speed ahead with a controversial plan to impose global consumer taxes on such things as Internet activity and everyday financial transactions like paying bills online — while its spending soars and its own financial house is in disarray. The aim of its taxing plans is to raise "tens of billions" of dollars for WHO that would be used to radically reorganize the research, development, production and distribution of medicines around the world, with greater emphasis on drugs for communicable diseases in poor countries. The irony is that the WHO push to take a huge bite out of global consumers comes as the organization is having a management crisis of its own, juggling finances, failing to use its current resources efficiently, or keep its costs under control — and it doesn't expect to show positive results in managing those challenges until a year from now, at the earliest. ...the proposals are headed for the four-day annual meeting of the 193-member World Health Assembly, WHO's chief legislative organ, which begins in Geneva on May 17. ...What truly concerns the experts, however, is how to get the wealth transfers that will make the R and D transfers possible — on a permanent basis. The panel offers up a specific number of possibilities. Chief among them: • a "digital" or "bit" tax on Internet activity, which could raise "tens of billions of U.S. dollars"; • a 10 percent tax on international arms deals, "worth about $5 billion per annum"; • a financial transaction tax, citing a Brazilian levy that was raising some $20 billion per year until it was canceled (for unspecified reasons); • an airline tax that already exists in 13 countries and has raised some $1 billion. Almost casually, the panel's report notes that the fundraising effort would involve global changes in legal structures — and policing. As the report puts it: "Introducing a new tax or expanding an existing tax may require legal changes, nationally and internationally and ongoing regulation to ensure compliance."

Pelosi and Dems Looking at Global Tax on Financial Transactions

Imagine if the government got to pick your pocket every time you engaged in a financial transaction? That nightmare scenario is a distinct possibility now that senior Democrats have joined with Eruopean politicians and urged that such a tax be applied on a worldwide based. Reuters has the disturbing details:

Any tax imposed on financial transactions would have to take effect internationally to keep Wall Street jobs and related business from moving overseas, U.S. House of Representatives Speaker Nancy Pelosi said on Thursday. "It would have to be an international rule, not just a U.S. rule," Pelosi said at a news conference. "We couldn't do it alone, we'd have to do it as an international initiative." Several House Democrats have proposed a Wall Street tax to pay for job-creating legislation they plan to pass in December. The tax, which could raise $150 billion per year, would tap into widespread public outrage at Wall Street in the wake of the financial crisis. ...The No. 4 Democrat in the House, Representative John Larson, said his proposal to impose a 0.25 percent tax on over-the-counter derivatives transactions would apply internationally. "Part of our proposal would include that it would be international," Larson told Reuters after meeting with other lawmakers about the jobs package. Democratic Representative Peter DeFazio said his separate proposal, which would tax a wider array of trading activity, would cover all U.S. corporations and individuals no matter where their trades took place. ...Britain urged other governments earlier this month to consider a bank tax as a way to fund future bailouts, and France and Germany have also called for a bank tax. The International Monetary Fund is studying the idea.

Obama Administration Defends Tax Competition

Since the Treasury Department is still very much on the wrong side of the OECD anti-tax competition campaign, don't get too excited about the headline. But it is still nice to see that Tim Geithner and the rest of the crowd in the Obama Administration are not so hopelessly statist that they are willing to go along with a global tax on financial transactions. The Wall Street Journal opines:

In the department of bad ideas that won't go away, Exhibit A is a global tax on financial transactions. British Prime Minister Gordon Brown mooted the tax last weekend before the G-20 finance ministers in St. Andrews, Scotland, where he was promptly rebuffed by Treasury Secretary Timothy Geithner. ...it's easy to see why high-tax countries such as France and Germany relish the idea. Tax competition is a bête noire for the Western European countries whose governments eat up close to half of their economies. The U.K. is back in that club after the post-financial-panic recession lopped 6% off its GDP. Scrambling for revenue—and unwilling to hamstring London markets alone—Mr. Brown is suddenly promoting global tax coordination. ...Like all tax-harmonization schemes, the Tobin levy is designed to raise taxes above a level that is hard to sustain in a competitive world. This is why its backers have always insisted on a global imposition of the tax. Kudos to Secretary Geithner for offering Mr. Brown a reality check.