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Archive for May 23rd, 2010

It may not mean much since the Democratic vote was divided by two candidates, and it is offset by the loss in the Pennsylvania special election, but it must rankle Obama that the GOP won his childhood congressional seat after 20 years of Democratic control. We will see this November whether this is a trend or anomaly:

Djou won with close to 40 percent of the vote in the mail-in special election, beating Democrats Colleen Hanabusa, with 31 percent, and Ed Case, 28 percent. …The applause from Djou’s victory party could be heard six time zones away in Washington, D.C., where national party leaders trumpeted a victory on President Barack Obama’s home turf. “I congratulate Charles Djou for his victory and a successful campaign based on the widely shared values of cutting spending, shrinking government and creating real, permanent American jobs,” said U.S. Rep. Pete Sessions, R-Texas, chairman of the Republican Congressional Campaign Committee.

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A conference in Hungary was the most recent event on the Free Market Road Show. I tried to do something different at this event, focusing mostly on the Laffer Curve as I explained how European governments will fail if they try to fix the over-spending problem by raising taxes.

But regular readers of this blog have been exposed to plenty of Laffer Curve analysis, so allow me instead speculate on the meaning of the recent Hungarian elections, which resulted in a landslide victory for the supposedly right-wing party. With more than two-thirds of seats in Parliament, there is no obstacle to economic reform, and the party campaigned on smaller government and lower tax rates.

But here’s the issues. Is the Fidesz Party a bunch of Bush clones, politicians who talk a good game but then make government bigger once they get in power? Or will the new Prime Minister (who also ruled from 1998-2002) be a principled advocate of freedom who uses his overwhelming mandate to implement a flat tax and reduce the horrific burden of government spending in his country (more than 50 percent of GDP)? I’m not overflowing with optimism, but I hope I’m wrong.

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Richard Rahn’s Washington Times column makes several key points about corporate taxation, including the fact that excessive taxation of capital (the corporate income tax being just one example) is extremely foolish such taxes impose the most damage – per dollar collected – when compared with other forms of revenue. To add injury to injury, the U.S. corporate income tax is especially destructive in a competitive global economy.

The majority of taxaholics are particularly addicted to the most destructive taxes, being the taxes on capital. Up to a point, perfectly sound arguments can be made for taxing tobacco, alcohol, gasoline, etc. However, taxing capital at high rates or double or triple taxing is nothing more than self-destruction. Capital is what business people use to hire workers and purchase new plants and equipment. Taxes on corporations, capital gains, dividends and interest are primarily taxes on capital – and the heavier the tax, the fewer new jobs. In a new report published by the Cato Institute, international tax experts Duanjie Chen and Jack Mintz at the University of Calgary in Canada state that the U.S. “statutory corporate income tax rate is one of the highest in the world…which harms the economy and encourages companies to shift investment and profits abroad to lower-tax jurisdictions.” (See attached chart.)  The authors estimated effective tax rates for 80 countries. (Effective tax rates take into account statutory tax rates plus tax base items that affect taxes paid on new investment, such as depreciation allowances.) They found that the “U.S. effective corporate rate is 35.0 percent, which is much higher than the 80-nation average of just 18.2 percent.”

For a more detailed explanation of why the corporate income tax should be reduced, see the very first video produced by the Center for Freedom and Prosperity. It was supposed to be a test for internal purposes, and the production values are not as advanced (hopefully) as more recent videos, but the message is worth sharing.

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