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Archive for July 6th, 2010

My Cato colleague Will Wilkinson is not a big fan of those who oppose illegal immigration, so it is especially interesting that he has a column making the argument that ending “birthright citizenship” would be a positive step. At the risk of over-simplifying his position, he hypothesizes that this reform would defuse the concerns of those who come to America in hopes of mooching from taxpayers. And by allaying this fear, it would make it more feasible to expand mutually beneficial economic ties between the United States and Mexico.  I’ve already posted on some of the historical and legal aspects of this issue. Will’s column explores the consequences of reform.
The proposal to end “birthright citizenship” for the children of unauthorized immigrants springs from less than generous motives, and almost surely runs afoul of the U.S. Constitution. But ending it altogether is a better idea than you might think. (And if you already think it’s a good idea, it’s good for reasons you might find surprising.) For one, it would likely achieve the opposite of its intended result by making America more, rather than less, welcoming to newcomers. …The rule of law demands a clear set of equitable rules that respects and regulates natural patterns of traffic, that sets and sustains long-term expectations, that facilitates and channels the fundamental human inclination to seek out opportunity and the benefits of cooperation. To set up a stop sign every five feet and then to crack down on people who don’t follow the rules misses the point. So does establishing an imaginary line that restricts trade and travel while making a muddle of citizenship. Fortunately, we already have a model of sensible reform from a frequently insensible place – the European Union. By establishing a common labor market in which Americans and Mexicans (Canadians too!) may range freely, living and working where they please, we can channel the commercial energy of integration while maintaining distinctly separate citizenship. Indeed, the feasibility of this arrangement requires maintaining a clear distinction between the right to live and work in another country’s territory and the right to the benefits enjoyed by its citizens. It is a fact of modern life that the redistributive nation-state offers all manner of goods to citizens. To be a citizen of a wealthy country is a lot like being a member of a private club. Yet even the wealthiest national clubs are straining to deliver the benefits promised to members. If a club’s rules permit visitors, invited or not, to mint new members simply by giving birth, cash-strapped current members are bound to object. …not a single EU country has a birthright citizenship rule like that in the U.S. Birthright citizenship made sense for a frontier country with open borders, newly freed slaves, and a small, remote bureaucracy. But the time seems ripe to consider alternatives. …There’s ample reason to believe a change in policy could make America a more immigrant-friendly place while simultaneously restricting the costly benefits of citizenship. Though undocumented immigrants are ineligible for most forms of government assistance, their America-born kids do qualify, which is no doubt an attraction to some prospective immigrant parents. The hard-right Arizona State Sen. Russell Pearce speaks for many Americans when he says birthright citizenship “rewards lawbreakers.” What’s more, because these children, once grown, can sponsor family members for authorized migration, they function as border-spanning bridges over which a retinue of relatives may trod. These relatives, once naturalized, can in turn sponsor aunts and uncles and cousins without end. Hence the fear of the “anchor baby,” a gurgling demographic landmine set to explode into a multi-headed invasion of Telemundo fans.

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I’ve been very dismissive of supposed European “austerity” initiatives, in part because the term seems to describe politicians who want tax-financed government spending rather than Keynesian-style deficit-financed government spending. But what really matters is reducing the burden of government spending, regardless of how those outlays are financed. But if this Financial Times report is true and Germany reduces total government spending next year by 3.8 percent, that would be a significant achievement. Indeed, the United States has not seen a one-year-to-the-next reduction in the burden of spending since the mid-1960s. I hope this is true and my pessimism is unwarranted, but I’m still a skeptic. I may be wrong, but I wouldn’t be surprised to discover that the 3.8 percent cut is based on phony US-style budget accounting (a spending increase magically becomes a spending cut if the increase is not as big as politicians want) or some sort of budget shell game (like Obama’s budget freeze, which exempted the vast majority of the budget).
Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery. Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”. …Germany’s economy is enjoying an industry-led growth spurt, with engineers rehiring workers and returning production almost to pre-crisis levels. The stronger-than-expected growth and falls in unemployment were making it significantly easier for Germany to reduce its public sector deficit. …the package “would differ fundamentally from earlier consolidation efforts”, avoiding “growth-hindering tax increases”. …Overall government spending is seen as falling 3.8 per cent next year, with smaller reductions in subsequent years before federal elections in 2013.

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The Wall Street Journal opines about the latest bone-headed move by New York politicians to drive away productive activity. Connecticut is not exactly a low-tax jurisdiction, but sometimes being less worse is all that’s necessary to win a tax competition battle.
Connecticut Governor Jodi Rell, a Republican who usually doesn’t mind higher taxes…has nonetheless declared a tax-competition border war amid the New York Assembly’s bid “to vastly increase the tax liability of hedge fund professionals who work in New York.” That’s how Mrs. Rell put it in a letter last week to the New York Hedge Fund Roundtable, imploring its members to relocate to her state and offering to do “anything possible to assist you,” including the aid of state “relocation specialists.” …Arguably the hallmark of bad decision-making is whatever they cook up in Albany—which is planning to tax the carried interest income of New York-based hedge fund managers who live out of state at the top ordinary tax rate of 8.97%. …the New York Assembly…thinks it can raise $50 million by targeting bridge-and-tunnel commuters to Manhattan too. It never will, given the mobility of capital. New York City Mayor Michael Bloomberg—who knows the combined city-state top tax rate approaches 13%—told the New York Observer that “I think it’s the best thing that ever happened to Connecticut. I can’t imagine why every hedge fund wouldn’t pick up tomorrow and move.” …Last September—after years of tax-hike plans that fell through—Mrs. Rell and the Democratic legislature raised the top income tax rate to 6.5% from 5% on filers making more than $500,000. The state’s combined state-local tax burden of 11.1% is the third highest in the nation, according to the Tax Foundation, after New York (No. 2) and New Jersey (No. 1). Those sins duly noted, Mrs. Rell is nonetheless right in this case, and you can expect a further migration to the Nutmeg State from the economic nut house that is New York.

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