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Archive for January 9th, 2012

I’m a big believer in fairness. And since I’ve written about the shortcomings of Newt Gingrich, Mitch Daniels, Ron Paul, Herman Cain, Michele Bachmann, and Mitt Romney, I need to say something about Rick Santorum.

Actually, I don’t need to say anything, because other people have done that job already.

Here’s an excerpt of what Conn Carroll of the Washington Examiner wrote.

“Don’t tread on me” — the rallying cry emblazoned on the Gadsden flag — might as well have been the official motto of the Tea Party. If there is one central theme to the most politically effective movement in recent memory, it’s that the federal government needs to get out of our lives. Which is why it is so disheartening that Rick Santorum has become the supposed conservative alternative to Mitt Romney in the Republican primary. You would be hard-pressed to identify a Republican who better embodied the Bush era’s failed big-government/compassionate conservatism experiment.

Conn’s column includes a list of all the terrible legislation Santorum has supported, so feel free to read the entire article if you want to get depressed.

And here’s some of what Kevin Hassett of the American Enterprise Institute wrote for National Review.

The good news is that much of Santorum’s plan is centered on lowering taxes. The bad news is that much of his tax relief is either welfare in disguise or social engineering. …Santorum would also triple the personal exemption for dependent children while maintaining the earned-income tax credit and the child tax credit. This move would radically reduce the percentage of taxpayers paying any federal income tax whatsoever. Since he would retain most of the other major individual tax deductions, complexity would not be reduced… This plan caters to the fetishistic political focus on giveaways to manufacturing. An optimal code would reward job-creating businesses regardless of their industry. The radical differences between taxes for manufacturing and other activities would introduce perhaps the biggest and most damaging tax distortion in American history. It would also invite endless fraud. As I type this piece, I am manufacturing sentences, am I not? Shouldn’t my income be taxed as manufacturing?

Kevin also points out good features of Santorum’s plan, such as getting rid of the tax penalty on new investment, but concludes that Santorum’s plan is an implausible mess.

Even the people who say nice things about Santorum inadvertently point out bad policies.  Here’s some of what David Brooks wrote as part of a column praising the Pennsylvania Republican.

Santorum has sought to use the federal government to nurture healthy communities. …he came to support AmeriCorps, the federal community service program. Santorum believes Head Start should teach manners to children. He has supported efforts to police the airwaves and corporate marketing campaigns.  …If you believe in the centrality of family, you have to have a government that both encourages marriage and also supplies wage subsidies to men to make them marriageable.

I’m not sure if the last excerpt is something Santorum has endorsed, or if it’s something Brooks is endorsing, but it’s probably the most absurd idea I’ve heard in a long time. Do these people really think it’s the job of the federal government to make men more marriageable? Or that such a program would actually work?

Last but not least, Jon Henke neatly shows what’s wrong with Rick Santorum by juxtaposing two quotes to illustrate the decline of the GOP.

From Ronald Reagan:

If you analyze it I believe the very heart and soul of conservatism is libertarianism. … The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is.

To Rick Santorum:

One of the criticisms I make is to what I refer to as more of a libertarianish right. … This whole idea of personal autonomy, well I don’t think most conservatives hold that point of view. Some do. They have this idea that people should be left alone, be able to do whatever they want to do, government should keep our taxes down and keep our regulations low, that we shouldn’t get involved in the bedroom, we shouldn’t get involved in cultural issues. You know, people should do whatever they want. Well, that is not how traditional conservatives view the world and I think most conservatives understand that individuals can’t go it alone. That there is no such society that I am aware of, where we’ve had radical individualism and that it succeeds as a culture.

Santorum’s straw-man attack on libertarians is especially silly and sophomoric. We want a smaller federal government precisely because we value the institutions of civil society as well as the principle of individual liberty.

Someone who doesn’t understand the value of freedom probably shouldn’t be in the White House. Heck, Santorum probably thinks this satirical video is an accurate portrayal of libertarianism.

But if you want another George W. Bush, feel free to support Santorum.

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I’m not a big fan of Mitt Romney. I hammered him the day before Christmas for being open to a value-added tax, and criticized him in previous posts for his less-than-stellar record on healthcare, his weakness on Social Security reform, his anemic list of proposed budget savings, and his reprehensible support for ethanol subsidies.

But I also believe in being intellectually honest, so I’ll defend a politician I don’t like (even Obama) when they do the right thing or when they get attacked for the wrong reason.

In the case of Romney, some of his GOP opponents are criticizing him for job losses and/or bankruptcies at some of the companies in which he invested while in charge of Bain Capital. But I don’t need to focus on that issue, because James Pethokoukis of AEI already has done a great job of debunking that bit of anti-Romney demagoguery.

In this post, I want to focus on the issue of tax havens.

Regular readers know that I’m a big defender of these low-tax jurisdictions, for both moral and economic reasons, and I guess that reporters must know that as well because I’ve received a couple of calls from the press in recent weeks. But I suspect I”m not being called because reporters want to understand international tax policy. Instead, based on the questions, it appears that the establishment media wants to hit Romney for utilizing tax havens as part of his work at Bain Capital.

As far as I can tell, none of these reporters have come out with a story. And I’m also not aware that any of Romney’s political rivals have tried to exploit the issue.

But I think it’s just a matter of time, so I want to preemptively address this issue. So let’s go back to 2007 and look at some excerpts from a story in the Los Angeles Times about the use of so-called tax havens by Romney and Bain Capital.

While in private business, Mitt Romney utilized shell companies in two offshore tax havens to help eligible investors avoid paying U.S. taxes, federal and state records show. Romney gained no personal tax benefit from the legal operations in Bermuda and the Cayman Islands. But aides to the Republican presidential hopeful and former colleagues acknowledged that the tax-friendly jurisdictions helped attract billions of additional investment dollars to Romney’s former company, Bain Capital, and thus boosted profits for Romney and his partners. …Romney was listed as a general partner and personally invested in BCIP Associates III Cayman, a private equity fund that is registered at a post office box on Grand Cayman Island and that indirectly buys equity in U.S. companies. The arrangement shields foreign investors from U.S. taxes they would pay for investing in U.S. companies. …In Bermuda, Romney served as president and sole shareholder for four years of Sankaty High Yield Asset Investors Ltd. It funneled money into Bain Capital’s Sankaty family of hedge funds, which invest in bonds and other debt issued by corporations, as well as bank loans. Like thousands of similar financial entities, Sankaty maintains no office or staff in Bermuda. Its only presence consists of a nameplate at a lawyer’s office in downtown Hamilton, capital of the British island territory. … Investing through what’s known as a blocker corporation in Bermuda protects tax-exempt American institutions, such as pension plans, hospitals and university endowments, from paying a 35% tax on what the Internal Revenue Service calls “unrelated business income” from domestic hedge funds that invest in debt, experts say. …Brad Malt, who controls Romney’s financial trust, said Bain Capital organized the Cayman fund to attract money from foreign institutional investors. “This is not Mitt trying to do something strange,” he said. “This is Bain trying to raise some number of billions from investors around the world.”

There are a couple of things worth noting about these excerpts.

1. Nobody has hinted that Romney did anything illegal for the simple reason that using low-tax jurisdictions is normal, appropriate, and intelligent for any business or investor. Criticizing Romney for using tax havens would be akin to attacking me for living in Virginia, which has lower taxes than Maryland.

2. Jurisdictions such as Bermuda and the Cayman Islands are good platforms for business activity, which is no different than a state like Delaware being a good platform for business activity. Indeed, Delaware has been ranked as the world’s top tax haven by one group (though American citizens unfortunately aren’t able to benefit).

3. America’s corporate tax system is hopelessly anti-competitive, so it is quite fortunate that both investors and companies can use tax havens to profitably invest in the United States. This helps protect the American economy and American workers by attracting trillions of dollars to the U.S. economy.

These three points are just the tip of the iceberg. Watch this video for more information about the economic benefit of tax havens.

Last but not least, here’s a prediction. I think it’s just a matter of time until Romney gets attacked for utilizing tax havens, though the press may wait until after he gets the GOP nomination.

But when those attacks occur, I’m extremely confident that the stories will fail to mention that prominent Democrats routinely utilize tax havens for business and investment purposes, including as Bill Clinton, John Kerry, John Edwards, Robert Rubin, Peter Orszag, and Richard Blumenthal.

It’s almost enough to make you think this cartoon is correct and that the establishment press is biased.

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