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Archive for the ‘Japan’ Category

The title of this post sounds like the beginning of a strange joke, but it’s actually because we’re covering three issues today.

Our first topic is corporate taxation. More specifically, we’re looking at a nation that seems to be learning that it’s foolish the have a punitive corporate tax system.

By way of background, the United States used to have the second-highest corporate tax rate in the developed world.

But then the Japanese came to their senses and reduced their tax rate on companies, leaving America with the dubious honor of having the world’s highest rate.

So did the United States respond with a tax cut in order to improve competitiveness? Nope, our rate is still high and the United States arguably now has the world’s worst tax system for businesses.

But the Japanese learned if a step in the right direction is good, then another step in the right direction must be even better.

The Wall Street Journal reports that Japan will be lowering its corporate tax rate again.

Japan’s ruling party on Tuesday cleared the way for a corporate tax cut to take effect next year… Reducing the corporate tax rate, currently about 35%, is a long-standing demand of large corporations. They say they bear an unfair share of the burden and have an incentive to move plants overseas to where taxes are lower. …Business leaders want the rate to fall below 30% within the next few years and eventually to 25%… The Japan Business Federation, known as Keidanren, says tax cuts could partly pay for themselves by spurring investment. Japan’s current corporate tax rate is higher than most European and Asian countries, although it is lower than the U.S. level of roughly 40%.

If only American politicians could be equally sensible.

The Japanese (at least some of them) even understand that a lower corporate rate will generate revenue feedback because of the Laffer Curve.

I’ve tried to make the same point to American policymakers, but that’s like teaching budget calculus to kids from the fiscal policy short bus.

Let’s switch gears to our second topic and look at what one veteran wrote about handouts from Uncle Sam.

Here are excerpts from his column in the Washington Post.

Though I spent more than five years on active duty during the 1970s as an Army infantry officer and an additional 23 years in the Reserves, I never fired a weapon other than in training, and I spent no time in a combat zone. …nearly half of the 4.5 million active-duty service members and reservists over the past decade were never deployed overseas. Among those who were, many never experienced combat. …support jobs aren’t particularly hazardous. Police officers, firefighters and construction workers face more danger than Army public affairs specialists, Air Force mechanics, Marine Corps legal assistants, Navy finance clerks or headquarters staff officers.

So what’s the point? Well, this former soldier thinks that benefits are too generous.

And yet, the benefits flow lavishly. …Even though I spent 80 percent of my time in uniform as a reservist, I received an annual pension in 2013 of $24,990, to which I contributed no money while serving. …My family and I have access to U.S. military bases worldwide, where we can use the fitness facilities at no charge and take advantage of the tax-free prices at the commissaries and post exchanges. The most generous benefit of all is Tricare. This year I paid just $550 for family medical insurance. In the civilian sector, the average family contribution for health care in 2013 was $4,565… Simply put, I’m getting more than I gave. Tricare for military retirees and their families is so underpriced that it’s more of a gift than a benefit. …budget deficits are tilting America toward financial malaise. Our elected representatives will have to summon the courage to confront the costs of benefits and entitlements and make hard choices. Some “no” votes when it comes to our service members and, in particular, military retirees will be necessary.

The entire column is informative and thoughtful. My only quibble is that it would be more accurate to say “an expanding burden of government is tilting America toward financial malaise.”

But I shouldn’t nitpick, even though I think it’s important to focus on the underlying problem of spending rather than the symptom of red ink.

Simply stated, it’s refreshing to read someone who writes that his group should get fewer taxpayer-financed goodies. And I like the idea of reserving generous benefits for those who put their lives at risk, or actually got injured.

Last but not least, I periodically share stories that highlight challenging public policy issues, even for principled libertarians.

You can check out some of my prior examples of “you be the judge” by clicking here.

Today, we have another installment.

The New York Times has reported that a mom and dad in the United Kingdom were arrested because their kid was too fat.

The parents of an 11-year-old boy were arrested in Britain on suspicion of neglect and child cruelty after authorities grew alarmed about the child’s weight. The boy, who like his parents was not identified, weighed 210 pounds. …In a statement, the police said that “obesity and neglect of children” were sensitive issues, but that its child abuse investigation unit worked with health care and social service agencies to ensure a “proportionate and necessary” response. The police said in the statement that “intervention at this level is very rare and will only occur where other attempts to protect the child have been unsuccessful.”

So was this a proper example of state intervention?

My instinct is to say no. After all, even bad parents presumably care about their kids. And they’ll almost certainly do a better job of taking care of them than a government bureaucracy.

But there are limits. Even strict libertarians, for instance, will accept government intervention if parents are sadistically beating a child.

And if bad parents were giving multiple shots of whiskey to 7-year olds every single night, that also would justify intervention in the minds of almost everybody.

On the other hand, would any of us want the state to intervene simply because parents don’t do a good job overseeing homework? Or because they let their kids play outside without supervision (a real issue in the United States, I’m embarrassed to admit)?

The answer hopefully is no.

But how do we decide when we have parents who are over-feeding a kid?

My take, for what it’s worth, is that the size of kids is not a legitimate function of government. My heart might want there to be intervention, but my head tells me that bureaucrats can’t be trusted to exercise this power prudently.

P.S. I guess “bye bye burger boy” in the United Kingdom didn’t work very well.

P.P.S. But the U.K. government does fund foreign sex travel, and that has to burn some calories.

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If you have any long-term Japanese investments, sell them soon.

How do you say “Barack” in Japanese?

In part, that’s because the Japanese Prime Minister announced another Keynesian spending binge earlier this year – even though several so-called stimulus plans in Japan have flopped over the past two decades (Keynesian economics doesn’t work anywhere, but that’s a topic for another day).

Adding to the burden of government spending is not exactly prudent behavior for a nation that already has the highest level of debt among all industrialized countries.

But the main reason I’m so pessimistic about Japan is that the government has decided to deal with the problem of runaway government spending by imposing  permanently higher taxes on the private sector.

I’m not kidding. Let’s look at parts of a recent Reuters report.

Japan’s Prime Minister Shinzo Abe will…raise the national sales tax to 8 percent in April from 5 percent, a final draft of the government economic plan, seen by Reuters, shows.

Cartoon Fiscal Cliff 3

Japan’s government isn’t even pretending to restrain spending!

And to make a bad situation even worse, some of the money will be used for yet another faux stimulus package.

Abe ordered his government to compile the stimulus package to be announced on Tuesday. It features public-works spending for the 2020 Tokyo Olympics.

The main problem, though, is that Japan’s real fiscal problem is an ever-increasing burden of government spending. The tax increase won’t solve that problem. Indeed, it will give politicians an excuse to postpone much-need reforms.

Surprisingly, the Reuters report acknowledges these problems.

The government has done little to rein in spending…, so some critics doubt Tuesday’s move will be enough to get Japan on track to achieve its goal of halving the budget deficit – excluding debt service and income from debt sales – by the fiscal year to March 2016 and balance it five years later. …any improvement in government revenue from the tax increase is likely to be quickly overwhelmed by expenditures in a country where a rapidly ageing society and generous public services are blowing an ever-bigger hole in the budget.

Time to “decisively” raise taxes!

So why is the Prime Minister doing something that won’t work? Apparently this shows he is decisive. This is not a joke.

…pressing ahead with the tax hike bolsters the image Abe has sought to foster of a decisive leader, withstanding opposition from his advisers and some of his own party.

Gee, isn’t it wonderful that Japan’s Prime Minister decisively wants to do the wrong thing and decisively put his nation deeper in a ditch.

While rational people are puzzled by the Japanese government’s self-defeating decision to raise taxes, there is one group that is cheering. Here are some excerpts from Tax-News.com about the head bureaucrat from the OECD applauding the greed of Japan’s political class.

The Secretary General of the Organization for Economic Cooperation and Development Angel Gurria has warmly welcomed the announcement from Japanese Prime Minister Shinzo Abe that the nation will raise its consumption tax from its current five percent levy to eight percent from April 2014. …”As Abe himself has noted, this increase is essential to maintain confidence in Japan and establish a social security system that is sustainable for future generations. I congratulate Prime Minister Abe for this important step and also encourage the government to complete the second hike in the consumption tax rate to 10 percent in 2015.”

So the OECD wants a hike in the VAT now…and another one in just two years. I’m sure Japanese taxpayers are overjoyed to be subsidizing a bunch of bureaucrats in Paris (who get tax-free salaries!) who urge more taxes on other people.

But, to be fair, the OECD wants higher taxes for everybody – including more Obama-style class-warfare taxes in America. The bureaucrats even argue that VATs are good for growth and job creation!

My view, for what it’s worth, is that this is another piece of evidence showing that the VAT is a money machine for big government. Not just in Japan, but also in Europe.

And the same would be true in America. This video explains further.

P.S. Here are some examples of how the Japanese government wastes money, though regulation of coffee enemas is my favorite example of government stupidity from Japan.

P.P.S. Click here, here, and here to enjoy some very good cartoons on the VAT.

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Good fiscal policy doesn’t require heavy lifting. Governments simply need to limit the burden of government spending.

The key variable is making sure spending doesn’t consume ever-larger shares of economic output. In other words, follow Mitchell’s Golden Rule.

It’s possible for a nation to have a large public sector and be fiscally stable. Growth won’t be very impressive, but big government doesn’t automatically mean collapse. Sweden and Denmark are good role models for this approach.

And it’s even easier for a jurisdiction to have a small government and be fiscally stable, particularly since less spending and lower taxes are associated with prosperity. Hong Kong, Singapore, and Switzerland are good examples.

Unfortunately, many nations face fiscal death spirals. The burden of government spending keeps climbing, while private sectors gets hit over and over again with higher taxes. This destructive combination inevitably leads to fiscal collapse.

I’ve warned about potential fiscal crises in France, Greece, and the United Kingdom. I’ve even noted that the United States has a very dismal future if government policy stays on autopilot.

More spending and higher taxes!

But Japan may be poster child for reckless and irresponsible tax and spending policy.

Even though the public sector already is far too big and even though the government has incurred more debt than any other developed economy, the new Prime Minster thinks another Keynesian stimulus package is the recipe for economic revival.

I’m not joking. Even though the economy has been stagnant for 20 years – a period that has seen several so-called stimulus schemes, the government wants to throw good money after bad.

You won’t be surprised to learn that the New York Times approves of this new pork-fest.

The $116 billion stimulus package unveiled Friday by Japan’s new prime minister, Shinzo Abe, is a step in the right direction… Mr. Abe’s package of public-works spending…, investment tax credits and more spending on education and health care could help jump start the moribund Japanese economy. … Some forward-looking steps, like expanded health care spending, are already in the stimulus package.

Though if you read the entire editorial, at least the NYT acknowledged that this so-called stimulus should be accompanied by some long-term reforms such as fewer subsidies for politically powerful sectors of the Japanese economy.

Japan’s Fiscal Suicide

Now let’s shift to the tax side of the fiscal equation. We know that Japan has some of the highest tax rates in the industrialized world. Indeed, until last year, Japan was the only nation to have a higher corporate tax rate than the United States.

These high tax rates undermine competitiveness and hamper growth. Simply stated, the government is discouraging work, saving, investment, entrepreneurship, and other productive behaviors.

So what do you think the Japanese government is planning? You guessed it. Even higher tax rates. Here are some excerpts from a story at Tax-news.com.

…the ruling Liberal Democratic  Party (LDP) and its coalition partner, New Komeito, have now turned their attention  to ways to revise taxation, including increased taxes for the wealthiest taxpayers. …While there may be some disagreement within the coalition concerning an inheritance   tax rate rise for the largest estates, which is supported by New Komeito, there   is expected to be less of a problem over raising individual income tax rates   for the highest-earners. A progressive tax package, which might, for example, raise the present highest   40% income tax rate and reduce the JPY50m inheritance tax exemption amount,   is likely to be announced at a coalition meeting expected later this month.

I’m not going to pretend that I know when Japan’s economy implodes, but I think that collapse is almost inevitable at this point. Class warfare tax policy and Keynesian fiscal policy are not a recipe for a good outcome.

The real mystery is why both a state and a nation on the other side of the Pacific Ocean want to copy Japan’s suicidal fiscal policy?

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For years, I’ve been warning that a value-added tax (VAT) would be a terrible idea. Simply stated, politicians would have no reason to control spending or reform entitlements if they had a new source of tax revenue.

In this video, I explain why this European-style national sales tax is a money machine for bigger government.

Japan’s politicians are confirming my argument. Here are some details from a new report in the Wall Street Journal.

Japan’s parliament passed a landmark tax bill Friday, finalizing the legal framework to double the nation’s sales tax by 2015 as a step toward fiscal reconstruction. The upper house enactment of the contentious bill marks the end of Prime Minister Yoshihiko Noda’s tortuous 12-month road to raise the tax to 8% in April 2014 and 10% in October 2015. …The sales tax hike will be the first since 1997, when the rate was raised to the current 5% from 3%.

Wow, more than tripling the tax between 1997 and 2015. I wonder how long it will take Japan’s political class to boost the rate to 20 percent?

But that’s only part of the story.

Mr. Noda also had to promise to dissolve the lower house “in the near term” in exchange for…endorsement of the bill in the opposition-controlled upper house.

Wow, if I’m reading that passage correctly, it sounds like Prime Minister Noda is willing to lose power in order to impose this new tax. This shows an amazing amount of greed for new revenue.

I’m surprised, though, that his party didn’t kick him out and elect a new leader. They must be as politically incompetent as the supposedly right-wing party in Slovakia that surrendered power to the socialists in order to get support for the Greek bailout.

However, the WSJ article also suggests that the tax is not a done deal.

The bill includes a provision making an “economic upturn” a condition for implementing the rate hike. The government refused to specify in the bill exactly what an upturn entails, and lawmakers have different interpretations. DPJ tax policy chief Hirohisa Fujii told Dow Jones that only an economic shrinkage of 3% or more should prevent the tax increase from taking place.

Isn’t that remarkable. This onerous tax hike can only go into effect if there’s an “economic upturn,” and one of the sleazy politicians from the ruling party is defining an economic contraction of -2.99 percent as meeting that test.

Sound like Mr. Fujii should become friends with the Obama Administration officials who relied on Keynesian economic theory to concoct an infamous prediction that unemployment would never rise above 8 percent if Washington squandered more than $800 billion on a faux stimulus.

But if he’s smart, Mr. Fujii will grab as much loot as possible and emigrate. Japan’s long-term finances are a disaster, and the VAT increase is a pretty good sign that politicians have no intention of turning the ship of state before it rams the fiscal iceberg.

And now you’ll understand even more why I’m worried about the pro-VAT sympathies of Mitt Romney and Paul Ryan.

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Last year, I expressed skepticism that the White House was serious about reducing the corporate tax rate. And, sure enough, when the Obama Administration produced a plan earlier this year, it was a disappointing mix of a few good provisions and several unpalatable proposals.

This is unfortunate because the United States has one of the most punitive corporate tax systems in the developed world. Indeed, every singe European welfare state has a lower corporate tax rate than America – even leftists nations such as France and Sweden!

For a long time, only Japan imposed a more onerous tax rate than the United States. But even that now has changed. After toying with the idea since 2010, the Japanese government finally pulled the trigger and reduced the nation’s tax rate.

Here’s a brief blurb from Reuters.

The United States will hold the dubious distinction starting on Sunday of having the developed world’s highest corporate tax rate after Japan’s drops to 38.01 percent… Japan’s reduction , prompted by years of pressure from Japanese politicians hoping to spur economic growth, will give that country the world’s second-highest rate. …The average 2012 corporate tax rate for the 34 developed countries is 25.4 percent, according to the Organization for Economic Co-operation and Development.

That leaves America in the unenviable position of having the developed world’s highest corporate tax rate, somewhere between 39 percent-40 percent. This video explains why this isn’t a good idea.

It was my very first video, so it’s not a polished product, but the information is right on the mark.

The moral of the story is very straightforward. A high corporate tax rate is a self-imposed wound to American competitiveness. But that’s only part of the story. America also has a “worldwide” tax system, which forces U.S. companies to suffer a big disadvantage when trying to compete for market share in other nations.

No wonder even officials from the Clinton Administration have begun to argue that the corporate tax rate should be significantly lowered.

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There are several semi-permanent fiscal policy fights in Washington, most of which somehow are related to the big issue of whether government should be bigger or smaller.

Today, I want to focus on two of those battles, and point to developments in Japan to make the case that the left is wrong.

First, let’s look at a couple of sentences from a Wall Street Journal story about Japanese fiscal policy.

Top officials from Japan’s government and ruling party formally endorsed a revised bill to double the country’s sales tax, despite strong objections from other party members, in a sign of their determination to rein in the nation’s soaring public debt. …The legislation will double the current 5% sales tax in two stages by 2015 as a way to help pay for the nation’s growing social welfare costs as the population ages.

I realize I’m a strange person and I look at everything through a libertarian lens, but I think this story provides strong support for my viewpoint on two important issues.

1. Higher taxes lead to higher spending – Just like in the United States, politicians in Japan claim that they have to raise taxes to deal with deficits and debt. Indeed, the excerpt above includes that assertion, reporting that the VAT increase would be “to rein in the nation’s soaring debt.”

I think this is nonsense. Politicians are motivated by a desire to finance bigger government. And that’s what’s happening in Japan. Later in the article, we see that the real purpose of the tax hike is to “pay for the nation’s growing social welfare costs.”

2. The VAT is a money machine for big government – I’ve cited the European evidence to show that small VATs become big VATs in part because it is a hidden tax. My statist friends often respond by saying I need to look at Japan, Canada, and Australia, where VATs haven’t been increased. I then respond by saying it’s just a matter of time. So, even though I would like to be wrong, Japan is confirming my fears.

That being said, I must acknowledge the possibility that Canada and Australia may prove me wrong. And I will be happy if that’s what happens. Both nations have done a pretty good job of restraining the growth of government (see Table 25 of this OECD data), and I don’t see any immediate threat of VAT hikes. But I’m not holding my breath for what happens 10 years from now.

Last but not least, I’ve decided the title of this post is inaccurate. The left isn’t wrong. They know the higher taxes lead to higher spending, and they know the VAT is a money machine for big government. They just don’t publicly admit these are the results they want.

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In a recent column for the Wall Street Journal, I explained why Mitt Romney’s interest in a value-added tax is deeply troubling.

One of my key points was that the VAT is a money machine for big government.

But don’t believe me. Look at Japan, where the politicians see increases in the VAT as a way of financing a much larger burden of government spending. Here’s some of what is being reported by Bloomberg.

Noda reshuffled his cabinet last week, aiming to win support for doubling Japan’s 5 percent national sales tax by 2015… Japan’s finances are “getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P… Japan’s aging population is also weighing on Noda’s struggle to achieve fiscal health. Social-security expenses have more than doubled in two decades and will account for 52 percent of general spending for the year starting in April, according to a budget proposal the cabinet approved last month.

The key point in this excerpt is that the VAT is a substitute for entitlement reform. Without the VAT, politicians might actually reform the welfare state. But because of the VAT, they want to take the easy (but extremely destructive) route and boost the tax burden.

This is why I get so agitated about the threat of a VAT in America, as illustrated by this recent appearance on Larry Kudlow’s show.

By the way, you won’t be surprised to know that the fiscal pyromaniacs at the International Monetary Fund support a bigger tax burden in Japan. Here’s another passage from the Bloomberg story.

The International Monetary Fund has said a gradual increase of Japan’s sales tax to 15 percent “could provide roughly half of the fiscal adjustment needed to put the public-debt ratio on a downward path.”

Isn’t it nice that we give these international bureaucrats big tax-free salaries so they can run around the world pushing for bailouts and higher taxes.

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Last January, I identified five things that worried me for 2011. Here’s what had me concerned, along with some ex post facto analysis about whether I was right to fret:

1. A back-door bailout of the states from the Federal Reserve – Thankfully, I was way off base with this concern. Not only was there no bailout, but Congress even got rid of Obama’s wretched “build America bonds.”

2. A front-door bailout of Europe by the United States – The bad news is that there have been bailouts of Greece, Ireland, and Portugal via the clowns at the IMF. The good news is that the bailouts haven’t been as big or extensive as I originally feared.

3. Republicans getting duped by Obama and supporting a VAT – I was needlessly concerned about a VAT sellout, but I was right to worry about tax increases. GOPers repeatedly expressed willingness to surrender, notwithstanding their anti-tax hike promises.

4. Regulatory imposition of global warming policy – The EPA has been busy imposing lots of costly regulation, but it appears that my fears on this issue were misplaced.

5. U.N. control of the Internet – As far as I can tell, the statists did not make any progress on this issue, so my concerns were unfounded.

This year, I’m not going to put together a list of things that should make us worry. After all, we should always be concerned. As Thomas Jefferson is reported to have warned, “eternal vigilance is the price of liberty.” And Gideon Tucker correctly noted that, “No man’s life, liberty, or property are safe while the legislature is in session.”

Instead, I’m going to come up with a list of predictions. But I won’t try to predict the economy. As I already have explained, economists are lousy short-term forecasters. If we actually knew what was going to happen, we’d be rich.

So here are some policy and political predictions for 2012.

1. Obama will win reelection – Unless I’m wildly wrong, Romney will be the nominee, and he is a very uninspiring choice. That gives Obama somewhat of an advantage. More important, I think the unemployment rate will continue to drift downwards (even if only because workers get discouraged and drop out of the labor force) and that will allow Obama to claim – with lots of help from the media – that his policies have started to work.

2. Greece will drop the euro – Politicians have three ways of financing government spending. They can tax, they can borrow, and they can print money. Nations such as Greece already impose stifling tax burdens and further tax increases probably would reduce revenue because of the Laffer Curve. Nations such as Greece already are so indebted that nobody will lend them money, especially since they’ve already defaulted on existing debt payments. This means Greece has to go with the final option and drop the euro so it can print lots of drachmas.  (Greece could solve its problems by cutting spending, of course, but let’s not engage in ridiculous fantasy).

3. At least one major European nation will default – Yes, the Baltic nations have shown it is possible to make real spending cuts and restore fiscal stability, but I don’t expect other European nations to learn from those success stories. So the only question is whether nations such as Spain and Italy default right away, or whether they get additional bailouts that set the stage for even bigger defaults in the future. The answer probably depends on Germany, and I’m guessing Merkel will finally do the right thing (if only for political reasons) and reject additional bailouts.

4. China and Japan have major problems, but will survive 2012 without crisis – I’ve already written that I’m not overly impressed by China and that I think there’s a bubble in the Chinese economy. And I’ve commented on the enormous debt burden in Japan. But even though I think both nations are very vulnerable to economic trouble, I’m going out on a limb and predicting that they’ll make it through this year without a major problem.

5. The Georgia Bulldogs will win college football’s national championship, demonstrating that there is justice in the universe.

P.S. I have been somewhat accurate in my election predictions and I’ve been getting some requests to predict what will happen in Iowa. If I get motivated, I may do that on Tuesday morning.

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Thanks to decades of reckless spending by European welfare states, the newspapers are filled with headlines about debt, default, contagion, and bankruptcy.

We know that Greece and Ireland already have received direct bailouts, and other European welfare states are getting indirect bailouts from the European Central Bank, which is vying with the Federal Reserve in a contest to see which central bank can win the “Most Likely to Appease the Political Class” Award.

But which nation will be the next domino to fall? Who will get the next direct bailout?

Some people think total government debt is the key variable, and there’s been a lot of talk that debt levels of 90 percent of GDP represent some sort of fiscal Maginot Line. Once nations get above that level, there’s a risk of some sort of crisis.

But that’s not necessarily a good rule of thumb. This chart, based on 2010 data from the Economist Intelligence Unit (which can be viewed with a very user-friendly map), shows that Japan’s debt is nearly 200 percent of GDP, yet Japanese debt is considered very safe, based on the market for credit default swaps, which measures the cost of insuring debt. Indeed, only U.S. debt is seen as a better bet.

Interest payments on debt may be a better gauge of a nation’s fiscal health. The next chart (2011 data) shows the same countries, and the two nations with the highest interest costs, Greece and Ireland, already have been bailed out. Interestingly, Japan is in the best shape, even though it has the biggest debt. This shows why interest rates are very important. If investors think a nation is safe, they don’t require high interest rates to compensate them for the risk of default (fears of future inflation also can play a role, since investors don’t like getting repaid with devalued currency).

Based on this second chart, it appears that Italy, Portugal, and Belgium are the next dominos to topple. Portugal may be the best bet (no pun intended) based on credit default swap rates, and that certainly is consistent with the current speculation about an official bailout.

Spain is the wild card in this analysis. It has the second-lowest level of both debt and interest payments as shares of GDP, but the CDS market shows that Spanish government debt is a greater risk than bonds from either Italy or Belgium.

By the way, the CDS market shows that lending money to Illinois and California is also riskier than lending to either Italy or Belgium.

The moral of the story is that there is no magic point where deficit spending leads to a fiscal crisis, but we do know that it is a bad idea for governments to engage in reckless spending over a long period of time. That’s a recipe for stifling taxes and large deficits. And when investors see the resulting combination of sluggish growth and rising debt, eventually they will run out of patience.

The Bush-Obama policy of big government has moved America in the wrong direction. But if the data above is any indication, America probably has some breathing room. What happens on the budget this year may be an indication of whether we use that time wisely.

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Too bad the gift-giving season is already over. Thanks to this story about three men who were arrested by Japanese police for providing coffee enemas without regulatory approval, I now know that I could have purchased a “rectal infusion kit” for only $110. But since Senator Reid will still be around next Christmas, let’s focus on the public policy angle and ask ourselves why Japan’s government has licensing rules for coffee enemas?

In almost all cases, licensing rules are imposed by governments to protect politically powerful providers in a certain industry. The Institute for Justice has done heroic work on this issue, and they are always fighting to break up government-sanctioned cartels that limit competition, lead to higher prices, and make it hard for new providers to enter the market.

I’m sure these Japanese rules exist to unfairly enrich that nation’s medical profession. I can’t help but wonder, though, whether Japan’s bureaucrats have covered all the bases. Are tea enemas also covered by the regulations? What about if you use “fair trade certified” coffee from Starbucks? Are people allowed to buy toilets with built-in enemas? And what about bidets? Surely regular people can’t be trusted to operate such equipments without some sort of government involvement!

So many…um…fascinating questions to ponder. Anyhow, here’s a blurb from the story.

Police in Chiba Prefecture arrested three men this month on suspicion of violating Japan’s Medical Practitioners Law by providing coffee enemas without the proper medical qualifications, according to local media reports. Chikayoshi Hishiki (55) and two associates offered coffee-based enemas as a beauty treatment at their now-defunct alternative medicine clinics, according to leading daily Sankei Shimbun. The three suspects denied any wrongdoing, claiming they only provided the equipment and cleaned up afterwards, while the clients themselves administered the procedure, the report said. Some Japanese have become interested in filling their bums with java, believing they have discovered a secret dieting technique used by celebrities in the US and Europe.

CYA Disclaimer: Just because the Internet is a handy way of accessing information, that doesn’t mean that everything you read is true. So I make no claims that this story is 100 percent true, though governments are so stupid that I’m guessing it is accurate.

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Sometimes it’s not a good idea to be at the top of a list. And now that Japan has announced a five-percentage point reduction in its corporate tax rate, the United States will have the dubious honor of imposing the developed world’s highest corporate tax rate. Here’s an excerpt from the report in the New York Times.

Japan will cut its corporate income tax rate by 5 percentage points in a bid to shore up its sluggish economy, Prime Minister Naoto Kan said here Monday evening.Companies have urged the government to lower the country’s effective corporate tax rate — which now stands at 40 percent, around the same rate as that in the United States — to stimulate investment in Japan and to encourage businesses to create more jobs. Lowering the corporate tax burden by 5 percentage points could increase Japan’s gross domestic product by 2.6 percentage points, or 14.4 trillion yen ($172 billion), over the next three years, according to estimates by Japan’s Trade Ministry. …In a survey of nearly 23,000 companies published this month by the credit research firm Teikoku Data Bank, more than 44 percent of respondents cited lower corporate taxes as a prerequisite to stronger economic growth in Japan. …A 5 percentage-point tax rate cut is unlikely to do much to solve Japan’s woes, however. An effective corporate tax rate of 35 percent would still be higher than South Korea’s 24 percent or Germany’s 29 percent, for example. …Meanwhile, the government is trying to offset lost tax revenue with tax increases elsewhere, which could blunt the effect of reduced corporate tax burdens.

I suspect the Japanese government’s estimate of $172 billion of additional output is overly generous. After all, the corporate tax rate in Japan will still be very high (the government originally was considering a bigger cut). And foolish Japanese politicians will probably raise taxes elsewhere. But there will be some additional growth since the corporate tax rate is an especially damaging way to collect revenue.

But I’m not losing sleep about Japan’s economic future. I hope they do well, of course, but my bigger concern is the American economy. The U.S. corporate tax rate of nearly 40 percent (including state corporate burdens) already is far too high, particularly since America adds to the competitive disadvantage of U.S.-domiciled firms by being one of the few nations to impose an extra layer of tax on foreign-source income. Japan’s proposed rate reduction, however,  means the high tax rate in America will be an even bigger hindrance to job creation.

It’s also worth noting that the average corporate tax rate in Europe has now dropped to less than 24 percent, so even welfare states have figured out that a high tax burden on business doesn’t make sense in a competitive global economy.

Sometimes you can fall farther behind if you stand still and everyone else moves forward. That’s a good description of what’s happening in the battle for a pro-growth corporate tax system. By doing nothing, America’s self-destructive corporate tax system is becoming, well, even more destructive.

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The news that China has surpassed Japan as the world’s second-largest economy has generated a lot of attention. It shouldn’t. There are roughly 10 times as many people in China as there are in Japan, so the fact that total gross domestic product in China is now bigger than total gross domestic product in Japan is hardly a sign of Chinese economic supremacy. Yes, China has been growing in recent decades, but it’s almost impossible not to grow when you start at the bottom – which is where China was in the late 1970s thanks to decades of communist oppression and mismanagement. And the growth they have experienced certainly has not been enough to overtake other nations based on measures that compare living standards. According to the World Bank, per capita GDP (adjusted for purchasing power parity) was $6,710 for China in 2009, compared to $33,280 for Japan (and $46,730 for the U.S.). If I got to choose where to be a middle-class person, China certainly wouldn’t be my first pick.

This is not to sneer at the positive changes in China. Hundreds of millions of people have experienced big increases in living standards. Better to have $6,710 of per capita GDP than $3,710. But China still has a long way to go if the goal is a vibrant and rich free-market economy. The country’s nominal communist leadership has allowed economic liberalization, but China is still an economically repressed nation. Economic Freedom of the World ranks China 82 out of 141, just one spot above Russia, and the Index of Economic Freedom has an even lower score, 140 out of 179 nations.

Hopefully, China will continue to move in the right direction. As Jonah Goldberg notes in his Townhall column, it is good for America to have China become a more prosperous nation.

Yes, technically, China’s gross domestic product is now slightly ahead of Japan’s. But GDP is a gross statistic. It doesn’t tell you nearly as much as you might think. In a very real way, China is still poorer than Japan. It’s also poorer than Tunisia, Ecuador, Gabon, Kazakhstan and Namibia. …China still has enormous problems, many of which aren’t reflected in its GDP growth rates, and without democracy, a free press and the rule of law, we can’t know what all of the problems are until they explode (and neither can the Chinese). But all of this misses the most important point. Economic “competitiveness” is a con. It assumes that when other countries prosper, America loses. That’s nonsense. If the average Chinese worker were as rich as the average Japanese worker, it would be an economic windfall for the United States. Conversely, if China’s economy imploded tomorrow, we would “gain” competitively but suffer economically. The cult of competitiveness is just a ruse used to justify the ambitions of economic planners and the pundits who worship them.

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The United States has a very anti-competitive corporate tax regime. The federal tax rates is 35 percent and the average of state corporate tax systems brings the rate to nearly 40 percent. In Europe, by contrast, the average corporate tax rate is about 25 percent. Depending on which measure is used, the United States and Japan have been rivals for the dubious prize of having the highest corporate tax rate in the developed world. But that’s about to change. According to a story that I saw linked on the Tax Foundation blog, the new Japanese government intends to lower its corporate tax rate by 10 to 15 percentage points. This means America will have no rivals in the contest for having the most anti-growth business tax system in the world. This is something to keep in mind the next time you hear a politician complaining about jobs going to China and India.

Japan’s new government plans to cut corporate tax closer to international norms as it tries to haul Asia’s biggest economy out of a long slump, the economy minister said in a report Friday. The government is aiming to cut tax on company earnings by five percentage points next fiscal year, from an effective 40 percent now, the Nikkei business daily quoted Economy, Trade and Industry Minister Masayuki Naoshima as saying. “It’s a fact that international corporate tax rates are 10 to 15 points lower than Japan’s,” said Naoshima, who is part of Prime Minister Naoto Kan’s new cabinet sworn in this week. “Over the medium term, the government will aim to bring the rate down to around the global standard,” he said. …”It is now the time to decide (on cutting corporate tax) for the sake of future economic vitality, employment and securing increased tax revenues,” the minister said. “Japan’s economy has basically been in a slump for the past 20 years and people have been overwhelmed by a sense of stagnation.”

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Total government debt is about 115 percent of GDP in Greece, which clearly is one of the factors that spooked investors and led to the bailout. But Japan – at least on paper – is in much worse shape with government debt approaching 200 percent of GDP (see page 80). And with a grim demographic outlook (lots of aging people and comparatively few young people to enter the workforce), the nation’s fiscal position seems dismal. Yet the Japanese government is widely perceived as more trustworthy, particularly by domestic savers who finance much of the government’s debt. At some point, however, one would imagine that the proverbial chickens will come home to roost and Japan will face a fiscal crisis. Here’s some interesting background from a New York Times story:

Seeking to bring its spiraling debt under control, Japan has undertaken an unlikely exercise: lawmakers are forcing bureaucrats to defend their budgets at public hearings and are slashing wanton spending. The hearings, streamed live on the Internet, are part of an effort by the eight-month-old government of Prime Minister Yukio Hatoyama to tackle the country’s public debt, which has mushroomed to twice the size of Japan’s $5 trillion economy after years of profligate spending. Greece’s debt crisis, which has panicked investors and forced the rest of Europe to put together a multibillion-dollar bailout, has fed fears in Tokyo that if spending is unchecked, Japan could become the center of the next global financial crisis. …The target of the most recent hearings, which began Friday, is Japan’s web of quasi-government agencies and public corporations – nonprofits that draw some 3.4 trillion yen ($36 billion) in annual public funds, but operate with little public scrutiny. Critics have long argued that these organizations, many of which offer cushy executive jobs to retired public officials, epitomize the wasteful spending that has driven Japan’s public debt to dangerous levels. The daily testimony by cowering bureaucrats, covered extensively in local media, has given the Japanese their first-ever detailed look at state spending. So far, viewers have looked on in disbelief over the apparent absurdity of some of the government spending. In one example scrutinized on Tuesday, the National Agriculture and Food Research Organization, which is government financed, spent 130 million yen ($1.4 million) last year on a 3-D movie theater used to show footage of scenery from the countryside. The movie dome, which also plays recordings of chirping insects and babbling streams, is closed to the public and is used to study how the human brain reacts to different types of scenery, said Takami Komae, head of the organization’s rural engineering department. The findings will be used to help rural areas think of ways to attract more tourists, he testified. Politicians ridiculed the project. “The dome is located in the countryside anyway, isn’t it?” said Manabu Terada, a Democratic Party lawmaker, at a public hearing in Tokyo. “Can’t we just step outside and see the real thing?” …Under particular scrutiny at the hearings have been the retired ministry officials who take comfortable positions at the government-linked organizations in a practice known as “amakudari,” or “descent from heaven.” The network of these agencies is complex, including 104 large organizations supervised directly by the government and 6,625 smaller public corporations. Critics say that many of the former bureaucrats use their connections in government to win public money for dubious construction and research projects, then delegate the work while their organizations pocket much of the budget as administrative fees. Aki Wakabayashi, an author and former worker at a government-supported labor think tank, has been one of the most fervent critics of government spending on these organizations. In 2001, she blew the whistle on her institute, describing lavish foreign “research” trips for the former bureaucrats leading the institute – complete with first-class air travel and stays in five-star hotels – and clerks who drew researcher salaries while spending their days chatting and reading magazines.

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