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Archive for the ‘Slovakia’ Category

I’m not sure I could pick out a significant victory for human freedom in 2012.

Maybe I’m missing something, but the only good policy that’s even worth mentioning was the decision in Wisconsin to rein in the special privileges and excessive compensation for government workers.

But there definitely have been lots of sad developments.

The hard part is picking the most disappointing story.

1. Was it the craven decision by John Roberts to put politics before the Constitution and cast the deciding vote for Obamacare? This certainly could be the most disappointing event of the year, but technically it didn’t represent a step in the wrong direction since the Supreme Court basically gave a green light to unlimited federal power back in the 1930s and 1940s. The Obamacare case is best characterized as a failure to do the right thing. A very tragic decision, to be sure, but it maintained the status quo.

2. Was it the lawless decision by the Internal Revenue Service to impose a horrible regulation that forces American banks to put foreign law above U.S. law? This was a very bad development in the battle for tax competition, financial privacy, and fiscal sovereignty. But in the grand scheme of things, it’s just another in a long line of policies (such as FATCA) designed to increase the power of governments to impose and enforce bad tax policy.

3. Was it the Japanese government’s decision to double the value-added tax? I’m definitely not a fan of adding a VAT on top of the income tax, but Japan made that mistake years ago. The choice to increase the tax rate just shows why it’s dangerous to give politicians any new source of revenue. So this isn’t the worst policy development of 2012, particularly since the new Japanese government may suspend the tax hike.

4. Was it the delusional decision by 54 percent of California voters to impose a big, class-warfare tax hike? I thought the vote for Prop 30 was a very troubling development since it signaled that voters could be tricked into enacting class-warfare tax policy, even though they should have realized that more revenue for the state’s politicians would simply exacerbate the eventual fiscal collapse. But since I think this will be a learning experience on what not to do, I can’t put this at the top of my list.

5. Was it the French government’s punitive decision to impose a 75-percent top tax rate? This is a spectacularly misguided policy, and it’s already resulting in an exodus of entrepreneurs and other successful people. But just as I enjoy have California as a negative role model, I like using France as an example of bad policy. So it would be a bit hypocritical for me to list this as the worst policy of 2012.

6. Or was it the envy-motivated decisions by politicians in both Slovakia and the Czech Republic to replace flat tax systems with so-called progressive tax regimes? This is a strong candidate for the worst policy of the year. It’s very rare to see governments do the right thing, so it’s really tragic when politicians implement good reforms and later decide to reinstate class-warfare policies.

All things considered, I think this last option is the worst policy development of 2012. To be sure, I’m a bit biased since my work focuses on public finance issues and I’ve spent 20 years advocating for tax reform.

But I think there’s a strong case to be made, by anyone who believes in freedom, that politicians from Slovakia and the Czech Republic deserve the booby prize for worst public policy development of 2012.

Alvin Rabushka, sometimes referred to as the Father of the Flat Tax , summarizes the grim news.

On December 4, 2013, the center-left parliament of Slovakia modified the country’s historic 19% flat-rate tax…  Effective January 1, 2013, the income tax rate for corporations was raised from 19% to 23%, while that on individuals earning more than €39,600 (€1=$1.30) a year was raised to 25%, thereby creating two brackets of 19% and 25%. …On November 7, 2012, the lower house (Chamber of Deputies) of the national parliament approved a proposal to impose a second higher rate of 22% on annual income exceeding Czech Koruna (CZK) 100,000 ($5,200) per month.  President Vaclav Klaus signed the bill on December 22, 2012, which will take effect on January 1, 2013.

What’s especially depressing about these two defeats is that the supposedly right-wing parties deserve the blame.

Two nations filled with brain-dead conservative politicians

In Slovakia, all but one of the right-leaning parties in the old government decided to support the Greek bailout, leading to the collapse of the government and the election of a new socialist government that then sabotaged tax reform.

And in the Czech Republic, the current right-of-center government decided to scrap the flat tax for “fairness” reasons. I’m sure that will really be comforting to the Czech people as the economy suffers from less growth.

To understand what the people of those nations are losing, here’s my video on the flat tax.

Now for a bit of good news. There are still more than 25 flat tax jurisdictions in the world, including two of my favorite places – Hong Kong and Estonia.

So there are still some pockets of rationality. It’s just very unfortunate that the scope of human liberty is getting smaller every year.

P.S. The absolute worst thing that happened in 2012, if we look beyond public policy, was Georgia falling 4 yards short of beating Alabama in the Southeastern Conference Championship.

P.P.S. Speaking of sports, the best thing about 2012 occurred in Virginia Beach back in October.

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I’m in Slovakia, where I just returned from some meetings at the annual conference of the Freedom and Solidarity Party. Unlike Republicans in the United States, these people practice what they preach about free markets and individual liberty.

Indeed, the SAS Party (which I gather must be Slovak initials for Freedom and Solidarity) is so committed to principles that it refused to join with other coalition members to support the European bailout fund.

The same cannot be said about the other supposedly right-leaning parties that were part of the government. Indeed, the Prime Minister’s party wound up supporting the bailout (even though she initially was opposed). Amazingly, these other parties thought the bailouts were such a good idea that they were willing to lose a “no-confidence” vote – paving the way for the Social Democrats to win the most recent election!

I guess the analogy is Bush and the other GOP statists supporting corrupt policies such as TARP, which helped pave the way for Obama to get elected.

In this analogy, the SAS Party is akin to the tea party, representing honest conservatives and libertarians.

By the way, there are a small handful of genuinely good political parties in the world. If we limit ourselves to ones that have legislative seats, SAS is on the list, of course, but I would also include the Reform Party in Estonia, which leads that nation’s coalition government. It’s worth noting that Estonia responded to the recent economic crisis by imposing genuine spending cuts, which helps explain why that nation’s economy has bounced back while other nations are languishing.

New Zealand’s ACT Party also deserves a mention, though they’re down to just one seat in that nation’s Parliament. Hopefully they’ll bounce back.

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I’m routinely critical of politicians, even the “good” ones that say they want to limit government and promote freedom.

But I think I’ve found a lawmaker who is worthy of strong praise. Unfortunately, he’s not in America.

He is Richard Sulik, the head of the Slovakian parliament and leader of the libertarian-leaning Freedom and Solidarity party.

Along with other members of his party, he is the best hope to block the bailouts that will reward profligacy and dig Europe’s debt hole even deeper.

Here’s some of what the UK-based Telegraph reported about Sulik’s battle for liberty.

European leaders fear that Slovakia’s attempt to block the new bail-out fund is as dangerous as David’s stand against Goliath. But it’s not just the difference in size and power that’s the worry – it’s that Slovakia’s rebel might have “right” on his side.  Slovakia’s hero is Richard Sulik, head of the Freedom and Solidarity Party (SaS) the junior partner in a four-party coalition. He has passionately described Slovakia’s 20-year journey from Communism to the European Union – and the deep national pride of meeting the membership requirements against the odds.  Mr Sulik has articulated the dismay of many that in Greece, Slovakians are faced with a country that bent the rules, rather than sacrificed, to gain entry – and now are demanding their luxuries are maintained by others. The average Slovak, whose salary is lowest in the euro zone, Sulik claims, would have to work 300 extra hours to cover the increase in the country’s guarantees of the EFSF, which will rise from €4.4bn to €7.7bn under the proposed deal. Mr Sulik has been criticised for being nationalistic, but he’s fast-becoming the voice of the discontented European masses.
By the way, the former nation of Czechoslovakia seems to have produced worthy leaders once it split in half. Not only is Sulik worthy of praise in Slovakia, but so are other Slovak lawmakers, and  I’ve already pointed out the President Klaus of the Czech Republic is one of the few people in Europe fighting for freedom.

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The Congressional Budget Office has just released the update to its Economic and Budget Outlook.

There are several things from this new report that probably deserve commentary, including a new estimate that unemployment will “remain above 8 percent until 2014.”

This certainly doesn’t reflect well on the Obama White House, which claimed that flushing $800 billion down the Washington rathole would prevent the joblessness rate from ever climbing above 8 percent.

Not that I have any faith in CBO estimates. After all, those bureaucrats still embrace Keynesian economics.

But this post is not about the backwards economics at CBO. Instead, I want to look at the new budget forecast and see what degree of fiscal discipline is necessary to get rid of red ink.

The first thing I did was to look at CBO’s revenue forecast, which can be found in table 1-2. But CBO assumes the 2001 and 2003 tax cuts will expire at the end of 2012, as well as other automatic tax hikes for 2013. So I went to table 1-8 and got the projections for those tax provisions and backed them out of the baseline forecast.

That gave me a no-tax-hike forecast for the next 10 years, which shows that revenues will grow, on average, slightly faster than 6.6 percent annually. Or, for those who like actual numbers, revenues will climb from a bit over $2.3 trillion this year to almost $4.4 trillion in 2021.

Something else we know from CBO’s budget forecast is that spending this year (fiscal year 2011) is projected to be a bit below $3.6 trillion.

So if we know that tax revenues will be $4.4 trillion in 2021 (and that’s without any tax hike), and we know that spending is about $3.6 trillion today, then even those of us who hate math can probably figure out that we can balance the budget by 2021 so long as government spending does not increase by more than $800 billion during the next 10 years.

Yes, you read that correctly. We can increase spending and still balance the budget. This chart shows how quickly the budget can be balanced with varying degrees of fiscal discipline.

The numbers show that a spending freeze balances the budget by 2017. Red ink disappears by 2019 if spending is allowed to grow 1 percent each years. And the deficit disappears by 2021 if spending is limited to 2 percent annual growth.

Not that these numbers are a surprise. I got similar results after last year’s update, and also earlier this year when the Economic and Budget Outlook was published.

Some of you may be thinking this can’t possibly be right. After all, you hear politicians constantly assert that we need tax hikes because that’s the only way to balance the budget without “draconian” and “savage” budget cuts.

But as I’ve explained before, this demagoguery is based on the dishonest Washington practice of assuming that spending should increase every year, and then claiming that a budget cut takes place anytime spending does not rise as fast as previously planned.

In reality, balancing the budget is very simple. Modest spending restraint is all that’s needed. That doesn’t mean it’s easy, particularly in a corrupt town dominated by interest groups, lobbyists, bureaucrats, and politicians.

But if we takes tax hikes off the table and somehow cap the growth of spending, it can be done. This video explains.

And we know other countries have succeeded with fiscal restraint. As is explained in this video.

Or we can acquiesce to the Washington establishment and raise taxes and impose fake spending cuts. But that hasn’t worked so well for Greece and other European welfare states, so I wouldn’t suggest that approach.

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America faces a fiscal crisis. The burden of federal spending has doubled during the Bush-Obama years, a $2 trillion increase in just 10 years. But that’s just the tip of the proverbial iceberg. Because of demographic changes and poorly designed entitlement programs, the federal budget is going to consume larger and larger shares of America’s economic output in coming decades.

For all intents and purposes, the United States appears doomed to become a bankrupt welfare state like Greece.

But we can save ourselves. A previous video showed how both Ronald Reagan and Bill Clinton achieved positive fiscal changes by limiting the growth of federal spending, with particular emphasis on reductions in the burden of domestic spending. This new video from the Center for Freedom and Prosperity provides examples from other nations to show that good fiscal policy is possible if politicians simply limit the growth of government.

These success stories from Canada, Ireland, Slovakia, and New Zealand share one common characteristic. By freezing or sharply constraining the growth of government outlays, nations were able to rapidly shrinking the economic burden of government, as measured by comparing the size of the budget to overall economic output.

Ireland and New Zealand actually froze spending for multi-year periods, while Canada and Slovakia limited annual spending increases to about 1 percent. By comparison, government spending during the Bush-Obama years has increased by an average of more than 7-1/2 percent. And the burden of domestic spending has exploded during the Bush-Obama years, especially compared to the fiscal discipline of the Reagan years. No wonder the United States is in fiscal trouble.

Heck, even Bill Clinton looks pretty good compared to the miserable fiscal policy of the past 10 years.

The moral of the story is that limiting the growth of spending works. There’s no need for miracles. If politicians act responsibly and restrain spending, that allows the private sector to grow faster than the burden of government. That’s the definition of good fiscal policy. The new video above shows that other nations have been very successful with that approach. And here’s the video showing how Reagan and Clinton limited spending in America.

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President Andrew Jackson is believed to have said that “One man with courage makes a majority.” Well, let’s hope this statement also applies to women. The incoming Prime Minister of Slovakia, Ms. Iveta Radicova, has the power to stop the corrupt and misguided European bailout scheme. At one point, Irish voters had the power to stop more centralization, bureaucratization, and harmonization in Brussels. Then the President of the Czech Republic had the opportunity to derail the movement to a socialist superstate in Brussels. In both cases, the forces of statism eventually prevailed. The bailout is a different issue, but the underlying issues are the same. Should nations have both the sovereign right to determine their own policies and should they also have the responsibility of dealing with the consequences of those actions? Here’s a blurb from the EU Observer about whether Slovakia will save Europe from the political elites:

The emerging new leadership in Slovakia has said the country will not contribute its share of the €110 billion rescue package for Greece. In addition, Bratislava is likely not to add its signature to the €750 billion eurozone support mechanism – something that could put the entire project on ice. …”It would be a serious blow to the EFSF and the euro area’s ability to stand behind its members [if a member does not sign],” a senior eurozone official told this website. He explained that all 16 signatures on the document – which specifies provisions on how to issue loan guarantees if necessary – are required to bring the emergency mechanism to life. …Conservative politician Iveta Radicova, the likely next prime minister, described the bloc’s €750 billion rescue fund during the pre-election debates as “bad, dangerous and [the] worst possible solution.” On Tuesday (15 June), Ms Radicova also re-iterated that she is against Slovakia providing any financial support to Greece.

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Faithful readers will remember that my recent speaking tour of Europe for the Free Market Road Show featured stops in Slovakia and the Czech Republic.

As part of a venerable Washington tradition of taking credit for things even when your role is too small to even measure, I’m delighted to report that my speeches must have had a big impact. The parties sympathetic to free-markets and limited government prevailed in the recent Czech elections. Then, just this past weekend, the pro-market parties won a majority in the Slovak elections.  When Dan Mitchell speaks, people listen.

On a more serious note, the Slovak elections are particularly important since the victorious parties include some remarkably good people such as Ivan Miklos, Richard Sulik, and Martin Chren. Here’s a blurb from an election summary in the Wall Street Journal:

Preliminary results showed the Slovak Democratic and Christian Union, or SDKU, with 15.4% of the vote, followed by the liberal Freedom and Solidarity Party, or SaS, with 12.1%, the Christian Democratic Movement KDH with 8.5%, and the Hungarian minority party Most-HID with 8.1%. Final election results are expected late Sunday. The new parliament will thus be dominated by right-of-center parties led by the Christian Democratic SDKU, and the Hungarian minority party Most-HID. This coalition of four that will also include the Christian Democratic KDH and the liberal Freedom and Solidarity Party, and will hold a total of 79 parliament seats, compared with 62 seats to be held by Smer. The remaining nine mandates will be in the hands of the extremist Slovak Nationalist Party, or SNS. The Freedom and Solidarity Party was formed last year by Richard Sulik, an economist who designed the flat-rate tax system introduced by the previous SDKU-led governments that ruled in 1998-2006.

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I’m in Bratislava, where I spoke at the first stop of the Hayek Institut’s seven-nations Free Market Road Show. Slovakia is one of my favorite nations because it has both a flat tax and personal retirement accounts. A new wave of reform may be possible, depending on the outcome of the June 12 elections.

A new liberal (classical liberal, meaning free market) party has been launched, and their campaign’s message focuses on representing future generations. Here is the billboard that ones sees in Slovakia. Not sure how it would fly in America, but I certainly wish the party well.

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I’m in Belgium to speak at the 6th annual International Leaders Summit, which will be held in the European Parliament (a.k.a., belly of the beast) on Tuesday and Wednesday. I’m giving two speeches, including one that will focus on European reforms – including transparency and accountability. A key theme of my remarks will be that centralization is the enemy of good government. Unfortunately, the European Union has been morphing from a free-trade pact into a centralized and bureaucratized super-state. I will explain why this is a bad thing, both from an economic perspective and a civic-virtue perspective, but I’m not overly optimistic of altering Europe’s drift to statism.

On a more positive note, I’m looking forward to hearing some of the other speakers. Dan Hannan, an MEP from the UK is famous on youtube for his damning indictment of Gordon Brown, and he will be with me on the first panel. In the afternoon, I’ll be joined by the former Finance Minister of Slovakia, who is responsible for an amazing set of free-market reforms, including the flat tax and personal Social Security retirement accounts.

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