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Archive for the ‘Taxation’ Category

It’s a bad idea when governments demand information on your bank accounts and investments so they can impose economically destructive double taxation.

It’s a worse idea when they also demand the right to tax economic activity in other jurisdictions (otherwise known as “worldwide taxation“).

And it’s the worst possible development when governments decide that they should impose a global network of data collection and dissemination as part of a scheme of worldwide double taxation.

Yet that’s exactly what’s happening. High-tax nations, working through the Paris-based Organization for Economic Cooperation and Development, want to impose a one-size-fits-all system of “automatic information exchange” that would necessitate the complete evisceration of financial privacy.

David Burton of the Heritage Foundation explains the new scheme for giving governments more access to peoples’ private financial information.

…the Organization for Economic Cooperation and Development released the full version of the global standard for automatic exchange of information. The Standard for Automatic Exchange of Financial Account Information in Tax Matters calls on governments to obtain detailed account information from their financial institutions and exchange that information automatically with other jurisdictions on an annual basis.

I think this is bad policy, regardless. It is based on imposing and enforcing bad tax policy.

But David goes one step farther. He warns that this global network of tax police includes many unsavory nations.

It is one thing to exchange financial account information with Western countries that generally respect privacy and are allied with the United States. It is an entirely different matter to exchange sensitive financial information about American citizens or corporations with countries that do not respect Western privacy norms, have systematic problems with corruption or are antagonistic to the United States. States that fall into one of these problematic categories but are participating in the OECD automatic exchange of information initiative include Colombia, China and Russia. …The Obama administration enthusiastically supports the OECD initiative.

Moreover, David wisely does not believe we should trust the Obama Administration’s hollow assurances that other nations won’t misuse the data.

…even the administration has realized important privacy issues at are stake. Robert B. Stack, Deputy Assistant Secretary of the Treasury for International Tax Affairs, has testified that “the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections…” Leaving these determinations to a tax agency with little institutional interest in anything other than raising tax revenue is dangerous. There is little doubt sensitive financial information about American citizens and businesses can and will be used by some governments for reasons that have nothing to do with tax administration, such as identifying political opponents’ financial resources or industrial espionage. In addition, individuals in corrupt governments may use the information for criminal purposes such as identity theft, to access others’ funds or to identify potential kidnapping victims. It is naïve to think otherwise. …The Senate should not ratify this protocol. The risks to American citizens and American businesses are too great.

David is exactly right, but too restrained and polite in his assessment.

Richard Rahn, my colleague at Cato, is more blunt in his analysis. Here’s some of what he wrote for the Washington Times.

Do you want the Obama administration sharing all of your financial information with the Russian, Chinese and Saudi Arabian governments? You may be thinking, not even President Obama would go that far. Not so… The rationale behind this despicable idea is to more effectively enable governments, such as that of France and the United States, to identify tax evaders. This might sound like a good idea until one realizes that every individual and business will be stripped of all of their financial privacy if this becomes the law of the land… all of the information that financial institutions now report to the U.S. government to try to ensure income-tax compliance, including your account balances, interest, dividends, proceeds from the sale of financial assets — would be shared with foreign governments. This would apply not only for individuals, but also for both financial and nonfinancial businesses, plus trust funds and foundations. 

Richard then explains that we can’t even trust the bureaucrats at the IRS.

The United States and other governments will, of course, claim that your sensitive financial information will remain confidential — and that you can trust the governments. After the recent Internal Revenue Service scandals — which recur every decade or so — why would anyone believe anything the IRS says? Remember, the IRS leaked information on some of Mitt Romney’s donors during the 2012 presidential campaign. It was blatantly illegal, and the IRS (i.e., you the taxpayer) paid a small fine, but no one went to jail. Many U.S. presidents have misused the IRS, starting at least as far back as Franklin Roosevelt, and the American people are always told “never again,” which is the beginning of the new lie.

And he logically concludes it would be even more foolish to trust foreign tax bureaucracies.

Particularly the tax authorities of the many nations that abuse human rights and persecute minorities, as well the tax police in nations that are too incompetent to be trusted with sensitive data.

…just think what is going to happen when all of those corrupt officials in foreign governments get ahold of it. Some will use the information for identity theft and to raid bank accounts, others for industrial espionage, some to identify potential kidnapping victims and some for political purposes. The potential list goes on and on. The U.S. Treasury Department says it will insist on strict confidentiality protections. (Lois Lerner, please call your office.) If you are a Ukrainian-American who donates to Ukrainian free-market and democratic causes, would you really think that Vladimir Putin’s team, having your financial information, would not misuse it? If you are an American Jew who donates to Israeli causes, do you really think that all of those in the Saudi government who now have full access to your confidential financial information are not going to misuse it? The Chinese are well known for using malware against their opponents. Just think of all the mischief they could cause if they had access to all of the sensitive financial information of human rights advocates in America.

Richard draws the appropriate conclusion. Simply stated, there’s no way we should have a global regime of automatic information exchange simply because a handful of high-tax nations want to remake global tax policy so they can prop up their decrepit welfare states.

As Lord Acton famously reminded us, governments are prone to misuse information and power. The instrument behind this information-sharing ploy is the OECD, which started out as a statistical collection and dissemination agency to promote free trade among its members. It has now morphed into an international agency promoting big government and higher taxes, and the destruction of financial freedom — while at the same time, by treaty, its staff salaries are tax-exempt. No hypocrisy there. Thinking Republicans and Democrats should unite around opposition to this terrible treaty and defund the OECD. Those who vote for it will deservedly be easy marks for their political opponents.

And kudos to Richard for urging the defunding of the OECD. It is absurd that American tax dollars are funding a Paris-based bureaucracy that constantly urges policies that would undermine the U.S. economy.

Especially when they’re insulated from the negative effects of the policies they push. Since they’re on the public teat, they don’t suffer when the private economy is battered. And they don’t even have to pay tax on their very generous salaries.

P.S. I’m very glad to report that at least one lawmaker is doing the right thing. Senator Rand Paul is leading the fight to block proposals that would put Americans at risk by requiring the inappropriate collection and sharing of private financial information.

P.P.S. By way of background, the OECD scheme is part of an effort to cripple tax competition so that high-tax nations can impose higher tax rates and finance bigger government. To learn more about tax competition (and tax havens), watch this four-part video series.

P.P.P.S. The OECD scheme is basically a multilateral version of the horrid “FATCA” legislation signed by Obama back in 2010.

P.P.P.P.S. Maybe I’m old-fashioned, but I think a global tax database is even worse than an Obamacare database on our sex lives.

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One of the worst things about working in Washington is that it’s so easy to get frustrated about the fact-free nature of political debates.

For instance, there’s now a big controversy about companies “re-domiciling” or “inverting” from the United States to lower-tax nations such as Ireland and Switzerland.

This should not be controversial. Unless, of course, you think businesses shouldn’t be allowed to move from California to Texas. Or from New York to Tennessee.

And even if you somehow think taxpayers don’t have the right to legally protect themselves from punitive taxation, there are two very stark facts that should guide the political debate.

First, the United States has the world’s highest corporate tax rate, which undermines job creation and competitiveness in America, regardless of whether there are inversions.

Second, the United States has the most punitive “worldwide” tax system, meaning the IRS gets to tax American-domiciled companies on income that is earned (and already subject to tax) in other nations.

This is why, as I explain in this video, that the politicians who are protesting against inversions are putting demagoguery above jobs.

One of the most important aspects of this debate, though, doesn’t involve the intricacies of corporate taxation. Instead, it’s a broader public finance point about whether it’s good public policy to disadvantage shareholders, workers, and consumers in order to give politicians more money to spend.

In my mind, that’s a no-brainer.

P.S. Kudos to Rand Paul for being one of the few politicians who is willing to publicly defend companies that engage in legal tax planning.

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I’ve had some fun over the years by pointing out that Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

So I shouldn’t be surprised that he wants to catch me making an error. But I’m not sure his “gotcha” moment is very persuasive. Here’s some of what he wrote for today’s New York Times.

Gov. Jerry Brown was able to push through a modestly liberal agenda of higher taxes, spending increases and a rise in the minimum wage. California also moved enthusiastically to implement Obamacare. …Needless to say, conservatives predicted doom. …Daniel J. Mitchell of the Cato Institute declared that by voting for Proposition 30, which authorized those tax increases, “the looters and moochers of the Golden State” (yes, they really do think they’re living in an Ayn Rand novel) were committing “economic suicide.”

Kudos to Krugman for having read Atlas Shrugged, or for at least knowing that Rand sometimes referred to to “looters and moochers.” Though I have to subtract points because he thinks I’m a conservative rather than a libertarian.

But what about his characterization of my position? Well, he’s right, though I’m predicting slow-motion suicide. Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs.

Here’s some of what I wrote.

I’m generally reluctant to make predictions, but I feel safe in stating that this measure is going to accelerate California’s economic decline. Some successful taxpayers are going to tunnel under the proverbial Berlin Wall and escape to states with better (or less worse) fiscal policy. And that will mean fewer jobs and lower wages than otherwise would be the case.

Anyhow, Krugman wants readers to think that California is a success rather than a failure because the state now has a budget surplus and there’s been an uptick in job creation.

Here’s more of what he wrote.

There is, I’m sorry to say, no sign of the promised catastrophe. If tax increases are causing a major flight of jobs from California, you can’t see it in the job numbers. Employment is up 3.6 percent in the past 18 months, compared with a national average of 2.8 percent; at this point, California’s share of national employment, which was hit hard by the bursting of the state’s enormous housing bubble, is back to pre-recession levels. …And, yes, the budget is back in surplus. …So what do we learn from the California comeback? Mainly, that you should take anti-government propaganda with large helpings of salt. Tax increases aren’t economic suicide; sometimes they’re a useful way to pay for things we need.

I’m not persuaded, and I definitely don’t think this counts as a “gotcha” moment.

First, I’m a bit surprised that he wants to brag about California’s employment numbers. The Golden State has one of the highest joblessness rates in the nation. Indeed, only four states rank below California.

Second, I don’t particularly care whether the state has a budget surplus. I care about the size of government.

Krugman might respond by saying that the tax hike generated revenues, thus disproving the Laffer Curve, which is something that does matter to supporters of small government.

But the Laffer Curve doesn’t say that all tax hikes lose revenue. Instead, it says that tax rate increases will have a negative impact on taxable income. It’s then an empirical question to figure out if revenues go up a lot, go up a little, stay flat, or decline.

And what matters most of all is the long-run impact. You can rape and pillage upper-income taxpayers in the short run, particularly if a tax hike is retroactive. In the long run, though, people can move, re-organize their finances, and take other steps to reduce their exposure to the greed of the political class.

In other words, people can vote with their feet…and with their money.

And that’s what seems to be happening in California. Take a look at how much income has emigrated from the state since 1992.

Next we have a map showing which states, over time, are gaining taxable income and which states are losing income (and I invite you to look at how zero-income tax states tend to be very green).

The data isn’t population adjusted, so populous states are over-represented, but you’ll still see that California is losing while Texas is winning.

And here is similar data from the Tax Foundation.

So what’s all of this mean?

Well, it means I’m standing by my prediction of slow-motion economic suicide. The state is going to become the France of America…at least if Illinois doesn’t get there first.

California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.

But the number of people willing to pay will shrink as the premium rises.

In other words, this Chuck Asay cartoon may be the most accurate depiction of California’s future. And this Lisa Benson cartoon shows what will happen between now and then.

But I won’t hold my breath waiting for a mea culpa from Krugman.

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In some sense, there’s nothing remotely funny about the IRS’s targeting of Tea Party organizations.

It is disgusting that a powerful arm of the government became a corrupt vehicle for illegal partisan politics.

But it’s better to laugh rather than cry, so let’s enjoy this new video from Remy at Reason TV.

And let’s not forget that the IRS rewarded itself with big bonuses after the scandal!

President Obama infamously claimed there wasn’t a “smidgen” of corruption at the IRS. This Glenn Foden cartoon is the only appropriate response.

P.S. Switching to another topic, I explained recently that the left was wrong about unemployment insurance. The statists told us that paying people to be unemployed wouldn’t increase joblessness, but virtually all the evidence is on the other side.

Now we have even more research emphasizing that point. Here’s a blurb from some new research published by the St. Louis Federal Reserve.

…we find that the extension of unemployment benefits affected the labor market status of long-term unemployed workers in late 2013. Without extended UI benefits, these unemployed workers would have been more likely to be employed, more likely to exit the labor force, and on average 1.9 percent less likely to remain unemployed in the following period. In short, our simulated early termination of the EUC program lowered the unemployment rate by 3 to 5 basis points, suggesting that the December 2013 expiration of the EUC program might have slightly lowered the unemployment rate in early 2014.

However, since most leftists are not very literate about economics, let’s simplify the issue. Maybe they can understand some cartoons. Here are some options from Michael Ramirez, Robert Gorrell, and Chuck Asay, as well as a great Wizard-of-Id parody.

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When people in other nations ask me for evidence in favor of low taxes, I often will ask them to compare the economic performance of a high-tax nation like France with the performance of a nation such as Switzerland with less onerous taxes.

If I’m asked by Americans, I generally suggest that they compare different states. For instance, I show them evidence that California has a much more punitive tax system than Texas. And when you look at all the available state rankings, it’s clear that there’s a big difference.

*Tax burdens as a share of state income.

*The State Tyranny Index.

*Mercatus State Fiscal Ranking.

*State Business Tax Climate Index.

*Tax Foundation’s Tax Freedom Day.

*State Freedom Index.

*Death Spiral states.

And I then ask folks to compare economic performance. There’s lots of evidence that Texas is growing much faster and creating far more jobs than California.

Heck, it’s almost as if California politicians want to drive successful people out of the Golden State (fortunately, the state’s politicians didn’t read Walter Williams’ satirical column about putting a barbed-wire fence at the border). And when upper-income taxpayers leave the state, that means taxable income and tax revenue also escape.

Though it’s worth pointing out that the case for low taxes isn’t based solely on comparisons of Texas and California. We know, for instance, that states with no income taxes generally outperform other states.

Moreover, we don’t need to rely on casual empiricism. Here are some of the results from a new study published by the Mercatus Center.

…this study uses the average tax rate as a practical approximation of the overall state tax burden. …The coefficient of average tax rate is negative and statistically significant in both models, suggesting that a higher tax burden as a share of income reduces state economic growth. …Elasticity of −2.6, for example, implies that a 1 percent increase in the tax rate decreases economic growth by 2.6 percent, not percentage points. …While the aforementioned income growth results are insightful, the impact of taxation on the level of income is also important. …income tax progressivity has a significant negative relationship with real GSP per capita. …An alternative way to measure economic activity is to look at the number of private firms that operate in each state. …The main conclusion from the two regression models is that only personal income tax progressivity seems to have a significant negative effect on the growth in the number of firms. … By voting with their feet, people send a clear signal about where they prefer to live and work. …an empirical analysis of migration may show, indirectly, how taxes affect the flow of economic activity across states. …state net immigration rate is negatively related to the personal income tax rate … The net immigration rate also seems to have a significantly negative correlation with the average tax rate and income tax progressivity.

These findings should not be a surprise.

It’s common sense that economic activity – and taxpayers – will flow to states that don’t punish people for creating wealth.

Let’s now circle back to the Texas-vs-California comparisons. Take a look at this remarkable chart put together by Mark Perry of the American Enterprise Institute.

As you can see, total employment in Texas has jumped almost 10 percent since 2008. In California, by contrast, total employment has increased by less than 2/10ths of 1 percent.

So you can see why this Lisa Benson cartoon is so appropriate.

Speaking of humor, this Chuck Asay cartoon speculates on how future archaeologists will view California. And this joke about Texas, California, and a coyote is among my most-viewed blog posts.

All jokes aside, none of this should be interpreted to suggest that Texas is perfect. There’s too much government in the Lone Star state. It’s only a success story when compared to California.

And even though California does worse than Texas in my Moocher Index, it’s worth pointing out that Californians are the least likely of all Americans to sign up for food stamps.

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Last month, I nailed Bill and Hillary Clinton for their gross hypocrisy on the death tax.

But that’s just one example. Today, we’re going to experience a festival of statist hypocrisy. We have six different nauseating examples of political elitists wanting to subject ordinary people to bad policy while self-exempting themselves from similar burdens.

Our first three examples are from the world of taxation.

Here are some excerpts from a Washington Times report about a billionaire donor who is bankrolling candidates who support higher taxes, even though he structured his hedge fund in low-tax jurisdictions specifically to minimize the fiscal burdens of his clients.

Tom Steyer, the billionaire environmental activist who is spending $100 million to help elect Democrats this fall, is rallying support for energy taxes that could impact everyday Americans. But when he ran his own hedge fund, Mr. Steyer sought to help wealthy clients legally avoid paying taxes, confidential investor memos show. Mr. Steyer’s strategy included establishing funds in tax havens like the Cayman Islands and Mauritius… Mr. Steyer boasted to investors such as major universities that his hedge fund, Farallon Capital Management LLC, had a “desire not to earn income which would be taxable to our tax-exempt investors,” one internal memo reviewed by The Washington Times showed. Mr. Steyer also helped his firm’s wealthy clientele avoid the highest of U.S. taxes and penalties by establishing arcane tax shelters… Mr. Steyer is pushing for a variety of new taxes on the energy sector. In California, Mr. Steyer supports an oil extraction tax, and he is funding politicians who support taxing carbon, including Sen. Mark Udall, Colorado Democrat.

By the way, Steyer did nothing wrong, just as Mitt Romney did nothing wrong when he utilized so-called tax havens to manage and protect his investments.

But at least Romney wasn’t overtly urging higher taxes on everyone else, so he’s not guilty of glaring hypocrisy.

Speaking of international taxation, how about the behavior of Senator Joe Machin’s daughter? She’s the head of an American drug-making company, a position that almost surely has something to do with her father being a senator.  Particularly since the company gets a big chunk of its revenues from sales to the federal government.

In any event, her company has decided that it’s okay to benefit from sales to big government, but that it’s not a good idea to pay taxes for big government. Here are some blurbs from a National Journal report.

…this column happens to be about a Democratic senator from West Virginia, Joe Manchin, and his daughter, Heather Bresch, the chief executive of Mylan, a giant maker of generic drugs based outside Pittsburgh. Her company’s profits come largely from Medicaid and Medicare, which means her nest is feathered by U.S. taxpayers. On Monday, Bresch announced that Mylan will renounce its United States citizenship and instead become incorporated in the Netherlands – leaving this country, in part, to pay less in taxes.

By the way, I’m a big fan of companies re-domiciling overseas.

So long as our corporate tax system has high rates and punitive worldwide taxation, corporate expatriation is the best way of protecting the interests of American workers, consumers, and shareholders.

But it’s a bit hypocritical when the expatriating company is run by a major Democrat donor.

Our third example of hypocrisy also deals with corporate expatriation, and it’s probably the most odious and extreme display of two-faced political behavior. Here’s some of what was reported in the L.A. Times about the Secretary of the Treasury’s attack on corporate inversions.

Calling for “a new sense of economic patriotism,” a top Obama administration official urged Congress to take immediate action to stop U.S. companies from reorganizing as foreign firms to avoid paying taxes. …”What we need as a nation is a new sense of economic patriotism, where we all rise or fall together,” Lew wrote to the top Democrats and Republicans on the congressional tax-writing committees. “We should not be providing support for corporations that seek to shift their profits overseas to avoid paying their fair share of taxes,” he said. …Lew said such moves were unfair to U.S. taxpayers. …”Congress should enact legislation immediately — and make it retroactive to May 2014 — to shut down this abuse of our tax system,” Lew wrote.

Gee, big words from Mr. Lew. But too bad he didn’t say those words to himself when he was a crony capitalist at Citigroup. Why? Because he had big money parked in the Cayman Islands!

So he inverted his own funds but doesn’t want other taxpayers to have the right to make the same sensible choices.

Now let’s look at three non-tax related examples of hypocrisy.

First, we have a pro-Obamacare politician running for Congress. One of his main talking points is that his wife is an OB/GYN and he also trumpets his support for expansion of Medicaid (the government’s money-hemorrhaging healthcare program for lower-income people).

Here’s some of what was reported by the Free Beacon (h/t: National Review).

John Foust has made his wife the face of his campaign for Virginia’s 10th District. Dr. Marilyn Jerome is an OBGYN… Foust attacks his Republican opponent Barbara Comstock for opposing Medicaid expansion. Failure to expand Medicaid to rural hospitals could be “devastating,” he says. Dr. Jerome has also written in support of the Affordable Care Act on the Foxhall website, citing the Medicaid expansion as beneficial to low-income women.

But it seems that Medicaid expansion is only a good idea when other doctors are dealing with the government.

It turns out, however, that not all women can receive “compassionate reproductive healthcare” from Foxhall. The practice doesn’t accept Medicaid. …in public, Dr. Jerome is preaching the Affordable Care Act and praising the Medicaid expansion while, in her practice, she doesn’t accept it.

The message is that sub-standard government-run healthcare is okay for us peasants, but doctors who cater to the political elite in Washington want nothing to do with the program.

Sort of like the politicians and IRS bureaucrats who want to be exempted from Obamacare.

Second, it turns out that global warming alarmists use above-average amounts of energy.

Here are some tidbits from a column in the UK-based Telegraph.

People who claim to worry about climate change use more electricity than those who do not, a Government study has found. Those who say they are concerned about the prospect of climate change consume more energy than those who say it is “too far into the future to worry about,” the study commissioned by the Department for Energy and Climate Change found. …The findings were based on the Household Electricity Survey.

Not that this surprises me. I’ve previously shared evidence that elitist environmentalists want to dictate the energy consumption of ordinary people while suffering no cutbacks in their own extravagant living standards.

Third, we have a remarkable bit of political jujitsu from Martin O’Malley, the governor of Maryland, on the issue of illegal aliens. Here’s an amazing excerpt from a story in Politco (h/t: National Review).

Martin O’Malley says that deporting the children detained at the border would be sending them to “certain death” — but he also urged the White House not to send them to a facility in his own state.

Wow. Regardless of what you think about open borders, amnesty, and other immigration issues, O’Malley comes across as a craven politician. This is NIMBY on steroids.

In conclusion, I should point out that hypocrisy is not limited to leftists. I’m even harder on faux conservatives who pretend to favor small government when talking to voters but then aid and abet statism behind closed doors in Washington.

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Obamacare resulted in big increases in the fiscal burden of government (ironically, it would be even worse if Obama hadn’t unilaterally suspended parts of the law).

The legislation increased government spending, mostly for expanded Medicaid and big subsidies for private insurance.

There were also several tax hikes, with targeted levies on medical device makers and tanning beds, as well as some soak-the-rich taxes on upper-income taxpayers.

These various policies are bad news for economic performance, but the damage of Obamacare goes well beyond these provisions.

Writing for Real Clear Markets, Professor Casey Mulligan of the University of Chicago explains that Obamacare contains huge implicit tax hikes on work and other forms of productive behavior.

…can we begin to take seriously the idea that the fiscal policies and regulations hidden in the Affordable Care Act are shrinking our economy? …Politicians and journalists use the term tax more narrowly than economists do, but the economic definition is needed to understand the economic effects of the ACA. …Withholding benefits from people who work or earn is hardly different than telling them to pay a tax. For this reason, economists refer to benefits withheld as “implicit taxes.” What really matters for labor market performance is the reward to working inclusive of implicit taxes, and not the amount of revenue delivered to the government treasury… The ACA…is full of implicit taxes. Many of them have remained hidden in the “fog of controversy” surrounding the law and their effects excluded from economic analyses of it.

In other words, his basic message is that the government reduces incentives to be more productive and earn more money when it provides handouts that are based on people earning less money.

Indeed, click here to see a remarkable chart showing how redistribution programs discourage work.

And speaking of charts, here’s one from Professor Mulligan’s article, and it shows the nation’s largest tax hikes based on what happened to the marginal tax rate on working.

Wow. No wonder we’re suffering from a very anemic recovery.

Professor Mulligan elaborates.

During a period that included more than a dozen tax increases, the ACA is arguably the largest as a single piece of legislation, adding about six percentage points to the marginal tax rate faced, on average, by workers in the economy. The only way to cite larger marginal tax increases would be to combine multiple coincident laws, such as the Revenue Acts of 1950 and 1951 and the new payroll tax rate that went into effect in 1950. Even with these adjustments, the ACA is still the third largest marginal tax rate hike during the seventy years. …Let’s not be surprised that, as we implement a new law that taxes jobs and incomes, we are ending up with fewer jobs and less income.

By the way, other academics also have found that Obamacare will lure many people out of the workforce and into government dependency.

The White House actually wants us to believe this is a good thing, as humorously depicted by this Glenn McCoy cartoon.

But rational people understand that our economic output is a function of how much labor and capital are being productively utilized.

In other words, Obamacare is a mess. It’s hurting the economy and should be repealed as the first step in a long journey back to market-based healthcare.

P.S. Mulligan’s chart also re-confirms that unemployment benefits increase unemployment. Heck, that’s such a simple and obvious concept that it’s easily explained in this Wizard-of-Id parody and this Michael Ramirez cartoon.

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I wrote a post several years ago contrasting a good initiative by Senator Rand Paul of Kentucky and a statist proposal by Senator Chuck Schumer of New York.

There was no connection between the two ideas, but I thought the comparison helped show the difference between someone who instinctively wants more freedom and someone who reflexively thinks there should be more government control.

Let’s do the same thing, but this time highlight a difference between Rand Paul and Hillary Clinton, particularly since the two of them may be rivals in 2016.

First, let’s look at what Rand Paul recently said about corporate inversions, which is what happens when an American company decides to re-domicile in another jurisdiction (generally through a cross-border merger).

Senator Rand Paul told Futures magazine that the rush of American companies moving operations outside of the nation is due to failed authors of the U.S. tax code. …“I blame the tax code and those who wrote the tax code,” said Senator Paul regarding the record number of inversions by U.S. companies. …Senator Paul said that antiquated tax laws have made the U.S. uncompetitive against countries in North America and Europe and called for Members of Congress to take a moment to recognize their faults. “…we should’ve brought a big mirror, so [Congress] could look in the mirror and see where the problem is. The problem arose from legislators who wrote a crummy tax code. The problem arises from having a corporate tax cut that is twice what Canada’s is and nearly three times what it is in Ireland. Money goes where it’s welcomed, and money has been flowing overseas. I don’t fault corporations for doing what they’re supposed to do, which is maximize their profit.”

This isn’t the first time Senator Paul has made wise observations about the taxation of multinational companies. He also was one of the few lawmakers who defended Apple for the tax strategies the company used to protect the interests of workers, shareholders, and consumers.

Now let’s look at Hillary Clinton’s recent contribution to the tax discussion.

In a recent interview, she basically bragged that she and Bill paid a larger share of their earnings to the IRS than the average household with similar income.

She argued to the Guardian that her family’s wealth would not injure her ability to talk about income inequality on any hypothetical campaign trails. “But they don’t see me as part of the problem, because we pay ordinary income tax, unlike a lot of people who are truly well off, not to name names; and we’ve done it through dint of hard work.” …are they truly paying more taxes than your average multi-millionaire, as she suggested? The Clintons last released their tax returns during Hillary’s 2008 presidential run. From 2000 to 2007, they paid $33.8 million in federal taxes, or 31 percent of their adjusted gross income — which was $109 million. At the time, the IRS said that taxpayers making $10 million or more — i.e. the people safely in 1 percenter territory — were paying 20.8 percent of their adjusted gross income in federal taxes.

Wow, bragging about paying above-average taxes.

In other words, assuming that she actually plans to run for President, she thinks that an inability to properly and intelligently manage her own finances is a reason to let her manage the nation’s finances.

Though at least she’s being philosophically consistent. After all, folks on the left act as if getting to keep any of our own money is some sort of special favor from Washington.

P.S. I can’t resist noting that Hillary thinks giving speeches is “hard work.” Since I occasionally get paid to give speeches (though only a tiny, tiny fraction of the $200,000-plus that she receives), allow me to state for the record that it is the easiest money to earn.

But I guess if you’re a former politician, it seems like “hard work” to actually go through even a modest bit of effort in exchange for money.

P.P.S. I also can’t resist pointing out that the Clintons are going through a lot of effort to minimize their exposure to the death tax, so even they have a limit when it comes to needlessly giving money to government.

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With occasional exceptions such as Switzerland and Estonia, there’s rarely good news from Europe. At least with regards to fiscal policy.

But maybe there’s a bit of sense on the Iberian Peninsula. I reported a couple of years ago that Portugal was at least flirting with the notion of lower tax rates and spending restraint.

Now Spain may be undoing some class-warfare mistakes on tax policy.

The Wall Street Journal is reporting that the government plans to lower tax rates on both personal income and corporate income.

Spanish leaders who broke their no-new-taxes pledge after taking office 2½ years ago announced sweeping tax cuts on Friday, saying it was time to compensate a recession-battered populace for its sacrifices and boost a nascent recovery. Budget Minister Cristóbal Montoro, announcing the government’s main economic initiative of the year, said the planned reductions of income and corporate taxes will stimulate investment, creating jobs and making Spanish companies more competitive abroad. …Spain’s corporate tax rate would drop from 30% to 25% by 2016. People earning more than €300,000 ($408,000) a year would see their personal income-tax rate fall from 52%, one of the highest in Europe, to 45% in 2016. …The cuts announced Friday would by 2016 bring income-tax rates back to their pre-2012 levels for high-income earners and lower them slightly for low-income earners.

For what it’s worth, I don’t think the tax cuts will happen – or at least won’t be durable – unless Spain’s politicians also impose some long-run spending restraint.

Fortunately, there are some good examples they can follow.

Since we’re on the topic of international tax developments, let’s shift to another story.

If you want hard-core tax enforcement, beyond the fantasies of even the IRS, then it’s hard to beat the ISIS crowd in Iraq.

Let’s not give the IRS any ideas

Here some of what the New York Times reported on that group’s “tax” regime.

Behind the image of savagery that the extremists of the Islamic State in Iraq and Syria present to the world, as casual executioners who kill helpless prisoners and even behead rival jihadis, lies a disciplined organization that employs social media and sophisticated financial strategies in the funding and governance of the areas it has conquered. …Once in charge, they typically levy “taxes,” which are just as lucrative. So-called road taxes of $200 on trucks are collected all over northern Iraq to allow them safe passage. The Iraqi government claims that the insurgents are now levying a “tax” on Christians in Mosul, who were a significant minority there, to avoid being crucified.

Hopefully, this is just a short-run aberration and not a new idea that will spread to other nations.

Though politicians in other countries already have demonstrated that they’re willing to innovate when it comes to extracting money from their citizens.

Showing amazing capacity for innovation, Pakistan’s tax authority hires transgendered people to encourage (presumably homophobic) taxpayers to cough up more money.

The tax police in England have floated a proposal to have all paychecks go directly to the tax authority, which would then decide how much gets forwarded to taxpayers.

And since we’re talking about the United Kingdom, that nation’s despicable political class wants to improve compliance by indoctrinating kids to snitch on their parents.

Speaking of snitches, tax authorities in both the state of New York and the city of Chicago have programs encouraging neighbors to rat our neighbors.

And New York also has won a case to treat lap dances – for purposes of sales tax – as a service rather than art.

And who among us isn’t impressed that the German tax authorities have figured out how to levy a prostitute tax using parking meters.

Just remember that politicians view any money you earn as either a current tax obligation or a potential source of future revenue.

After all, all money belongs to them.

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If some special-interest lobbies give money so that a left-wing group can propose something like a value-added tax to finance bigger government, that’s no surprise.

And if a bunch of subsidy recipients donate money to Barack Obama or some other statist politician because they hope for new programs, that’s also standard procedure in DC.

I’ll fight these initiatives, of course, but I don’t get overly upset when these things happen.

What does drive me crazy, though, is when proponents of big government want to use my money to subsidize left-wing activism.

This is why I’m against taxpayer handouts for groups such as Planned Parenthood and AARP. If they want to endorse bigger government, get voluntary contributions to push that destructive agenda.

All I ask is that you don’t coerce me to subsidize statism.

I get especially upset when international bureaucracies use my money to push for bigger government. And it the past few days, the International Monetary Fund (IMF) and Organization for Economic Cooperation and Development (OECD) have delivered a one-two punch for statism.

And they used our money!

The IMF advocated for more government in their recent survey of the United States.

The recent expansion of Medicaid and the increase in health insurance coverage have been concrete steps whose effect on poverty and health outcomes should become more evident over time. An expansion of the Earned Income Tax Credit—to apply to households without children, to older workers, and to low income youth—would be another effective tool to raise living standards for the very poor. …the minimum wage should be increased. …Action is also needed to achieve a sustained increase in both Federal and State spending on infrastructure paid for by…additional revenues, and an expansion of financing sources… The Federal gas tax should be significantly increased. …Some progress has already been made…through implementation of the Affordable Care Act… Addressing the expected depletion of the social security trust fund will require…increases the ceiling on taxable earnings for social security… In addition, the U.S. should introduce a broad-based carbon tax and move toward the introduction of a Federal-level VAT.

Keep in mind, by the way, that the IMF already has endorsed a giant energy tax on American consumers, as well as a value-added tax.

Though, to be fair, they’re not discriminating against Americans. The IMF has a long track record of pushing for bad policy in other nations.

Meanwhile, the statists at the OECD also are pushing for a wide range of bad policies.

The report encourages close cooperation between businesses and government… The Survey highlights that income inequality is high in the United States. …While this cannot be improved easily, the report praises reforms recently adopted or being considered: health care reform will help vulnerable families access high-quality care; OECD Carbon Obamadealing with mental health will help reduce job loss and disability; preschool education would be a good investment in children’s future and help middle-class parents; and paid maternity leave would help working women. …The OECD recommends introducing an adequate pricing of greenhouse gas emissions and supporting innovation in energy saving and low carbon technology.

Unsurprisingly, the OECD endorses a panoply of tax hikes to enable a bigger and more bloated public sector.

Act toward rapid international agreement and take measures to prevent base erosion and profit shifting… Make the personal tax system more redistributive… The federal government could…develop a social insurance programme for paid leave for all workers funded by a small increase in the payroll tax… Taxing the extraction of non-renewable resources offers the potential to raise revenue… Increase reliance on consumption taxation.

The OECD favors higher taxes for everyone, so it’s not as if they’re targeting Americans.

But it’s nonetheless irritating when a bunch of pampered international bureaucrats take money from American taxpayers and then use those funds to produce “research” calling for even higher tax burdens.

Especially when those bureaucrats are exempt from the income tax!!!

And keep in mind that this isn’t the first time that the OECD has acted as a public relations team for Obama’s statist agenda.

P.S. The one silver lining to the dark cloud of the IMF is that the bureaucrats inadvertently generated some very powerful evidence against the VAT.

P.P.S. And the OECD accidentally produced some data showing the poor results of governments schools in the United States, so that’s a bit of consolation as well.

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I wrote the other day that Americans, regardless of all the bad policy we get from Washington, should be thankful we’re not stuck in a hellhole like Venezuela.

But we also should be happy we’re not Europeans. This is a point I’ve made before, usually accompanied by data showing that Americans have significantly higher living standards than their cousins on the other side of the Atlantic.

It’s now time to re-emphasize that message. The European Commission has issued its annual report on “Taxation Trends” and it is – at least for wonks and others who care about fiscal policy – a fascinating and compelling document.

If you believe in limited government, you’ll read the report in the same way you might look at a deadly traffic accident, filled with morbid curiosity and fear that you may eventually suffer the same fate.

But if you’re a statist, you’ll read the report like a 14-year old boy with his first copy of a girlie magazine, filled with fantasies about eventually getting to experience what your eyes are seeing.

Let’s start by giving the bureaucrats some credit for self-awareness. They openly admit that the tax burden is very onerous in the European Union.

The EU remains a high tax area. In 2012, the overall tax ratio, i.e. the sum of taxes and compulsory actual social contributions in the 28 Member States (EU-28) amounted to 39.4 % in the GDP-weighted average, nearly 15 percentage points of GDP over the level recorded for the USA and around 10 percentage points above the level recorded by Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members for which recent detailed tax data is available, Russia (35.6 % of GDP in 2011) and New Zealand (31.8 % of GDP in 2011) have tax ratios exceeding 30 % of GDP, while tax-to-GDP ratios for Canada, Australia and South Korea (2011 data) remained well below 30 %.

Here’s a chart from the report showing that taxes consume about 40 percent of economic output in EU nations. And while Americans correctly view the internal revenue code as very burdensome, taxes “only” consume about 25 percent of GDP in the United States.

EU Report Total Tax

Other nations with comparatively modest tax burdens include Canada (CA), Australia (AU), South Korea (KR), and Switzerland (CH).

But it’s important to understand that not all nations in the European Union are identical.

Just as there are high-tax states and low-tax states in America, there are high-tax countries and low-tax countries in Europe. Surprisingly, France was not the worst nation.

…the ratio of 2012 tax revenue to GDP was highest in Denmark, Belgium and France (48.1 %, 45.4 % and 45.0 % respectively); the lowest shares were recorded in Lithuania (27.2 % of GDP), Bulgaria (27.9 % of GDP) and Latvia (27.9 % of GDP).

I’m surprised, by the way, that Sweden isn’t among the highest-taxed nations. I guess they’ve made even more progress than I thought.

Now let’s drill down into the report and look at some of the specific data.

But you may want to stop reading now if you get easily depressed.

That’s because it’s time to look at a chart showing what’s happened to income tax rates. Specifically, this chart shows the average top tax rate on personal income, both for Eurozone (nations using the euro currency) and European Union nations.

As you can see, the average top tax rate has jumped by almost four percentage points for euro nations and by about two percentage points for all EU nations.

EU Report Personal Income Tax

This is very unfortunate. Tax rates were heading in the right direction when there was vigorous tax competition inside Europe. But now that high-tax nations have been somewhat successful in forcing low-tax jurisdictions to become deputy tax enforcers, that positive trend has halted and policy is moving in the wrong direction.

But not in all regards.

Tax competition also has been compelling governments to lower corporate tax rates. And while that trend has abated, you can see in this chart that politicians haven’t felt they have leeway to push rates higher.

EU Report Corporate Income Tax

Though I am very concerned about the OECD’s campaign to undermine corporate tax competition.

If they’re successful, there’s no doubt we’ll see higher corporate tax rates.

Let’s now look at some more depressing data. This chart shows that a continuation in the trend toward higher rates for value-added taxes (VATs).

EU Report VAT

I’ve warned repeatedly that the VAT is a money machine for big government and the EU data certainly supports my position.

But if you want evidence from other parts of the world, there’s some IMF data that clearly shows how politicians use the VAT to expand the burden of government.

Last but not least, let’s now draw some conclusions from all this information.

At the beginning of the column, I mentioned that Americans should not copy Europe because bigger government translates into lower living standards.

Simply stated, there’s a negative relationship between the size of government and economic performance.

So let’s look at another piece of data to emphasize that point. The bureaucrats at the OECD just did a report on the U.S. economy and they produced a chart showing that the current recovery is very anemic. We haven’t recaptured lost economic output, which normally happens after a downturn. Indeed, we haven’t even returned to normal growth levels.

But that’s not news to regular readers. I’ve shared powerful data from the Minneapolis Federal Reserve showing the failure of Obamanomics.

What is noteworthy, though, is comparing Europe to the United States. As you can see from these two charts, euro nations have flat lined. And if you look at the vertical scale, you can see that they were growing a lot slower than the United States to begin with.

Dismal European Economy

In other words, we’re not doing very well in the United States.

But compared to Europe, we’re Hong Kong.

Two final caveats: First, I always like to stress that economic performance is impacted by a wide range of policies. So while I think that rising tax burdens and higher tax rates are hurting growth in Europe, there are other factors that also matter.

Second, any analysis of fiscal policy should also include data on the burden of government spending. After all, a nation with a low tax burden will still suffer economic problems if there’s a large public sector financed by red ink.

And one big warning: Obama wants to make America more like Europe. If he succeeds, we can expect European-style stagnation.

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Last August, I shared a list of companies that “re-domiciled” in other nations so they could escape America’s punitive “worldwide” tax system.

This past April, I augmented that list with some commentary about whether Walgreen’s might become a Swiss-based company.

And in May, I pontificated about Pfizer’s effort to re-domicile in the United Kingdom.

Well, to paraphrase what Ronald Reagan said to Jimmy Carter in the 1980 presidential debate, here we go again.

Here’s the opening few sentences from a report in the Wall Street Journal.

Medtronic Inc.’s agreement on Sunday to buy rival medical-device maker Covidien COV PLC for $42.9 billion is the latest in a wave of recent moves designed—at least in part—to sidestep U.S. corporate taxes. Covidien’s U.S. headquarters are in Mansfield, Mass., where many of its executives are based. But officially it is domiciled in Ireland, which is known for having a relatively low tax rate: The main corporate rate in Ireland is 12.5%. In the U.S., home to Medtronic, the 35% tax rate is among the world’s highest. Such so-called “tax inversion” deals have become increasingly popular, especially among health-care companies, many of which have ample cash abroad that would be taxed should they bring it back to the U.S.

It’s not just Medtronic. Here are some passages from a story by Tax Analysts.

Teva Pharmaceuticals Inc. agreed to buy U.S. pharmaceutical company Labrys Biologics Inc. Teva, an Israeli-headquartered company, had an effective tax rate of 4 percent in 2013. In yet another pharma deal, Swiss company Roche has agreed to acquire U.S. company Genia Technologies Inc. Corporations are also taking other steps to shift valuable assets and businesses out of the U.S. On Tuesday the U.K. company Vodafone announced plans to move its center for product innovation and development from Silicon Valley to the U.K. The move likely means that revenue from intangibles developed in the future by the research and development center would be taxable primarily in the U.K., and not the U.S.

So how should we interpret these moves?

From a logical and ethical perspective, we should applaud companies for protecting shareholders, workers and consumers. If a government is imposing destructive tax laws (and the United States arguably has the world’s worst corporate tax system), then firms have a moral obligation to minimize the damage.

Writing in the Wall Street Journal, an accounting professor from MIT has some wise words on the issue.

Even worse, legislators have responded with proposals that seek to prevent companies from escaping the U.S. tax system. The U.S. corporate statutory tax rate is one of the highest in the world at 35%. In addition, the U.S. has a world-wide tax system under which profits earned abroad face U.S. taxation when brought back to America. The other G-7 countries, however, all have some form of a territorial tax system that imposes little or no tax on repatriated earnings. To compete with foreign-based companies that have lower tax burdens, U.S. corporations have developed do-it-yourself territorial tax strategies. …Some firms have taken the next logical step to stay competitive with foreign-based companies: reincorporating as foreign companies through cross-border mergers.

Unsurprisingly, some politicians are responding with punitive policies. Instead of fixing the flaws in the internal revenue code, they want various forms of financial protectionism in order the stop companies from inversions.

Professor Hanlon is unimpressed.

Threatening corporations with stricter rules and retroactive tax punishments will not attract business and investment to the U.S. The responses by the federal government and U.S. corporations are creating what in managerial accounting we call a death spiral. The government is trying to generate revenue through high corporate taxes, but corporations cannot compete when they have such high tax costs. …The real solution is a tax system that attracts businesses to our shores, and keeps them here. …The U.K. may be a good example: In 2010, after realizing that too many companies were leaving for the greener tax pastures of Ireland, the government’s economic and finance ministry wrote in a report that it wanted to “send out the signal loud and clear, Britain is open for business.” The country made substantive tax-policy changes such as reducing the corporate tax rate and implementing a territorial tax system. Congress and President Obama should make tax reform a priority.

Here’s some info, by the way, about the United Kingdom’s smart moves on corporate taxation.

For more information on territorial taxation, here’s a video I narrated for the Center for Freedom and Prosperity.

And here’s my futile effort to educate the New York Times on the issue.

And if you want some info on the importance of lower corporate taxation, here’s another CF&P video.

P.S. Last February, I shared a hilarious video spoof about some action figures called the “Kronies.” These fake toys symbolize the sleazy insiders that have made DC a racket for well-connected insiders.

Well, the Kronies are back with a new video about the Export Import Bank, which exists to subsidize companies that give lots of contributions to politicians.

I’ve written before about the Export-Import Bank being a perfect (in a bad way) example of corruption in Washington, but if you want to know the details about this crony institution, Veronique de Rugy of the Mercatus Center is a walking encyclopedia on the topic.

By the way, the recently defeated House Majority Leader has been a big supporter of Ex-Im Bank subsidies, and it’s very revealing that Boeing’s share price fell after his defeat. Investors obviously think those handouts are very valuable, and they’re worried that the gravy train may come to an end with Cantor on his way out the door.

Addendum: Some readers have already asked whether it would have been better to say that America’s corporate tax is “sadistic” rather than “masochistic.”

From the perspective of companies (and their shareholders, workers, and consumers), the answer is yes.

But I chose “masochistic” because politicians presumably want to extract the maximum amount of revenue from companies, yet that’s not happening because they’ve set the rate so high and made the system so unfriendly. In other words, they’re hurting themselves. I guess they hate the Laffer Curve even more than they like having more money with which to buy votes.

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Some statements are so lame that they now serve only as punch lines.

Nobody, after all, would ever claim to a teacher that “the dog ate my homework.”

Moreover, surely few if any people ever actually assert to bill collectors that “the check is in the mail.”

And I have to imagine that no guy would be dumb enough to think a girl would fall for the line that “I’ll still love you in the morning.”

But we now have a new champion in the contest for the most laughable and pathetic assertion ever made.

But first some background. Congressional investigators have been trying to figure out the level of criminality and malfeasance in the IRS’s campaign to interfere with the 2012 election by targeting Tea Party groups. Much of the attention has focused on the activities of Lois Lerner, a left-wing ideologue at the center of the scandal.

And it is because of this investigation that we have a winner in the most-preposterous excuse contest. The political hacks at the IRS are now claiming, with straight faces, that they can’t turn over thousands of emails sent and received by Lois Lerner because of a “computer mishap.”

Here’s some of what’s been reported by the Washington Times.

The IRS has told Congress that it has lost some of former employee Lois G. Lerner’s emails from 2009 through 2011, including those she sent to other federal agencies… Rep. Dave Camp, chairman of the Ways and Means Committee, said he was stunned… “The fact that I am just learning about this, over a year into the investigation, is completely unacceptable and now calls into question the credibility of the IRS’s response to congressional inquiries,” Mr. Camp said. “There needs to be an immediate investigation and forensic audit by Department of Justice as well as the Inspector General.” …the emails lost were “critical years” from the beginning of the targeting of conservative groups.

At this point, I suppose I should acknowledge that there’s an infinitesimally tiny chance that the IRS is being honest. Maybe, just maybe, the IRS’s immense computer infrastructure and multiple levels of redundant back up happened to fail. And, by an amazing coincidence, they can recover everything except the emails from Lois Lerner that were sent at precisely the time she was instrumental in the IRS’s harassment campaign.

Yeah, right, there’s a chance the IRS is being honest. Just like the Nixon White House could have accidentally erased 18-1/2 minutes of tape.

That being said, there’s a chance I’ll be playing center field next month for the New York Yankees. And an even bigger chance that the models from Victoria’s Secret will invite me for a weekend orgy (and just in case the Princess of the Levant is reading this, I naturally would say no).

Let me now detour into the world of public policy.

The IRS’s venal and corrupt behavior is only possible because the tax code is a Byzantine nightmare of about 75,000 pages. And that doesn’t even include all the tax court decisions and IRS letter rulings that also govern the internal revenue code.

It is this thicket of special-interest sleaze that enables hacks like Lois Lerner to wield unjustified power.

So if we want to actually reduce the chances of similar malfeasance in the future, then action is needed.

But I’m not just talking about prison for the crooks who tried to misuse the power of government.

We also need to rip up the internal revenue code and replace it with a simple and fair flat tax.

As you can see in this video, I’m mostly a fan of tax reform because it will help the American economy. But I’m also delighted the flat tax will reduce the discretionary power of politicians and bureaucrats.

In the long run, of course, it would be even better if we shrank the federal government so much that we didn’t need any broad-based tax of any kind.

 

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When the new Tory-led government came to power in the United Kingdom, I was rather unimpressed.

David Cameron positioned himself as a British version of George W. Bush, full of “compassionate conservative” ideas to expand the burden of government.

But even worse than Bush, because Cameron also jacked up taxes when he first took office, including big increases in the capital gains tax and the value-added tax.

But I must admit that policy in recent years has moved in the right direction, at least with regard to corporate taxation.

Writing for the U.K.-based Telegraph, Jeremy Warner remarks that business activity has significantly strengthened.

A survey by EY, published on Monday, showed that the UK is continuing to pull away from the rest of Europe in terms of Foreign Direct Investment (FDI). The UK secured nearly 800 projects last year, the highest ever, accounting for around a fifth of all European FDI, far in advance of any other country. …Such investment is in turn helping to fuel Britain’s economic recovery… Go back 10 years and it was all the other way; companies were scrambling to leave the country and domicile somewhere else. It is perhaps the Coalition’s biggest unsung achievement that it has managed to reverse this flow.

So why has the United Kingdom experienced this economic rebound?

Lower corporate tax rates are key, Warner explains.

…it has done so largely through the tax system, where it has been as good as its promise to make the UK the most competitive in the G20. By next year, Britain will have the equal lowest headline rate of corporation tax – along with Russia and Saudi Arabia – in this eclectic group of economies, as well as at 20pc the lowest by some distance of the G7 major advanced economies. Other G7 countries range from 25pc to a crushing 38pc and 39pc in France and the US. …Britain has also halted the double taxation of repatriated foreign profits and the taxation of controlled foreign subsidiaries.

So the 20 percent corporate tax rate has yielded good results.

Now let’s connect the dots.

More economic activity means more income for taxpayers.

And more income means a bigger tax base.

Which means…can you guess?…yup, it means revenue feedback.

In other words, we have another piece of evidence that the Laffer Curve is very real.

…Reducing corporation tax has reversed the outflow of corporate head office functions, and doing so has substantially added to overall employment, output, income tax, national insurance and VAT receipts. Dynamic modelling by the UK Treasury has shown that lower tax rates are helping to drive a higher overall tax take. The “Laffer curve” lives. …Let business profit from its own enterprise. It’s amazing how effective this principle can be in generating growth, and yes, taxes, too.

If you want more evidence about the Laffer Curve, here’s one of the videos I narrated.

Warner points out, by the way, that the United Kingdom should not rest on its laurels.

If modest reductions in the corporate tax rate are good, then deeper cuts should be even better.

If comparatively minor changes like these to the competitiveness of the tax system can have such dramatic effects, just think what more serious, root and branch tax reform might achieve. In Singapore, the headline rate is 17pc, in Hong Kong 16.5pc and in Ireland just 12.5pc. There’s a way to go.

Though if The U.K. keeps moving in the right direction, that may arouse hostility and attacks from countries with uncompetitive tax systems.

Indeed, the statists at the European Commission have just launched an investigation of three countries for supposedly under-taxing companies.

Here are some blurbs from a report in the Wall Street Journal.

European Union regulators are preparing to open a formal investigation into corporate-tax regimes in Ireland, Luxembourg and the Netherlands… The probe by the European Commission, the EU’s executive arm, follows criticism in Europe of low tax rates paid by global corporations… The probe is likely to consider whether generous corporate-tax regimes in Ireland, Luxembourg and the Netherlands amount to illegal state aid. …The EU’s tax commissioner, Algirdas Semeta, has warned that the region “can no longer afford freeloaders who reap huge profits in the EU without contributing to the public purse.”

This is remarkable.

In the twisted minds of the euro-crats in Brussels, it is “state aid” if you let companies keep some of the money they earn.

This is horrible economics, but it’s even worse from a moral perspective.

A subsidy (or “state aid”) occurs when the government taxes money from Person A and gives it to Person B. But it’s a perversion of the English language to say that a subsidy takes place if Person A gets a tax cut.

By the way, this perverse mentality is not limited to Europe.

The “tax expenditure” concept in the United States is based on the twisted notion that a tax cut that results in more money in your pocket is economically (and morally) equivalent to a spending handout that puts more money in your pocket.

P.S. The United Kingdom also provides us with powerful evidence that the Laffer Curve plays a big role when there are changes in the personal income tax.

P.P.S. Notwithstanding a bit of good news on corporate tax, I’m not optimistic about the U.K.’s long-run outlook. Simply stated, the nation’s political elite is too statist.

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Regular readers know that good fiscal policy takes place when government spending grows slower than the private economy.

Nations that maintain this Golden Rule for extended periods of time shrink the relative burden of government spending, thus enabling more growth by freeing up resources for the productive sector of the economy and creating leeway for lower tax rates.

And when countries deal with the underlying disease of too much spending, they automatically solve the symptom of red ink, so it’s a win-win situation whether you’re a spending hawk or a so-called deficit hawk.

With this in mind, let’s look at some interesting new research from the Heritage Foundation. They’ve produced a report entitled Europe’s Fiscal Crisis Revealed: An In-Depth Analysis of Spending, Austerity, and Growth.

It focuses on fiscal policy over the past few years and is an important contribution in two big ways. First, it shows that the Keynesian free-lunch approach is counterproductive. Second, it shows that the right kind of fiscal consolidation (i.e., spending restraint) generates superior results.

Here are some excerpts from the chapter by Professor Alberto Alesina of Harvard of Veronique de Rugy of the Mercatus Center. They look at some of the academic evidence.

The debate over the merits of austerity (the implementation of debt-reduction packages) is frustrating. Most people focus only on deficit reduction, but that can be achieved in many different ways. Some ways, such as raising taxes, deeply hurt growth… The data show that austerity has been implemented in Europe. However, with some rare exceptions, the forms of austerity were heavy on tax increases and far from involving savage spending cuts. …spending-based adjustments are more likely to reduce the debt-to-GDP ratio, regardless of whether fiscal adjustments are defined in terms of improvements in the cyclically adjusted primary budget deficit or in terms of premeditated policy changes designed to improve a country’s fiscal outlook. …Other research has found that fiscal adjustments based mostly on the spending side are less likely to be reversed and, as a result, have led to more long-lasting reductions in debt-to-GDP ratios. …successful fiscal adjustments are often rooted in reform of social programs and reductions in the size and pay of the government workforce rather than in other types of spending cuts. …tax increases failed to reduce the debt and were associated with large recessions. …growing evidence suggests that private investment tends to react more positively to spending-based adjustments. For instance, data from Alesina and Ardagna and from Alesina, Favero, and Giavazzi show that private-sector capital accumulation increases after governments cut spending.

The basic message of the Alesina-de Rugy chapter is that bad outcomes are largely unavoidable when nations spend themselves into fiscal trouble, but the damage can be minimized if policy makers impose spending restraint.

The Heritage Foundation’s Salim Furth is the editor of the report, and here’s some of what he wrote in Chapter 3, which looks at what’s happened in recent years as countries dealt with fiscal crisis.

Tax austerity is very harmful to growth, while spending cuts are partially replaced by private-sector activity, making them less harmful. …Estimating growth effects on private GDP, the difference between tax and spending multipliers grows predictably. A two-dollar decline in private GDP is associated with every dollar of tax increases, but spending cuts are associated with no change in private GDP.  …fiscal consolidation that relied 60 percentage points more on spending cuts was associated with 3.1 percentage points more GDP growth from 2009 to 2012, when average growth was just 3.3 percent over the entire period. In other words, a country that had a fiscal consolidation composed of 80 percent of spending cuts and 20 percent of tax increases would grow much more rapidly than a country in which only 20 percent of the consolidation was spending cuts and 80 percent was tax increases. The association is slightly stronger for private GDP.

Salim then cites a couple of powerful examples.

…the difference between Germany’s 8 percent growth from 2009 to 2012 and the 1 percent growth in the Netherlands is largely accounted for by Germany’s cut-spending, cut-taxes approach and the Netherlands’ raise-spending, raise-taxes approach. The U.K. and Italy enacted similarly-sized austerity packages, but Italy’s was half tax increases while the U.K. favored spending cuts. Neither country excelled, but over half of the gap between the U.K.’s 3 percent growth and Italy’s negative growth is explained by Italy’s tax increases.

By the way, it’s not as if Germany and the United Kingdom are stellar examples of fiscal restraint. It’s just that they’re doing better than nations that traveled down the path of even bigger government.

Regarding supposed Keynesian stimulus, Salim makes a very important point that more government spending seems positive in the short run, sort of like the fiscal version of a sugar high.

But that sugar high produces a bad hangover. Nations that try Keynesianism quickly fall behind countries with more prudent policy.

Government spending boosts GDP instantly and then crowds out private spending slowly. The incentive effects of taxation may take effect over several years, but they are permanent and especially pronounced in investment. If anything, this recent crisis shows how brief the short run is: Countries whose spending-focused stimulus put them one step ahead in 2010 were already two steps behind in 2012.

There’s a lot more in the report, so I encourage readers to give it a look.

I particularly like that it emphasizes the importance of properly defining “austerity” and “fiscal consolidation.” These are issues that I highlighted in my discussion with John Stossel.

Another great thing about the report is that it has all sorts of useful data.

Though much of it is depressing. Here’s Chart 2-9 from the report and it shows all the countries that have increased top marginal tax rates between 2007 and 2013.

Portugal wins the booby prize for the biggest tax hike, though many nations went down this class-warfare path. Including the United States thanks to Obama’s fiscal cliff tax increase.

The United Kingdom is an interesting case. It raised its top rate by 10 percentage points, but then cut the rate by 5 percentage points after it became apparent that the higher rate wasn’t collecting any additional revenue.

We should give credit to the handful of nations that have lowered tax rates, several of which replaced discriminatory systems with simple and fair flat taxes.

Though it’s also important to keep in mind where each nation started. Switzerland lowered it’s top rate by only 0.4 percentage points, which seems small compared to Denmark, which dropped its top rate by 6.7 percentage points.

But Switzerland started with a much lower rate, whereas Denmark has one of the world’s most punitive tax regimes (though, paradoxically, it is very laissez-faire in areas other than fiscal policy).

Let’s look at the same data, but from a different perspective. Chart 2-10 shows how many nations (from a list of 37) raised top rates or lowered top rates each year.

The good news is that tax cutters out-numbered tax-hikers in 2008 and 2009.

The bad news is that tax increases have dominated ever since 2010.

Many of these post-2009 tax hikes were enabled by a weakening of tax competition, which underscores why it is so important to preserve the right of jurisdictions to maintain competitive tax systems.

And don’t forget that tax policy will probably get even worse in the future because of aging populations and poorly designed entitlement programs.

Let’s close with some more numbers.

Here’s Table 2-5 from the report. It shows changes in the value-added tax (VAT) beginning in December 2008.

The key thing to notice is that there’s no column for decreases in the VAT. That’s because no nation lowered that levy. Practically speaking, this hidden form of a national sales tax is a money machine for bigger government.

But you don’t have to believe me. The International Monetary Fund unintentionally provided the data showing that VATs are the most effective tax for financing bigger government.

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I’m in Vancouver, Canada, for the biennial meeting of the World Taxpayers Associations.

I gave a speech on why tax competition is a valuable force to constrain the greed of the political class, but warned the audience that high-tax governments and international bureaucracies are using financial protectionism to coerce low-tax jurisdictions into weakening their good policies.

But regular readers know that I pontificate far too often on that topic, so today’s column is instead about a presentation by Michael Walker, who was the founding Executive Director at Canada’s Fraser Institute.

Michael’s great contribution to the world was the creation of the Economic Freedom of the World Index, which he developed working with scholars such as Milton Friedman.

I’ve cited the EFW Index many times, particularly to bemoan how America’s score has deteriorated during the Bush-Obama years.

Today, though, we’re going to look at global trends in economic freedom, using some of the slides from Michael’s presentation. And the good news, as you can see from the green line in this first chart, is that there was a significant increase in economic freedom between 1980 and 2010.

EFW Economic Freedom(1)

The blue line, by the way, shows how much nations differed. A higher blue line means more variation (in other words, some nations with very good scores and some with very bad scores), while a lower blue lines means that nations are converging.

To really understand what’s happening, however, it’s important to look at the component parts of the EFW Index. As I wrote back in 2012:

…a country’s economic performance is governed by a wide range of policies.

Indeed, the research suggests that there are five big factors that determine prosperity, and they’re all equally important.

Rule of law and property rights

Sound money

Fiscal policy

Trade policy

Regulatory policy

So let’s look at what’s been happening in each of these areas. Keep in mind, as we look at the following charts, that 10 is the best score.

We’ll start with fiscal policy. As you can see, policy was moving in the wrong direction from 1970 to 1985, then we got two decades of pro-growth changes, but now policy is again trending in the wrong direction.

EFW Size of Government

We’re still better off than we were 30 years ago, but I’m afraid scores will continue to decline because tax rates are now heading in the wrong direction and the burden of government spending is rising in many nations.

Now let’s look at the regulatory data. The trend may not be dramatic, but it is positive. The green line is gradually rising, showing that governments are easing red tape and reducing intervention.

EFW Regulation

Moreover, there’s no sign that policy is moving in the wrong direction, at least on a global basis.

Shifting to trade, we have perhaps the biggest success story in global economic policy. Between 1980 and 200, there was a dramatic increase in the freedom to trade.

EFW Free Trade

We also see some progress on monetary policy, both in that it stopped moving in the wrong direction in 1975 and then moved in the right direction beginning in 1995.

EFW Sound Money

Though I confess some skepticism about this measure. Central banks have created a lot of problems with excess liquidity, but they generally escape blame so long as easy-money policies don’t result in higher consumer prices.

This brings us to our final category. Property rights and the rule of law are very important for market economies, but unfortunately we’ve seen no long-run improvement in these key measures. Positive change between 1975 and 1995 is offset by movement in the wrong direction at other times.

EFW Rule of Law

Indeed, if we look at this next chart, which measures the distribution of scores for each category in 2010, you’ll see that nations get their lowest scores on rule of law and property rights.

EFW Five Factors

This aggregate data, while very useful, does not tell the entire story. If you look at various regions, you’ll discover that “first world” nations tend to get decent scores on rule of law and property rights while developing nations get poor scores.

Indeed, this is why the blue line in the rule of law/property rights chart is so much higher than it is for other categories. Simply stated, this is one area where there hasn’t been much convergence.

Which is a big reason why many developing nations are economic laggards, even if they get reasonably good scores in other categories.

Here’s a final chart that emphasizes that point. It shows nations that get the best scores on the size of government (left column), but then shows that many of them get very poor scores for rule of law and property rights (right column).

The fiscal burden of government is very low in nations such as Lebanon and Bangladesh, for instance, but these jurisdictions don’t attract a lot of investment or enjoy much growth because government fails to provide the right environment.

EFW Size of Government vs Rule of Law Challenge

All of which shows why Hong Kong, Singapore, and Switzerland deserve special praise. They have strong rule of law and property rights while simultaneously maintaining reasonable limits on the fiscal burden of the public sector. No wonder they are ranked first, second, and fourth in overall economic freedom.

And it’s worth noting that a few other nations deserve honorable mention for getting good fiscal policy scores while doing a decent job on the rule of law and property rights, specifically Bahamas (#39), Chile (#11), Mauritius (#6), and United Arab Emirates (#5).

By the way, the United States only got a 6.4 for size of government and a 7.1 for rule of law and property rights. No wonder America is only #17 in the overall rankings.

Back in 2000, when the United States ranked #3, we got a 7.0 for size of government and a 9.2 for rule of law and property rights.

So now you now know why I complain so much about Bush and Obama. And you especially know why I’m so concerned about the erosion of the rule of law under Obama.

P.S. A Spanish academic has developed some fascinating historical data on non-fiscal economic freedom, which is very helpful in understanding how the western world has managed to remain somewhat prosperous even though the fiscal burden of government increased dramatically in the 20th Century.

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If you appreciate the common-sense notion of the Laffer Curve, you’re in for a treat. Today’s column will discuss the revelation that Francois Hollande’s class-warfare tax hikes have not raised nearly as much money as predicted.

And after the recent evidence about the failure of tax hikes in Hungary, Ireland, Detroit, Italy, Portugal, the United Kingdom, and the United States, this news from the BBC probably should be filed in the category of “least surprising story, ever.”

The French government faces a 14bn-euro black hole in its public finances after overestimating tax income for the last financial year. French President Francois Hollande has raised income tax, VAT and corporation tax since he was elected two years ago. The Court of Auditors said receipts from all three taxes amounted to an extra 16bn euros in 2013. That was a little more than half the government’s forecast of 30bn euros of extra tax income.

And why have revenues been sluggish, generating barely half as much money as the politicians wanted? For the simple reason that Hollande and the other greedy politicians in France failed to properly anticipate that higher tax rates on work, saving, investment, and entrepreneurship would discourage productive behavior and thus lead to less taxable income.

…economic growth has been inconsistent and the unemployment rate hit a record high of 11% at the end of 2013. The French economy saw zero growth in the first three months of 2014, compared with 0.2% growth three months earlier. The income tax threshold for France’s wealthiest citizens was raised to 75% last year, prompting some French citizens, including the actor Gerard Depardieu, to leave the country and seek citizenship elsewhere in Europe.

But we do have some good news. A French politician is acknowledging the Laffer Curve!

French Prime Minister Manuel Valls, who was appointed in March following the poor showing of Mr Hollande’s Socialists in municipal elections, appeared to criticise the president’s tax policy by saying that “too much tax kills tax”.

By the way, France’s national auditor also admitted that tax hikes were no longer practical because of the Laffer Curve. Heck, taxes in France are so onerous that even the EU’s Economic Affairs Commissioner came to the conclusion that tax hikes were reducing taxable income.

Though here’s the most surprising thing that’s ever been said about the Laffer Curve.

…taxation may be so high as to defeat its object… given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.

And I bet you’ll never guess who wrote those words. For the answer, go to the 6:37 mark of the video embedded in this post.

P.S. Just in case you’re not convinced by the aforementioned anecdotes, there is lots of empirical evidence for the Laffer Curve.

  • Such as this study by economists from the University of Chicago and Federal Reserve.
  • Or this study by the IMF, which not only acknowledges the Laffer Curve, but even suggests that the turbo-charged version exists.
  • Or this European Central Bank study showing substantial Laffer-Curve effects.
  • Or this research from the American Enterprise Institute about the Laffer Curve for the corporate income tax.

P.P.S. For other examples of the Laffer Curve in France, click here and here.

P.P.P.S. To read about taxpayers escaping France, click here and here.

P.P.P.P.S. On a completely different subject, here’s the most persuasive political ad for 2014.

I realize the ad doesn’t include much-needed promises by the candidate to rein in the burden of government, but I’m a bit biased. And in a very admirable way, so is Jack Kingston.

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There aren’t any nations with pure libertarian economic policy, but there are a handful of jurisdictions that deserve praise, either because they have comparatively low levels of statism or because they have made big strides in the right direction.

Hong Kong and Singapore are examples of the former, and Switzerland deserves honorable mention.

And if we look at nations that have moved in the right direction, then Chile is definitely a success story.

The free-market revolution in Chile is remarkable. If you look at the Economic Freedom of the World rankings, Chile was in last place in 1970 and third from the bottom in 1975. But then reforms began. It climbed to 60th place in 1980, 40th place in 1985, 28th place in 2000, and Chile now has one of the world’s freest economies, hovering around 10th place.

And the results are amazing. Now known as the Latin Tiger, Chile has become the richest nation in the region, thanks to a big increase in economic liberty. Many people know about that nation’s very successful system of personal retirement accounts (discussed here by Jose Pinera), but Chile’s economic renaissance is much deeper than private pensions.

The country has an admirable system of school choice, for instance, and 60 percent of students now attend private schools.

Most remarkable, the poverty rate has plummeted, showing that free markets and small government are the best way of helping the less fortunate.

But there’s no such thing as permanent success, and it appears that Chilean politicians may try to kill the geese that are laying the golden eggs.

Here are some excerpts from a Wall Street Journal report, starting with a description of the class-warfare tax plan proposed by the nation’s socialist leader.

Chile’s leftist government is proposing a controversial overhaul of its tax code that business leaders say threatens to reverse the gains that have made this country Latin America’s most prosperous nation. …The government says the tax reform will increase the tax haul by three percentage points of annual economic output, or by about $8.2 billion annually. The proposed overhaul includes an increase in the corporate tax rate to 25% from the current rate of 20% and the elimination of a popular tax exemption program that allows businesses that reinvest profits, known as the FUT. …Ms. Bachelet, a 62-year-old Socialist Party member, said Wednesday that the changes are required to fund a plan to improve the quality of the schools system.

The FUT system sounds like expensing, which is how the tax code should treat business investment, not a loophole.

In any event, we definitely know that the tax plan would significantly boost the tax burden.

And that has wealth creators worried.

The plan to raise the corporate tax rate and close an exemption that companies use to reinvest profits has stirred up an ideologically-charged debate at a time when economic growth has weakened to its slowest level in four years. …many of the company’s 450 business clients in Chile are reconsidering investment plans. “They are watching this with a lot of concern.” …business groups say they will try to pressure the government to rethink the tax overhaul. Juan Pablo Swett, the head of Chile’s association of small businesses, said that some 250,000 small-business owners could protest if the government doesn’t save the FUT. “Chile is going down the road of Latin American populism,” added Axel Kaiser, an economist and executive director at the Foundation for Progress, a conservative Chilean think tank.

The story notes that economic reform has been very positive for Chile.

This mineral-rich, long sliver of a country that hugs the Pacific Ocean has long been a laboratory for economic innovation. Starting in the mid-1970s, when much of Latin America had closed their economies from international trade, Chile went the other way, embarking on a program to liberalize trade, deregulate and even create a private pension system. Since 1990, successive governments, most of them left-leaning, oversaw business-friendly policies that turned it into the region’s most stable and wealthiest nation. …The robust economic growth, coined the “Chilean Miracle,” led to a decline in poverty to 15% in 2011 from almost 40% in 1990, according to the World Bank. During the same period, Chile’s gross domestic product per capita rose from less than $5,000 to more than $20,000, the highest in Latin America.

And since reform has produced such good results, that leaves us with two issues.

First, why do the politicians want to ruin a good thing? These people presumably are educated and well-traveled. They must realize how Chile has prospered relative to other nations in the region. So why tinker with success? Are they really so short-sighted that they’re willing to condemn their nation to slower growth just so they have the ability to buy votes with a temporary increase in tax revenue?

Second, why did voters elect these politicians? Don’t they realize that they’ve benefited from the pro-market reforms? Though I suspect the answer is that previous left-of-center governments haven’t done anything bad, while the recently ousted right-of-center government didn’t do anything good, so maybe voters didn’t realize that the new left-leaning government intended to make radical changes.

Regardless, it will be tragic if these reforms are imposed and Chile sinks back into economic stagnation.

The world in general – and Latin America in particular – already has plenty of basket case economies such as Cuba, Venezuela, and Argentina. The last thing we need is another statist economy.

I realize this may sound like whining, but it would make my job easier to have more examples of jurisdictions that can be role models for free markets and small government.

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I’ve already written about how the Paris-based Organization for Economic Cooperation and Development (OECD), which is heavily subsidized by American taxpayers, is advocating for bigger government.

I’m especially irked that the OECD has gotten in bed with nutjobs from the Occupy movement and also joined forces with the union bosses to push for statist policies.

So I guess I shouldn’t be surprised that the bureaucrats are now acting as cheerleaders for Thomas Piketty and class-warfare tax policy.

This is evident in a new report on “Top Incomes and Taxation in OECD Countries.” The bias is evident on the very first page, with the report asserting that “the very richest in society are accumulating an ever-increasing proportion of national incomes.” Yet this language inaccurately implies the economic pie is fixed in size and it is rather revealing that it uses “accumulating” rather than “earning.”

But that’s trivial compared to the assertion, also on the opening page, that the goal is to “identify concrete policy options to ensure a fairer distribution of resources.” In other words, the focus is on re-slicing the pie, not making it bigger.

But the problem is not merely bad rhetoric. The report concludes with a long list of potential tax hikes, all of which supposedly are justified because “historically high levels and the sustained rise in the share of top income recipients in total income are often taken as signs that top earners’ “capacity to pay” tax has increased. Furthermore, this coincides with a period where public finances are tight and governments are seeking new sources of revenue.”

I guess we shouldn’t be surprised that a bureaucracy representing governments has a list of policies designed to increase government power. But that doesn’t change the fact that class-warfare policies are destructive.

The OECD lists a smorgasbord of tax hikes, beginning with higher top tax rates.

A most direct way to ensure that top income earners pay a higher share of taxes is to raise marginal tax rates on income as well as other taxes which affect them. While there may be some concerns that such measures may not be as effective as intended with regard to raising tax revenues, some recent analysis suggests that there is still some scope to increase top tax rates to maximise tax revenues.

I supposed I should be happy that the bureaucrats are at least acknowledging that higher tax rates may not be “effective” because of Laffer Curve reasons, but it’s nonetheless disturbing that they think the goal should be revenue maximization.

That implies imposing a lot of economic damage to collect very small amounts of revenue. As Professor Martin Feldstein observed:

Why look for the rate that maximizes revenue? As the tax rate rises, the “deadweight loss” (real loss to the economy rises) so as the rate gets close to maximizing revenue the loss to the economy exceeds the gain in revenue…. I dislike budget deficits as much as anyone else. But would I really want to give up say $1 billion of GDP in order to reduce the deficit by $100 million? No. National income is a goal in itself. That is what drives consumption and our standard of living.

Looking specifically at an Obama proposal to boost payroll tax rates, Lawrence Lindsey admitted that the government would get more money, but at very high cost.

We should also keep in mind that the economic well-being of the country is not measured by how much taxes the government can collect, or even the size of the deficit. Rather, it is measured by the country’s productive capacity. …It is shocking to think that we have a presidential candidate who would make the private sector $5 poorer in order to make the government $1 richer.

And here’s what I wrote about some research from the European Central Bank.

…this study implies that the government would reduce private-sector taxable income by about $20 for every $1 of new tax revenue. Does that seem like good public policy? Ask yourself what sort of politicians are willing to destroy so much private sector output to get their greedy paws on a bit more revenue.

Here’s the remaining list of suggested tax hikes, followed by my parenthetical observations.

• Abolishing or scaling back a wide range of those tax deductions, credits and exemptions which benefit high income recipients disproportionately; (I want to get rid of loopholes, assuming we use the right definition, but only if the money is used to finance lower tax rates).

• Taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements and stock options; (I want to tax fringe benefits, but only as part of good tax reform and good health reform, not to give politicians more money).

• Considering shifting the tax mix towards a greater reliance on recurrent taxes on immovable property; (I already don’t like Fairfax County raping me for property taxes, so I sure don’t want the federal government doing the same thing).

• Reviewing other forms of wealth taxes such as inheritance taxes; (On a per-dollar-collected basis, a wealth tax might be the most destructive levy).

• Examining ways to harmonise capital and labour income taxation; (This means increased double taxation of income that is saved and invested).

• Increasing transparency and international cooperation on tax rules to minimise “treaty shopping” (when high-income individuals and companies structure their finances to take account of favourable tax provisions in different countries) and tax optimisation; (Is anyone shocked that the OECD is endorsing its own campaign to impose higher tax burdens on multinational companies?).

• Broadening the tax base of the income tax, so as to reduce avoidance opportunities and thereby the elasticity of taxable income; (Perhaps I’m missing something, but how is this different from the aforementioned point about credits, deductions, and exemptions?).

• Developing policies to improve transparency and tax compliance, including continued support of the international efforts, led by the OECD, to ensure the automatic exchange of information between tax authorities. (In other words, undermine tax competition to enable and facilitate higher tax burdens).

By the way, there’s one group that doesn’t have to worry very much about all these proposed tax hikes. OECD bureaucrats get tax-free salaries, which may explain why they seem oblivious to the real-world impact of their proposed policies.

Interestingly, the report inadvertently acknowledges that lower tax rates are good for capital formation and tax compliance.

The decline in top rates of income tax leads to a reduction in the tax burden carried by high earners and thus increases their post-tax income. Higher disposable income makes it easier for individuals to save and accumulate capital which eventually increases incomes further. Reducing top rates of income tax reduces the incentive to engage in tax planning to avoid or evade tax, so leads to more income being declared for income tax purposes.

Though this accidental bit of insight certainly didn’t have any impact on the OECD’s policy recommendations.

P.S. I periodically cite data from the IMF, BIS, and OECD to show that rising burdens of government spending are sewing the seeds of fiscal crisis in most industrialized nations.

We now have updated numbers from the OECD. The good news, so to speak, that America’s need for “budgetary consolidation” appears to have dropped from about 9.5 percent of GDP to 9 percent of GDP. But we’re still one of nations with the biggest long-run challenge, which is why I’m a broken record on the need for real entitlement reform.

OECD Fiscal Consolidation

The numbers for Greece and Portugal have gotten much worse in the past couple of years. I’m tempted to say that this is evidence that all the tax increases in those two nations have backfired. But I suspect it’s more a function of the OECD statistics people being wildly off base a couple of years ago.

P.P.S. If you were asked about the policies needed to promote more growth in Malaysia and Indonesia, you would probably suggest copying the high-growth economies in the region such as Hong Kong and Singapore.

But if you were an OECD bureaucrat, you would instead put out a report about “Rising tax revenues: A key to economic development in emerging Asian countries.”

And you would make this absurd assertion.

Increased domestic resource mobilisation is widely accepted as crucial for countries to successfully meet the challenges of development and achieve higher living standards for their people. Additional tax revenues enable governments to simultaneously strengthen infrastructure development, enhance the quality of education and promote social cohesion.

But don’t be surprised. The OECD made the exact same recommendation for higher taxes to finance bigger government when looking at Latin American economies. So at least they’re consistent.

Too bad the OECD bureaucrats are so in love with higher taxes that they never suggest the policies that enabled Western Europe to become rich.

P.P.P.S. The OECD report focuses on “taxing the rich,” but always remember that politicians use that as a strategic gimmick in order to justify higher taxes on the rest of us.

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The establishment fervently believes that more money should come to Washington so that politicians have greater ability to buy votes.

That’s why statists from both parties are so viscerally hostile to Grover Norquist’s no-tax-hike pledge. They view it as an obstacle to bigger government.

And it also explains why politicians who raise taxes are showered with praise, especially when they are Republicans who break their promises and betray taxpayers.

Which is why President George H.W. Bush was just awarded a “profiles in courage” award for raising taxes and breaking his read-my-lips promise by the crowd at Harvard’s Kennedy School.

Here’s some of what was reported by the Dallas News.

Former President George H.W. Bush was honored Sunday with a Kennedy “courage” award for agreeing to raise taxes to confront a spiraling deficit, jeopardizing his presidency that ended after just one term. …The budget deal enacted “responsible and desperately needed reforms” at the expense of Bush’s popularity and his chances for re-election, Schlossberg said. “America’s gain was President Bush’s loss, and his decision to put country above party and political prospects makes him an example of a modern profile in courage that is all too rare,” he said.

I’m not surprised, by the way, that Mr. Schlossberg praised Bush for selling out taxpayers.

But I am disappointed that the Dallas News reporter demonstrated either incompetency or bias by saying that Bush raised taxes to “confront a spiraling deficit.”

If you look at the Congressional Budget Office forecast from early 1990, you’ll see that deficits were on a downward path.

CBO 1990 Deficit Forecast

In other words, Bush had the good fortune of inheriting a reasonably strong fiscal situation from President Reagan.

Spending was growing slower than the private economy, thanks in part to the Gramm-Rudman law that indirectly limited the growth of spending.

So Bush 41 simply had to maintain Reagan’s policies to achieve success.

But instead he raised taxes. That got him an award from the Kennedy School this year…and it resulted in bigger government in the early 1990s.

Writing for National Review, Deroy Murdock is justly irked that President George H.W. Bush was given an award for doing the wrong thing.

…former president George Herbert Walker Bush received the Profile in Courage Award from the John F. Kennedy Library Foundation. What intrepid achievement merited this emolument? Believe it or not, breaking his word to the American people and hiking taxes by $137 billion in 1990.  …Bush’s tax hike was a political betrayal for Republicans and other voters who believed him when he pledged to the 1988 GOP National Convention: “Read my lips: No new taxes.” …Bush violated his promise and hiked the top tax rate from 28 percent to 31. Bush also imposed a luxury tax on yachts and other items. This led to a plunge in domestic boat sales and huge job losses among carpenters, painters, and others in the yacht-manufacturing industry.

The worst result, though, was that the tax hike enabled and facilitated more government spending.

Here are the numbers I calculated a couple of years ago. If you look at total spending (other than net interest and bailouts), you see that Bush 41 allowed inflation-adjusted spending to grow more than twice as fast as it did under Reagan.

And if you remove defense spending from the equation, you see that Bush 41’s bad record was largely the result of huge and counterproductive increases in domestic spending.

With such a bad performance, you won’t be surprised to learn that market-oriented fiscal experts do not remember the Bush years fondly.

Deroy cites some examples, including a quote from yours truly.

“Bush’s tax hike repealed the real spending restraint of Gramm-Rudman and imposed a big tax hike that facilitated a larger burden of government spending,” says Cato Institute scholar Dan Mitchell. “No wonder the statists . . . are applauding.” …“Of course the Left wants to celebrate Bush’s broken tax promise,” Moore says. ”It is what cost Republicans the White House and elected Bill Clinton…” says Grover Norquist, president of Americans for Tax Reform. “This is an award for stupidly throwing away the presidency to the Democrats…” Norquist further laments: “You never see a Democrat get a ‘courage’ award for saying ‘No’ to the spending-interest lobby.”

The moral of the story is that Washington tax-hike deals are always a mechanism for bigger government.

And President George H.W. Bush should be remembered for being a President who made Washington happy by making America less prosperous. As I wrote last year, “He increased spending, raised tax rates, and imposed costly new regulations.”

Hmmm…an establishment Republican President who increased the burden of government. If that sounds familiar, just remember the old saying, “Like father, like son.”

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Allister Heath, the superb economic writer from London, recently warned that governments are undermining incentives to save.

And not just because of high tax rates and double taxation of savings. Allister says people are worried about outright confiscation resulting from possible wealth taxation.

It is clear that individuals, when at all possible, need to accumulate more financial assets. …Tragically, it won’t happen. A lack of trust in the system is one important explanation. People simply don’t believe the government – and politicians of all parties – when it comes to long-terms savings and pensions. They worry, with good reason, that the rules will keep changing; they are afraid that savers are an easy target and that they will eventually be hit by a wealth tax.

Are savers being paranoid? Is Allister being paranoid?

Well, even paranoid people have enemies, and this already has happened in countries such as Poland and Argentina. Moreover, it appears that plenty of politicians and bureaucrats elsewhere want this type of punitive levy.

Here are some passages from a Reuters report.

Germany’s Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.

Since data from the IMF, OECD, and BIS show that almost every industrialized nation will face a fiscal crisis in the next decade or two, people with assets understandably are concerned that their necks will be on the chopping block when politicians are scavenging for more cash to prop up failed welfare states.

Though to be fair, the Bundesbank may simply be sending a signal that German taxpayers don’t want to pick up the tab for fiscal excess in nations such as France and Greece. And it also acknowledged such a tax would harm growth.

“(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required,” the Bundesbank said in its monthly report. …the Bundesbank said it would not support an implementation of a recurrent wealth tax, saying it would harm growth.

Other German economists, however, openly advocate for wealth taxes on German taxpayers.

…governments should consider imposing one-off capital levies on the rich… In Germany, for example, two thirds of the national wealth belongs to the richest 10% of the adult population. …a one-time capital levy of 10% on personal net wealth exceeding 250,000 euros per taxpayer (€500,000 for couples) could raise revenue of just over 9% of GDP. …In the other Eurozone crisis countries, it would presumably be possible to generate considerable amounts of money in the same way.

The pro-tax crowd at the International Monetary Fund has a similarly favorable perspective, relying on absurdly unrealistic conditions to argue that a wealth tax wouldn’t hurt growth. Here’s some of what the IMF asserted in its Fiscal Monitor last October.

The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair).

The IMF even floats a trial balloon that governments could confiscate 10 percent of household assets.

The tax rates needed to bring down public debt to precrisis levels…are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth.

Many people condemned the IMF for seeming to endorse theft by government.

The IMF’s Deputy Director of Fiscal Affairs then backpedaled a bit the following month. He did regurgitate the implausible notion that a wealth tax won’t hurt the economy so long as it only happens once and it is a surprise.

To an economist, …it’s close to an ideal form of taxation, since there is nothing you can now do to reduce, avoid, or evade it—the holy grail of what economists call a non-distorting tax. …Such a levy would entail a one-off charge on capital assets, the precise base being a matter for choice, but generally larger than cash left on kitchen tables. Added to the efficiency advantage of such a tax, many see an equity appeal in that such a charge would naturally fall most heavily on those with the most assets.

But he then felt obliged to point out some real-world concerns.

…governments have rarely implemented capital levies, and they have almost never succeeded. And there are very good reasons for that. …to be non-distorting the tax must be both unanticipated and believed certain not to be repeated. These are both very hard things to achieve. Introducing and implementing any new tax takes time, and governments can rarely do it in entire secrecy (even leaving aside transparency issues). And that gives time for assets to be moved abroad, run down, or concealed. The risk of future levies can be even more damaging; they discourage the saving and investment that generate future capital assets.

Though these practical flaws and problems don’t cause much hesitation on the left.

Here’s what Joann Weiner recently wrote in the Washington Post about the work of Thomas Piketty, a French economist who apparently believes society will be better if higher taxes result in everyone being equally poor.

A much higher tax on upper income — say 80 percent — coupled with a significant tax on wealth — say 10 percent — would go a long way toward making America’s income distribution more equitable than it is now. …capital is the chief culprit… Piketty has another pretty radical, at least for the United States, way to shrink the share of wealth at the top — introduce a global tax on all capital. This means taxes on not just stocks and bonds, but also land, homes, machines, patents — you name it; if it’s wealth or if it generates what tax authorities call “unearned income,” then it should be taxed. One other thing. All countries have to adopt the tax to keep capital from fleeing to tax havens.

Writing in the New York Times back in January, Thomas Edsall also applauds proposals for a new wealth tax.

…worsening inequality is an inevitable outcome of free market capitalism. …The only way to halt this process…is to impose a global progressive tax on wealth – global in order to prevent (among other things) the transfer of assets to countries without such levies. A global tax, in this scheme, would restrict the concentration of wealth and limit the income flowing to capital.

Not surprisingly, there’s support in academia for confiscating other people’s money. One professors thinks the “impossible dream” of theft by government could become reality.

…this article proposes a yearly graduated tax on the net wealth of all individuals in excess of $100 million. The rate would be 5% on the excess up to $500 million and then 10% thereafter. …Such taxes are attacked as “class warfare” that runs counter to America’s libertarian and capitalist traditions. However…the time may once again be ripe for adopting a new tax to combat the growing wealth inequality in the nation. …wealth inequality harms the very social fabric of society. …The purpose of the proposed Equality Tax would not be to raise general revenue, although revenue would be raised. Instead it would be focused on establishing a societal value that for the health of society, no individual should accrue wealth beyond a certain point. Essentially, once an individual has $100 million of assets, …further wealth accumulation harms society while providing little economic benefit or incentive to the individual. …At a minimum such a tax would raise
at least $140 billion a year.

Let’s close by looking at the real economic consequences of wealth taxation. Jan Schnellenbach of the Walter Eucken Intitut in Germany analyzed this question.

Are there sound economic reasons for the net wealth tax, as an instrument to tax stocks of physical and financial capital, to be levied in addition to taxes on capital incomes?

Before even addressing that issue, the author points out that policy actually has been moving in the right direction, presumably because of tax competition.

There has been a wave of OECD countries abolishing their personal net wealth taxes recently. Examples are Spain (abolished in 2008), Sweden (2007) as well as Finland, Iceland and Luxembourg (all 2006). Nevertheless, the net wealth tax repeatedly surfaces again in the public debate.

So what about the economics of a wealth tax? Schnellenbach makes the critical point that even a small levy on assets translates into a very punitive rate on actual returns.

…every tax on domestic wealth needs to be paid out of the returns on wealth, every net wealth tax with a given rate is trivially equivalent to a capital income tax with a substantially higher rate. …even an – on aggregate – non-confi scatory wealth tax may at least temporarily actually have confi scatory eff ects on individuals in periods where they realize sufficiently low returns on their capital stock.

He then looks at the impact on incentives.

…a net wealth tax will have similar distortionary e ffects as a capital income tax. …Introducing a comprehensive net wealth tax would then, through the creation of new incentives for tax avoidance and evasion, also diminish the base of the income tax. Scenarios with even a negative overall revenue eff ect would be conceivable. There is thus good reason to cast doubt on the popular belief that a net wealth tax combines little distortions and large amounts of revenue. …A wealth tax aggravates the distortions and the incentives to evade that already exist due to a pre-existing capital income tax.

And he closes by emphasizing that this form of double taxation undermines property rights.

The intrusion into private property rights may be far more severe for a wealth tax compared to an income tax. …It takes hold of a stock of wealth that consists of saved incomes which have already been subject to an income tax in the past… Our discussion has shown that economically, the wealth tax walks on thin ice.

In other words, a wealth tax is a very bad idea. And that’s true whether it’s a permanent levy or a one-time cash grab by politicians.

Some may wonder whether a wealth tax is a real threat. The answer depends on the time frame. Could such a levy happen in the next year or two in the United States?

The answer is no.

But the wealth tax will probably be a real threat in the not-too-distant future. America’s long-run fiscal outlook is very grim because of a rising burden of government spending.

This necessarily means there will be a big fiscal policy battle. On one side, libertarians and small-government advocates will push for genuine entitlement reform. Advocates of big government, by contrast, will want new revenues to enable and facilitate the expansion of the public sector.

The statists will urge higher income tax rates, but sober-minded folks on the left privately admit that the Laffer Curve is real and that they can’t collect much more money with class-warfare tax policy.

That’s why there is considerable interest in new revenue sources, such as energy taxes, financial transaction taxes, and the value-added tax.

And, of course, a wealth tax.

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Perhaps there is an occasional exception, but when someone in a public policy debate mentions a “race to the bottom,” they always seem to favor bigger government and punitive taxation.

Here are a few examples:

The Organization for Economic Cooperation and Development, a bureaucracy based in Paris, wants to rewrite international tax norms for business income because “failure to collaborate … could be damaging in terms of … a race to the bottom with respect to corporate income taxes.”

The International Monetary Fund also prefers cartels over competition. As the UK-based Guardian reported, “Instead of a race to the bottom where countries compete with each other to offer the lowest rate of corporate tax, it urges co-operation.”

Whether the issue is welfare reform of Medicaid block grants, opponents of federalism complain about decentralization “creating a ‘race to the bottom’ as states slashed funding on services for the poor.”

One of the cranks from the Occupy movement was given a platform by the OECD to complain that, “Tax havens and secrecy jurisdictions bring governments into a harmful race to the bottom.”

And Jeffrey Sachs, writing for the Financial Times, hyperventilated about “a runaway social crisis in many high-income countries. …governments are now in a race to the bottom with regard to corporate taxation”

As you can see, “race to the bottom” is a term that statists use when advocating policies to increase the size, scope, and power of government.

They certainly have the right choose their rhetoric, even though I wish (in the case of the OECD and IMF) that they weren’t being subsidized with my money to push their destructive agenda.

And it makes sense for statists to use this strategy. After all, a “race to the bottom” sounds like a bad thing.

So you can understand that I get irked when the establishment press, which is supposed to be neutral, adopts the left’s rhetoric. Consider this headline from a report in the Financial Times.

FT Race to Bottom Headline(1)

The article itself is not nearly as bad as the headline, so this may be the bias of an editor rather than the bias of a reporter.

Regardless, it sets the tone and obviously would lead an unwitting reader to think it is a good thing that nations aren’t lowering tax rates as much as they did in previous years.

My main point of today’s column is to complain about media bias, but since our example is about the supposed “race to the bottom,” this is also an opportunity to cite the work of the great Nobel Prize-winning economist, Gary Becker, who just passed away.

…competition among nations tends to produce a race to the top rather than to the bottom by limiting the ability of powerful and voracious groups and politicians in each nation to impose their will at the expense of the interests of the vast majority of their populations.

Amen. Tax competition encourages better policy by reducing the power of government.

With regards to bad policy, I want a race to the bottom. That’s what creates a race to the top for prosperity.

P.S. Since we’re on the topic of tax and whether people should pay more or pay less, remember the “Buffett Rule” from the 2012 campaign?

President Obama said every rich person should cough up at least 30 percent of their income to the IRS.

And Warren Buffett volunteered to be Obama’s prop, even distorting his own tax data to facilitate the President’s class-warfare agenda.

Well, it seems that Mr. Buffett is a bit of a hypocrite. Read some of what the Wall Street Journal opined this morning.

…the Berkshire Hathaway CEO seems to have adapted his famous Buffett Rule of taxation when it applies to his own company. …it was fascinating to hear Mr. Buffett explain that his real tax rule is to pay as little as possible, both personally and at the corporate level. “I will not pay a dime more of individual taxes than I owe, and I won’t pay a dime more of corporate taxes than we owe. And that’s very simple,” Mr. Buffett told Fortune magazine in an interview last week. …The billionaire was even more explicit about his goal of reducing his company’s tax payments. “I will do anything that is basically covered by the law to reduce Berkshire’s tax rate,” he said. …Too bad Mr. Buffett didn’t share this rule with voters in 2012.

Tax minimization is both the legal right and the moral responsibility of every citizen.

Unless, of course, you think – ignoring both theory and evidence – that the crowd in Washington spends money more wisely than the private sector.

P.S. Mr. Buffett should be happy he’s an American rather than a Brit. If he lived in London, the supposedly conservative-led government would probably condemn him for legally keeping his taxes as low as possible.

P.P.S. As shown in this clever video, lots of other rich leftists share Mr. Buffett’s hypocrisy.

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If you’re a regular reader, you already know I’m a big supporter of tax competition and tax havens.

Here’s the premise: Politicians almost always are focused on their next election and this encourages them to pursue policies that are designed to maximize votes and power within that short time horizon. Unfortunately, this often results in very short-sighted and misguided fiscal policies that burden the economy, such as class-warfare tax policy and counterproductive government spending.

So we need some sort of countervailing force that will make such policies less attractive to the political class. We don’t have anything that inhibits wasteful spending,* but we do have something that discourages politicians from class-warfare tax policy. Tax competition and tax havens give taxpayers some ability to escape extortionate tax policies.

Now we have a couple of new – and very high-profile – examples of this process.

First, a big American drug company is seeking to redomicile in the United Kingdom.

The New York Times has a thorough (and fair) analysis of the issues.

Pfizer proposed a $99 billion acquisition of its British rival AstraZeneca that would allow it to reincorporate in Britain. Doing so would allow Pfizer to escape the United States corporate tax rate and tap into a mountain of cash trapped overseas, saving it billions of dollars each year and making the company more competitive with other global drug makers. …the company wishes to effectively renounce its United States citizenship. …a deal would allow it to follow dozens of other large American companies that have already reincorporated abroad through acquiring foreign businesses. They have been drawn to countries like Ireland and the Netherlands that have lower corporate rates, as well as by the ability to spend their overseas cash without being highly taxed. At least 50 American companies have completed mergers that allowed them to reincorporate in another country, and nearly half of those deals have taken place in the last two years. …American businesses have long complained about the corporate tax rate, arguing that in today’s global marketplace, they are left at a competitive disadvantage.

You can click here if you want some of those additional examples.

To get an idea of why companies want to redomicile, here’s another excerpt from the story.

…the British corporate tax rate is currently 21 percent and will soon fall to 20 percent. Analysts at Barclays estimated that for each percentage point less Pfizer paid in taxes, it would save about $200 million a year by reincorporating. People briefed on Pfizer’s discussions said that figure could be substantially higher. That means that Pfizer would be saving at least $1 billion a year in taxes alone. And moving to a lower-tax jurisdiction would allow Pfizer to tap cash that it holds overseas without paying a steep tax to bring it back to the United States. Of the company’s $49 billion in cash, some 70 to 90 percent of that is estimated to be held overseas.

I’m encouraged, by the way, that reporters for the New York Times are smart enough to figure out the destructive impact of worldwide taxation. Too bad the editors at the paper don’t have the same aptitude.

By the way, it’s worth pointing out that Pfizer’s expatriation doesn’t have any negative impact on America.

Pfizer points out that it would retain its corporate headquarters here and remain listed on the New York Stock Exchange. …Pfizer’s chief executive, Ian C. Read, a Briton, said Pfizer found it was hard to compete with other acquirers while saddled with “an uncompetitive tax rate.” Still, he added that even as a reincorporated British company, “we will continue to pay tax bills” in the United States.

The only meaningful change is that the redomiciled company no longer would pay tax to the IRS on foreign-source income, but that’s income that shouldn’t be taxed anyhow!

The Wall Street Journal opined on this issue and made what should be very obvious points about why this is happening.

…because the combined state-federal corporate income tax rate in the U.S. is nearly 40%, compared to the 21% rate in the U.K.

Amen. America’s punitive corporate tax rate is a self-inflicted wound.

But it’s not the just the statutory tax rate. The WSJ also points out that the United States also wants companies to pay tax to the IRS on foreign-source income even though that income already has been subject to tax by foreign governments!

The U.S., almost alone among the world’s governments, demands to be paid on a company’s world-wide profits whenever those profits are brought back to the U.S.

It’s for reasons like this that America’s corporate tax system came in 94th place (out of 100!) in a ranking of the degree to which national tax systems impacted competitiveness.

Now let’s look at the second example of a high-profile tax-motivated corporate migration.

Toyota is moving the heart of its American operation from high-tax California to zero-income tax Texas.

And the Wall Street Journal correctly explains the lesson we should learn. Or, to be more accurate, the lesson that politicians should learn.

In addition to its sales headquarters, Toyota says it plans to move 3,000 professional jobs to the Dallas suburb… Toyota’s chief executive for North America Jim Lentz…listed the friendly Texas business climate…as well as such lifestyle benefits as affordable housing and zero income tax.

This isn’t the first time this has happened.

In 2006, Nissan moved its headquarters from Gardena—north of Torrance—to Franklin, Tennessee. CEO Carlos Ghosn cited Tennessee’s lower business costs.

The bottom line is that greedy California politicians are trying to seize too much money and are driving away the geese that lay the golden eggs.

According to the Tax Foundation, the state-local tax burden is more than 50% higher in California than in Tennessee and Texas, which don’t levy a personal income tax. California’s top 13.3% marginal rate is the highest in the country. …Since 2011 more than two dozen California companies including Titan Laboratories, Xeris Pharmaceuticals, Superconductor Technologies, Pacific Union Financial and Med-Logics have relocated in Texas. Dozens of others such as Roku, Pandora and Oracle have expanded there.

No wonder, as I wrote a few years ago, Texas is thumping California.

The real puzzle is why most high-tax governments don’t learn the right lessons. Are the politicians really so short-sighted that they’ll drive away their most productive people?

But notice I wrote most, not all. Because we do have some very recent examples of very left-wing states doing the right thing because of tax competition.

Here are some excerpts from a column in Forbes.

Maryland is the latest state to make its estate tax less onerous, and it’s significant because it’s a staunchly Democratic state indicating that easing the pain of the death tax isn’t just a Republican issue. Today the Maryland Senate passed the measure, already passed by the House, gradually raising the amount exempt from the state’s estate tax to match the generous federal estate tax exemption.

And other blue jurisdictions seem to be learning the same lesson.

In New York, Gov. Andrew Cuomo’s budget calls for increasing the state’s estate tax exemption from $1 million to match the federal exemption, and lowering the top rate from 16% down to 10% by fiscal 2017.  …A commission on tax reform in the District of Columbia recently recommended raising D.C.’s estate tax exemption from $1 million to the federal level. …In Minnesota, Democratic Governor Mark Dayton has proposed doubling the state estate tax exemption from $1 million to $2 million as part of a bigger tax package.

This is why tax competition is such a wonderful thing. There’s no question that politicians in states such as New York don’t want to lower the burden of the death tax.

But they’re doing it anyhow because they know that successful taxpayers will move to states without this awful form of double taxation.

Just like European politicians reduced corporate tax rates even though they would have preferred to keep high tax rates.

Tax competition isn’t a sufficient condition for good policy, but it sure is a necessary condition!

*There are spending caps that restrain wasteful government spending, such as the debt brake in Switzerland and TABOR in Colorado, but those are policies rather than processes.

P.S. Here’s a joke about California, Texas, and a coyote.

P.P.S. And supporters of the Second Amendment will appreciate this Texas vs. California joke.

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I’m in favor of free markets.

That means I’m sometimes on the same side as big business, but it also means that I’m often very critical of big business.

That’s because large companies are largely amoral.

Depending on the issue, they may be on the side of the angels, such as when they resist bad government policies such as higher tax rates and increased red tape.

But many of those same companies will then turn around and try to manipulate the system for subsidies, protectionism, and corrupt tax loopholes.

Today, I’m going to defend big business. That’s because we have a controversy about whether a company has the legal and moral right to protect itself from bad tax policy.

We’re dealing specifically with a drugstore chain that has merged with a similar company based in Switzerland, which raises the question of whether the expanded company should be domiciled in the United States or overseas.

Here’s some of what I wrote on this issue for yesterday’s Chicago Tribune.

Should Walgreen move? …Many shareholders want a “corporate inversion” with the company based in Europe, possibly Switzerland. …if the combined company were based in Switzerland and got out from under America’s misguided tax system, the firm’s tax burden would drop, and UBS analysts predict that earnings per share would jump by 75 percent. That’s a plus for shareholders, of course, but also good for employees and consumers.

Folks on the left, though, are fanning the flames of resentment, implying that this would be an example of corporate tax cheating.

But they either don’t know what they’re talking about (a distinct possibility given their unfamiliarity with the private sector) or they’re prevaricating.

Some think this would allow Walgreen to avoid paying tax on American profits to Uncle Sam. This is not true. All companies, whether domiciled in America or elsewhere, pay tax to the IRS on income earned in the U.S. 

The benefit of “inverting” basically revolves around the taxation of income earned in other nations.

But there is a big tax advantage if Walgreen becomes a Swiss company. The U.S. imposes “worldwide taxation,” which means American-based companies not only pay tax on income earned at home but also are subject to tax on income earned overseas. Most other nations, including Switzerland, use “territorial taxation,” which is the common-sense approach of only taxing income earned inside national borders. The bottom line is that Walgreen, if it becomes a Swiss company, no longer would have to pay tax to the IRS on income that is earned in other nations. 

It’s worth noting, by the way, that all major pro-growth tax reforms (such as the flat tax) would replace worldwide taxation with territorial taxation. So Walgreen wouldn’t have any incentive to redomicile in Switzerland if America had the right policy.

And this is why I’ve defended Google and Apple when they’ve been attacked for not coughing up more money to the IRS on their foreign-source income.

But I don’t think this fight is really about the details of corporate tax policy.

Some people think that taxpayers in the economy’s productive sector should be treated as milk cows that exist solely to feed the Washington spending machine.

…ideologues on the left, even the ones who understand that the company would comply with tax laws, are upset that Walgreen is considering this shift. They think companies have a moral obligation to pay more tax than required. This is a bizarre mentality. It assumes not only that we should voluntarily pay extra tax but also that society will be better off if more money is transferred from the productive sector of the economy to politicians.

Needless to say, I have a solution to this controversy.

…the real lesson is that politicians in Washington should lower the corporate tax rate and reform the code so that America no longer is an unfriendly home for multinational firms.

For more information, here’s the video I narrated on “deferral,” which is a policy that mitigates America’s misguided policy of worldwide taxation. And you’ll see (what a surprise) that the Obama Administration wants to make the system even more punitive.

P.S. On this topic, click here is you want to compare good research from the Tax Foundation with sloppy analysis from the New York Times.

P.P.S. Many other companies already have re-domiciled overseas because the internal revenue code is so punitive. The U.S. tax system is so bad that companies even escape to Canada and the United Kingdom!

P.P.P.S. It also would be a good idea to lower America’s anti-competitive corporate tax rate.

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I’m ecumenical on tax reform. I’ll support any plan that rips up the internal revenue code and instead lowers tax rates, reduces double taxation, and cuts out distorting loopholes.

And as I explain in this interview, both the flat tax and national sales tax have a low tax rate. They also get rid of double taxation and they both wipe out the rat’s nest of deductions, credits, exclusions, preferences, and exemptions.

You’ll notice, however, that I wasn’t very optimistic in the interview about the possibility of replacing the IRS with a simple and fair tax system.

But perhaps I’m being needlessly gloomy. New polling data from Reason-Rupe show that there’s very strong support for reform. At least if you favor a flat tax.

This doesn’t mean we can expect genuine tax reform tomorrow or the next day.

President Obama is viscerally committed to class-warfare tax policy, for instance, and special interest groups would vigorously resist if there was a real possibility (they would say threat) of scrapping the current tax code.

But it does suggest that tax reform – at least in the form of a flat tax – could happen if there was real leadership in Washington.

So maybe my fantasies will become reality!

And one of the best arguments for reform is that the internal revenue code is an unfair mess.

Consider how rich people are treated by the tax code. The system is so complicated that we can’t tell whether they’re paying too much (because of high rates and pervasive double taxation) or paying too little (because of special preferences and tax shelters).

Regardless, we do know that they can afford lots of lobbyists, lawyers, and accountants. So even though they are far more likely to be audited, they have ample ability to defend themselves.

But the real lesson, as I explain in this CNBC interview, is that the right kind of tax reform would lead to a simple system that treats everyone fairly.

I’m also glad I used the opportunity to grouse about the IRS getting politicized and corrupted.

But I wish there had been more time in the interview so I could have pointed out that IRS data reveal that you get a lot more revenue from the rich when tax rates are more reasonable.

And I also wish I had seen the Reason-Rupe poll so I could have bragged that there was strong support for a flat tax.

Unfortunately, I wouldn’t have been able to make the same claim about the national sales tax. I haven’t seen any recent public opinion data on the Fair Tax or other similar plans, but a poll from last year failed to find majority support for such a proposal.

And a Reason-Rupe poll from 2011 showed only 33 percent support for a national sales tax.

That won’t stop me from defending the national sales tax. After all, it is based on the same principles as a flat tax.

But the polls do suggest (as do anecdotes from the campaign trail) that a flat tax is a more politically viable option for reformers.

The moral of the story is that it makes more sense to push for the flat tax. After all, if I have an easy route and a hard route to get to the same destination, why make life more difficult?

Though the ultimate libertarian fantasy is shrinking government back to what the Founding Fathers had in mind. Then we wouldn’t need any broad-based tax of any kind.

P.S. Here’s my choice for the strangest-loophole award.

P.P.S. Since I shared a poll today with good news, I may as well link to a tax poll that left me somewhat depressed.

P.P.P.S. Let’s end with some IRS humor.

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I realize this may be a thought crime by DC standards, but it sure would be nice to eliminate the high tax rates that undermine economic growth and reduce American competitiveness.

At the risk of sharing too much information, I fantasize about a world without the internal revenue code. In addition to getting rid of high tax rates, I also want to abolish the pervasive double taxation of income that is saved and invested.

Tax Code PagesJust as important, I want to wipe out the distorting loopholes that tilt the playing field in favor of politically connected interest groups. And I daydream about how much easier tax day would be if ordinary people didn’t have to figure out how to comply with an ever-changing tax code.

But perhaps you’re a normal person and you don’t dwell on these topics. Your fantasies probably have nothing to do with fiscal policy and instead involve that hottie in your neighborhood.

That’s fine. I’m actually envious of well-adjusted people who don’t fixate on the cesspool of Washington.

But – at the very least – I want you to agree that America needs fundamental tax reform. And to help persuade you,  here are some fresh stories to remind you that the tax code and the IRS are a blight on society.

For instance, how do you feel about the IRS engaging in partisan politics, as reported by the Washington Times.

Even as the IRS faces growing heat over Lois G. Lerner and the tea party targeting scandal, a government watchdog said Wednesday it’s pursuing cases against three other tax agency employees and offices suspected of illegal political activity in support of President Obama and fellow Democrats. …the Office of Special Counsel…said it was “commonplace” in a Dallas IRS office for employees to have pro-Obama screensavers on their computers, and to have campaign-style buttons and stickers at their office. In another case, a worker at the tax agency’s customer help line urged taxpayers “to re-elect President Obama in 2012 by repeatedly reciting a chant based on the spelling of his last name,” the Office of Special Counsel said in a statement. …Another IRS employee in Kentucky has agreed to serve a 14-day suspension for blasting Republicans in a conversation with a taxpayer.

For more information about this nauseating scandal, read the wise words of Tim Carney and Doug Bandow.

Or what about the time, expense, and anxiety that the tax code causes for small businesses? Heck, even the Washington Post has noticed this is a big issue.

More than half of small employers say the administrative burdens and paperwork associated with tax season pose the greatest harm to their businesses, according to a new survey by the National Small Business Association. Forty-seven percent say the actual tax bill hits their companies the hardest. On average, small-business owners spend more than 40 hours — the equivalent of a full workweek — filing their federal taxes every year. One in four spends at least three full weeks on the annual chore. There is also the expense of doing that work. Only 12 percent of employers filed their taxes on their own this year, down from 15 percent last year — and hiring help can be pricey. Half spent more than $5,000 on accountants and administrative costs last year. One in four spent more than $10,000.

I was tempted to say compliance costs add insult to injury, except that understates the problem. Watch this video if you want to understand why the tax code needs to be junked.

And let’s not forget that high tax rates are pointlessly destructive and bad for America. Dozens of companies have redomiciled in other jurisdictions to get out from under America’s punitive corporate tax system. And more are looking at that option. Here are some excerpts from a report in the U.K.-based Financial Times.

Walgreens has come under pressure from an influential group of its shareholders, who want the US pharmacy chain to consider relocating to Europe, in what would be one of the largest tax inversions ever attempted. …The move, known as an inversion, would dramatically reduce Walgreens’ taxable income in the US, which has among the highest corporate tax rates in the world. …In a note last month, analysts at UBS said Walgreens’ tax rate was expected to be 37.5 per cent compared with 20 per cent for Boots, and that an inversion could increase earnings per share by 75 per cent. They added, however, that “Walgreens’ management seems more hesitant to pull the trigger near-term due to perceived political risks.”

By the way, “perceived political risks” is a polite way of saying that the team at Walgreens is worried that the company might be targeted by the crowd in Washington. In other words, it will be attacked if it does the right thing for workers, consumers, and shareholders.

But that’s blaming the victim. All you really need to know is that America’s corporate tax system is so harsh that companies don’t just escape to Ireland, Switzerland, the Cayman Islands, and Bermuda. They even find better fiscal policy in Canada and the United Kingdom!

Last but not least, do you trust the IRS with your confidential financial data? If you answer yes, seek help right away from a mental health professional and check out these stories.

According to the Washington Times:

A new cost-saving computer technology being implemented by the IRS has left the agency vulnerable to hacking, putting taxpayers’ info at risk, an investigative report has found. …although the IRS has developed cybersecurity guidelines, many of the servers aren’t following them, said a report by the agency’s internal watchdog, the Inspector General for Tax Administration. In fact, the servers failed 43 percent of the tests investigators put them through, though they aren’t releasing what those tests and settings are due to security concerns.

According to a Bloomberg report:

A U.S. Internal Revenue Service employee took home a computer thumb drive containing unencrypted data on 20,000 fellow workers, the agency said in a statement today. …The IRS said it’s working with its inspector general to investigate the incident. The IRS statement didn’t say why the incident was discovered now, didn’t include the name of the employee who used the thumb drive and didn’t say whether the employee still works at the IRS.

And National Review has reported:

The Internal Revenue Service stole and improperly accessed 60 million medical records after raiding a California company, according to a legal complaint filed in March with the California superior court for San Diego. …“No search warrant authorized the seizure of these records; no subpoena authorized the seizure of these records; none of the 10,000,000 Americans were under any kind of known criminal or civil investigation and their medical records had no relevance whatsoever to the IRS search.”

So what’s the bottom line? I suppose there are different interpretations, but my view is that the system is irretrievably broken. It needs to be shredded and replaced.

What are the options?

My real fantasy is to have a very small federal government. Then we wouldn’t need a broad-based tax of any kind.

But I also have incremental fantasies. Until we can shrink the federal government to its proper size, let’s at least figure out ways of collecting revenue that are much less destructive and much less unfair.

The flat tax is one possible answer.

I’m also a fan of the national sales tax, though only if we first amend the Constitution to ensure that politicians don’t pull a bait-and-switch and burden us with both an income tax and sales tax!

To be more specific, I’m a fan of the Fair Tax, but only if we make sure that politicians never again have the ability to impose an income tax.

P.S. Since we’re on the subject of taxes, folks in Northern New Jersey, Southern New York, and New York City may be interested in a tax symposium this Thursday at Ramapo College in Mahway, New Jersey. Along with several other speakers, I’ll be pontificating on the following question: “The Income Tax:
Necessary Evil, Or the Root of All Evil?”

The college is convenient to I-287 near the New York/New Jersey border. Say hello if you attend.

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Last August, I shared a fascinating map from the Tax Foundation.

It showed which states have chased away taxable income and which ones have attracted more taxpayers (along with their taxable income).

In other words, what are the “Golden Geese” doing with their money?

Well, the obvious and unsurprising answer is that they are escaping high-tax states and moving to states that aren’t quite so greedy.

Now we have another map from the Tax Foundation. They’ve just released the latest data on state and local tax burdens as a share of state income. Because of lags in data, we’re looking at 2011 numbers, but that’s not important. The main thing is to notice that the states with the highest tax burdens are very much correlated with the states that suffered the great loss of taxable income.

State-Local Tax

You can tell a few additional things just by looking at the map, most notably that the high-tax states are largely along the Pacific coast, in the upper Midwest, and much of the Northeast.

The rest of the nation seems more reasonable.

If you specifically want to know the best and worst states, I’ve put together a list. But I’ve reversed the order. The state with the lowest tax burden is #1 while the state with the greediest politicians is #50.

Best-worst tax states

A couple of observations on the data.

First, it helps to have no state income tax. The top four states, and seven out of the top 10, avoid that punitive levy.

Second, while it’s no surprise to see which states are at the bottom because of harsh tax burdens, it will be interesting to see how Chris Christie and Scott Walker explain the poor rankings of their respective states should they run for President.

This isn’t to say it’s their fault. After all, New Jersey and Wisconsin were high-tax states when they took office. But it will be incumbent upon them to say what they’ve done to make a bad situation better (or at least to keep a bad situation from getting worse).

Here are some more interesting maps, including international comparisons, national comparisons, and even one local comparison.

Which nations have the most red ink.

Which nations are money laundering centers (hint, not tax havens).

A crazy left-wing “Happy Planet” map.

Another silly map showing that America is supposedly one of the world’s most authoritarian nations.

Here are some good state maps with useful information.

Which states give the highest welfare payments.

In which state is the burden of government spending climbing most rapidly.

Which states are in a “death spiral” because of too many takers and too few makers.

Which states have too many school bureaucrats compared to teachers.

There’s even a local map.

How many of the nation’s richest counties are in the D.C. metro region.

P.S. I wrote recently about the foolishness of anti-money laundering laws, which impose very high costs without having any positive impact in terms of thwarting crime.

Now bureaucrats want to make these laws even worse. Casinos are going to be required to be more intrusive, regardless of whether there’s any evidence or suspicion that customers have done anything wrong. I’m not a gambler, so I don’t worry about the fate of Las Vegas, but even I feel sorry for the casinos since many high rollers from overseas will decide to go to Macau, Monaco, or other locations where they’re not treated poorly because of misguided government.

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I’m a supporter of a single-rate tax regime, especially if there’s no double taxation of income that is saved and invested.

That’s why I like the flat tax.

But I’ve expressed concern about the national sales tax, even though it’s basically the same as a flat tax (the only real difference is that the flat tax takes a bite out of your income when it is earned, while the sales tax takes a bite of your income as it is spent).

The reason for my skepticism is that I don’t trust politicians. I fear that they will adopt a sales tax, but never replace the income. As a result, we’ll wind up like Europe, with much bigger government.

And also much more red ink – even though politicians claim tax hikes and new taxes will lead to balanced budgets.

I’m not just being paranoid. Not only is this what occurred in Europe, the same thing is now happening in Japan.

Here’s some of what the Wall Street Journal has to say about “reforms” to the value-added tax in the land of the rising sun.

Japan on Tuesday increased its consumption tax to 8% from 5%. An increase to 10% is written into the law for next year, and don’t imagine for a minute that this will be the last. Welcome to the value-added-tax ratchet, which only goes in one direction—up. Tokyo first imposed a 3% consumption tax in 1989, after politicians had tried for a decade to enact one. …The new tax was billed as part of a tax reform, but the reform never materialized.

And as I warned in a prior column, the VAT has become a recipe for bigger government in Japan.

The new tax didn’t solve Japan’s deficit woes, as the debt to GDP ratio climbed to 50%, so in 1997 politicians increased the rate to 5%. Again politicians promised the increase would be offset by income-tax reforms. Again the reform proved illusory. …The additional revenue still didn’t satisfy Tokyo’s spending ambitions, and debt has since climbed well above 200% of GDP despite the VAT increase. …So now the rate is going up again in the name of, you guessed it, shoring up government finances as the population ages.

The OECD likes this development, which is hardly a surprise, but it’s bad news for those of us who favor growth and opportunity.

Japan’s experience points up the broader political problem with a value-added tax wherever it has been imposed. Economists tout the VAT for generating revenue without creating disincentives to work and invest. But in practice the consumption levy merely becomes one more tax in addition to current taxes and thus one more claim by the political class on the private economy. …The lesson for tax reformers elsewhere, not least in America, is to beware the VAT because once it is imposed it is only going up.

And it’s worth noting that the Europeans also have been increasing the VAT in recent years.

Simply stated, this is a levy to finance bigger government.

I elaborate in my video on the VAT.

P.S. You can see some amusing – but also painfully accurate – cartoons about the VAT by clicking here, here, and here.

P.P.S. I also very much recommend what George Will wrote about the value-added tax.

P.P.P.S. I’m also quite amused that the IMF accidentally provided key evidence against the VAT.

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As much as I condemn American politicians for bad policy, things could be worse.

We could be Greek citizens, which would be very depressing. Indeed, you’ll understand why I put Obamaland in the title after you read today’s column.

Simply stated, Greece is a cesspool of statism. The people seem to be wonderful (at least outside of polling booths), but government intervention is pervasive and atrocious.

Here’s an example. As I was coming in a taxi from the airport to the city yesterday, we passed some sort of protest. There were a couple of hundred people at the rally and probably about 50 riot cops.

I naturally wondered about the situation, expecting that it was radical statists or some of the crazies from Golden Dawn. But the cab driver explained that it was pharmacists.

So why are pharmacists protesting? I found out from some of the locals at the Free Market Road Show that this is a heavily regulated and protected sector of the Greek economy.

The government has rules, for instance, that products such as aspirin and other painkillers can only be purchased at pharmacies. The bureaucracy also rigs all the prices to preclude competition. And there are even government policies that make it very difficult for new pharmacies to compete against the established firms.

When special interests have that much power, no wonder Greece is in trouble.

Thought there are some sectors of the business community, such as online entrepreneurs, that are treated like crap. Literally.

Here’s another example from a Wall Street Journal report, albeit one where a modest bit of progress has been achieved.

For the first time in more than a hundred years, Greece is sacking public servants. In 1911, Greece introduced jobs for life under Prime Minister Eleftherios Venizelos. Now, a century later, his descendant, Kyriakos Mitsotakis, Greece’s minister for administrative reform, is faced with the delicate task of slimming down the massive public sector this law helped create. …In exchange for…aid, Greece has promised to cut the government workforce by at least 150,000 by 2015 through attrition, and to lay off an additional 15,000 outright by the end of this year. Another 25,000 would be placed in the temporary labor pool. Of those goals, the first has been reached: Greece had 713,000 government workers at the end of 2012, down 122,000 from the end of 2010. …But the labor pool is still a work in progress. Last July, the first 4,000 employees were put in that pool, while another 8,000 or so followed a few months later. Few of them are expected to be rehired. And with Greece’s unemployment rate already close to 30%, few expect to find jobs in the private sector.

I actually feel a bit sorry for some of these people.

They probably took jobs in the bureaucracy without ever thinking about who was paying their salaries and without giving any thought to the featherbedding and waste that accompany most public sector positions.

But I bet they voted for the politicians that dramatically expanded the number of bureaucrats, so it’s hard to feel too much sympathy.

In any event, they’re understandably worried now that the gravy train is being derailed.

Or maybe the gravy is still there, but in different forms.

It appears that there’s still taxpayer money floating around that can be wasted in interesting ways.

Here are some excerpts from the Guardian about EU-funded “anger management” for some of Greece’s senior tax bureaucrats.

Until Greece’s economic meltdown, anger management was an alien concept at the country’s finance ministry. …Today these are the buzzwords flying around the ground-floor training room at 1 Handris Street. For tax inspectors attending mandatory seminars at the government building, anger management, like patience and politesse, are now seen as essential prerequisites of an increasingly stressful job. “Today, in Greece, everyone is either unhappy or angry when they have to go and pay at the tax office,” Fotis Kourmouris, a senior official at the finance ministry’s public revenues department said. “There is a lot of negative emotion … in the framework of better customer service, classes in psychological and emotional intelligence had become necessary.”

I wouldn’t call it “negative emotion.”

This is a long-overdue revolt of the Greek tax slaves.

…inspectors have found themselves at the sharp end of popular rage. In recent months visiting auditors have been chased out of remote villages, hounded out of towns and booted off islands by an increasingly desperate populace. “We’ve had multiple cases of violence at tax offices by angry members of public, including physical assaults; shots were fired in one case, and one attacker came with an axe,” said Trifonas Alexiadis, vice-chairman of the national association of employees at state financial services.

But when you read how the Greek government is trying to rape and pillage taxpayers, you can understand the anger.

A series of new tax laws has further fuelled public anger. Since the outbreak of the crisis, close to 30 new levies have been introduced by governments desperate to augment empty state coffers. “Too much pressure is being put on people who can’t pay,” said Alexiadis, who suggested that in such circumstances the classes were not only ill-conceived but “juvenile and unnecessary”. …accountant Heracles Galanakopoulos agreed. “They produce a law that nobody understands and then produce another three to explain it. By the time people get here they are really very angry,” he lamented… “I spend at least five or six hours a day reading up on all these new laws and still can’t keep up. Anger management is a nice idea but in a system that is so absurd it’s not going to make a jot of difference.”

Amen. As I’ve argued before, Greece’s problem is high tax rates. Evasion is simply a function of a bad tax code.

Let’s close with some Greek-related humor.

I very much recommend this very funny video from a Greek comedian and this politically incorrect map of how the Greeks view the rest of Europe.

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