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Archive for May, 2009

There is an ongoing debate among conservatives and libertarians about how best to resuscitate the cause of limited government. In a recent post at the Cato Institute Blog, my colleague Brink Lindsey defended another Cato colleague, Jerry Taylor, who caught some flak for criticizing conservative talk radio at National Review online. Both Brink and Jerry argue that Limbaugh, et al, undermine the case for good policy because of sloppy arguments and unappealing styles.

This  is  a much-needed discussion, especially since the GOP’s decade-long embrace of statist economic policy has dramatically undermined the cause of liberty.

To add my two cents to the mix,  I disagree with part of their analysis. The problem is not Rush Limbaugh or any other talk show host. Talk radio, after all, existed when Republicans were riding high and promoting small government in the 1990s.

The real problem is that today’s GOP politicians are unwilling to even pretend that they believe in limited government. In such an environment, it is hardly a surprise that anti-tax and anti-spending voters decide that talk show hosts are de facto national leaders.

This does not mean that Rush Limbaugh is always right or that Sean Hannity never engages in demagoguery. But I suspect if any of us had to be live on the air three hours every day and support our families by attracting an audience, our efforts to be entertaining might result in an occasional mistake – either factually or rhetorically. Heck, when I had to be on the air for just one hour each day in the mid-1990s for the fledgling conservative television network created by the late Paul Weyrich, I’m sure I had more than my share of errors.

This being said, I agree with Brink’s main points about conservatism being adrift. How come there were no tea parties when Bush was expanding the burden of government? Why didn’t conservative think tanks rebel when Bush increased the power of the federal government? Where were the supposedly conservative members of the House and Senate when Bush was pushing through pork-filled transportation bills, corrupt farm bills, a no-bureaucrat-left-behind education bill, and a massive entitlement expansion?

I sometimes wonder if the re-emergence of another Reagan would make a difference, but Brink and others offer compelling reasons to believe that the problems is much deeper.

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Steve Moore and Art Laffer have an excellent column in today’s Wall Street Journal. They explain that high-tax states drive repel entrepreneurs and investors, leading to a pronounced Laffer Curve effect. Productive people either leave the state or choose to earn and report less taxable income. And because growth is weaker than in low-tax states, there also is a negative impact on lower-income and middle-class people:

Here’s the problem for states that want to pry more money out of the wallets of rich people. It never works because people, investment capital and businesses are mobile: They can leave tax-unfriendly states and move to tax-friendly states. …Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses. …Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average.

Interestingly, the Baltimore Sun last week published an article noting that the soak-the-rich tax imposed last year is backfiring. There are fewer rich people, less taxable income, and lower tax revenue. To be sure, some of this is the result of a nationwide downturn, but the research cited by Moore and Laffer certainly suggest that the state revenue shortfall will continue even after than national economy recovers:

A year ago, Maryland became one of the first states in the nation to create a higher tax bracket for millionaires as part of a broader package of maneuvers intended to help balance the state’s finances and make the tax code more progressive. But as the state comptroller’s office sifts through this year’s returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million. …Karen Syrylo, a tax expert with the Maryland Chamber of Commerce, which lobbied against the millionaire bracket, said she has heard from colleagues who are attorneys and accountants that their clients moved out of state to avoid the new tax rate. She said that some Maryland jurisdictions boast some of the highest combined state and local income tax burdens in the country. “Maryland is such a small state, and it is so easy to move a few miles south to Virginia or a few miles north to Pennsylvania,” Syrylo said. “So there are millionaires who are no longer going to be filing Maryland tax returns.”

With President Obama proposing higher tax rates for the entire nation, perhaps this is a good time to remind people about the three-part video series on the Laffer Curve that I narrated. If you have not yet had a chance to watch them, the videos are embedded here for your viewing pleasure:

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The President’s international tax proposal can be characterized as protectionism, but the target is American firms, not their foreign competitors. Crazy.

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I will be speaking to a policy conference on the financial crisis in Oslo tomorrow, organized by the Progress Party, which is the main opposition party. If anyone wants to wake up at 6:00 a.m., you can watch me live at http://www.frp.no/no/FrP_TV/.

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I had two opportunities earlier this week on CNBC to explain why it is not a good idea to further increase the discriminatory tax on American multinational firms. On Street Signs, hosted by the ever-popular Erin Burnett, I squared off against Christian Weller of the Center for Anti-American Progress (sorry, the temptation to modify their name was too strong). I like Christian, both because we hung out a bit at a conference in Paris years ago, and because he is not shy about stating his desire for bigger government, so it is a straightforward debate. I’m not sure who scored more points, but I hope it was an enlightening discussion.

Later in the day, I appeared on Larry Kudlow’s show and got to cross swords with Robert Reich. Larry is a great guy and is right on all this issues to my knowledge, so hopefully the two of us did a decent job explaining why it’s not a good idea to impose much higher taxes on American companies when their foreign competitors already enjoy a tax advantage. Reich is an effective debater, though, so you’ll have to judge for yourself which side prevailed.

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In an article for Forbes, I explain why the President’s new proposal to increase the tax penalty on American companies competing in global markets is spectacularly misguided. Here’s the key passage:

If deferral is eliminated, that may prevent an American company from taking advantage of a profitable opportunity to build a factory in some place like Ireland. But U.S. tax law does not constrain foreign companies operating in foreign countries. So there would be nothing to prevent a Dutch company from taking advantage of that profitable Irish opportunity. And since a foreign-based company can ship goods into the U.S. market under the same rules as a U.S. company’s foreign subsidiary, worldwide taxation does not insulate America from overseas competition. It simply means that foreign companies get the business and earn the profits.  If deferral is curtailed or eliminated, several bad things will happen. American-based companies will become less competitive since they will face a higher tax rate. Those U.S. companies also will lose market share around the world since foreign companies will have an even bigger tax advantage. America will have fewer exports, since a big chunk of our exports are the goods that American companies sell to their foreign subsidiaries. And American workers will have fewer jobs because of the reduction in exports.

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Veronique de Rugy, my long-time friend (and fellow Board member of the Center for Freedom and Prosperity), is the narrator of a new video explaining why the United States should not become a European-style welfare state. Produced jointly by the Center for Freedom and Prosperity and Reason TV, the video warns that the Bush-Obama era of big government is making America like Veronique’s home nation of France.

Coincidentally, I am sitting in my hotel room in Paris, having given speeches Wednesday and Thursday to semi-receptive audiences. France is a nice place to visit, but Veronique’s video shows that it is not a very good place to live for productive people.

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