Arizona May Join Flat Tax Club

There are more than 25 countries with flat tax system. Several states also have flat tax regimes, including Massachusetts, Colorado, Illinois, and Pennsylvania. Arizona may soon join that club. That’s the good news. The bad news is that the politicians also want to raise other taxes:

Overseas Americans Paying Heavy Price for IRS Fiscal Imperialism.

About one month ago, British banks revealed that they may reject all American customers because the IRS insists on absurdly onerous rules. Now, Swiss banks are adding to the woes of America’s global workforce by announcing that U.S. citizens are no longer welcome. Needless to say, this is a huge inconvenience for the tens of thousands of Americans who live and work abroad. The IRS and the Obama Administration argue that this is an acceptable price to pay to compel greater obedience to the internal revenue code, but the academic research shows that lower tax rates are the best way to improve compliance. Unfortunately, the politicians in Washington want to raise tax rates even higher, which will create more incentive for tax evasion and tax avoidance. Bloomberg reports:

UBS AG and Credit Suisse Group AG, the country’s biggest banks, have told Americans to move their money into specially created units registered in the U.S., or lose their accounts. Smaller private banks such as Geneva-based Mirabaud & Cie. are closing all accounts held by U.S. taxpayers. While the banks declined to say how many people are affected, more than 5 million Americans live abroad, including about 30,000 in Switzerland, according to estimates from American Citizens Abroad in Geneva. Swiss banks must register with the Securities and Exchange Commission to provide services for those customers. “My bank doesn’t want to do that, so we wouldn’t accept an investment account for a U.S. person,” said Pierre Mirabaud, chairman of Mirabaud & Cie. and the Swiss Bankers Association, during a lunch at the American International Club of Geneva. …The U.S. has also proposed increasing reporting and oversight requirements for so-called qualified intermediaries — foreign banks that withhold taxes on behalf of the IRS. That may increase the cost of compliance and the risk of violating U.S. laws, said Charles C. Adams, managing partner at the law firm Hogan & Hartson LLP in Geneva. “American citizens are starting to feel like they’re Typhoid Mary,” said Adams who hosted a 2008 fundraiser for Barack Obama that featured actor George Clooney. “The Swiss simply don’t want American customers because it requires so much infrastructure and hassle that they don’t make any money.” Sandra Dysli, an American who has lived in Geneva for 40 years, said Bank Zweiplus AG, the Zurich-based joint venture of Basel-based Bank Sarasin & Cie. and AIG Private Bank, and a Geneva branch of Raiffeisen International Bank-Holding AG refused to open investment accounts for her. …Two members of the U.S. Congress, Carolyn Maloney and Joe Wilson, wrote a May 27 letter to Treasury Secretary Timothy Geithner saying that if the QI requirements are extended to cash or deposit accounts, “taxpaying Americans living abroad will have no place to bank.” “If neither foreign nor American banks will take American customers, how will the millions of citizens living abroad bank?” wrote Maloney, a New York Democrat, and Wilson, a South Carolina Republican, who are co-chairmen of the Americans Abroad Caucus. …“The presumption is that you’re a bad person avoiding taxes if you live overseas,” according to Andy Sundberg, who founded Geneva-based American Citizens Abroad in 1978. “The IRS rhetoric is alienating and vindictive.”

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Exposing the Chicken-Little Political Hacks in State Capitals

Writing for the Boston Herald, Howie Carr eviscerates the state politicians that claim the world is coming to an end merely because they have to exercise a tiny shred of fiscal discipline. His prose is delightfully denigrating:

What state budget crisis? This year the hacks had $28.1 billion to squander. In the new fiscal year they’ll have $27.4 billion. In other words, for every $39 they wasted in FY 2009, they’ll have to get by on $38 in FY 2010. …The real crisis is the tax bender they’re on at the State House. To deal with this infinitesimal cut, the taxaholics are going to jack up the sales tax 25 percent. They’re allowing local hacks to impose a new meals tax. They’ve invented a new tax for satellite TV. They’re increasing the hotel-motel tax. Registry fees are going up. The tax-fattened hyenas are hitting us with a new 6.25 percent tax on alcohol, though they and their brain-dead enablers in what’s left of the mainstream media refuse to call it a tax. They describe it as eliminating the exemption. There’s an exemption on booze taxes because there’s already an excise tax on alcohol. The tax is included in the cost of the bottle. By imposing the new, jacked-up sales tax, the solons are taxing a tax, just as they did with cigarettes a few years back. That’s been great for sales – in New Hampshire.

On a more serious note, he exposes the typical ploy of politicians, many of whom will deliberately try to cut the small handful of things voters actually like rather than the wasteful programs that fatten their friends and campaign contributors:

Whenever a town wants to scare the voters into increasing their own property taxes, they begin to cut services, in the order in which taxpayers care: fire, police, high school football, garbage, libraries. Now it’s the state’s turn to play Chicken Little. They’re going to close a dozen Registry of Motor Vehicles branches – places everyone has to visit at least occasionally. That’ll teach a good lesson to those taxpaying bastards who actually have to work for a living! Whatever the state is saving by closing the RMV branches, they could have saved five times as much by closing the sleepier district courts, and no citizen would have noticed. But they’d never shut down those plush payroll patriot palaces, because that’s where the solons have stashed all their unemployable friends and kinfolk.

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Mr. Obama, Tear Down this Building!

I call for the elimination of the Department of the education in this debate on CNBC (and remark that the building should be torn down and a foot of salt put on the ground so nothing can ever spring forth again).

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Tax Oppression Index Ranks America in Bottom Half of Industrialized Nations

A thorough new study of 30 nations from the Institut Constant de Rebecque in Switzerland reveals serious shortcomings in America’s tax system. The report, entitled “Tax burden and individual rights in the OECD: an international comparison,” creates a Tax Oppression Index based on three key variables: the overall tax burden, public governance, and taxpayer rights. The good news is that the United States has a comparatively low aggregate tax burden, though America’s score on this measure would be much better in the absence of a punitively high corporate tax rate. The bad news is that corruption and inefficiency in Washington drag down America’s score for public governance. The ugly news is that America has a very low rating for protecting taxpayer rights – largely because politicians have tilted the playing field to favor the IRS, including the fact that taxpayers lose the presumption of innocence provided in the Constitution. Here is a brief description of the study:

The OECD’s campaign against “harmful tax competition” and “tax havens” has overshadowed the essential issue, namely the important roles that both tax competition and “tax havens” play for capital preservation and formation, leading to higher prosperity and better protection of individual rights throughout the OECD. The tax oppression index is based on 18 representative criteria measuring fiscal attractiveness, public governance and financial privacy in the 30 member states of the OECD. Switzerland appears as the country with the lowest tax oppression – due to a relatively low tax burden and a more [classical] liberal institutional order, including its citizens’ right to veto legislation, political decentralization, and protection of financial privacy. Germany and France, on the other hand, whose governments have supported the OECD’s efforts, are among the most questionable states in terms of safeguarding their residents’ individual rights. …The tax oppression index evaluates the 30 OECD member states on three complementary dimensions quantified by 18 representative criteria, on the basis of OECD and World Bank data. The index enables relevant conclusions about the tax burden and individual rights among those countries.

Switzerland earns the top ranking in the report, followed by Luxembourg, Austria, Canada, and Slovakia. Italy and Turkey have the worst systems, follwed by Poland, Mexico, and Germany. The United States is tied for 19th, behind even the welfare states of Scandinavia. With Obama promising the raise tax rates and increase the power of the IRS, it may just be a matter of time before the U.S. is competing for the world’s most oppressive tax regime.

February 2017 Addendum: Here’s the relevant table from the study.

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Maine’s Supply-Side Democrats

The class-warfare crowd in Washington wants bigger government and higher tax rates, so it’s a bit shocking to see that a group of Northeastern Democrats are slashing tax rates. Yet that is exactly what Maine’s politicians are doing. The Governor even makes the common-sense observation (that so far has escaped President Obama’s attention) that there won’t be any jobs without investors and entrepreneurs. The Wall Street Journal approves:

Taxpayers Get Screwed

Since politicians get to spend other people’s money, and use that process to raise campaign cash and buy votes, there is no limit to the stupid things they are willing to fund. The new study on condom use is merely the latest example. Foxnew.com has the details:

Should I Switch to Blogspot?

I’m a bit unhappy with some WordPress features, so I am conducting a month-long experiment. I will simultaneously post on both Blogspot and WordPress. If any experienced bloggers have suggestions and advice, let me know.

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Another Obama Appointee with Tax Problems

Ordinary Americans would get in trouble if they neglected to file tax returns in 2005 and 2006, but it almost seems as if disobeying tax laws is a prerequisite in the Obama Administration for getting nomined by a high-level government position. Unlike the Treasury Secretary, however, this latest nominee actually was owed a refund. It is understandable that this would preclude interest charges on unpaid tax, but it is curious that no penalties were assessed for failure to file. Would a regular taxpayer be treated so kindly? The New York Times has some of the details:

President Obama’s choice as chief of protocol for the State Department, a position that carries the status of an ambassadorship, did not file tax returns for 2005 and 2006, errors she corrected last November. The nominee, Capricia Penavic Marshall, has placed blame for the problem on the Postal Service and on miscommunication between her husband and their accountant. …Tax issues have bedeviled several high-level Obama appointees and cost the administration at least two of its picks. Ms. Marshall may fare better because, after ultimately filing the 2005 and 2006 federal and local paperwork, she was entitled to $37,259 in refunds, according to data she provided to Mr. Lugar. …No late fees or penalties were assessed when they later submitted the returns.

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Big Business vs. Free Markets

Jonah Goldberg’s column reveals the sleazy behavior of corporations seeking special treatment and handouts from government:

Once-proud companies like GE have become seduced by global warming schemes, because they recognize that there’s more money to be made selling white elephants to Uncle Sam than there is selling competitive products consumers want. Indeed, cap-and-trade taxes promise to deliver precisely the protectionist industrial policies the left has dreamed of for decades, only under a “progressive” label. This week, Philip Morris, the biggest of the Big Tobacco companies, supported and won passage of an “anti-tobacco” bill that will make it easier for Philip Morris (a subsidiary of Altria) to sell cigarettes by making it harder for smaller, more innovative firms to compete. One way it will do that is by curtailing the First Amendment rights of tobacco companies, making it harder to advertise their products (including healthier alternatives to normal cigarettes). Philip Morris, maker of Marlboro and other established brands, already controls 50 percent of the market. That’s why it lobbied government to keep it that way. Also this week, the White House announced its plan to deal with “systemic risk” in the financial markets. The basic idea is that big firms — giant banks, insurance companies, etc. — cannot be allowed to fail if their failure threatens something called “stability.” The Obama administration is confident that with its new organizational flow charts and enhanced job description for the Federal Reserve, bureaucrats will suddenly see clearly what they couldn’t see before. These regulators will know exactly when bubbles get too big, when booms last too long, and when tens of thousands of managers, investors, actuaries and bankers make bad or sub-optimal decisions. The problem, other than the shortage of Jedis and shamans to fill these posts, is that big companies will understand the surest way to attain immortality is to become too big to fail. Once they’ve achieved that privileged status, these companies will become de facto wards of the state, insured for life at taxpayer expense like Fannie Mae and Freddie Mac, and in exchange they will do whatever Uncle Sam asks. …While doctrinaire socialists might feel betrayed by liberalism’s cozy embrace of big business, their betrayal pales in comparison to the bitterness of free-marketers who defend big business’s freedom to operate, only to see these businesses use that freedom to hide behind the skirts of the nanny state. Real freedom means the freedom to fail as well as succeed. Big business wants to be protected from the former and deny competitors the latter.

 

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Fix the Health Care System by Having Consumers Pay Directly rather than Indirectly

A column in the Wall Street Journal tells the story of Safeway’s CEO, who has lowered the cost of health care by shifting to a system where employees have an incentive to control costs because they understand the money comes out of their own pockets. This highlights the key problem with most of the so-called reforms in DC. Costs are rising because of “third-party payment” – i.e., people buy health care and do not care about costs because the government or an insurance company is paying the bill. The politicians are responsible for programs such as Medicare and Medicaid, of course, but government laws and regulations also are largely responsible for the inefficiencies of the insurance system since tax laws and regulations create a big incentive for the use of employer-provided insurance policies that are somewhat equivalent to getting food at all-you-can-eat restaurants. Unfortunately, every time politicians expand third-party payments, costs rise further, which leads to more pressure for politicians to provide additional third-party payment. This downward spiral is why the system gets worse every time politicians try to shield people from acting like real consumers:

As most of corporate America sits on the health-care sidelines — issuing vague statements, trying not to offend a new U.S. president — Mr. Burd has charged into the political debate. “I’m here because health-care simply isn’t a partisan issue,” he says. There is what works, and what doesn’t. “I’m genuinely concerned someone might try to solve this by nationalizing health care, at the moment we at Safeway have proven that it is the market that reins in costs.” Prove it, he can. As recently as 2004, Safeway was suffocating under health-care costs growing at 10% a year. Mr. Burd, who had long been intellectually and politically drawn to the health-care issue, decided it was time to hit the restart button. He blew up the company’s existing health-care structure and replaced it with one that embodied market principles — choice, responsibility, competition and price. Today, Safeway has accomplished what Washington claims is the goal: The company’s per-capita health-care expenses have remained flat, compared to the near 40% increase experienced by the rest of corporate America over the past four years. This has not been done by cutting care or shifting costs to employees. Nearly 80% of the 30,000 nonunion Safeway workers who take part in the program rate it good, very good, or excellent. …The Safeway plan has two main parts that work in tandem. The first involves giving employees a financial stake in the system. Safeway demolished the traditional PPOs and HMOs that encourage consumers to be cavalier about costs. The company today fully pays for an array of primary and preventive visits and tests. But beyond that, employees have skin in the game. The company deposits $1,000 each year into a “health reimbursement account,” which workers can use to pay for care. The next $1,000 in expenses is the employee’s responsibility. After that, employees pay 20% of costs up to a $4,000 maximum. Safeway workers these days treat that first $1,000 carefully, since anything beyond it comes out of their pockets. The company is alive with stories of people who no longer visit the emergency room for routine care but instead call around to doctors to ask prices, and swap information with colleagues. Safeway is doing its part to improve price transparency, by having its care administrator, Cigna, analyze claims information. One discovery was that within 30 minutes of its California headquarters routine colonoscopy prices ranged from $700 to $7,000. …Critics of price incentives argue that they pressure consumers to forego necessary care. Mr. Burd counters that Healthy Measures and the company’s free preventive care — designed to catch problems before they become expensive — have in fact resulted in a healthier work force. Safeway’s smoking and obesity rates are roughly 70% the national average. The program has even been cautiously greeted by Safeway’s union leaders, who understand that soaring health costs are eating into union wages. When I ask Mr. Burd what he hopes to accomplish here, he is blunt that one goal is to prevent a “public option” that would only “piggyback on the experience of Medicare.” It’s a “Trojan Horse” that will steer people to government and ultimately squeeze out innovative programs like his. …As for his fellow CEOs, Mr. Burd is eager to debate anyone who thinks he will escape costs by dumping health care on the government. Business will still be taxed to pay for the program, making the U.S. less competitive. Far better, says Mr. Burd, for companies to control their destiny, and prove markets can also work for health care.

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President Obama Converts to Supply-Side Economics…Maybe…Sort of

Speaking to Bloomberg News, President Obama explicitly embraces a central tenet of supply-side economics, which is the common-sense observation that a growing economy generates additional tax revenue. That’s the good news. The bad news is that almost all of the policies being advocated by the White House expand the burden of government, thus making it more likely that the economy will experience subpar growth. This, of course, will give the politicians in Washington more excuses to further raise tax rates:

President Barack Obama said he is “confident” that he won’t have to raise taxes on most Americans to close the budget deficit as long as the economy picks up steam. “One of the biggest variables in this whole thing is economic growth,” the president said in an interview with Bloomberg News at the White House. “If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes.”

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European Politician Commits Gaffe, Admits that Anti-Tax Competition Schemes Are Designed to Enable Higher Tax Burdens

Most politicians and other advocates of tax harmonization are clever enough to pretend that they do not want higher tax rates. Instead, they assert that their proposals are merely ways of reducing evasion and making tax systems more efficient. So it is rather surprising that the Prime Minister of Finland has a column in the Financial Times, where he admits that various governments should conspire to simultaneously raise tax rates in order to finance big government:

The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. For example, property taxes or inheritance taxes can largely be determined at the national level without adverse economic consequences. But such taxes will not raise significant amounts of revenue. Only changes in value added tax, various excise taxes or taxes on earned and capital income can make a real difference. However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. Deeper co-operation is therefore necessary if tax revenues are to be increased in a way that truly helps fiscal consolidation. …It is important that different countries do not find themselves with very different tax solutions. We should avoid tax competition and the damage this would cause to Europe’s economic growth. …member countries could agree, for example, to change the levels of certain taxes in parallel. Parallel measures would help all of Europe: tax competition risk would be reduced and the public finances of individual countries would improve. Such co-ordinated tax changes could set also an important global example. In particular, it might encourage the US – with lower tax levels in most areas – to do what has to be done to address its spiralling budget deficit.

In the column, Prime Minister Vanhanen even suggests that the United States might be tempted to join the tax cartel. This has always been a goal of the Europeans since an OPEC for politicians without the United States will not work any better than the real OPEC without Saudi Arabia. One of my first videos – back in late 2007 – was on this topic, and it is embedded in a link below for those who did not have a chance to view it.

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Class-Warfare Tax Policy Threatens America’s Economy

The most amazing – or perhaps frightening – part of this video is listening to Obama say he supports higher tax rates even if they damage the economy so much that the government doesn’t collect any additional revenue. Wow.

Please share widely. We need to educate people so they do not get seduced by the politics of hate and envy.

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Latvia Retains Flat Tax, Disappointing Class-Warfare Advocates

Latvia Retains Flat Tax, Disappointing Class-Warfare Advocates. The Baltic nation of Latvia is in the middle of an serious economic downturn resulting largely from a credit bubble and excessive government spending. This created an opening for those who have long wanted to undo the nation’s flat tax and impose a discriminatory system. Indeed, the economic Luddites at the Tax Research Network were already celebrating the expected demise of the single-rate tax. Unfortunately for them (but fortunately for Latvians), the government made a stunning announcement that the flat tax will be retained according to Reuters:

Latvia’s government is to reduce old age pensions and state sector salaries but not raise taxes, it said on Thursday as it tries to win more loans and avert crisis and possible currency devaluation. The five-party coalition government agreed with social partners such as unions and employers on ways to find savings of 500 million lats ($1.01 billion) to win further loans from the International Monetary Fund and European Union, which are seen as the only way to survive a deep economic slump. “It was a difficult decision and it will not be popular but it had to be done,” Prime Minister Valdis Dombrovskis told reporters after a marathon and sometimes chaotic government session of almost 12 hours. “Our decision is sending a signal to the EU that we are serious,” he added. Against expectations, the government decided against introducing a progressive income tax for the first time to replace the current flat tax of 23 percent. The moves will include a cut in old age pensions of 10 percent, a whopping 70 percent cut in the pensions of those who still work, and a 20 percent cut in state sector salaries.

To be sure, this may not be the last word on this issue. Latvian politicians eventually may decide to undo the flat tax. Or perhaps Iceland’s new left-wing government may be the first nation to backslide to a so-called progressive tax system. Regular readers of the blog may recall that we have a theme song that we include every time there is an announcement of a new flat tax nation. In preparation for bad news, we have selected a theme song for when a nation decides to go in the wrong direction.

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IRS Bloodsuckers Want Cell Phones to Be a Taxable Fringe Benefit

With about 100,000 employees (more than the CIA and FBI combined), the IRS has plenty of people who daydream about new ways of taking money from taxpayers. The latest scheme to emanate from the tax bureaucracy is to classify employer-provided cell phones as a taxable fringe benefit. The Wall Street Journal reports (subscription required):

The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a “fringe benefit.” The Internal Revenue Service proposed employers assign 25% of an employee’s annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax. …The IRS move, which is spurring efforts by the wireless industry and others to kill the idea, would mark a stricter enforcement of an existing rule that classifies employer-provided cellphones as a taxable benefit, rather than a 24-hour-a-day work tool. Under a 1989 law, workers who use company-provided mobile phones for personal calls are supposed to count the value of those calls as income and pay federal income taxes accordingly. But businesses and workers have long ignored the requirement, prompting the IRS to consider steps the agency said would make it easier for businesses and workers to comply. …”The idea that you should keep a log saying, ‘I made a call saying I will be late for dinner again,’ that’s a totally cumbersome and burdensome requirement that most employers and employees are not going to comply with,” said Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, a trade group of cellphone-equipment manufacturers and service providers. “It would be a nightmare for corporations to try to figure out what are work calls and what are personal calls,” said Gerry Coady, chief information officer at Frontier Airlines Holdings Inc., who manages about 100 BlackBerrys for workers at the Denver-based airline. Some employees aren’t so happy about the idea, either. “Your job gives you a phone to be in 24-hour contact. It’s only natural that you’re going to use it personally,” said Anthony Cecchini, an analyst at investment bank Oppenheimer & Co. “If I need to get a personal email or call, it shouldn’t be a big deal.” …Wireless companies also argue the IRS rule is outdated. Rates have declined so dramatically in the past decade — with night and weekend calls free under many plans — that it makes little sense for the IRS to assess employee benefits by nickels and dimes. “This is a regulation from a bygone time, dating back to the infancy of the cellphone business, and it is in desperate need of updating,” said Howard Woolley, a senior vice president with Verizon Wireless, a venture of Verizon Communications Inc. and Vodafone Group PLC.

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Don’t Buy a Used Car – or Take Political Advice – from this Guy

Karl Rove should have been named Man of the Year at some point by the Democratic National Committee. The political consultant/Bush adviser played a big role in expanding the burden of government, convincing Bush to saddle the nation with fiscal disasters such as the no-bureaucrat-left-behind education bill, the corrupt farm bills, the pork-filled transportation bills, and the horrific new entitlement for prescription drugs. He also helped ruin the GOP image with his inside-the-beltway version of “compassionate conservatism,” thus paving the way for big Democratic victories in 2006 and 2008.

I can understand why libertarians have no desire to listen to his advice, but I’m baffled why Republicans or conservatives would give him the time of day. Yet he is a constant presence on FOX News and has a weekly column in the Wall Street Journal. With no apparent irony, his latest WSJ column is entitled “How to Stop Socialized Health Care.” Too bad he didn’t follow his own advice in 2003 when pulling out all the stops to enact the biggest entitlement in four decades.

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All the President’s Czars.

President Obama has appointed at least 16 Commissars Czars to oversee aspects of the U.S. economy. On FOX, I explain that this is bad news from the economy and a potential rat’s nest of corruption.

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Obama’s New “Stimulus” Idea: Wasting Money Faster

Here’s my debate with Christian Weller on CNBC. I don’t necessarily blame the current Administration for all the job losses since the passage of the so-called stimulus, but I definitely reject the notion that making government bigger is a recipe for growth.

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Is Obama White House Saddling America with Global Taxes and a New Foreign Aid Boondoggle?

The U.K.-based Guardian reports that the United Nations and other international bureaucracies dealing with so-called climate change are scheming to impose global taxes. That’s not too surprising, but it is discouraging to read that the Obama Administration is acquiescing to these attacks on U.S. fiscal sovereignty. The Administration also has indicated it wants to squander an additional $400 billion on foreign aid:

…rich countries will be asked to accept a compulsory levy on international flight tickets and shipping fuel to raise billions of dollars to help the world’s poorest countries adapt to combat climate change. The suggestions come at the start of the second week in the latest round of UN climate talks in Bonn, where 192 countries are starting to negotiate a global agreement to limit and then reduce greenhouse gas emissions. The issue of funding for adaptation is critical to success but the hardest to agree. …It has been proposed by the world’s 50 least developed countries. It could be matched by a compulsory surcharge on all international shipping fuel, said Connie Hedegaard, the Danish environment and energy minister who will host the final UN climate summit in December. …In Bonn last week, a separate Mexican proposal to raise billions of dollars was gaining ground. The idea, known as the “green fund” plan, would oblige all countries to pay amounts according to a formula reflecting the size of their economy, their greenhouse gas emissions and the country’s population. That could ensure that rich countries, which have the longest history of using of fossil fuels, pay the most to the fund. Recently, the proposal won praise from 17 major-economy countries meeting in Paris as a possible mechanism to help finance a UN pact. The US special envoy for climate change, Todd Stern, called it “highly constructive”. …Last week, a US negotiator, Jonathan Pershing, said that the US had budgeted $400m to help poor countries adapt to climate change as an interim measure. But that amount was dismissed as inadequate by Bernarditas Muller of the Philippines, who is the co-ordinator of the G77 and China group of countries.

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The Internet Tax Raid

Investor’s Business Daily rightly criticizes a proposal in Congress to enable states to tax sales that occur outside their borders. The IBD piece focuses on greedy politicians trying to increase the burden of government, but this issue also deals with fundamental – and important – issues of extraterritorial taxation, as explained in this short article:

Schwarzenegger Now Wants a Flat Tax?!?

After years of raising taxes and increasing the burden of spending, the Governator may be reversing his path. California’s Governor is flirting with the idea of genuine tax reform. I suppose it is welcome news when any politician endorses a flat tax, but battlefield conversions sometimes are a bit insincere. On the other hand, in his pre-Governor days, Schwarzenegger often expressed very sound views – including this video praising Milton Friedman. Here’s the blurb from the L.A. Times on the Governor’s flat tax trial balloon:

Could the flat tax come to California? Gov. Arnold Schwarzenegger said today that he would like to see such “radical” proposals come out of a commission now studying an overhaul of the state’s tax system. The governor told the editorial board of the Sacramento Bee that he hoped the commission would not be afraid … The current system, based on highly unstable income tax revenue that fluctuates with the economy, “doesn’t work,” Schwarzenegger said. Advocates of a flat tax, which applies a single tax rate to all income, say it increases compliance with the tax codes because it is so simple and easy to understand. But opponents dislike that it taxes the wealthy at the same rates as the poor.

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High-Tech Companies Warn White House that Tax Hike Will Drive Jobs Overseas

As I warned in my “deferral” video, the President’s proposal to increase the tax burden on U.S. companies competing in global markets is horribly misguided. The White House has now been put on notice by high-tech executives that they will be compelled to move jobs out of America if this destructive policy is adopted. Bloomberg reports:

Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits. “It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.” …Ballmer is one of 10 U.S. software company executives pushing back against the tax proposals in meetings today with White House officials including Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat. …In a roundtable discussion today, Ballmer, Symantec Corp. Chairman John Thompson and the heads of smaller companies such as privately held Bentley Systems, an Exton, Pennsylvania-based maker of engineering software, said such policies would hurt domestic investment, reduce shareholder value and increase the cost of employing U.S. workers. …Ballmer said…[f]iduciary responsibility to shareholders would require Microsoft to cut costs, he said, meaning many jobs would be moved out of the country. …Ballmer estimated that higher taxes under the proposal would reduce profits for companies that comprise the Dow Jones Industrial Average by between 10 and 15 percentage points. “It’s just a question of how much will the Dow come down,” Ballmer said. “It’s not about companies anyway; we’re talking about shareholders.” …Thompson called the Obama proposals “counterintuitive” to the administration’s other stated goals of fostering an innovation-oriented economy. “It is a little bit ironic that most of our most significant trading partners and partners globally have taken the tack that they’ll reduce corporate tax rates to stimulate economic growth and not raise corporate tax rates,” Thompson said.

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VATs Mean Big(ger) Government

As I explain in a Wall Street Journal column today, the value-added tax would be a disaster for America, enabling politicians to finance an even bigger government. In a previous post, I linked to an article I wrote for National Review. My WSJ piece updates the numbers and further confirms that a VAT is a recipe for European-style stagnation:

President Barack Obama is already looking at a wide range of other potential tax increases, including higher income tax rates, restrictions on itemized deductions, an energy tax, and higher payroll tax rates. Even if they all became law, the revenues would not come close to satisfying his and Congress’s appetite for bigger government, particularly a government-run health-care scheme. …Simply stated, there’s no way to finance all this new spending without an additional, broad-based tax. That’s exactly why a VAT — which is like a national sales tax collected at each stage of the production process, rather than at the final point of sale — should be resisted. …VATs are associated with both higher overall tax burdens and more government spending. In 1965, before the VAT swept across Europe, the average tax burden for advanced European economies (the EU-15) was 27.7% of economic output, roughly comparable to the U.S., where taxes were 24.7% of GDP, according to data from the Organization for Economic Cooperation and Development OECD). European nations began to impose VATs in the late 1960s, and now the European Union requires all members to have a VAT of at least 15%. Results? By 2006, the OECD reports that the average tax burden for EU-15 nations had climbed to 39.8% of GDP. The tax burden also has increased in the U.S., but at a much slower rate, rising to 28% for that year. The spending side of the fiscal equation is equally dismal. In 1965, according to European Commission figures, government spending in EU-15 nations averaged 30.1% of GDP, not much higher than the 28.3% of economic output consumed by U.S. government spending. According to 2007 data, government spending now consumes 47.1% of GDP in the EU-15, significantly higher than the 35.3% burden of government in the U.S. Another argument for the VAT concedes it will increase the overall tax burden but preclude higher taxes on personal income and corporate income. The evidence from Europe says otherwise. Taxes on income and profits consumed 8.8% of GDP in Europe in 1965, giving Europe a competitive advantage over the U.S., where they consumed 11.9%. By 2006, OECD data show that the tax burden on income and profits climbed to 13.8% of GDP in Europe, slightly higher than the 13.5% figure for the U.S. …The income tax system we have today is a nightmarish combination of class warfare and corrupt loopholes. Adding a VAT does not undo any of the damage it imposes. All that happens is that politicians get more money to spend and a chance to auction off a new set of tax breaks to interest groups. That’s good for Washington, but bad for America.

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Treasury Secretary Geithner Claims Dollar Is Strong, Chinese Students Laugh

While America’s Treasury Secretary is best known for getting a free pass after cheating on his taxes, he also is becoming a bit of a global embarrassment. At a recent speech in China, students laughed when he claimed the dollar is strong. Unlike the politicians in Washington, the students understand that a reckless monetary policy and profligate fiscal policy is putting America on a path to become anther Argentina:

U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency. A major goal of Geithner’s maiden visit to China as Treasury chief is to allay concerns that Washington’s bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds. China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China’s total U.S. dollar-denominated investments could be twice as high. “Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s. His answer drew loud laughter from his student audience.

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Illinois Democrats Can’t Muster Votes to Increase State’s Tax Rate

One of the key advantages of a flat tax is that it becomes much harder for the politicians to play divide-and-conquer. If they want to raise the income tax rate, they arouse the anger of all taxpayers. With so-called progressive tax systems, by contrast, politicians can raise taxes on a minority of people one year and then target another group the following year. The latest evidence showing the political advantage of a flat tax comes from Illinois, where Democrats control both chambers of the state legislature, as well the governor’s mansion, yet the Democrat-dominated State House overwhelmingly rejected a plan to raise the flat tax from 3 percent to 4.5 percent. Every Republican in the legislature voted no, even though two former GOP governors (and RINOs in good standing) sided with the various pro-spending lobbies and urged them to screw over taxpayers. The Chicago Sun Times reports:

Dealing Quinn the biggest legislative defeat of his 17-week governorship, the House voted 42-74 against his push to temporarily raise the income tax rate for individuals from 3 percent to 4.5 percent. Sixty votes were needed for passage. …Unable to nail down the income tax increase, Quinn is in an epic bind. If he can’t convert 29 Republican and Democratic income tax opponents to “yes” votes in the coming weeks, Quinn must cut billions of dollars in vital state services as he gears up for a 2010 gubernatorial run later this year. The top House Republican pinned blame for the tax plan’s failure on Springfield’s ruling Democrats, who could not put together a balanced budget despite having comfortable House and Senate majorities and a governor with whom they can finally work after ousting ex-Gov. Rod Blagojevich. …”People say ‘just stop the spending,’ and I agree with them. I claim a victory here for those folks,” said Rep. Randy Ramey (R-Carol Stream). …Quinn’s two-year tax hike wasn’t the only legislative money-maker pushed to the side Sunday night. The House opted against voting on a permanent, larger income tax increase pushed by Senate President John Cullerton (D-Chicago) and Sen. James Meeks (D-Chicago). That proposal, which narrowly passed the Senate late Saturday, would have boosted the income tax from 3 percent to 5 percent and imposed $1 billion in sales taxes for the first time on an array of services, ranging from movie tickets and dry cleaning to cable and Internet providers. But House Democrats were polled in a closed-door meeting Sunday about the Cullerton-Meeks plan, and only 35 offered support, and no Republicans were on board, leaving it 25 votes shy of passage leading up to the midnight Sunday deadline.

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GM’s Future: The Pelosi GTxi SS/RT

Since everybody outside of Washington already seems to understand that government-run car companies are doomed to fail, I will spare you a dull treatise on why the GM bailout is a bad idea. Instead, how about an advance look at GM’s 2012 top-selling car…

The video is funny, but the joke may be on us. A few of you old timers may remember the Trabant of East Germany. How long before our masters in Washington start forcing us to drive similar pieces of junk?

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