Archive for July, 2009

The International Monetary Fund does not always give bad advice, but the bureaucrats (who get very generous tax-free salaries) are infamous for advising economically-troubled nations to raise tax rates. The latest example if from Latvia, which got itself in trouble by overspending during the boom years and taking on too much debt. The IMF, to its credit, has asked for long-overdue reductions in a bloated public sector, but Latvia’s economy also needs investment to get back on the right path – and that will be less likely if the nation’s politicians acquiesce to IMF demands to replace the flat tax with a system that discriminates against those that contribute more to growth. Bloomberg reports on how the IMF is using American tax dollars to push bad tax policy:

Latvia and the International Monetary Fund reached a preliminary agreement yesterday paving the way for the first loan payment from the Washington-based fund since December. …The process of reaching an agreement has “been tumultuous,” Christensen said. The IMF and the Commission have made loan payments to the Baltic state conditional on budget standards being met, with the government pushing through pension, wage and other spending cuts to meet targets. The budget deficit may reach 10 percent of gross domestic product this year after the economy contracted 18 percent in the first quarter. …The country has cut spending by lowering pensions, state pay and maternity benefits, and raised value added tax since signing the agreement. It plans to introduce taxes on real estate, capital gains and earned interest income in next year’s budget, and may close some schools and hospitals. …“The idea of moving away from the flat tax to a progressive tax is very much one of the measures that we’re looking at,” Anne-Marie Gulde, senior advisor in the IMF’s European Department, said in a conference call. “It could help to increase revenues while putting more of the burden on higher- income groups.” The country’s parliament on June 16 passed 500 million lati ($1 billion) in spending cuts and revenue gains for this year, to unlock the loan from the European Commission.

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A sportswriter at NBA.com explains how higher tax rates will make it even more attractive for professional athletes to sign with teams from zero-income tax states such as Florida and Texas. This is good news if you cheer for the Miami Dolphins or Texas Rangners. But if you support teams from high-tax states, you should be very upset that greedy politicians are making it more likely that your favorite franchise will be at a competitive disadvantage:

With increasing taxes geared to the wealthy and the Bush tax cuts also coming off the books, it may be that the low tax states like Florida and Texas begin to have a big advantage over higher tax states when it comes to NBA free agents. …Could, in the end, the biggest barrier to the Bulls attracting a major free agent next summer like Dwyane Wade be the health care legislation now being debated in Washington? …The answer is taxes. The closest anyone seems to a plan now to pay for the changes is to tax the so-called rich. That would include just about every player in the NBA. I know we’re not supposed to feel sorry for rich people and assume they have so much that giving up more doesn’t matter. It does, just as comfortable people in the middle class with two cars and a nice health club membership don’t want to pay more taxes, either, even though they can afford to. So I contacted a tax expert in Chicago, Noel Wilner, president of CBIZ MHM, an accounting and tax advisory company, and asked him to do some calculations. The assumption was single tax payer, the 2011 tax rates when the presumed five percent health care surtax would go into effect with the higher rates that year, salaries of $5.5 million, which is about the NBA average, and $17 million, which would be a high earner like Wade and no deductions. …The total tax for a $5,500,000 salary and an Illinois resident is $2,568,412. This is made up of $2,142,412 of federal income tax, $261,000 of health care tax and $165,000 of Illinois tax. A Florida resident will have the same federal and health care tax but no state income tax ($165,000). The total tax for a salary of $17,000,000 will be $8,088,412. That is made up of $6,696,412 of federal income tax, $882,000 of health care tax and $510,000 of Illinois tax. A Florida resident will have all the same tax except no state tax ($510,000). In addition, Wilner notes, there is typically an allocation to other states where the games are actually played. But there should be at least a savings of 50% of the state tax for being a Florida resident as 50% of the games are home games. I know almost $9 million after taxes is a lot of money. But with the government adding on another half million dollars penalty to pay for health care and who knows how much more down the road as the rich seem to be set up as the villains in this health care debate, suddenly hanging onto more than $500,000 in state tax may sound appealing. So perhaps someone like Wade sees he can resign with his own team for an extra year under NBA rules and then get that much more in tax benefit, and maybe the money starts becoming too big to decide to leave? With increasing taxes geared to the wealthy and the Bush tax cuts also coming off the books, it may be that the low tax states like Florida and Texas begin to have a big advantage over higher tax states. And then seemingly making it even less appealing to go to a ridiculously high tax state like New York.

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The IRS sends their auditor to audit a synagogue. 

The auditor is doing all the checks, and then turns to the Rabbi and says, “I noticed that you buy a lot of candles.”

“Yes,” answered the Rabbi.

“Well, Rabbi, what do you do with the candle drippings?” he asked.

“A good question,” noted the Rabbi. “We actually save them up. When we have enough, we send them back to the candle maker and every now and then, they send us a free box of candles.”

“Oh,” replied the auditor somewhat disappointed that his question actually had a practical answer.  So he thought he’d try another question, in his obnoxious way. “Rabbi, what about all these matzo purchases?  What do you do with the crumbs from the matzo?

“Ah, yes,” replied the Rabbi calmly, “we actually collect up the crumbs, we send them in a box back to the manufacturer and every now and then, they send a box of matzo balls.”

“Oh,” replied the auditor, thinking hard how to fluster the Rabbi.

“Well, Rabbi,” he went on, “what do you do with all the foreskins from the circumcisions?”

“Yes, here too, we do not waste,” answered the Rabbi.  “What we do is save up all the foreskins, and when we have enough we actually send them to the IRS.”

“To the IRS ?” questioned the auditor in disbelief.

“Ah, yes,” replied the Rabbi, “directly to The IRS …And about once a year, they send us a little prick like you.”

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A report at CBSnews.com highlights the growing interest among politicians and bureaucrats in new taxes on sugary drinks, including sports drinks such as Gatorade. This is a reprehensible example of nanny-state intervention, of course, but it shows the risk of having government involved in health care since politicians then assert the right to tell us how to live:

…one of the proposals put before the committee received a nod of approval from health officials today: taxing soda. The [Senate Finance] committee — the last congressional panel expected to produce its own recommendations for health care reform – listened to arguments earlier this year both for and against imposing a three-cent tax on sodas as well as other sugary drinks, including energy and sports drinks like Gatorade. The Congressional Budget Office estimates that a three-cent tax would generate $24 billion over the next four years, and proponents of the tax argued before the committee that it would lower consumption of sugary drinks and improve Americans’ overall health. …CDC chief Dr. Thomas Freiden said increasing the price of unhealthy foods “would be effective” at combating the nation’s obesity problem… The American Beverage Association, which strongly opposes the tax, told the Wall Street Journal the tax would hit poor Americans the hardest.  

The Los Angeles Times, meanwhile, has a similar report about politicians wanting a tax on foods that supposedly lead to obesity. The reason for their interest, not surprisingly, is that a 10 percent tax on such foods may lead to more than $500 billion, which doubtlessly is leading to lots of salivating on Capitol Hill:

Key among the “interventions” the report weighs is that of imposing an excise or sales tax on fattening foods. That, says the report, could be expected to lower consumption of those foods. But it would also generate revenues that could be used to extend health insurance coverage to the uninsured and under-insured, and perhaps to fund campaigns intended to make healthy foods more widely available to, say, low-income Americans and to encourage exercise and healthy eating habits. …a 2004 report prepared for the Department of Agriculture suggested that, for “sinful-food” taxes to change the way people eat, they may need to equal at least 10% to 30% of the cost of the food. And although 40 U.S. states now impose modest extra sales taxes on soft drinks and a few snack items, the Urban Institute report suggests that a truly forceful “intervention” — one that would drive down the consumption of fattening foods and, presumably, prevent or reverse obesity — would have to target pretty much all the fattening and nutritionally empty stuff we eat: “With a more narrowly targeted tax, consumers could simply substitute one fattening food or beverage for another,” the reports says. …Conservatively estimated, a 10% tax levied on foods that would be defined as “less healthy” by a national standard adopted recently in Great Britain could yield $240 billion in its first five years and $522 billion over 10 years of implementation — if it were to begin in October 2010. If lawmakers instituted a program of tax subsidies to encourage the purchase of fresh and processed fruits and vegetables, the added revenue would still be $356 billion over 10 years.

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The politicians in Washington are looking at a huge laundry list of new taxes to finance government-run health care and one of the items on the list is a 10 percent tax on cosmetic surgery. While I’m tempted to make a joke about this being the “Pelosi tax,” there is a much more serious point to be made. Cosmetic surgery is a very good example of how free markets work in the health sector – when they are given a chance. As Mark Perry and Don Boudreuxhave noted, there are some instances where markets are allowed to work, and they do an excellent job of providing valuable goods at affordable prices. Cosmetic surgery is one of those examples. So should we be surprised, as this National Journal story indicates, that politicians wants to tax the approach that works – a genuine free market exchange between buyers and sellers – to expand the approach – government intervention that expands the third-party payer problem – that doesn’t work?

Face-lifts, tummy tucks and hair transplants could be hit with a new tax to help finance the trillion-dollar healthcare overhaul plan, according to sources familiar with the Senate talks. The Senate Finance Committee has discussed imposing a 10 percent excise tax on cosmetic surgery deemed unnecessary for medical purposes. The idea was broached in a meeting with OMB Director Orszag in mid-July, after which Senate Finance Chairman Max Baucus told reporters he had heard some “interesting,” “creative,” and “kind of fun” ideas. The tax, which has not been officially scored, would plug some of the revenue gap senators are seeking to fill to keep on schedule for a markup the week of Aug. 3. It would target procedures prohibited under Section 213 of the tax code, which deals with itemized deductions for medical expenses not covered by health insurance. The 1990 deficit-reduction law prohibited taxpayers from taking deductions for cosmetic surgery “unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease.” The law defines cosmetic surgery as “any procedure which is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease.” According to the IRS, deductions for procedures such as reconstructive surgery due to cancer or laser eye surgery would be allowed. But nose jobs, liposuction, teeth-whitening procedures and Botox injections to smooth wrinkles would be prohibited under Sec. 213 and subject to the new tax.


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A new study reveals the unseemly degree to which the government has spent tens of billions of dollars to co-opt scientists into parroting global-warming alarmism. This has resulted in “models” that supposedly show the need to take drastic action to prevent slight warming in the next 50-100 years, yet those same models cannot predict today’s weather based on past data. The politicians are getting the “results” they want, but the end result may be a new power grab by government to control and direct our lives. Transworldnews.com has a report:

The Science and Public Policy Institute announces the publication of Climate Money, a study by Joanne Nova revealing that the federal Government has a near-monopsony on climate science funding. This distorts the science towards self-serving alarmism. …The US Government has spent more than $79 billion of taxpayers’ money since 1989 on policies related to climate change, including science and technology research, administration, propaganda campaigns, foreign aid, and tax breaks. Most of this spending was unnecessary. Despite the billions wasted, audits of the science are left to unpaid volunteers. A dedicated but largely uncoordinated grassroots movement of scientists has sprung up around the globe to test the integrity of “global warming” theory and to compete with a lavishly-funded, highly-organized climate monopsony. Major errors have been exposed again and again. …Meanwhile, in a distracting sideshow, Exxon-Mobil Corp is repeatedly attacked for paying just $23 million to skeptics—less than a thousandth of what the US government spends on alarmists… The large expenditure designed to prove the non-existent connection between carbon and climate has created a powerful alliance of self-serving vested interests. …Robert Ferguson, SPPI’s president, says: “This study counts the cost of years of wasted Federal spending on the ‘global warming’ non-problem. Government bodies, big businesses and environmental NGOs have behaved like big tobacco: recruiting, controlling and rewarding their own “group-think” scientists who bend climate modeling to justify the State’s near-maniacal quest for power, control, wealth and forced population reduction. “Joanne Nova, who wrote our study, speaks for thousands of scientists in questioning whether a clique of taxpayer-funded climate modelers are getting the data right, or just getting the “right” data. Are politicians paying out billions of our dollars for evidence-driven policy-making, or policy-driven evidence-making?  The truth is more crucial than ever, because American lives, property and constitutional liberties are at risk.”

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I’ve heard that “Cato U” is the most popular Cato Institute public program, so I’m looking forward to my first visit. I’ll be speaking on “Leviathan on a Diet: Tax Competition and Restraints on State Power.”

For those of you who won’t be there, this eight-minute video is a condensed version of my remarks. And if you’re too lazy to watch the video, my message is that forcing governments to compete with each other is the world’s most powerful force for freedom.

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