The Good Guys Win One

The past nine years have been discouraging, with Bush and Obama both being big-government interventionists. But it’s nice to know that the other side still has a hard time imposing higher taxes. The Wall Street Journal’s editorial page celebrates the death of a terrible tax proposal that would have increased double taxation on American companies trying to earn market share while competing abroad:

Raising taxes on the overseas profits of American firms has been a central plank of Barack Obama’s agenda since his campaign for President in 2008. The proposal was featured in the President’s budget in February and was the focus of a May speech in which he said that corporations were “shirking” their responsibility to support his huge increases in federal spending through higher tax payments. But as this newspaper reported Tuesday, the Administration appears to have shelved the plan to limit business use of the current deferral of taxes on profits earned overseas. This climbdown comes after a full-court press by U.S. multinationals, notably including some of Mr. Obama’s Silicon Valley supporters, which argued that raising taxes on U.S. companies abroad would do nothing to create jobs in the U.S. while undermining American competitiveness overseas. The U.S. is one of the few developed countries that even tries to tax corporate overseas profits. Most operate on a territorial system, in which business profits are taxed in the country in which they are earned. The U.S. taxes world-wide income but then allows a deferral of overseas taxes until those profits are repatriated. It also allows companies to take a tax credit for corporate taxes paid in other countries, although this tax credit system is cumbersome and only partially offsets the burden of double taxation. The idea that raising corporate taxes would promote job creation never made sense, and the mere threat of higher taxes is one factor depressing business investment and slowing any recovery. So it’s good news that the Administration seems to have set this job-killer aside, at least for now.

Hopefully, the Center for Freedom and Prosperity’s video played at least a small role in educating policy makers about the foolishness of the President’s proposal.

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Weekly Economics Lesson

While doing research for an upcoming video, I found an excellent study from the National Center for Policy Analysis that explains how “third-party payer” is largely preventing markets from operating in health care. Government policies (including tax distortions) are the cause of the problem, yet the polticians want to expand third-party payments. Here’s an excerpt from the paper, and I also reprint below a key chart from the paper that shows how most medical prices rise faster than the overall price level, but the opposite result occurs when consumes are in control (for things such as cosmetic surgery):

Long before a patient enters a doctor’s office, third- party bureaucracies have determined which medical services they will pay for, which ones they will not and how much they will pay. The result is a highly artificial market plagued by problems of high costs, inconsistent quality and poor access. …Can the market for medical care be different? Interestingly, in health care markets where patients pay directly for all or most of their care, providers almost always compete on the basis of price and quality. And because they are not trapped in a system that pays for predetermined tasks at predetermined rates, providers are free to repackage and reprice their services — just like vendors in other markets. It is primarily in these direct-pay markets that entrepreneurs are creating many innovative services to solve the very prob-lems about which critics of the health care system complain. …Cosmetic surgery is rarely covered by insurance. Because providers know their patients must pay out of pocket and are price sensitive, patients can typically (a) find a package price in advance covering all services and facilities, (b) compare prices prior to surgery, and (c) pay a price that has been falling over time in real terms — despite a huge increase in volume and considerable technical innovation (which is blamed for increas- ing costs for every other type of surgery). …In 1960, consumers paid about 47 percent of overall health care costs out of pocket. …In 2006, consumers paid only 12 cents out of their own pockets every time they spent a dollar on health care.

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