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Archive for September, 2010

There’s a wise old saying about “don’t bite the hand that feeds you.” But perhaps we need a new saying along the lines of “don’t subsidize the foot that kicks you.” Here’s a good example: American taxpayers finance the biggest share of the budget for the Organization for Economic Cooperation and Development, which is an international bureaucracy based in Paris. The OECD is not as costly as the United Nations, but it still soaks up about $100 million of American tax dollars each year. And what do we get in exchange for all this money? Sadly, the answer is lots of bad policy. The bureaucrats (who, by the way, get tax-free salaries) just released their “Economic Survey of the United States, 2010” and it contains a wide range of statist analysis and big-government recommendations.

The Survey endorses Obama’s failed Keynesian spending bill and the Fed’s easy-money policy, stating, “The substantial fiscal and monetary stimulus successfully turned the economy around.” If 9.6 percent unemployment and economic stagnation is the OECD’s idea of success, I’d hate to see what they consider a failure. Then again, the OECD is based in Paris, so even America’s anemic economy may seem vibrant from that perspective.

The Survey also targets some very prominent tax loopholes, asserting that, “The mortgage interest deduction should be reduced or eliminated” and “the government should reduce further this [health care exclusion] tax expenditure.” If the entire tax code was being ripped up and replaced with a simple and fair flat tax, these would be good policies. Unfortunately (but predictably), the OECD supports these policies as a means of increasing the overall tax burden and giving politicians more money to spend.

Speaking of tax increases, the OECD is in love with higher taxes. The Paris-based bureaucrats endorse Obama’s soak-the-rich tax agenda, including higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and a reinstated death tax. Perhaps because they don’t pay tax and are clueless about how the real world operates, the bureaucrats state that “…the Administration’s fiscal plan is ambitious…and should therefore be implemented in full.”

But even that’s not enough. The OECD then puts together a menu of additional taxes and even gives political advice on how to get away with foisting these harsh burdens on innocent American taxpayers. According to the Survey, “A variety of options is available to raise tax revenue, some of which are discussed below. Combined, they have the potential to raise considerably more revenue… The advantage of relying on a package of measures is that the increase in taxation faced by individual groups is more limited than otherwise, reducing incentives to mobilise to oppose the tax increase.

The biggest kick in the teeth, though, is the OECD’s support for a value-added tax. The bureaucrats wrote that, “Raising consumption taxes, notably by introducing a federal value-added tax (VAT), could therefore be another approach… A national VAT would be easier to enforce than other taxes, as each firm in the production chain pays only a fraction of the tax and must report the sales of other firms.”

But just in case you think the OECD is myopically focused on tax increases, you’ll be happy to know it is a full-service generator of bad ideas. The Paris-based bureaucracy also is a rabid supporter of the global-warming/climate-change/whatever-they’re-calling-it-now agenda. There’s an entire chapter in the survey on the issue, but the key passages is, “The current Administration is endeavouring to establish a comprehensive climate-change policy, the main planks of which are pricing GHG emissions and supporting the development of innovative technologies to reduce GHG emissions. As discussed above and emphasized in the OECD (2009), this is the right approach… Congress should pass comprehensive climate-change legislation.”

You won’t be surprised to learn that the OECD’s reflexive support for higher taxes appears even in this section. The bureaucrats urge that “such regulation should be complemented by increases in gasoline and other fossil-fuel taxes.”

If you’re still not convinced the OECD is a giant waste of money for American taxpayers, I suggest you watch this video released by the Center for Freedom and Prosperity about two months ago. It’s a damning indictment of the OECD’s statist agenda (and this was before the bureaucrats released the horrid new “Economic Survey of the United States”).

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In the real world, rational people know that companies will stop selling products if they are forced to lose money. In the political world, though, common sense doesn’t matter. Or at least it ranks far below other considerations, such as power, polling, fundraising, and spite. If you think I’m being too harsh, just look at what’s happened since Obamacare. As the Wall Street Journal notes, the “child-only” insurance market has been decimated by a new law that allows parents to wait until children get sick before buying insurance. Needless to say, that is an open invitation to lose money, and no business (other than crony capitalism entities such as Fannie Mae and Freddie Mac) exists to throw away shareholder funds. Obama, Pelosi, and Reid probably think this is a good development, however, since they can demagogue against “greedy” insurance companies and claim that government should fully take over the health care system.

This week, almost every big insurance company in America—including Aetna, Cigna, UnitedHealth Group, WellPoint, Humana, Coventry, some Blue Cross Blue Shield affiliates and others—stopped writing “child-only” policies in the individual market. This is a niche product that parents typically buy when their employer health plan doesn’t cover dependents. The exact plans vary company to company and state to state, and the insurers will still offer family policies and make good on the child-only policies that they’ve already sold. But most won’t be writing new ones. In other words, for-profit businesses are refusing to sell products that consumers want to buy. Exact data aren’t available, but the child-only market covers roughly a million kids a year. The reason is a regulation that President Obama mentions every time he talks about health care, as he did recently in Falls Church, Virginia: “Children who have pre-existing conditions are going to be covered.” Insurers are now required to cover everyone under 19 when their parents apply for coverage, regardless of health status. The problem with this kind of “guaranteed issue” is that it encourages people, in this case parents, to wait until their kids are sick before seeking coverage. This drives up premiums for the healthy, encouraging consumers in turn to drop coverage, and eventually it leads to what’s known as a “death spiral,” the industry term for an insurer with rapidly increasing costs as a result of population changes in its coverage pool. The child-only market is a particular death-spiral risk because it is so small and unstable, which explains why so many insurers left in a stroke. The collapse of the child-only market is a preview of what will happen when guaranteed issue and the rest of ObamaCare comes on line in 2014 for adults, except then insurers will have nowhere to flee. Exiting the market will mean going out of business.

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I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving “global governance” powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use “global governance” as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here’s a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.

Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased “global governance” of the world’s economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in “creating new governmental and supranational agencies, or in aiming at global governance of the world economy.” “On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states,” he said. …Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was “moving in the wrong direction” in combating the economic crisis. “The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets,” he said. Klaus said that was a “mistaken assumption” and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only “destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries,” he said.

A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe’s inefficient welfare states.

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Warren Buffett once said that it wasn’t right for his secretary to have a higher tax rate than he faced, leading me to point out that he didn’t understand tax policy. The 15 percent tax rates on dividends and capital gains to which he presumably was referring represents double taxation, and when added to the tax that already was paid on the income he invested (and the tax that one imagines will be imposed on that same income when he dies), it is quite obvious that his effective marginal tax rates is much higher than anything his secretary pays. Though he is right that his secretary’s tax rate is much too high. 
 
Well, it turns out that Warren Buffett also doesn’t understand much about other areas of fiscal policy. Like a lot of ultra-rich liberals who have lost touch with the lives of regular people, he thinks taxpayer anger is misguided. Not only does he scold people for being upset, but he regurgitates the most simplistic Keynesian talking points to justify Obama’s spending spree. Here’s an excerpt from his hometown paper.
Taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy, billionaire investor Warren Buffett told CNBC. …“I hope we get over it pretty soon, because it’s not productive,’’ Buffett said. “We will come back regardless of how people feel about Washington, but it is not helpful to have people as unhappy as they are about what’s going on in Washington.” …“The truth is we’re running a federal deficit that’s 9 percent of gross domestic product,” Buffett said. “That’s stimulative as all get out. It’s more stimulative than any policy we’ve followed since World War II.”
About the only positive thing one can say about Buffett’s fiscal policy track record is that he is nowhere close to being the most inaccurate person in the United States, a title that Mark Zandi surely will own for the indefinite future.

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I’m dumbfounded and amazed. When Democrats and Republicans have a game of chicken, the GOP blinks 99 percent of the time. And I thought for sure this was going to happen in the fight about whether to extend all the 2001 and 2003 tax cuts (the GOP position), or whether to impose a big, class-warfare tax increase on investors entrepreneurs (the Obama position to punsih the so-called rich). Democrats simply needed to get one Republican senator to surrender and they would have 60 votes in the Senate to overcome any procedural objection. But, to my astonishment, this didn’t happen. Democrats threw in the towel. Not totally, the issue is simply being postponed to a “lame duck” session after the election, but it’s hard to see how the left will feel any more emboldened after being kicked in the teeth by voters. But there is a very dark lining to this silver cloud. As the Wall Street Journal warns, many statists actually want a big tax increase on everybody, and they can make this happen by simply sitting on their hands.
Only a week ago, President Obama and his media supporters were asserting that they had Republicans caught in their class-war pincers: They’d lure the GOP into opposing an extension of lower tax rates for the middle class in order to defend lower tax rates for those making more than $200,000 a year. …[but] the Democrats have cut and run, lest they get blamed for voting for a tax increase in a slow-growth economy. This is how legislative majorities behave when they’ve lost the political argument and can sense their days are numbered. …Democrats will now enter the campaign’s home stretch with the threat that all of the Bush-era tax rates could expire on January 1. That means the lowest tax bracket would revert to 15% from 10%, the per child tax credit would revert to $500 from $1,000, and millions of middle class families would pay thousands of dollars more in federal taxes. Keep in mind that this is the not-so-secret desire of many on the left who think the country “can’t afford” to let Americans keep so much of their own money. Peter Orszag has already admitted this since leaving his post as White House budget director. What these Democrats really mean is that they think the only way to pay for their spending plans is by soaking the middle class—because that’s where the real money is. …Liberals pretend they can finance a European-style entitlement state by taxing only the rich because they know that soaking the middle class is unpopular.

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Here’s a change of pace. Instead of doing separate blog posts on the following two stories, I’m curious to see which one generates the most irritation/anger/disgust from you readers. The first option comes from the Wall Street Journal’s editorial page, which is appropriately upset that Government Motors…oops, I mean General Motors…is back in the business of lobbying and dishing out campaign contributions. I don’t think there’s anything wrong with petitioning government and participating in the political process, but I don’t think individuals or companies should be doing it with money taken from me by a coercive government.
General Motors is 61%-owned by American taxpayers, who were less than thrilled when forced to buy GM by Presidents Bush and Obama. We can only imagine how GM’s unwilling owners will react now that the company is once again spending freely on lobbying and political campaigns. The Journal reports that the company has been particularly kind lately to Midwestern Democratic incumbents while shovelling out a total of $90,500 in campaign donations so far in the current election cycle. On the lobbying side, The Hill newspaper reports that GM has spent $7 million in the four quarters since exiting bankruptcy, retaining a who’s who of Washington hired guns. This may sound like the business model of Fannie Mae and Freddie Mac all over again, but remember that the failed mortgage giants at least had to shut down most of their Beltway influence operation once they explicitly became wards of the state. GM has your money and now it apparently has the license to use it to lobby Congress and support its political friends. …There’s also the intriguing legal matter of the United Auto Workers union still lobbying Congress and supporting political campaigns even after becoming a partner with the government in the automobile business. 
The second option embarrasses me greatly, because it is a sign of bureaucratic nonsense from my beloved University of Georgia. A student got in trouble for sending an email to the Parking Services division to gripe about the lack of scooter parking. The snot-nosed bureaucrat who received the email apparently got the vapors because of this sentence: “Did you guys just throw darts at a map to decide where to put scooter corrals?  Can I expect you guys to get off your asses and put in a corral near there some point before I fucking graduate and/or the sun runs out of hydrogen?” This led to the student being subjected to real threats and potential disciplinary action. Fortunately, the great folks at the Foundation for Individual Rights in Education came to the rescue and the craven bureaucrats at UGA backed down.
The University of Georgia (UGA) has withdrawn charges of “disorderly conduct” and “disruption” filed against a student after he sent a mocking e-mail to UGA Parking Services to complain about the lack of parking spaces for scooters on campus. Although Parking Services specifically asks students for both “negative & positive” comments on its performance, student Jacob Lovell spent nearly a month under the threat of punishment after submitting his e-mail. UGA backed down after Lovell came to the Foundation for Individual Rights in Education (FIRE) for help. “Jacob Lovell just wanted to park his scooter on campus, and when he found it a frustrating experience he sent a joking e-mail to the department that had asked for his feedback. But when it received his e-mail, he was threatened with punishment!” said FIRE President Greg Lukianoff. “Only on a college campus could a clearly flippant response to requests for complaints about parking on campus be turned into a judicial investigation for disorderly conduct.” …On August 17, 2010, Lovell e-mailed Parking Services with his complaint about its service. His flippant and joking e-mail mused, “Did you guys just throw darts at a map to decide where to put scooter corrals?” and otherwise made fun of the department for what he perceived to be its poor job of providing parking for scooters. Four hours later, Parking Services replied, “Your e-mail was sent to student judiciary.” On September 3, 2010, Associate Dean of Students Kimberly Ellis sent Lovell a letter charging him with two violations of UGA’s University Conduct Regulations, stating, “Specifically, it is alleged that Mr. Lovell engaged in disorderly conduct and disrupted parking services when he sent an email to them that was threatening.” …The letter required Lovell to make a disciplinary appointment by September 13. Ellis informed Lovell that failure to do so would result in his record being “flagged,” rendering him unable to add, drop, or register for classes. Lovell complied with this requirement on September 13. Meanwhile, on September 10, FIRE wrote UGA President Michael F. Adams, explaining that Lovell’s grievance was protected by the First Amendment. FIRE also repeated to President Adams that UGA maintains unconstitutional speech codes in addition to the regulations used against Lovell’s protected speech, and that administrators could be held personally liable by a court for the violation of students’ constitutional rights, as a federal judge in Georgia ruled recently. On September 14, Ellis informed Lovell that she “did not find sufficient evidence to move forward” with the charges and that the matter was now “closed.”
So which story is more nauseating? In the grand scheme of things, the General Motors story is more meaningful because the company is stealing our money and then using our money to lobby for more handouts. Yet I can’t help but think the UGA story is very symbolic of arrogant and stupid bureaucracy. as many of us have experienced on our trips to a DMV or our efforts to get through security at airports. Every encounter creates the risk that a job-for-life bureaucrat may decide to make your life miserable.

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Christina Hoff Sommers of the American Enterprise Institute decimates the bean-counting feminist “paycheck fairness” legislation being considered by the Senate. Republicans presumably know this is a bad idea, but one can only wonder whether they will do the right thing and block this initiative that at best will be a boon for trial lawyers and at worst will lead to massive government intervention in employment markets. Here’s an excerpt from her New York Times column.

…on the Senate’s to-do list before the November elections is a “paycheck fairness” bill, which would make it easier for women to file class-action, punitive-damages suits against employers they accuse of sex-based pay discrimination. …the bill…overlooks mountains of research showing that discrimination plays little role in pay disparities between men and women, and it threatens to impose onerous requirements on employers to correct gaps over which they have little control. …proponents point out that for every dollar men earn, women earn just 77 cents. …there are lots of…reasons men might earn more than women, including differences in education, experience and job tenure. When these factors are taken into account the gap narrows considerably – in some studies, to the point of vanishing. A recent survey found that young, childless, single urban women earn 8 percent more than their male counterparts, mostly because more of them earn college degrees. Moreover, a 2009 analysis of wage-gap studies commissioned by the Labor Department evaluated more than 50 peer-reviewed papers and concluded that the aggregate wage gap “may be almost entirely the result of the individual choices being made by both male and female workers.” …The Paycheck Fairness bill would set women against men, empower trial lawyers and activists, perpetuate falsehoods about the status of women in the workplace and create havoc in a precarious job market. It is 1970s-style gender-war feminism.

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