Archive for August 2nd, 2011

Here’s the video that won the lucrative Powerline prize. Perhaps not as catchy as the entry I posted a couple of days ago, but very well done, with a proper focus on excessive government.

And here’s a video just released by Cato on why the debt deal – at best – is a holding action that postpones the real fights until later. I give some analysis, along with my colleagues Chris Edwards and Jagadeesh Gokhale.

And here’s some of what I wrote in a column for CNN. My basic messages is that establishment politicians of both parties got what they wanted – which was no heavy lifting and all tough choices postponed. (I also wrote it early yesterday on the assumption that the bill would pass both the House and Senate, so I’m glad I didn’t look like a fool)

…politicians of both parties were the victors and taxpayers are the ones left in the cold. In other words, the budget deal was a victory for the political establishment. Here’s why Republicans are winners. They get to tell their tea party activists that they forced Obama to cut spending. It doesn’t matter that federal spending will actually be higher every year and that the cuts were based on Washington math (a spending increase becomes a spending cut if outlays don’t climb as fast as some artificial benchmark). They also get to tell their anti-tax activists that they held the line. Perhaps most important, the supercommittee must use the “current law” baseline, which assumes that the 2001 and 2003 tax cuts expire at the end of 2012. But why are GOPers happy about this, considering they want those tax cuts extended? For the simple reason that Democrats on the supercommittee therefore can’t use repeal of the “Bush tax cuts for the rich” as a revenue raiser. This means that most Republican incumbents are well-positioned to win re-election. Here’s why Democrats are winners. Thanks to the magic of government math, despite all the talk of budget cuts, discretionary spending will be more than $100 billion higher in 2021 than it is this year. And since defense spending in Iraq and Afghanistan presumably is winding down, this means even more money will be available for domestic programs. In addition to telling the pro-spending lobbies that the gravy train is still on the tracks, they also get to tell the class-warfare crowd that there’s an improved likelihood of higher taxes for corporate jet owners and other “rich” people. Notwithstanding GOP assertions, nothing in the agreement precludes the supercommittee from meeting its $1.5 trillion target with tax revenue. The 2001 and 2003 tax legislation is not an option, but everything else is on the table. This means that most Democratic incumbents are well-positioned to win re-election.

But don’t forget that postponing a fight doesn’t make it go away. We’ll have at least two more big fiscal fights this year – the spending bills for fiscal year 2012 (which begins October 1) and the “super committee,” which has to make recommendations by Thanksgiving. I’ll have more to say on those issues soon.

Last but not least, here’s an entry in the Powerline contest from my Cato colleague Caleb Brown. I like the huckster theme.

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Now that the debt-limit fight is basically over (the Senate will join the House in approving it later today), we need to immediately prepare for the next stage in the fight to stop big government and restore economic liberty.

President Obama and other leftists clearly have signaled that they want the new “super committee” – which will recommend $1.5 trillion of deficit reduction before Thanksgiving – to be a vehicle for “balance” and “shared sacrifice.” But if you look in a Statism-to-English dictionary, you learn that “balance” is a code word for higher taxes and “shared sacrifice” means class-warfare taxation.

I’ve already explained that a truly balanced approach requires nothing but spending restraint. And I’ve explained why Obama’s class-warfare taxation is misguided.

Today, let’s look at three real-world examples. We’ll start with the President’s home state. Early this year, using sneaky maneuvering, Illinois politicians raised the state’s income tax rate. I warned that this would drive jobs and businesses out of the state. That was an easy prediction, of course, and we’re already seeing results.Here’s a blurb from a Chicago Sun-Times story.

It’s becoming a habit around here — another day, another stalwart of financial services in Chicago threatening to leave town. On Thursday, it was the Chicago Board Options Exchange suggesting that higher corporate taxes in Illinois could cause it to take jobs out of state. The CBOE’s warning came a day after CME Group Inc. said the same thing. CME owns the Chicago Mercantile Exchange and the Chicago Board of Trade. The options market, with its headquarters and trading floor at 400 S. La Salle, employs about 580 people, not including traders who use its facilities. A CBOE spokesman said in a statement that “economic realities” could force a move.

Because the CME and CBOE are so high profile, I suspect Illinois politicians will provide some sort of one-off tax holiday or back-door subsidy to prevent this from happening. That won’t solve the problem, of course, which is that high tax rates inexorably will undermine the state’s competitiveness and that ordinary people will pay the highest price.

Yet this is what Obama wants to do to America. The United Kingdom is another example of how punitive class-warfare taxes backfire. Here are excerpts from a story at Tax-News.com.

In a tax-blow to the UK exchequer, the Virgin Group is planning to shift a portion of its operations to Switzerland to maximize tax efficiency. Virgin Enterprises, which owns the trademarks and rights to the Virgin brand will be relocated to Geneva to achieve tax efficiencies not possible in London. According to the conglomerate, the decision is as a result of plans to generate new revenue from franchising arrangements, particularly in emerging markets. …Virgin becomes the latest in a growing list of firms which have moved aspects of their businesses out of the UK for tax purposes in recent years.

Last but not least, let’s look at one example of what happens when nations do the opposite of Obamanomics. Bulgaria recently implemented a low-rate 10 percent flat tax. Is it helping? Well, here’s a passage from another Tax-news.com story.

Business formations in Bulgaria by entities from Romania and Greece have risen markedly in recent, new statistics show – a testament to the reforms put in place by Bulgarian authorities to attract foreign investment. Figures reported in the Bulgarian media show that the number of Romanian companies registered in Bulgaria soared from 33 in 2006, to 272 last year. Meanwhile, the number of Greek formations increased three-fold in the same period, according to tax authority data, to 2,072 in 2010. There were 800 registrations in the first half of this year alone, a trend that is likely to continue for the remainder of the year. Bulgaria offers one of the lowest corporate income tax rates in Europe at 10%. This is 15% lower than the rate offered in Greece, and 6% lower than in Romania.

And let’s not forget that zero-income-tax Texas is doing very well in America while high-tax states such as California (and, of course, Illinois) are losing jobs. But that’s a story for another day.

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