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Archive for October 3rd, 2012

I’ve shared evidence from around the world (England, Italy, the United States, and France) and from various states (IllinoisOregonFlorida,Maryland, and New York) to argue that it is foolish to ignore the Laffer Curve.

Not that it makes any difference. I’m slowly coming the conclusion that my friends on the left will never learn – in large part because they’re more interested in punishing success with class warfare tax policy than they are in collecting extra revenue for government.

But surely there are some statists who are motivated by emotions other than spite, so I refuse to give up. Let’s look at some evidence from Spain to further confirm that high tax rates aren’t necessarily the way to maximize tax revenue (this also is a story showing that tax competition between nations is a good way of disciplining governments that are too greedy, but that’s another issue).

Here are some details from a CNBC report.

Spain’s corporate tax take has tumbled by almost two thirds from pre-crisis levels as small businesses fail and a growing number of big corporations seek profits abroad to compensate for the prolonged downturn at home. …Spain has a headline corporate tax rate of 30 percent, broadly in line with other large European economies. Switzerland, however, has a headline rate of 8.5 percent, and lawyers say deductions can be made to reduce this further. “A fundamental right of EU law is the freedom of establishment. All companies and taxpayers look after their tax affairs, and if they can pay a lower rate somewhere else, it’s better for their business and natural that they would do so,” a global tax lawyer based in Spain said. …Rajoy did eliminate some corporate tax breaks in 2012, a policy he will continue in 2013, and has also brought forward some tax payments, though that could be storing up problems.

Much of the decline in corporate tax revenue can be attributed to Spain’s dismal economy, of course, which has been exacerbated by a bunch of tax hikes imposed by a supposedly right-of-center government.

The one tax rate that hasn’t been increased, though, is the top rate of corporate tax. So how can this be a story about the Laffer Curve?

Well, sometimes standing still is a recipe for defeat. And sometimes moving in the right direction isn’t enough when everybody else is going in the right direction at a faster rate.

Here’s a chart showing changes in the average EU corporate tax rate compared to Spain’s corporate tax rate.

Spain’s corporate tax rate has dropped by five percentage points. That’s progress, but other nations have moved more rapidly in the right direction. Back in 1995, the Spanish corporate rate was slightly lower than the EU average. Now it’s noticeably higher.

And as the excerpt above notes, there are nations such as Switzerland that have far lower tax rates and much better fiscal policy.

To be sure, Spain’s main challenge is the need to dramatically reduce the burden of government spending. That will help long-run growth because more resources will be allocated by private markets.

But Spain also should seek an immediate boost to growth by reducing tax rates on productive behavior. A lower corporate tax rate should be part of the answer.

It also would be a good idea for the United States.

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There have been lots of studies showing that there’s no benefit to job training programs. People who sign up with these government schemes are not more likely to either get jobs or to earn more money.

Heck, even the New York Times was forced to acknowledge that these programs are a costly failure.

To really understand how these programs operate, John Stossel put together an investigative mission. The results excerpted below would be funny, other than the fact that taxpayers are getting ripped off and people are getting lured into lives of dependency.

“There are no jobs!” That is what people told me outside a government “jobs center” in New York City. …I sent four researchers around the area. They quickly found 40 job openings. Twenty-four were entry-level positions. One restaurant owner told me he would hire 12 people if workers would just apply. It made me wonder what my government does in buildings called “job centers.”

So Stossel sent one of his interns to investigate.

Here’s what she found: “First I went to the Manhattan Jobs Center and asked, “Can I get help finding a job?” They told me they don’t do that. ‘We sign people up for food stamps.’ I tried another jobs center. They told me to enroll for unemployment benefits.” So the “jobs” centers help people get handouts. Neither center suggested people try the 40 job openings in the neighborhood.

I shudder to think how many people walking in off the streets get hooked on government dependency. It’s disgusting that the government is encouraging people to ride in the wagon instead of getting jobs.

But Stossel’s intern was told not to give up.

My intern persisted: “I explained that I didn’t want handouts; I wanted a job. I was told to go to ‘WorkForce1,’ a New York City program. At WorkForce1, the receptionist told me that she couldn’t help me since I didn’t have a college degree. She directed me to another center in Harlem. In Harlem, I was told that before I could get help, I had to come back for an 8:30 a.m. ‘training session.'” Our government helps you apply for handouts immediately, but forces you through a maze if you want to work.

Amazingly, the intern was told to show up at 8:30 when the building didn’t open ’til 9:15. But, again, she was under orders to keep going.

Workforce1 directed 30 of us into a room where we were told that WorkForce1 directs candidates to jobs and provides a resource room with ‘free’ phone, fax and job listings and helps people apply for unemployment insurance and disability handouts. This seemed like the only part of the presentation when people took notes. “One lady told me that she comes to WorkForce1 because it helps her collect unemployment. One asked another, ‘What do you want to do?’ The second laughed, ‘I want to collect!’ One told me, ‘I’ve been coming here 17 months; this place is a waste of time.’

The intern, following orders, refused to take the dependency option that the bureaucrats kept offering. She finally got results…sort of.

“Finally, I met with an ‘adviser.’ …she scheduled an interview at Pret, a food chain that trains employees. At Pret, I learned that my ‘interview’ was just a weekly open house, publicized on the company’s website. Anyone could walk in and apply. Workforce1 offered no advantage. Despite my ‘scheduled interview,’ I waited 90 minutes before meeting a manager. He told me that WorkForce1 had ‘wasted my time, as they always do.’ He said, ‘They never call, never ask questions.’ He prefers to hire people who seek out jobs on their own, like those who see Pret ads on Craigslist.'”

The last comment in the excerpt makes a lot of sense. If you’re hiring people, it makes a lot of sense to choose those who show the initiative to seek out positions rather than those who come through some sort of government program that teaches them first and foremost to be a moocher.

Here are some concluding thoughts from Stossel’s column.

It’s easier to get welfare than to work. The government would rather sign me up for welfare than help me find work. America has taxpayer-funded bureaucracies that encourage people to be dependent. They incentivize people to take “free stuff,” not to take initiative. It was easier to find job openings on my own. The private market for jobs works better than government “job centers.” …Job training does help — when employers do it. But government does everything badly. …America now has 47 federal jobs programs. They fail. Yet politicians want more. They always want more.

That’s the problem. The politicians always gravitate to “solutions” that means more government intervention, more government dependency, and more government spending.

One would think that honest left wingers would look at the research, understand that these programs hurt people, and recognize that the right approach is free markets and limited government.

But they don’t, which suggest that there are no honest leftists. Or maybe there aren’t any smart and honest leftists. Because all they ever do is come up with ideas that make this satirical poster a reality.

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