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Posts Tagged ‘Tax’

I gave a speech in Hungary about two weeks ago and now the government has announced a big step in the direction of better fiscal policy. According to Reuters, “Hungary’s new government plans to introduce a flat personal income tax of 16 percent from 2011, as well as a 15 percent cut in public sector wages.” Those are the headline initiatives, but the fiscal reform package includes other good policies. Here’s a blurb from The Economist.

After a three-day emergency cabinet meeting over the weekend, Viktor Orban, the prime minister, announced the government’s new economic programme this afternoon. The battered forint quickly jumped almost 2% in response. …The introduction of a 16% flat personal income tax is a daring move, and could have important repercussions beyond balancing the state’s books. Unemployment, or at least that element of it which is declared, is nudging 12%, and one reason is Hungary’s cumbersome bureacracy and heavy tax burden. Now Mr Orban has announced that corporation tax for companies with annual profits of less than 500m forints will be reduced from 19% to 10%. Ten more small and bothersome taxes are set to be abolished altogether.

A few years ago, when several nations each year were adopting the flat tax, I arbitrarily decided that this rock classic would be the theme song of the tax reform movement. Any better suggestions?

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The bloodsuckers and leeches in the U.K. government are a bit more honest than their counterparts in the United States. Unlike the American revenue-estimating system, which assumes higher tax rates raise revenue, the British bureaucracy admits that the new 50 percent tax rate will raise very little revenue. The UK-based Times reports:

High earners will cost the public purse hundreds of millions of pounds through tax dodges as they avoid the new 50p rate of income tax, a minister indicated yesterday. Lord Myners, the City Minister, said that the Treasury had “significantly reduced” its estimate of the revenue to be earned from the historic change. …Lord Myners told peers that “behavioural consequences of the new higher rate of taxation” — shorthand for tax avoidance — had forced the Treasury to lower its expectations. …Mike Warburton, senior tax adviser at Grant Thornton, one of Britain’s biggest accounting firms, said…“People are taking obvious avoidance measures because they are not prepared to pay 50 per cent tax”…  “People were prepared to pay 40 per cent but the Treasury don’t seem to understand what drives people. The minister has at last admitted that the 50 per cent tax rate was a blatantly political measure and not designed to raise new revenues. This is all to do with the politics of envy.” Lord Myners said that there were “very small numbers of people” who appeared to have moved abroad as a result of the tax change.

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For those of you who can’t find zhu zhu pets, here’s an option sure to bring a smile – a long-sleeved t-shirt honoring the Secretary of the Treasury. Maybe if you’ve been very good all year long, Santa will bring you a special Tim “Turbotax” Geithner free pass, allowing you to cheat on your taxes and get away with no penalties once you’re caught!

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Reckless spending increases under both Bush and Obama have resulted in unprecedented deficits. Congress will soon be forced to increase the nation’s debt limit by an astounding $1.8 trillion. Government borrowing has become such a big issue that some politicians are proposing a deficit reduction commission, which may mean they are like alcoholics trying for a self-imposed intervention.

But all this fretting about deficits and debt is misplaced. Government borrowing is a bad thing, of course, but this video explains that the real problem is excessive government spending.

Fixating on the deficit allows politicians to pull a bait and switch, since they can raise taxes, claim they are solving the problem, when all they are doing is replacing debt-financed spending with tax-financed spending. At best, that’s merely taking a different route to the wrong destination. The more likely result is that the tax increases will weaken the economy, further exacerbating America’s fiscal position.

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What is now known as the European Union started as a free-trade area, which is something to be admired. But over the decades, the free trade area has mutated into a statist super-bureaucracy pushing for centralization and harmonization. Now, according to leaked documents, the collectivists in Brussels want to impose a direct tax. This would be on top of the already onerous tax systems imposed by member nations. Needless to say, one hopes that one of the 27 nations will use its veto to stop this terrible idea. That would seem to be a simple and obvious task, but the vast majority of politicians in all European nations are terrified of being called anti-European, so even awful ideas become very plausible threats. The UK-based Daily Express reports:

Secret plans to seize more than £4billion a year from Britain and make its citizens pay taxes direct to Europe emerged last night. The leaked proposals, seen by the Daily Express, …would…mean Brussels being given the power to dip straight into taxpayers’ pockets. Shadow Europe Minister Mark Francois vowed they would be resisted by a Tory government. He said: “The idea of an EU tax is a non-starter. …Possible taxes suggested in the report – which could be discussed as soon as the start of the European summit in Brussels tomorrow – include levies on phone calls, flights, financial transactions or carbon emissions. …Matthew Elliott, chief executive of the TaxPayers’ Alliance, branded the idea of direct taxation from Brussels an “outrage”. He added: “Control of taxation must rest solely in the hands of democratically elected politicians who answer to British taxpayers. “The EU has shown time and time again it is greedy for power. This is another sign they will never stop trying to grab it.”

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Tax competition is an issue that arouses passion on both sides of the debate. Libertarians and other free-market advocates welcome tax competition as a way of restraining the greed of politicians. Governments have lowered tax rates in recent decades, for instance, because politicians are afraid that the geese that lay the golden eggs can fly across the border. But collectivists despise tax competition – for exactly the same reason. They want investors, entrepreneurs, and companies to passively serve as free vending machines, dispensing never-ending piles of money for politicians. So when a left-wing group puts together a ranking of the world’s “top secrecy jurisdictions” in hopes of undermining tax competition, proponents of individual freedom can use that list as a guide to world’s most investor-friendly nations. The good news is that an American state, Delaware, is number one on the list. And since being a tax haven is a magnet for investment, this is good news for U.S. competitiveness. The bad news is that American taxpayers are not allowed to benefit from many of Delaware’s “tax haven” policies. Here’s what a left-wing columnist in the United Kingdom wrote about the issue:

You’re a billionaire but you don’t want anyone, least of all the taxman, to know. What do you do? Head for a palm-fringed island paradise or a snow-covered Alpine micro-state? Wrong. The world’s most opaque jurisdictions – the ones that will best shield you and your cash from the light – are mostly in the heart of the most sophisticated and powerful global financial centres. London, Luxembourg and Zurich are in the top five most secretive jurisdictions, according the first comprehensive index of financial transparency ever compiled. Yet top of the pile, beating the British Virgin Islands, Belize or Liechtenstein as the best place to hide wealth, is Delaware. One of the smallest states in the US, it offers the best protection for anyone who does not want to disclose their identity as a beneficial owner of a company. That is one very good reason why the East Coast state hosts 50% of the US’s quoted firms and 650,000 companies – almost equivalent to one company per Delaware resident. …Delaware – the political power-base of the US vice-president, Joe Biden – offers high levels of banking secrecy and does not make details of trusts, company accounts and beneficial ownership a matter of public record. Delaware also allows companies to re-domicile within its borders with minimal disclosure, and allows the existence of privacy-enhancing “protected cell” or “segregated portfolio” companies, among many other stratagems useful for protecting the identity of those who do business there.

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There’s been an interesting debate in Washington (at least among tax nerds) about whether all tax cuts are a good idea. I’m largely sympathetic to cutting taxes anytime and anywhere, though I certainly agree with those who argue that supply-side tax-rate reductions are far better than tax credits and other forms of social engineering through the internal revenue code. But perhaps the debate can now be settled. The home-buyer tax credit, much beloved by politicians from both parties, is absolutely horrible policy. The Wall Street Journal’s editorial is a great summary of this corrupt and wasteful tax preference:

It’s hard not to laugh when viewing the results of the federal first-time home-buyer tax credit. The credit, worth up to $8,000 for the purchase of a home, has only been available since April of last year. Yet news of the latest taxpayer-funded mortgage scam has traveled fast. The Treasury’s inspector general for tax administration, J. Russell George, recently told Congress that at least 19,000 filers hadn’t purchased a home when they claimed the credit. For another 74,000 filers, claiming a total of $500 million in credits, evidence suggests that they weren’t first-time buyers. Among those claiming bogus credits, at least some of them were definitely first-timers. The credit has already been claimed by 500 people under the age of 18, including a four-year-old. …As a “refundable” tax credit, it guarantees the claimants will get cash back even if they paid no taxes. A lack of documentation requirements also makes this program a slow pitch in the middle of the strike zone for scammers. The Internal Revenue Service and the Justice Department are pursuing more than 100 criminal investigations related to the credit, and the IRS is reportedly trying to audit almost everyone who claims it this year. Speaking of the IRS, apparently its own staff couldn’t help but notice this opportunity to snag an easy $8,000. …Mr. George said his staff has found at least 53 cases of IRS employees filing “illegal or inappropriate” claims for the credit. “In all honesty this is an interim report. I expect that the number would be much larger than that number,” he said. The program is set to expire at the end of November, so naturally given its record of abuse, Congress is preparing to extend it. Republican Senator Johnny Isakson of Georgia is so pleased with the results that he wants to expand the program beyond first-time buyers and double the income limits. …Meanwhile, the credit continues to distort the housing market and postpone the day when home prices can find a floor that is a basis for a stable recovery. More than two years into the housing bust, trillions of dollars in taxpayer losses or guarantees via Fannie Mae and Freddie Mac, and amid an ongoing plague of redefaults in federal programs to prevent foreclosures, politicians are still trying to manipulate housing prices. And leave it to Congress to design a program that even a four-year-old can scam.

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