Archives: April, 2007

High-Tech Welfare for High-Tech Billionaires

Voters in a New Mexico county appear to have approved a tax increase to build the nation’s first commercial spaceport. Two other counties will also hold tax referendums before the project can proceed. British billionaire Richard Branson and his company Virgin Galactic have signed a long-term lease to use the spaceport.

But why should the taxpayers of rural New Mexico be paying for facilities for billionaire space entrepreneurs? If the spaceport is going to be profitable, then businesses could pay for it. And even if it weren’t profitable, the space business has attracted the attention of a lot of people with a sense of adventure and billions of dollars, from Branson to Microsoft cofounder Paul Allen, the seventh richest man in America.

The argument to spend tax dollars on the spaceport is very similar to the argument for tax-funded stadiums and convention centers. Proponents say it will bring jobs and tax revenues to the three rural counties. But apparently it isn’t a sure enough thing for businesses to invest their own money.

Cato scholars have argued for years against corporate welfare. The spaceport is a classic example of corporate welfare, though in this case it might better be called billionaire welfare. It will transfer money from middle-class and working people to subsidize businesses and billionaires who won’t have to invest their own money — just like the typical stadium deal, paid for by average taxpayers to benefit millionaire players and billionaire owners.

At least in this case the voters get to decide, which rarely happens with stadium subsidies. The vote pitted “political, business and education leaders” against retirees and groups representing the poor.

“I’m not opposed to the spaceport, but I think it’s a terrible idea to tax poor people to pay for something that will be used by the rich,” said Oscar Vasquez Butler, a county commissioner who represents many of the unincorporated rural colonias where the poorest New Mexicans live, often without proper roads and water and sewage systems. “They tell us the spaceport will bring jobs to our people, but it all sounds very risky. The only thing we know for sure is that people will pay more taxes.”

Using Markets to Solve Water Shortages

South Florida is suffering a water shortage, but the shortage only exists because politicians are unwilling to allow market-based pricing. There is no shortage in the markets for air conditioners, automobiles, and haircuts, but that is because prices are allowed to rise and fall to reflect market conditions.

An article posted at TCSDaily.com offers a first-hand account of living with government-imposed price restrictions and draws an appropriate analogy to the price controls that caused gasoline shortages in the 1970s:

So here we are, in the spring of 2007, with rain below average, with a low lake level, little else in the way of reservoirs, and a water shortage. What is the response? Well, a rational response might be to price a scarce commodity such that people will use it only as they need it, and not frivolously. …Instead, we get the response of the local commissars. So, not allowing the market to work, and not allowing prices to provide signals to the participants, they have decided to run our lives for us.

…I live at an odd numbered address. That means that if I want to water my lawn, I can only do it on Monday, Wednesday and Saturday mornings, from four to eight AM. I can water my plants with a hose on the same days, but only between five and seven PM. My neighbors across the street, and behind my house on the next block, get Sunday, Tuesday and Thursday.

…Over thirty years ago, in the first OPEC oil embargo, the government, rather than allowing prices to rise to account for the reduced supply, told people when they could purchase gas based on the parity of their license plate — even one day, odd the next. My recollection was that this did nothing to alleviate the shortage — the lines remained. The problem was only solved when Nixon-era price controls on oil were lifted, the market was allowed to work, and oil prices eventually (and it didn’t take all that long) fell to historical lows.

…[H]ere’s a radical concept. How about pricing the commodity to the market? Maybe, if people had to pay more for water to water their lawn, they’d use less of it? Yes, I know that it’s hard to believe, but there really are some people out there who buy less of something if the price is higher.

Mauvaises Idées

The International Herald Tribune reports that Ségolène Royal, the Socialist Party candidate for the French presidency, wants to impose price controls on banking services. She also wants to distort the allocation of credit by having the government guarantee loans to young people.

These ideas do not make economic sense, but they are a sign of pogress. Thirty years ago, a Socialist in France would be arguing for nationalization of banks. At this rate, maybe the Socialists will be advocating free market ideas within 300 years:

In a French presidential campaign with recurrent anti-capitalist undertones, the Socialist Party candidate, Ségolène Royal, took aim at banks Tuesday, accusing them of penalizing the poor with low interest rates on savings and high overdraft fees.

…Banks should pay customers more interest on current accounts than the 0.5 percent to 3 percent common today, Royal said. They should also credit bank accounts on the day a transfer is made, and give every young person with a “project” a free €10,000 loan that would be guaranteed by the state.

The Tax Code Nightmare Continues

Money, a personal finance magazine, periodically used to conduct a test by sending a hypothetical family’s tax information to dozens of professional tax preparers, an exercise that generated a wide array of results because of the tax code’s complexity. Unfortunately, it seems Money no longer conducts this test. But USA Today has stepped up to the plate, albeit in a more limited way. It asked for a tax return from four preparers and got - gee, what a surprise - four different results:

In 1913, the CCH Standard Federal Tax Reporter, which spells out the U.S. tax code in all its riveting detail, was 400 pages long. In 2007, it contained 67,204 pages. As the tax code turns ever more unwieldy, deciphering it has become more art than science, tax experts say. With the April 17 deadline approaching, USA TODAY decided to test this theory by asking three veteran tax pros — two enrolled agents and one certified public accountant — to prepare a tax return for a hypothetical family, the Baileys. …All the preparers came up with varying results.

To its credit, USA Today draws the obvious conclusion and denounces the current tax code. Unfortunately, other than making some generic comments about the need for reform, the newspaper does not explain why fundamental reform like a flat tax is the only solution:

The fact that they couldn’t agree is testament to how impossibly complex the tax code has become. It also illustrates the utter contempt Congress has for the Baileys and their real-life contemporaries. This year, individuals and companies will spend about $300 billion, according to the non-partisan Tax Foundation, on tax preparation costs. To put that in perspective, that is a 20% levy on top of the $1.5 trillion they will actually pay in taxes. Some 60% of filers — including IRS Commissioner Mark Everson — will pay a professional to do their taxes for them.

It’s Not about Competence, It’s about Ideology

At the start of his disastrous 1988 campaign, diminutive technocrat Mike Dukakis had this rallying cry for the delegates at the Democratic National Convention, “this election isn’t about ideology. It’s about competence.”  At the time, I was a high school student, discovering politics by swiping my dad’s copies of National Review for ammo to use against my lefty history teacher.  I don’t have access to the National Review online archives, but I think I remember NR joining the many other conservatives who made fun of that line.  So it’s interesting to see NR editor Rich Lowry adopt that notion as the basis for his what-went-wrong cover story in the April 2 issue.  The Bush administration’s problem, you see, isn’t with the policies it’s pursued.  The real flaws lie in the execution. 

After a few complaints about ”executive dysfunction” and Bush’s failure “to create a sense of accountability in his government,” Lowry softens the blow somewhat.  The presidency is a hard job, after all, and “Bush has been hurt particularly by two massive events that might have been beyond the managing of even the most talented executive,” Katrina and “the ‘ungrateful volcano’ of Iraq.”  The passive voice is a wonderful touch: it seems that deciding to invade Iraq is just like getting hit by a hurricane.

I can understand why some people view the Bush administration’s failures in terms of competence.  By most accounts, Bush is a terrible manager, “incurious and as a result ill-informed” as former Bush speechwriter and NR hand David Frum has put it.  Bush promotes on the basis of loyalty and appears to view doubt as a character flaw.  “I don’t need people around me who are not steady,” he told Bob Woodward in 2002, “and if there’s kind of a hand-wringing attitude going on when times are tough, I don’t like it.”  And yes, if you’re going to go to war on the theory that the best way to deradicalize the Middle East is to bomb, invade, and occupy a large country at the heart of it, then it is a mistake to staff the occupation authority with the leading lights of the College Republicans.  But might there also be a problem with the theory itself?  Lowry makes a couple of meek gestures in that direction, but falls back on “the incompetence dodge.”

Most damning is the paragraph that comes right after Lowry’s Iraq apologia: “Bush has certainly had successes.  The prescription-drug program is, for better or for worse, one of his most important domestic initiatives…. But [despite its bureaucratic complexity] the program has turned out to be popular, relatively well-run, and less expensive than expected.”  Well, happy days

I don’t take issue with Lowry’s point that the program is popular, and probably a net plus for the Republicans electorally.  But the NR I remember from high school had higher aims than the success of a particular political party.  And the earlier NR, for all its faults, had the quixotic but noble goal of “standing athwart the tide of History, yelling ’stop!’”  Too often today, it looks more like: “Surfing the tide of history, screaming ‘Cowabunga!   Go GOP!’”   

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New Estonian Government Plans to Lower Flat Tax Rate

The International Herald Tribune reports that the new government in Estonia plans to lower the rate on the flat tax from 22 percent to 18 percent. Estonia already ranks as one of the world’s most laissez-faire economies. Reducing the flat tax rate - which was originally imposed at a rate of 26 percent - will further enhance Estonian competitiveness and increase the power of tax competition in Europe:

Estonian lawmakers on Wednesday gave Prime Minister Andrus Ansip the go-ahead to form a new center-right government that is expected to cut the Baltic country’s flat income tax. …Ansip’s center-right Reform Party, the conservative IRL union and the centrist Social Democrats agreed earlier this week on a coalition platform. They plan to continue market-friendly policies in the country of 1.3 million, including reducing the flat tax from 22 percent to 18 percent by 2011. High-tech Estonia has one of the European Union’s fastest-growing economies, and some economists credit the flat tax, which means everyone pays the same tax rate as opposed to the progressive rate that most European countries use.