Archives: December, 2009

ObamaCare Would Crowd Out Voluntary Charity

From Father Robert A. Sirico, via the Laticonomics blog:

I also worry about the “crowding out” effect that this vast expansion of the government into health care will have on voluntary charitable action. Somewhere along the line we have lost sight of the fact that charity and health care was not an invention of Washington bureaucrats. How did the more than 600 Catholic hospitals and clinics, and many more hospitals bearing the names Jewish, Presbyterian, Methodist, Adventist and Baptist, get built in this country? It wasn’t through the sufferance of government. Faith is the source of these works, not policy initiatives. Faith, because it involves the entire scope of the human person, body and soul, has not only a larger claim on our allegiance but a deeper commitment to our well being. Our faith communities know us as persons, not as welfare case numbers or voting blocs.

For more on how government crowds out faith-based and other private charity, see here.

Virginia Messes With Yoga Instructors’ Chi

Not to be too much of a megaphone for the Institute for Justice, but the “merry band of litigators” has struck again, this time going after the rigid rules stopping Virginians from finding inner peace.  It seems that in the fair commonwealth, you need a permit to teach yoga, which process entails paying $2500 and getting your “curriculum” approved by state bureaucrats, as well as other barriers to entry. For more details, see IJ’s case page and read this editorial in the Richmond Times-Dispatch.

Also, check out IJ’s video:

Libertarian Candidate May Force a Runoff in Costa Rica

A new poll published today by Costa Rica’s daily La Nación shows that Libertarian presidential candidate Otto Guevara has 30% of support among likely voters, trailing the candidate of the incumbent social democrat party Laura Chinchilla, who has 43% support. The news here is that in just two months, Guevara has increased his share of the vote by 18 percentage points, while Chinchilla’s share has collapsed by 20 percentage points during the same period.

The elections are scheduled for February 7th, and if neither of the candidates reaches the 40% threshold, there would be a runoff on April 4th. Given the trend, it is very likely that Guevara might force a runoff with Chinchilla in April. However, if Chinchilla’s rapid decline continues and Guevara captures more independent and undecided voters, he could still pull a surprising victory in February.

Guevara is a capital “L” Libertarian. His main issue during the campaign has been to get tough on crime (Costa Ricans’ main concern, according to polls). His economic platform is consistently free market: he proposes to abandon the colón and adopt the U.S. dollar as the official currency, he wants to unilaterally liberalize trade, he is calling for the implementation of a flat tax, and promotes an aggressive deregulation agenda. Moreover, he wants to introduce more competition in health care (currently a government single payer system) and education. On the international front, he has said that he would use international pulpits such as the UN and the Organization of American States to criticize Washington’s War on Drugs and propose sensible alternatives to international drug policy.

It’s still too early to call this election. Two months is also an eternity in Costa Rican politics. But things are certainly getting interesting in my home country.

Volcker on Financial Reform and Economic Stimulus

In a recent edition of The Region magazine, published by the Federal Reserve Bank of Minneapolis, retiring Minn. Fed President Gary Stern interviews Paul Volcker on a variety of topics.  It’s an interview well worth reading, and reminds one why Volcker is one of the more thoughtful voices on economics and finance, even if he isn’t always right.

Some highlights.  On the Obama financial reform plan:

I do not share one part of the general philosophy which seemed to emerge from this, particularly the proposal that the Federal Reserve supervise directly all “systemically important” institutions. I don’t know what “systemically important” institutions are, incidentally, but I’m sure that if you picked them out, people will assume they’re going to be saved, that they’re too big to fail. At the same time, there’d be some that you don’t pick out in advance that you’d want to save under particular circumstances.  So I think that is a mistake.

Volcker also express concern that those institutions at the center of the crisis are left out of the reform.  Specifically he mentions that Obama Administration officials “haven’t said anything about Fannie Mae or Freddie Mac.”

Volcker also takes issue with the Administration’s proposal to regulate non-banks, including hedge funds and private equity.  “I wouldn’t regulate so strictly the nonbanks.  I’d like to create the impression…that there’s no automatic bailout of those institutions.”

Volcker also raises important questions about the Administration’s Keynesian stimulus actions.  As the stimulus was meant to replace a reduction in private sector demand, Volcker asks “are we really dealing with the underlying pressures in the economy without permitting a relative decline in consumption to proceed?”

Those are just a few of his comments.  Here’s to hoping the rest of the Obama Administration is listening.  They could do a lot worse than Volcker’s advice.

Summers’ Corporate Tax Confusion

At a conference yesterday, White House National Economic Council Director Larry Summers repeated a superficial critique of the U.S. corporate income tax that we’ve heard often from the Obama administration.

Politico notes that Summers suggested “that U.S. corporate tax rates are relatively low, despite complaints from U.S. corporations.” And they quote him: “If you look at taxes paid by corporations as a fraction of profits, they’re actually very low” because the U.S. tax code is replete with “evasion and avoidance.”

The Obama team’s solution to the supposed problem is to pile more complex IRS rules and regulations on U.S. corporations and to increase taxes on their foreign earnings.

There are lots of problems here. One is the implication that the U.S. corporate tax is uniquely subject to evasion and avoidance. It isn’t. Corporate income taxes around the globe are subject to large avoidance and evasion pressures because of globalization and technological advance.

That is one of the main reasons why virtually every other industrial nation has dramatically cut its corporate tax rate over the last decade or so. But the United States has not followed suit, and that’s why U.S. corporations are having to put large efforts into avoidance.

The latest data from KPMG shows that the U.S. federal/state rate is 40 percent–tied with Libya for the third-highest rate among 116 countries surveyed. The chart shows the average rate for the 30 OECD nations.

Summers may be right that U.S. corporate taxes are “low” when measured as a share of profits, although that calculation is more complex than you might think (For example, is he talking about domestic taxes divided by domestic profits, domestic taxes divided by worldwide profits, or something else?)

Anyway, Larry is referring to a measure of the average tax rate. But, generally, it is statutory rates that drive avoidance, and so it is the very high U.S. statutory rate that is helping to shrink federal taxes paid and thus drive down the average rate that Larry is worried about.

Note that lower statutory corporate rates over the last two decades have been associated with higher corporate tax revenues, as Figure 1 illustrates here. Thus, if Larry wants a higher average rate, he should propose cutting the U.S. statutory rate.

Summers apparently wants corporations to “help the country” by paying more taxes. But Larry must know that it is individual workers, consumers, and savers who actually bear the burden of the corporate tax. These people are “the country” and they would be helped by dramatically cutting the corporate tax rate and boosting the economy.

California Illustrates Need to Revive Federalism

The state of California recently received $60 million in U.S. Department of Labor stimulus funds to upgrade its 23 year-old unemployment benefits system. But according to the Associated Press, California is yet to spend $66 million it received from Labor in 2002 to upgrade its system. The price tag isn’t whopping by federal standards, but it is another reminder of the need to return to fiscal federalism.

Apparently, the Department of Labor couldn’t care less:

The federal government has no plans to sanction or fine California for not completing the original technology upgrade. The Labor Department said it was more concerned that new stimulus funding is used in a way that will allow more workers to qualify for unemployment assistance.

At the same time, California’s unemployment insurance fund is $7.4 billion in the red, which has forced it to “borrow” $4.7 billion from the federal government. According to an editorial in the Oakland Tribune, California increased the generosity of its unemployment benefits when the economy was healthy, but now that the economy is stagnant spendthrift policies are creating a fiscal crisis.

Alan Reynolds reminds that the federal stimulus package “bribed states to extend benefits — which have now been stretched to an unprecedented 79 weeks in 28 states and to 46 to 72 weeks in the rest.” When you subsidize something you get more of it—federal subsidies prompt more state subsidies to the unemployed, which generates more unemployment. Alan concludes that “the February stimulus bill has added at least two percentage points to the unemployment rate.”

California’s unemployment rate of 12.5 percent is the state’s highest since the end of the Great Depression. Once again we see that when the line of responsibility between federal and state government is blurred, the result is more of both and poor policies compounded.

Tuesday Links

  • All eyes on India: Party crashers aside, Indian Prime Minister Manmohan Singh’s visit to the U.S. was an important event.