Archives: 05/2010

The Faux Compassion of Club Sarkozy

Shortly after President Obama signed his health care law, French president Nicolas Sarkozy offered this backhanded compliment to the United States: “Welcome to the club of countries that does not dump its sick people.

In this month’s Diplomat magazine (U.K.), I explain pourquoi c’est fou:

Every member of Sarkozy’s “club” has its stories of sick people who have been “dumped,” in one manner or another, despite laws that officially preclude such things from ever happening. In 2005, Canada’s Supreme Court wrote of its country’s Medicare system: “Access to a waiting list is not access to healthcare…[T]here is unchallenged evidence that in some serious cases, patients die as a result of waiting lists for public health care.” The British, meanwhile, often seem more content to let the National Health Service shortchange its patients than to let an American lecture them about how often it happens.

The checkered history of government guarantees is why so many Americans – a majority, in fact – oppose President Obama’s new law, which they believe will move the United States even further from Sarkozy’s ideal world than it is now.

Presidents Obama and Sarkozy may prefer the false compassion of a government guarantee.  I’ll take the real thing.

Repeal the bill.

Forget Freedom. The UK Poll Is All About ‘Fairness’

Britain may have given the world freedom as we understand it (see The Liberty of Ancients Compared with that of Moderns by Benjamin Constant), but you would not know it from the last prime ministerial debate that took place last Thursday. The candidates (Conservative David Cameron, Labour’s Gordon Brown and Liberal Democrat Nick Clegg) used the word “freedom” only 2 times. They said the word “free” 5 times, but all in the context of the supposedly “free” goodies, which they promised to lavish on the electorate. Words “responsible” and “responsibility” fared somewhat better (4 times). But the winning words were “fair” and “fairness” that were mentioned 22 times – almost always in connection with taxing the rich. Here is a typical example:

Brown: “But I come back to the central question about fairness that has been raised by our questioner. How can David [Cameron] possibly justify an inheritance tax cut for millionaires at a time when he wants to cut Child Tax Credits? Let’s be honest. The inheritance tax threshold for couples is £650,000, if your house is worth less than that you pay no inheritance tax. What David [Cameron] is doing is giving 3,000 people, the richest people in the country, he’s going to give them £200,000 each a year. That is simply unfair.”

It was Gordon Brown, the current Prime Minister, who increased the top rate of income tax to 50%. Neither Clegg nor the supposedly business-friendly Cameron have proposed to cut that rate. Indeed, “fairness” in British politics seems to amount to little more than taxing the most productive members of society “until the pipes squeak.” Those words were uttered by Denis Healy who was the Chancellor of the Exchequer in the 1970s. It was under his leadership that the UK ran out of money and had to borrow billions from the IMF. It turns out that when you tax the rich too much, they will work less or leave for a more hospitable jurisdiction. Margaret Thatcher and Ronald Reagan understood it. Messrs Cameron, Clegg and Brown do not.



Suveillance Cameras and Civil Liberties

Today Politico Arena asks:

In light of the Times Square bombing attempt, are surveillance cameras a threat to civil liberties?

My response:

Does the latest bombing attempt, in Times Square over the weekend, justify urban surveillance cameras? On balance, yes. To be sure, police can abuse those tapes – all law enforcement is subject to abuse. But the tapes are often crucial in apprehending suspects and in preventing future crimes. When you’re out in public, you shouldn’t expect still to be in private.

Equally important, however, surveillance cameras, prudently used, tend to be more reliable than the proverbial “cop-on-the-beat,” to which no one objects. Only yesterday, for example, the Washington Post ran a piece, “Eyewitness testimony in an imperfect world,” about the 14-year-old boy mistakenly charged, based on eyewitness accounts, in the recent multiple murder case here in DC. As the Post story noted, eyewitness testimony is “the most common cause of wrongful convictions.” Far from being a threat to civil liberties, then, properly used surveillance cameras can be an important element in protecting civil liberties.

The Capital Gains Tax Rate Should Be Zero

Every economic theory – even socialism and Marxism – agrees that saving and investment (a.k.a., capital formation) are a key to long-run growth and higher living standards. Yet the tax code penalizes with double taxation those who are willing to forgo current consumption to finance future prosperity. This new video, narrated by yours truly, explains why the capital gains tax should be abolished.

Unfortunately, Obama wants to go in the wrong direction. He wants to boost the official capital gains tax rate from 15 percent to 20 percent - and that is after imposing a back-door 3.8 percentage point increase in the tax rate as part of his government-run healthcare scheme.

The video concludes with six reasons why the tax should be abolished, including its negative impact on both jobs and competitiveness.

The USPS’s ‘Automation Refugees’

Jim O’Brien, a vice-president at Time Inc. and chairman of the Mailers Council, recently guest-blogged on the U.S. Postal Service’s inspector general’s web site on the subject of “automation refugees.”

O’Brien explains the origination of the term:

Back in 1990, Halstein Stralberg coined the term “automation refugees” to describe Postal Service mail processing employees who were assigned to manual operations when automation eliminated the work they had been doing. Since the Postal Service couldn’t lay off these employees, they had to be given something to do, and manual processing seemed to have an inexhaustible capacity to absorb employees by the simple expedient of reducing its productivity. The result was a sharp decline in mail processing productivity and a sharp increase in mail processing costs for Periodicals class. Periodicals class cost coverage has declined steadily since that time.

O’Brien then tells of visiting seventeen mail processing facilities as part of a Joint Mail Processing Task Force in 1998. During those visits he noted that the periodical sorting machines always happened to be down even though the machines were supposed to be operating seventeen hours a day. Although the machines weren’t working, manual operations were always up and running.

A decade later, O’Brien points out that the situation apparently hasn’t changed:

More Periodicals mail is manually processed than ever, and manual productivity continues to decline. Periodicals Class now only covers 75% of its costs. How can this dismal pattern of declining productivity and rising costs continue more than two decades after it was first identified, especially when the Postal Service has invested millions of dollars in flats automation equipment?

O’Brien probably answered this question when he noted that the USPS couldn’t lay off these automation refugees back in 1990.

As I’ve discussed before, the USPS has a major union problem. A new Government Accountability Office report cites as a problem the fact that most postal employees are protected by “no-layoff” provisions. The USPS must also let go lower-cost part-time and temporary employees before it can lay off a full-time worker not covered by a no-layoff provision.

Unfortunately, recent comments from members of the House Oversight and Government Reform Committee showed an unjustified concern for how potential reforms would affect postal employees. Labor isn’t the only problem facing the USPS, but Congress needs to understand that the postal service’s expensive unionized workforce is a crippling burden.

Greece’s Problem Is High Tax Rates, Not Tax Evasion

The New York Times has an article describing widespread tax evasion in Greece, along with an implication that the country’s fiscal crisis is largely the result of unpaid taxes and could be mostly solved if taxpayers were more obedient to the state. This is grossly inaccurate. A quick look at the budget numbers reveals that tax revenues have remained relatively constant in recent years, consuming nearly 40 percent of GDP. The burden of government spending, by contrast, has jumped significantly and now exceeds 50 percent of Greek economic output.

The article also is flawed in assuming that harsher enforcement is the key to compliance. As this video shows, even the economists at the Paris-based Organization for Economic Cooperation and Development admit that tax evasion is driven by high tax rates (which is remarkable since the OECD is the international bureaucracy pushing for global tax rules to undermine tax competition and reduce fiscal sovereignty).

Ironically, the New York Times article quotes Friedrich Schneider of Johannes Kepler University in Austria, but only to provide an estimate of Greece’s shadow economy. The reporter should have looked at an article that Schneider wrote for the International Monetary Fund, which found that:

Macroeconomic and microeconomic modeling studies based on data for several countries suggest that the major driving forces behind the size and growth of the shadow economy are an increasing burden of tax and social security payments… The bigger the difference between the total cost of labor in the official economy and the after-tax earnings from work, the greater the incentive for employers and employees to avoid this difference and participate in the shadow economy. …Several studies have found strong evidence that the tax regime influences the shadow economy. …In Austria, the burden of direct taxes (including social security payments) has been the biggest influence on the growth of the shadow economy… Other studies show similar results for the Scandinavian countries, Germany, and the United States. In the United States, analysis shows that as the marginal federal personal income tax rate increases by one percentage point, other things being equal, the shadow economy grows by 1.4 percentage points. …A study of Quebec City in Canada shows that people are highly mobile between the official and the shadow economy, and that as net wages in the official economy go up, they work less in the shadow economy. This study also emphasizes that where people perceive the tax rate as too high, an increase in the (marginal) tax rate will lead to a decrease in tax revenue.

It is worth noting the Schneider’s research also shows why Obama’s tax policy is very misguided. The President wants to boost the top tax rate by nearly five percentage points, and that’s on top of the big increase in the tax rate on saving and investment included in Obamacare. Based on Schneider’s research, we can expect America’s underground economy to expand.

Shifting back to Greece, Schneider does not claim that tax rates are the only factor determining compliance. But his research indicates that more onerous enforcement regimes are unlikely to put much of a dent in tax evasion unless accompanied by better tax policy (i.e., lower tax rates). Moreover, compliance also is undermined by the rampant corruption and incompetence of the Greek government, but that problem won’t be solved unless politicians reduce the size and scope of the public sector. Needless to say, that’s not very likely. So when I read some of the details in this excerpt from the New York Times, much of my sympathy is for taxpayers rather than the greedy politicians that turned Greece into a fiscal mess:

In the wealthy, northern suburbs of this city, where summer temperatures often hit the high 90s, just 324 residents checked the box on their tax returns admitting that they owned pools. So tax investigators studied satellite photos of the area — a sprawling collection of expensive villas tucked behind tall gates — and came back with a decidedly different number: 16,974 pools. That kind of wholesale lying about assets, and other eye-popping cases that are surfacing in the news media here, points to the staggering breadth of tax dodging that has long been a way of life here. …Such evasion has played a significant role in Greece’s debt crisis, and as the country struggles to get its financial house in order, it is going after tax cheats as never before. …To get more attentive care in the country’s national health system, Greeks routinely pay doctors cash on the side, a practice known as “fakelaki,” Greek for little envelope. And bribing government officials to grease the wheels of bureaucracy is so standard that people know the rates. They say, for instance, that 300 euros, about $400, will get you an emission inspection sticker. …Various studies have concluded that Greece’s shadow economy represented 20 to 30 percent of its gross domestic product. Friedrich Schneider, the chairman of the economics department at Johannes Kepler University of Linz, studies Europe’s shadow economies; he said that Greece’s was at 25 percent last year and estimated that it would rise to 25.2 percent in 2010.

Obama vs. Common Sense

President Obama delivered a commencement speech at the University of Michigan in Ann Arbor on Saturday.

He called on all Americans “to maintain a basic level of civility in our public debate.”  Who could argue? Yet the president apparently believes that civility means protecting his policies from valid criticism.

He instructed graduates that “the practice of listening to opposing views is essential for effective citizenship.”  Right again.  But the civics lesson rings hollow coming from a president who falsely claimed there was “no disagreement” over his massive “stimulus” bill, and that opponents of his health care takeover offered no proposals of their own.

He explained, “what we should be asking is not whether we need ‘big government’ or a ‘small government,’ but how we can create a smarter and better government.”  Which is pretty much what every politician says when he wants big government and voters want small government.

Most troubling was this: “What troubles me is when I hear people say that all of government is inherently bad.”  That remark reminded me of this passage from Thomas Paine’s Common Sense: “Government, even in its best state, is but a necessary evil.” And it has me thinking that our president, a former constitutional law professor, who just received an honorary Doctor of Laws degree from the University of Michigan, really doesn’t get the American idea of government. At all.