Tag: big government

Are These Examples of Washington Corruption?

The “appearance of impropriety” is often considered the Washington standard for corruption and misbehavior. With that in mind, alarm bells began ringing in my head when I read this Washington Times report about Jacob Lew, Obama’s nominee to head the Office of Management and Budget. A snippet:

President Obama’s choice to be the government’s chief budget officer received a bonus of more than $900,000 from Citigroup Inc. last year — after the Wall Street firm for which he worked received a massive taxpayer bailout. The money was paid to Jacob Lew in January 2009, about two weeks before he joined the State Department as deputy secretary of state, according to a newly filed ethics form. The payout came on top of the already hefty $1.1 million Citigroup compensation package for 2008 that he reported last year. Administration officials and members of Congress last year expressed outrage that executives at other bailed-out firms, such as American International Group Inc., awarded bonuses to top executives. State Department officials at the time steadfastly refused to say if Mr. Lew received a post-bailout bonus from Citigroup in response to inquiries from The Washington Times. But Mr. Lew’s latest financial disclosure report, provided by the State Department on Wednesday, makes clear that he did receive a significant windfall. …The records show that Mr. Lew received the $944,578 payment four days after he filed his 2008 ethics disclosure.

Why did Citigroup decide to hire Lew, a career DC political operator, for $1.1 million? As a former political aide, lobbyist, lawyer, and political appointee, what particular talents did he have to justify that salary to manage an investment division? Did the presence of Lew (as well as other Washington insiders such as Robert Rubin) help Citigroup get a big bucket of money from taxpayers as part of the TARP bailout? Did Lew’s big $900K in 2009 have anything to do with the money the bank got from taxpayers? Is it a bit suspicious that he received his big windfall bonus four days after filing a financial disclosure?

See if you can draw any conclusion other than this was a typical example of the sleazy relationship of big government and big business.

Lest anyone think I’m being partisan, let’s now look at another story featuring Senator Richard Shelby. The Alabama Republican and his former aides have a nice relationship that means more campaign cash for him, lucrative fees for them, and lots of our tax dollars being diverted to such recipients as the state’s university system. Here are some of the sordid details:

Since 2008, Alabama Sen. Richard Shelby has steered more than $250 million in earmarks to beneficiaries whose lobbyists used to work in his Senate office — including millions for Alabama universities represented by a former top staffer. In a mix of revolving-door and campaign finance politics, the same organizations that have enjoyed Shelby’s earmarks have seen their lobbyists and employees contribute nearly $1 million to Shelby’s campaign and political action committee since 1999, according to federal records. …Shelby’s earmarking doesn’t appear to run afoul of Senate rules or federal ethics laws. But critics said his tactics are part of a Washington culture in which lawmakers direct money back home to narrow interests, which, in turn, hire well-connected lobbyists — often former congressional aides — who enjoy special access on Capitol Hill.

Some people think the answer to such shenanigans is more ethics laws, corruption laws, and campaign-finance laws, but that’s like putting a band-aid on a compound fracture. Besides, it is quite likely that no laws were broken, either by Lew, Citigroup, Shelby, or his former aides. This is just the way Washington works, and the beneficiaries are the insiders who know how to milk the system. The only way to actually reduce both legal and illegal corruption in Washington is to shrink the size of government. The sleaze will not go away until politicians have less ability to steer our money to special interests — whether they are Wall Street banks or Alabama universities. This video elaborates:

Taxes Are for the Little People, not John Kerry

In the future, dictionary publishers should get rid of their existing definitions for “hypocrisy” and replace them with a photo of Massachusetts Sen.ator John Kerry. He’s just been caught committing the horrible sin of saving his family more than $500,000 by domiciling his new yacht in Rhode Island (which is a tax haven for such luxuries) rather than his home state. Or at least Senator Kerry says that tax planning is a horrible sin when conducted by “Benedict Arnold” companies and facilitated by those wicked tax havens. But I guess that it’s not such a bad thing when Senator Kerry is protecting his wealth. For the rest of us peasants, it’s our job to meekly get in line and submit to whatever taxes Senator Kerry graciously decides to impose.

The Boston Herald reports:

Sen. John Kerry, who has repeatedly voted to raise taxes while in Congress, dodged a whopping six-figure state tax bill on his new multimillion-dollar yacht by mooring her in Newport, R.I. Isabel — Kerry’s luxe, 76-foot New Zealand-built Friendship sloop with an Edwardian-style, glossy varnished teak interior, two VIP main cabins and a pilothouse fitted with a wet bar and cold wine storage — was designed by Rhode Island boat designer Ted Fontaine. But instead of berthing the vessel in Nantucket, where the senator summers with the missus, Teresa Heinz, Isabel’s hailing port is listed as “Newport” on her stern. Could the reason be that the Ocean State repealed its Boat Sales and Use Tax back in 1993, making the tiny state to the south a haven — like the Cayman Islands, Bermuda and Nassau — for tax-skirting luxury yacht owners? Cash-strapped Massachusetts still collects a 6.25 percent sales tax and an annual excise tax on yachts. Sources say Isabel sold for something in the neighborhood of $7 million, meaning Kerry saved approximately $437,500 in sales tax and an annual excise tax of about $70,000. …[S]tate Department of Revenue spokesguy Bob Bliss confirmed the senator “is under no obligation to pay the commonwealth sales tax.”

Maybe the French Aren’t So Bad After All

I like poking fun at French politicians for being hopeless statists, and I always assumed that French voters shared their collectivist sympathies. But according to new polling data reported by the Financial Times, there may be a Tea Party revolt brewing in France. Among major European nations, the French are most in favor of smaller government. Sacre Bleu!

European governments have solid public support, at least for now, for the spending cuts they are making in an effort to boost economic recovery, according to the latest Financial Times/Harris opinion poll. …The poll’s results point to a fiscal conservatism among the European public that contrasts with the eagerness with which most governments ran up high deficits to protect jobs and living standards as the crisis unfolded. …Asked if public spending cuts were necessary to help long-term economic recovery, 84 per cent of French people, 71 per cent of Spaniards, 69 per cent of Britons, 67 per cent of Germans and 61 per cent of Italians answered Yes. …Asked if they preferred public spending cuts or tax rises as a way to reduce budget deficits and national debts, strong majorities in the five EU countries as well as the US were in favour of spending cuts. Similarly conservative views on public expenditure emerged when people were asked if EU governments were right to engage in large-scale deficit-spending after the 2008 crisis. In all five EU countries, a majority – ranging from 68 per cent in France and Italy to 54 per cent in the UK – said the governments were wrong to have done so.

Thanks to Tax Competition, Corporate Tax Rates Continue to Fall in Europe

Many people assume that Europe is the land of high-tax welfare states and America is an outpost of laissez-faire capitalism. We should be so lucky. The burden of government in America is still lower than it is in the average European nation, but the United States is a lot closer to France than it is to Hong Kong – and the trend is not comforting.

We recently endured the embarrassing spectacle of President Obama arguing with Europeans that they should increase the burden of government spending. Now we have a new report from the European Commission indicating that the average corporate tax rate in member nations of the European Union has plummeted to just 23.5 percent while the corporate tax rate in the U.S. has stagnated at 35 percent. In the past dozen years alone, as the chart illustrates, the average corporate tax rate in the European Union has dropped by nearly 12 percentage points. To make matters worse, the corporate tax rate in America actually is closer to 40 percent if state tax burdens are added to the mix.

This is not to say that European politicians are reading Hayek and Friedman (or watching Dan Mitchell videos on corporate taxation). Almost all of the positive reforms are because of tax competition. Thanks to globalization, it is increasingly easy for labor and (especially) capital to cross national borders to escape bad policy. As such, nations now have to compete for jobs and investment, and this liberalizing process is particularly powerful among nations that are neighbors.

Not surprisingly, European politicians despise tax competition and instead would prefer to impose a one-size-fits-all policy of tax harmonization. These efforts to create a tax cartel have a long history, beginning even before Reagan and Thatcher lowered tax rates and triggered the modern era of tax competition. The European Commission originally wanted to require a minimum corporate tax rate of 45 percent. And as recently as 1992, there were an effort to require a minimum corporate tax rate of 30 percent.

Fortunately, the politicians did not succeed in any of these efforts. As such, tax competition remains alive and corporate tax rates continue to fall. What remains to be seen, however, is whether America will join the race to lower corporate tax rates – and more jobs and investment.

“Rahn Curve” Video Shows Government Is Far Too Big

There is considerable academic research on the growth-maximizing level of government spending. Based on a good bit of research, I’m fairly confident that Cato’s Richard Rahn was the first to popularize this concept, so we are going to make him famous (sort of like Art Laffer) in this new video explaining that there is a spending version of the Laffer Curve and that it shows how government is far too large and that this means less prosperity.

The G-20 Fiscal Fight: A Pox on Both Their Houses

Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American “stimulus” and European “austerity” at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, “austerity” presumably means cutting back on wasteful government spending. Obama’s definition of “stimulus,” by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.
But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron’s proposal to boost the U.K.’s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”
Raising taxes to finance a bloated government, to be sure, is not the same as Obama’s strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.
What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.
Unfortunately, I suspect that the “austerity” plans of Merkel, Cameron, Sarkozy, et al, will leave the overall burden of government relatively unchanged. That may be good news if the alternative is for government budgets to consume even-larger shares of economic output, but it is far from what is needed.
Unfortunately, the United States no longer offers a competing vision to the European welfare state. Under the big-government policies of Bush and Obama, the share of GDP consumed by government spending has jumped by nearly 8-percentage points in the past 10 years. And with Obama proposing and/or implementing higher income taxes, higher death taxes, higher capital gains taxes, higher payroll taxes, higher dividend taxes, and higher business taxes, it appears that American-style big-government “stimulus” will soon be matched by European-style big-government “austerity.”
Here’s a blurb from the Christian Science Monitor about the Potemkin Village fiscal fight in Canada:

This weekend’s G-20 summit is shaping up as an economic clash of civilizations – or at least a clash of EU and US economic views. EU officials led by German chancellor Angela Merkel are on a national “austerity” budget cutting offensive as the wisest policy for economic health, ahead of the Toronto summit of 20 large-economy nations. Ms. Merkel Thursday said Germany will continue with $100 billion in cuts that will join similar giant ax strokes in the UK, Italy, France, Spain, and Greece. EU officials say budget austerity promotes the stability and market confidence that are prerequisites for their role in overall recovery. Yet EU pro-austerity statements in the past 48 hours are also defensive – a reaction to public statements from US President Barack Obama and G-20 chairman Lee Myung-bak, South Korea’s president, that the overall effect of national austerity in the EU will harm recovery. They are joined by US Treasury Secretary Tim Geithner, investor George Soros, and Nobel laureate and columnist Paul Krugman, among others, arguing that austerity works against growth, and may lead to a recessionary spiral.