I could only use 428 words, but I highlighted the main arguments for tax havens and tax competition in a “Room for Debate” piece for the New York Times.

I hope that my contribution is a good addition to the powerful analysis of experts such as Allister Heath and Pierre Bessard.

I started with the economic argument.

[T]ax havens are very valuable because they discourage anti-growth tax policy. Simply stated, it is very difficult for governments to impose and enforce confiscatory tax rates when investors and entrepreneurs can shift their economic activity to jurisdictions with better tax policy. Particularly if those nations have strong policies on financial privacy, thus making it difficult for uncompetitive high-tax nations to track and tax flight capital. Thanks to this process of tax competition, with havens playing a key role, top personal income tax rates have dropped from an average of more than 67 percent in 1980 to about 42 percent today. Corporate tax rates also have plummeted, falling from an average of 48 percent to 24 percent.

…Lawmakers also were pressured to lower or eliminate death taxes and wealth taxes, as well as to reduce the double taxation of interest, dividends and capital gains. Once again, tax havens deserve much of the credit because politicians presumably would not have implemented these pro-growth reforms if they didn’t have to worry that the geese with the golden eggs might fly away to a confidential account in a well-run nation like Luxembourg or Singapore.

Since I didn’t have much space, I couldn’t go into much greater detail. Below the jump is a video that elaborates on the economic benefits of tax havens, including an explanation of why fiscal sovereignty is a big part of the debate.

Read the rest of this post »

President Barack Obama’s new budget proposes to spend $3.78 trillion in 2014, which would be 27 percent higher than spending in 2008. President Obama believes in expansive government, and he is proposing a range of new programs, including subsidies for infrastructure, preschool, and mental health care.

However, total federal outlays increased substantially faster under President George W. Bush than they have under Obama so far. It is true that Obama’s spending ambitions have been restrained by House Republicans. But looking at the raw data, it appears that the last Republican president was more profligate than the current Democratic one.

The figure shows total federal outlays, but the data is adjusted to exclude the TARP bailout amounts for all years. The Congressional Budget Office now says (page 15) that TARP will end up costing taxpayers just $22 billion overall. Yet the official federal outlay figure for 2009 included $151 billion in estimated TARP costs. That number has since been re-estimated and mainly reversed out of later-year spending totals. Therefore, TARP must be removed from federal spending totals to avoid a distorted picture of budget growth.

The figure indicates that spending jumped from $1.86 trillion in 2001 to $2.98 trillion in 2008. That’s a 60 percent jump in seven years under Bush, which works out to an annual average growth rate of 7.0 percent. (All data cited here are for fiscal years).

Then comes 2009. Usually this year would be assigned to the outgoing president because the new president comes in part way during the year and typically does not make substantial changes to the current-year budget. But Obama took steps to immediately boost spending in 2009, including pushing through the giant stimulus bill. The CBO has reported that stimulus outlays were $114 billion in 2009.

In Bush’s last budget, he proposed that 2009 spending be $177 billion above the 2008 level, but the actual increase ended up being a massive $386 billion. So you can see that Obama and Congress were mainly responsible for the huge spending leap in 2009, not Bush.

So let’s assign 2009 to Obama and measure his spending from a base in 2008 ($2.98 trillion) to his newly proposed spending for 2014 of $3.78 trillion. Spending increased 27 percent over those six years, or 4.0 percent annually. That’s far too much, but still substantially less than the 7.0 percent growth rate under Bush.

Here is another comparison:

• Spending growth in Bush’s first seven years: 8%, 7%, 6%, 8%, 7%, 3%, 9%.
• Spending growth in Obama’s six years: 13%, 6%, 2%, -3%, 5%, 2%.

Partisan Republicans are probably tired of fiscal conservatives and libertarians complaining about Bush’s big spending, especially when Obama has done so much damage to limited government. But Republicans are fooling themselves if they think that the overspending problem has been confined just to the other party. The sooner people understand that overspending it is a deep and chronic disease with bipartisan roots, the sooner we can start finding a lasting cure.

Yesterday the New York Times profiled a conservative group that is embracing higher federal infrastructure spending, apparently at the behest of pro-spending lobby groups. And here is another conservative group in favor of more federal spending on infrastructure, and indeed, more central planning of it. But there is nothing the slightest bit “conservative” about nationalizing spending activities that can be done—and would be done better—by state governments and the private sector.

In sum:

• Obama’s new federal budget—spends way too much.
• Bush’s budgets—spent way too much and created a precedent for Obama.
• Some conservative groups—not conservative on spending.
• Believers in a small federal government—facing a huge challenge.
• Federal spending—reduces freedom, damages growth, harms the environment, destroys federalism and diversity, misallocates resources, undermines individual responsibility, and is often wasteful and bureaucratic.
• The Republic—threatened by a non-stop bipartisan spending spree.
• Solutions to all this—can be found at www.DownsizingGovernment.org.

Cato-at-Liberty readers who are enjoying—or, at least, chronicling—our nation’s slide down The Road to Serfdom will have to add Neil Irwin’s Washington Post Outlook piece, “Why the financial crisis was bad for democracy,” to their travelogue:

In a democratic society, there will always be tension over which decisions should be made by expert appointees, and which by those with the legitimacy and accountability that come with competing for citizens’ votes. The technocrats can make complex decisions quickly, quietly and efficiently. The words “quick, “quiet” and “efficient” are rarely applied to the U.S. Senate or the Italian Parliament — but these institutions are imbued with an authority that comes directly from the people, the explicit consent of the governed.

So, in a crisis, which do you want: unaccountable decisiveness or inefficient accountability?

Consciously or not, we’ve made our choice: The financial crisis and its long, ugly aftermath have marked the triumph of the technocrats…

None of this is a great way to run a society. Like most journalists, I believe in transparency and accountability. I wish the Federal Reserve’s policy meetings were broadcast on C-SPAN. Instead, we get written transcripts five years later. (That still beats Europe, where such information is under lock and key for 30 years.)

Yet, when the world is on the brink, decisive problem-solving trumps the niceties of democratic process. I won’t like it much — but I’ll take it.

Authoritarianism cannot take hold without intellectual support, and Friedrich Hayek couldn’t have described the rationale better himself. Just equally well. Almost verbatim, actually.

For more, see my paper (with Diane Cohen) on IPAB and this Cato policy forum on IPAB and Dodd-Frank. And of course, read Hayek’s The Road to Serfdom while it’s still legal.