Topic: Government and Politics

Senators Introduce Bill Attacking Low-Tax Jurisdictions

Politicians from France and Germany are infamous for whining about “unfair” competition from low-tax jurisdictions. It is embarrassing to note that there are politicians in the United States with the same sore-loser attitude. With Senator Levin of Michigan as the ringleader, three senators have introduced an anti-tax haven bill that would impose onerous new burdens on taxpayers while dramatically increasing the power of the Internal Revenue Service. The sponsors make a number of completely inaccurate assertions, including a claim that so-called tax havens account for $100 billion of lost tax revenue. Even a cursory review of IRS data, however, show that the vast majority of the “tax gap” is from small business taxpayers. But Levin’s attitude apparently is that facts should not get in the way of good press release. The legislation has numerous other problems, most notably the fact that is almost certainly would put the US in violation of World Trade Organization obligations and that it would make foreign-managed hedge funds more competitive by imposing onerous regulatory burdens on US funds (much as Sarbanes-Oxley helped Hong Kong and London become much more attractive places for venture capital business such as IPOs). The Washington Post reports on the bill’s introduction: 

Three senators proposed legislation that would target what they say is $100 billion a year in tax revenue lost each year because of overseas tax havens, in part by forcing hedge funds to track their foreign investors. The measure would impose tougher requirements on U.S. taxpayers using offshore secrecy jurisdictions, give the U.S. Treasury the authority to take action against foreign jurisdictions that impede tax enforcement, stiffen penalties against abusers and close offshore trust loopholes, according to a summary of the bill released by Michigan Democrat Carl M. Levin. …”We cannot tolerate tax cheats offloading their unpaid taxes onto the backs of honest taxpayers,” Levin said in a joint statement with co-sponsors Norm Coleman (R-Minn.) and Barack Obama (D-Ill.). “Offshore tax havens have declared economic war on honest taxpayers by helping tax cheats hide income and assets that should be taxed in the same way as other Americans.” The Treasury Department and top lawmakers in both houses of Congress have made a priority this year reducing the so-called tax gap, the difference between what individuals and companies owe and what they pay. The IRS said a study of 2001 tax returns shows the tax gap is about $345 billion a year, only $55 billion of which is recovered.

Washington’s Dishonest Budget Math

During fiscal debates in DC, politicians, the press, and interest groups all complain about supposed budget cuts. Yet every year, the budget gets bigger and more expensive. This seeming contradiction is due to the fact that Washington uses a strange form of math called “current services” budgeting. Under this system, a “cut” occurs anytime a budget doesn’t increase as fast as previously projected. This means that programs sometimes grow at more than twice the rate of inflation, but advocates of more spending get to complain that they are being subjected to “cruel” and “savage” reductions. While everyone inside the beltway understands how this game is played, ordinary Americans are completely deceived. They think that spending cuts are actually cuts - i.e., spending will be lower next year than it is this year. Defenders of the current system argue that “current services” budget is justified because it enables policy makers to know how much spending is “requried” because of inflation, demographic change, and previously-legislated program expansions. There is nothing wrong with having that information, of course, but that doesn’t justify dishonest presentation of budget numbers. If a politician or interest group wants to argue that a program should get a six percent increase because of various factors, that is a legitimate debate. But when a politician says that a program is getting a two percent cut because spending is climbing by four percent instead of six percent, that is deceptive. An article in the American Enterprise Institute’s magazine explores Washington’s dishonest budget math:
President Bush is not “cutting” Medicare spending—all the media hype notwithstanding… the President has not been suddenly seized by fiscal conservatism fever and did not, in fact, propose any spending cuts. Under the President’s proposal, federal spending on Medicare and Medicaid is set to increase by $84 billion from 2006 to 2008. That spending increase is certainly not a cut—even when including inflation, it represents a generous increase in entitlement spending. Newsweek confused cutting the rate of spending growth with cutting spending itself. The President’s proposals reveal an interesting picture: instead of growing at a 6.5% rate, the President would have Medicare grow at a 5.6% rate. Medicaid was set to grow at 7.3%; the President has proposed a 7.1% rate of growth. …It’s useful to place this spending restraint in perspective: entitlements face a looming $43 trillion shortage over the next 60 years, and unless entitlement spending is curbed, those programs are headed straight for bankruptcy. What’s fascinating is that if the President’s modest Medicare plans were realized, $8 trillion dollars would already be shaved off of Medicare’s future liability. It’s a hopeful reminder that moderate fiscal restraint can, over time, accomplish a great deal of good.

Some Good News on the Budget

Thanks in large part to the heroic efforts of Senators Jim DeMint and Tom Coburn, the corrupting culture of budget earmarks has hit a big bump in the road. Even more important, government spending is no longer climbing quite as fast. To be sure, it is hardly a victory to hold the growth of annual appropriations to the rate of inflation. After all, many of the programs being appropriated should be completely abolished. Moreover, annual appropriations does not include entitlement programs, many of which are growing at twice the rate of inflation. But in a town enriches itself by transferring income and wealth from the productive to the special interests, even a slowdown in the rate of spending growth is welcome news. The Wall Street Journal explains:

On Thursday, White House budget director Rob Portman issued little-noticed guidance to all federal departments and agencies that no Congressional requests for spending should be accommodated unless they are “specifically identified in statutory text” – which is to say, the law. This may sound like it ought to be regular practice, but it’s a revolution in the Beltway. That’s because, in order to dodge the legislative earmark limits that Mr. Byrd has been bragging about, Members have been speed-dialing executive branch officials and asking them to fund their specific earmark requests out of agency budgets even though they were purged from the larger budget bill. This Congressional lobbying can be hard for the average federal bureaucrat to refuse, since he doesn’t want to offend those on Capitol Hill who control his budget. …this means the Fiscal 2007 federal budget could have the fewest number of these pork-barrel projects in many a year. By the way, thanks to efforts late last year by GOP Senators Jim DeMint of South Carolina and Tom Coburn of Oklahoma to block a last-minute bipartisan spending splurge, the 2007 budget holds overall federal appropriated spending to the rate of inflation; recent years have often seen three times that.

Collins’ Confusion

A couple of weeks ago, I went up to Maine to speak about identification issues at a community meeting in Augusta.  This was the night before the state legislature voted overwhelmingly to reject the REAL ID Act. Maine’s bold step catalyzed a nationwide rebellion, and states across the country are now passing resolutions to reject REAL ID.

Along with that resolution, the Maine legislature will be moving a bill that specifically prevents the secretary of state from spending any funds to comply with REAL ID. A real one-two punch.

Now, here’s a little inside baseball: The resolution was introduced by the Democratic Majority Leader of the Senate, Libby Mitchell, and the bill was introduced by Republican Representative Scott Lansley. As can happen, Republicans were a little concerned that the Democrat-introduced resolution would eclipse the Republican-introduced bill in this Democrat-majority legislature. But Mitchell and Lansley got together to be the lead co-sponsors of each others’ measures. Maine is doing the kind of bipartisan cooperation that is so rare in Washington, and Republican Lansley stands to get proper credit for his leadership on this issue.  But …

Along comes U.S. Senator Susan Collins, Republican of Maine, who this week confounded things by introducing a bill to defend and support the REAL ID Act. Her bill would give the DHS two more years to coerce states into implementing this national ID, and it would fiddle around the edges of the rulemaking process. Delaying implementation helps a national ID go forward in a big way because it gives the companies and organizations that sustain themselves on these kinds of projects time to shake the federal money tree and get this $11 billion surveillance mandate funded.

It’s all very confusing. First of all, Senator Collins’ move to support REAL ID faces right into a headwind known as “the will of the people of Maine.”  The state legislature overwhelmingly voted to reject REAL ID. Senator Collins, famous seeker of compromise, appears to be compromising not among the differing interests of her voters, but among the interests of her voters and the interests she hears from in Washington.

Secondly, Republican Collins is crossing up state Republican leaders like Scott Lansley and muddying the party’s message at home. Someone is looking out-of-touch. (Hint: It’s not Scott Lansley.)

The famously moderate Collins is backing a law that is most strongly favored by immoderate anti-immigrant groups.

Here’s what is most bizarre: Collins is moving to support REAL ID even though it stripped out identification provisions in the Intelligence Reform and Terrorism Prevention Act that she is widely credited with crafting!

Senator Collins may be confused. I know I am. Unfortunately, her move to protect REAL ID has attracted some support. Senator Collins should disavow this bill as a blunder, or explain her conversion to support of the REAL ID Act and a national ID.

Senate Homeland Security and Governmental Affairs chairman Joe Lieberman called the drivers license provisions of REAL ID “unworkable“ when it was attached to a military spending bill and rammed through the Senate without a hearing or vote. The passage of an additional two years will make them no more workable.

A More ‘Social’ EU

Nine EU nations are calling for a greater focus on “social protection” and “social rights” in order to promote “social Europe.” Needless to say, “social” is a code word for bigger government.

Most of the nine nations are in the usual-suspects category, but Hungary and Bulgaria are strange additions. Do they really think they can overcome the legacy of communism by shackling themselves to socialism?

The EU Observer reports on the latest skirmish in Europe’s fight against globalization:

France, Italy, Spain, Cyprus, Bulgaria, Luxembourg, Hungary, Belgium and Greece have all signed up to a two-page long declaration in which they argue that the 27-country bloc should be more than just an internal market. Calling their statement, which has been sent to all member states, “enhancing social Europe” the currently nine-strong group want to use the ongoing negotiations on the EU constitution as a springboard for their ideas.

It continues by saying that a Europe of 27 member states “cannot just be a free trade zone but shall guarantee the necessary balance between economic freedom and social rights.” Social Europe is defined as a set of “common values” such as social justice, equality and solidarity.

The call for more social Europe goes to the heart of a debate in Europe about the extent to which the bloc should adapt to the force of globalisation and the extent to which it should set certain social, environmental and work standards, which detractors say could hamper growth and competitiveness.

How Big-Government Conservatism Brought Down the Republican Revolution

For conservatives generally and the Republican Party in particular, now is a time of intense soul-searching. For the first time in a dozen years, Republicans have lost control of Congress. As a result, they are being forced to reexamine who they are and what they stand for. Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution, a new book by Cato scholar Michael D. Tanner, provides an incisive analysis of the roots and core beliefs of big-government conservatism and the major currents that fueled its growth—neoconservatism, the Religious Right, supply-side economics, national greatness conservatism, and Newt Gingrich–style technophilia—and offers a detailed critique of its policies on a wide range of issues.  Leviathan on the Right is a clear warning that, unless conservatives return to their small-government roots, the electoral defeat of 2006 is just the beginning.

French “Conservative” Candidate Calls for Hedge Fund Tax

While most nations are trying to liberalize their economies, both major candidates in France are competing to promise higher taxes and more spending. Sarkozy is supposed to be the market-oriented candidate, but he has endorsed higher taxes on financial services - and is suggesting sympathy for a higher VAT, according to MSNBC:

Nicolas Sarkozy will push for a European tax on “speculative movements” by financial groups, such as hedge funds, if he wins this year’s French presidential elections. …his plan to tax financial flows is likely to dismay US and UK financial groups, as well as parts of the French business community, which largely prefers him to Ms Royal. …His comments echo the traditional Gaullist suspicion of capitalism and financial investors, for which Mr Chirac has become well known. Mr Sarkozy’s attack on speculative finance mirrors the views of some business leaders. Claude Bébéar, chairman of insurer Axa, France’s biggest institutional investor, yesterday pilloried the “dictatorship of the market” and the “short-term interests” of hedge funds. …[Sarkozy’s] record as finance minister was notably dirigiste. He intervened to save Alstom, the engineering group, from bankruptcy and brokered an all-French merger of Aventis and Sanofi to avert a takeover by Switzerland’s Novartis. …Mr Sarkozy admitted he was watching Germany’s three percentage point increase in VAT with interest.

The story also notes that Sarkozy also was an interventionist finance minister. The net result is that France almost surely will continue to stagnate, regardless of who replaces Jacques Chirac.