Topic: International Economics and Development

An EU Minimum Wage Law?

The European Union commissioner for economic and monetary affairs, Joaquin Almunia, thinks there should be a minimum wage for all EU member nations. This is a destructive notion, considering many European nations suffer from substantional unemployment and under-employment. To the extent that minimum wage policy is harmonized (as opposed to 27 different minimum wage policies in 27 EU nations), poorer countries will be hardest hit.

The EU Observer reports on the latest proposal from the statists in Brussels:

EU economic and monetary affairs commissioner Joaquin Almunia has mooted the idea of minimum wages being introduced in each of the 27 member states across the European Union. “Every country in the EU should have a minimum wage,” Mr Almunia told the German weekly Die Zeit in an interview.

…[O]nly 20 EU member states currently have a set level of minimum wages…. Germany … is one of the few major world economies without a minimum wage.

Here’s One Embargo SiCKO Won’t Violate

USA Today initially reported that Michael Moore will be screening his new film SiCKO at a Tehran film festival in October.  Alas, one of Moore’s producers responded with an even-tempered denial (which was dutifully reported by USA Today).

That’s a shame. 

With the help of a beautiful and intelligent attorney, I uncovered a Treasury Department guide to U.S. sanctions against Iran.  Officially speaking:

The receipt or transmission of postal, telegraphic, telephonic or other personal communications, which does not involve the transfer of anything of value, between the United States and Iran is authorized.

I’d say that gives SiCKO the green light.

The Germans Attack Tax Competition…Again

Germany’s finance minister Peer Steinbrueck wants to curtail tax competition by prohibiting countries from having corporate tax rates of less than 30 percent. Since German politicians have been whining about competition from low-tax nations in Eastern Europe for quite some time, this is hardly news.

But this new round of sour grapes is particularly amusing because Herr Steinbrueck is trying to close the barn door when the horses are galloping in the fields. The average corporate tax rate in the European Union already has fallen to about 24 percent and more corporate tax cuts are about to take effect — including a tax rate reduction in Germany.

Bloomberg reports:

The European Union needs a “level playing field” in areas including tax competition…if there is to be greater integration among member states, German Finance Minister Peer Steinbrueck said. A “race to the bottom” regarding…taxes, social and environmental standards risks discrediting the idea of a more united Europe among the continent’s citizens, Steinbrueck said in a speech prepared for delivery today in Frankfurt an der Oder, on the eastern German border with Poland.

…The average corporate tax rate in Europe shouldn’t fall below the threshold of just under 30 percent, which will go into effect in Germany next year, Steinbrueck said. Eastern European governments…can’t finance the infrastructure demanded by their citizens if taxes are lowered too much, he said.

Another Flat Tax Nation?

Moldova, a former Soviet Republic, is a poor and backwards nation with too much government. Seeking a brighter future, a part of Moldova has declared independence and is calling itself Pridnestrovie. Though this new country has not yet been recognized by the world, Pridnestrovie has wisely decided to implement free market reforms — including a flat tax that has been reduced from 15 percent to 10 percent according to a story from last year in the Tiraspol Times:

Parliament in Pridnestrovskaia Moldavskaia Respublica approved new lower tax rates for the emerging but unrecognized country. Previously, the nation taxed incomes for physical persons at 15%, but starting next month the rate will be just 10% flat.

…Since its declaration of independence on 2 September 1990, Pridnestrovie has gradually transformed itself from a post-Soviet system to a free, Western-style market based economy. In the process, it has found that a flat tax provides the best incentives for citizens and investors alike.

Hoover Institution political scientist Alvin Rabushka points to a number of different countries in the former Soviet bloc that have adopted some form of flat tax in recent years. In addition to Russia, Pridnestrovie and Slovakia, they are Romania, Georgia, Estonia, Latvia, Serbia and Ukraine.

Not surprisingly, the flat tax is having a positive impact. The Tiraspol Times now reports that tax revenues have more than tripled and lawmakers understand that lower tax rates can lead to more revenue — just as the Laffer Curve illustrates:

Thanks to reform in the tax code, and a lowering of rates, income from taxes has gone up three and a half times in Pridnestrovie, says the parliamentary press service. …Tax revenues went from 63.4 million dollars in 2001 to a whopping 221.6 million dollars in 2006, the last full year for which the numbers are available.

…Key to the reform package were measures which makes filing simpler, as well as a comprehensive program of tax relief. Five taxes which existed before 2001 have now been abolished and instead replaced with a single, simple tax.

…With both personal and corporate tax rates well below those of Ireland, the growth in Pridnestrovie’s tax income is even more impressive. As taxes have been simplified and rates have been lowered, revenues have gone up three and a half times.

Addendum: The good news about Pridnestrovie may not be so good after all. My Cato colleague Justin Logan rained on my flat tax parade by telling me that Pridnestrovie, AKA Tansnistria (I guess even the name of the place is in dispute), is not exactly the Hong Kong of Eastern Europe. The breakaway province has a very poor reputation for corruption. It also is not exactly a role model of democracy, since the boss of the country recently won 103 percent of the vote in one region (eat your heart out, Castro). Alas.

European Union Squanders Money on Self-Promotion and Propaganda, Including Sex Videos

A story in the UK-based Telegraph discusses a new report that exposes the European Union’s expensive propaganda campaign. With a budget of more than $7 billion, the self-promotion effort is hardly trivial:

The European Union is spending £3.8 billion a year on “propaganda” to win over its sceptical citizens… As well as publishing a plethora of pamphlets and employing an army of public relations staff, the EU has spent hundreds of millions of pounds on teaching aids, school trips and even cartoons. According to Lee Rotherham, the author of a new book which examines the EU’s spending on its image, such initiatives are an “outrageous and cynical attempt to brainwash the young”. …Let’s Explore Europe Together, an online teaching aid aimed at nine to 12-year-olds, describes the EU as a “really good plan that had never been tried before”. …In Italy, reports Mr Rotherham, children have been confronted by Camillo e l’Euro in Europa, a cartoon that champions the single currency. …Europe’s Best Successes, a 51-page pamphlet to celebrate the 50th anniversary of the EU, features lines such as “if you are lucky enough to be a citizen of the EU”, and “young people have really benefited from the development of a borderless Europe”. Mr Rotherham also details extensive spending on umbrellas, mouse mats, pencils and other items branded with the EU logo - part of a £2.4 billion budget for European Commission “projects”. He also reveals big grants to think-tanks and EU-funded trips to the European Parliament.

The U.S. government wastes money in similar ways, of course, including propaganda campaigns on behalf of the new Medicare prescription drug entitlement and the President’s no-bureaucrat-left-behind education scheme. But the Europeans seem to have more creativity when it comes to wasting taxpayer money. The UK-based Times reports that part of the European Union’s self-promotion budget was used to produce a sex video. In the understatement of the year, a bureaucrat admitted that the EU is not quite ready to compete with Paris Hilton:

The latest promotional video from Brussels shows European citizens engaged in enthusiastic congress, but it is not the sort of union the founding fathers had in mind. The film, available on the European commission’s space on YouTube, the video website, shows 18 couples having sex. The video opens with a man and woman ripping each other’s clothes off in the bedroom while bottles rattle on a shelf. In the interests of sexual equality, two of the couples are gay. …The video is part of a campaign by Margot Wallstrom, the communications commissioner, to boost interest in the workings of the EU. …The scenes were compiled by the commission’s press unit, using footage from Amélie and All About My Mother. Both films were supported by the EU. Wallstrom’s spokesman was initially unaware of the video’s presence on the site and denied it was in questionable taste. …he added: “We can’t really compete with Paris Hilton yet.” …Godfrey Bloom, a UK Independence party MEP, said: “I suppose this film is appropriate. The EU has been screwing Britain for the past 30 years.”

New Attack Planned Against Low-Tax Jurisdictions

The UK-based Observer reports that Norway’s socialist government is leading a new campaign against low-tax jurisdiction.

The premises are absurd, including the assumption that developing nations will prosper if they get more tax revenue. Moreover, the entire scheme is based on some very dubious “facts,” none of which are substantiated. Most importantly, the article fails to note the many benefits of tax competition, including better tax policy and the protection of human rights:

Plans have been drawn up for an international taskforce to crack down on tax haven abuses orchestrated in large part by bankers, accountants and lawyers in London. As authoritative evidence suggests that $1 trillion of illicit funds flow to secretive havens managed by financiers based in London, New York and Dubai, the Norwegian government is forming a global coalition to ‘facilitate the recovery of assets illicitly stacked away in tax havens’. Several countries are set to join, but Britain, recently classed as an offshore financial centre by the International Monetary Fund, is not among them.

…The imminent formation of an international tax haven taskforce comes as the World Bank, headed by Robert Zoellick, is coming under pressure to establish its first forensic study into the illicit cash flowing out of developing nations. …Exactly 10 times the $100bn spent on aid and debt write-offs by rich countries is siphoned out of developing countries, with corporations responsible for 60 per cent of that figure through a web of trusts, nominee accounts and the flagrant mispricing of goods to escape tax.

…Cracking down on tax havens and the evasion of taxes by some of the world’s biggest companies is seen as the ‘missing link’ in the poverty alleviation agenda. Investigators and lawyers at a conference on the Movement of Illicit Funds in Washington last Thursday confirmed it was corporations and not corrupt politicians in the developing world that accounted for most tax evasion.

Last Wishes for Trade Policy

With 19 months left in the Bush presidency, June 30 marks the unceremonious end of his trade policy. Though things haven’t looked bright on the trade liberalization front for quite a while, there was a time when the agenda had promise and its keepers had enthusiasm. Tomorrow’s expiration of the president’s trade promotion authority, thus, accentuates the sadness of promise unfilled. On top of that, responsibility for trade policy is returning to a Congress that is, perhaps, more skeptical of trade than any Congress since the days of Smoot and Hawley.

The main goal of the administration’s trade policy was a multilateral trade agreement. That proved elusive, and now the Doha Round lies in a cryogenic state. The administration did bring home some bilateral and regional deals that are important, but relative to what could have and should have been accomplished, it ain’t much.

As we enter the post-TPA period, there are four trade agreements that have been signed, but not yet approved by Congress. The congressional leadership today finally came out and said they will not support the deals with Korea or Colombia (as expected). They offered support for Peru and Panama, but we’ll see whether the rank and file goes along. I’m skeptical.

Regrettably, we may have to endure a dark period on trade policy as members of Congress work to outdo each other with ridiculous, self-defeating legislation. The last responsibility of the Bush administration on trade policy, then, is to hold the line against the onslaught of anti-trade, anti-China legislation and make sure none of those bills becomes law.