Topic: International Economics and Development

Another Company Escapes Britain’s Punitive Tax Regime

A major pharmaceutical company is moving its tax domicile to Ireland because the U.K.’s corporate tax systems is too burdensome. This story from the Guardian is a great example of tax competition, of course, but it also highlights the fact that governments are only subject to competitive pressure if taxpayers have the freedom to shift economic activity to jurisdictions with better tax law - and they have the ability to benefit from those better laws. Sadly, American companies no longer have this freedom thanks to “anti-expatriation” or “anti-inversion” laws enacted by greedy politicians:

Shire, the country’s third biggest drugmaker, has intensified the debate over Britain’s corporate tax regime with plans to move its tax base to Ireland from the UK. The FTSE-100 company said it was applying to a court to create a new holding company incorporated in tax-haven Jersey and would become tax resident in Ireland, where corporate tax rates are less than half those in the UK. …its board of directors will hold meetings in its Dublin office once the tax residence move gets court approval. Most importantly, the move means it will be subject to an official corporate tax rate of 12.5%, compared with 28% in the UK. …Business lobby group the CBI said Shire’s decision deepened its concerns about the UK corporate tax system. “We are particularly worried that an uncompetitive corporate tax system is spoiling the UK’s attractiveness as a place to do business, and that other internationally-mobile firms will follow Shire’s path,” said CBI director-general Richard Lambert. Last month, technology giant Yahoo announced it was moving its European headquarters from London to Switzerland to increase competitiveness and deliver “efficiencies”. A recent survey by accountancy firm KPMG blamed complex rules and a mass of legislation for putting the UK in the bottom half of a league table of the most attractive places to do business in Europe. The study ranked Cyprus, Ireland and Switzerland top for their combination of easy-to-understand rules, low tax rates and stable fiscal laws. The UK came 12th out of 22 countries for the attractiveness of their domestic tax regimes.

Berlusconi Wants 10-Percentage Point Cut in Italy’s Top Income Tax Rate

The good news, according to Tax-news.com, is that newly-elected Prime Minister Silvio Berlusconi wants to reduce Italy’s top income tax rate from 43 percent to 33 percent. The bad news is that he made similar promises the last time he held office, but never delivered. One can only hope that this time he is more serious about improving Italy’s economy:

Italy’s evergreen centre-right leader Silvio Berlusconi, is set to return for his third stint as the country’s Prime Minister following his recent election victory, and has promised to reduce Italy’s tax burden… Berlusconi has also pledged to axe other taxes, including an overtime levy, a tax on annual bonuses, and a tax on car ownership, and, before his five year term is out, he wants the top rate of income tax reduced from 43% to 33%. Ultimately, Berlusconi is targeting a reduction in the country’s overall tax burden to less than 40% of gross domestic product from its current level of more than 43%.

Violence against Unions or Just Violence in General?

Yesterday in the Washington Post, AFL-CIO’s president John Sweeney rhetorically asked “How many murders are ‘acceptable’?” regarding the union killings that have been used as argument by Congressional Democrats to delay indefinitely a vote on the FTA with Colombia. “I can’t answer… with a number other than zero,” stated Sweeney.

That’s good posturing. Sweeney presents these killings—which have dropped by nearly 90 percent since President Alvaro Uribe took office—as a clear sign of violence against union activity in Colombia. However, the evidence shows otherwise.

In an op-ed last Friday in the Boston Globe, Edward Schumacher-Matos, a visiting professor for Latin American studies at Harvard University, writes that:

The number of convictions now being won in the union’s own cases reveals that perhaps one-fifth, and almost certainly less than half, of the killings had to do with unionism.

Of convictions won in 87 cases since the first one in 2001, almost all for murder, the ruling judges found that union activity was the motive in only 17, according to the attorney general’s office. The judges found 15 of the cases had to do with common crime, 10 with passion, and 13 with being guerrilla members [emphasis added. No motive was established in 16 of the cases.

The unions don’t dispute the judicial findings, and deep in their reports say that they, in fact, have no idea of suspect or motive in 79 percent of their cases going back to 1986. The killings, in other words, are isolated and not part of a campaign against unionizing.

As we can see, far from being a targeted campaign against union activity, the killings of union members in Colombia are mostly part of that country’s sad history of regular violence, which also affects teachers, politicians, journalists, etc.

It’s time to get the facts straight in this debate.

At Least He’s Good on Trade

My colleagues Gene Healy and Justin Logan catalogue some of Sen. John McCain’s less admirable policies below, but at the risk of being the skunk at the dinner party, today I have released a paper arguing that John McCain’s trade policy position is much preferable to that of either of the Democratic candidates.

Over his career in the Senate, McCain has been a consistent free trader, voting against increases in trade barriers 88 percent of the time, and against subsidy increases 80 percent. Senators Clinton and Obama, on the other hand, have only managed 31 (Clinton) and 36 (Obama) on tariffs and 14 (Clinton) and zero (Obama) on subsidies. (For all congresscritters’ trade votes, see here).

To his credit, Senator McCain has also avoided the easy and politically tempting practice of railing against trade deals on the campaign trail, including in Michigan where the political prize probably required it. Both the Democratic candidates, however, turned to an unseemly debate on who hated NAFTA the most in Ohio, and may be tempted to do so again while campaigning in Pennsylvania.

Expect the Democratic candidates’ rhetoric on trade policy to degenerate, by the way, as economic conditions worsen.

The World at 350 ppm Carbon Dioxide

According to James Hansen, the Paul Revere of global warming, the safe level for CO2 may be 350 ppm. Hansen is concerned that “ice sheet disintegration, vegetation migration, and GHG release from soils, tundra or ocean sediments, may begin to come into play on time scales as short as centuries or less.”  But currently the atmospheric concentration is 385 ppm. The 350 ppm level was reached twenty years ago in 1988, the same year that James Hansen sounded the alarm over global warming at a Congressional hearing.

Is the world better off today compared to 1988?

Let’s check:

  • Life expectancy in developing countries was 4-5 years lower in 1988 than it is today (62 years rather than the current 67 years). Even in the US, it increased from 74.9 years in 1988 to 77.8 years in 2004!
  • Compared to today, at least 15 more infants out of every 1,000 in developing countries died in 1988 before reaching their first birthdays. In industrialized countries, the infant mortality rate dropped from 9 to 5.
  • India’s per capita income (in constant dollars adjusted for purchasing power) has more than doubled since 1988. China’s has more than quadrupled. As a result, hundreds of millions are no longer living in absolute poverty today. Even the US’s per capita income has increased by 40 percent.
  • Food production per capita in developing countries has increased 36 percent since 1988, despite a population increase of 40% (that is, 1.5 billion more people). [What fraction of this was due to the increase in carbon dioxide in the atmosphere, and petroleum-based and greenhouse gas-emitting fertilizers, all of which stimulates crop growth?].

Much of these improvements are due to economic growth and agricultural activity that fueled the rise of CO2 concentrations beyond 350 ppm. Because of technological change, it is likely that a portion of these improvements would have occurred absent any economic growth (as pointed out in the book, The Improving State of the World ). But had CO2 concentrations been capped at 350 ppm, we would have to forgo many of the above improvements in the quality of life, and not only in the developing world.

But would we want to go back to the world of 1988 — or even 1998 for that matter?

If we can go back to 350 ppm without giving up the real and tangible advances in human well-being that have accrued since that “benchmark” was passed, I’d have nothing against that, but based on the precautionary principle, one needs a stronger reason than the speculative catastrophes that Hansen is concerned “may begin to come into play on time scales as short as centuries or less,” whatever that means.

Flat Tax Progress in Hungary and Poland

While most other East European nations have adopted pro-growth flat tax systems, Hungary and Poland are still burdened by class-warfare systems that penalize people for contributing more to economic performance. The Budapest Times, however, reports that Hungary’s small parties may combine to push through an 18 percent flat tax:

MDF leader Ibolya Dávid called for opposition parties to attend talks on 15 April to work out details of a bill to submit to parliament by May. The party wants to emulate regional peers such as Slovakia and Romania by introducing a flat 18% personal income tax to reduce a tax burden it called “unfairly high”. The Free Democrats (SZDSZ) and main opposition party Fidesz - along with its ally the Christian Democrats (KDNP) - have said in the past that they would favour a flat tax. …The MSZP has only 190 seats in the 386-seat parliament, meaning that the opposition parties could force through a flat tax bill by banding together. Hungary is ranked as having the second-highest tax burden for single people, behind Belgium, amongst the members of the Organisation for Economic Cooperation and Development (OECD). Many feel the high burden - made worse in 2006 when the government hiked taxes as part of its economic reforms - damages Hungary’s regional competitiveness.

Meanwhile, the Polish government already has promised to implement a flat tax, but a key official has suggested that the new system may be implemented in 2009 rather than in 2010 or 2011 as originally planned. Because of its size and geography, Poland’s shift to a flat tax would be a momentous development and could sharply increase the pressure for pro-growth reforms in Old Europe:

According to Zbigniew Chlebowski, head of ruling Civic Platform’s (PO) parliamentary club, there is a possibility of introducing a flat tax rate as early as 2009. Chelbowski said that Prime Minister Tusk supports this option and is ready to fight President Kaczynski should he veto it. Chelbowski, however, did not give a concrete rate of the possible flat tax, but stressed that it shall surely be lower than 18 percent, because such a rate would be higher than the present tax rates. The final decision is to be made in July or August. The ruling Civic Platform had originally planned to introduce the new tax in 2010 or 2011.

Monetary Mercantilism

Chile’s Central Bank has finally decided to intervene in the local currency market in order to avoid a further appreciation of the peso against the U.S. dollar. In doing this, Chile joins a monetary policy trend that includes most Latin American countries, particularly Argentina, Bolivia, Peru, Colombia, Costa Rica and Guatemala.

Until recently, Chilean monetary policy was regarded as an example for all Latin America. Chile was mentioned frequently — especially by defenders of “monetary sovereignty” — as a model of how a Latin American country can have both a national currency and monetary stability.

However, alarm bells started ringing last year when inflation tripled to almost 8 percent, mainly because of an excessive increase in public spending by the government of Michelle Bachelet. Now, by deciding to abandon the historic policy of free floatation of the peso, Chile’s Central Bank further compromises this year inflation’s target.

Aiming for a cheaper peso will prove very expensive for Chileans.