Topic: International Economics and Development

Back to Square One on Immigration

Opponents of comprehensive immigration reform are undoubtedly congratulating themselves on the apparent demise yesterday of S. 1348. The bill failed to win enough votes in the Senate for cloture and a final vote. Leading the charge to defeat the bill were a group of Republicans opposed to just about any legalization or expansion of visas for low-skilled workers.

We’ve made the case at the Center for Trade Policy Studies for an immigration system that recognizes the need of our growing economy for more foreign-born workers and the benefits we would enjoy from more legal immigration. The only alternative offered by opponents of reform is to spend more on the same enforcement efforts that have failed in the past to stop illegal immigration. Conservatives who are normally skeptical of big government place all their hope in dramatic increases in spending for border enforcement, longer fences to nowhere, more raids on U.S. workplaces, and more red tape and national ID cards for American workers.

The bill before the Senate was flawed in many ways. The number of temporary worker visas was insufficient, its interior enforcement provisions too intrusive, the point system too convoluted. But the bill was at least pointing in the right direction.

The Republicans who brought the bill down have yet to put forward any practical and principled alternative.

Europeans Continue to Flee

Immigration is not just about Latin Americans moving to the United States for higher wages. It is also about Europeans moving to just about anywhere that has lower taxes.

A column in the Washington Times explains that, as a result, most of Europe’s major economies are suffering a significant brain drain:

Last year more than 155,000 Germans emigrated from their native country. Since 2004 the number of ethnic Germans who leave each year is greater than the number of immigrants moving in. …In a survey conducted in 2005 among German university students, 52 percent said they would rather leave their native country than remain there. …Some complain that the tax rates in Germany are so high that it is no longer worthwhile working for a living there.

…The situation is similar in other countries in Western Europe. Since 2003, emigration has exceeded immigration to the Netherlands. In 2006, the Dutch saw more than 130,000 compatriots leave. …In Belgium the number of emigrants surged by 15 percent in the past years. In Sweden, 50,000 people packed their bags last year — a rise of 18 percent compared to the previous year and the highest number of Swedes leaving since 1892. In the United Kingdom, almost 200,000 British citizens move out every year.

Americans who think that the European welfare state is the model to follow would do well to ponder the question why, if Europe is so wonderful, Europeans are fleeing from it. European welfare systems are redistribution mechanisms, taking money from skilled and educated Europeans….

[A] German sociologist at the University of Bremen, warns European governments that they are mistaken if they assume that qualified young ethnic Europeans will stay in Europe. “The really qualified are leaving,” Mr. Heinsohn says. “The only truly loyal towards France and Germany are those who are living off the welfare system, because there is no other place in the world that offers to pay for them…. It is no wonder that young, hardworking people in France and Germany choose to emigrate,” he explains.

Tony Blair’s Wise Warning against ‘Isolationism and Protectionism’

In an essay published this week by the Economist magazine, outgoing British Prime Minister Tony Blair shared “What I’ve Learned” during his decade in office. I’ll leave it to others to dissect what he said about the transatlantic alliance, the Iraq War and the National Health Service, but his words of wisdom on the importance of an open global economy are worth quoting.

Declaring that “‘Open v closed’ is as important today in politics as ‘left v right,’” Blair wrote:

Nations do best when they are prepared to be open to the world. This means open in their economies, eschewing protectionism, welcoming foreign investment, running flexible labour markets. It means also open to the benefit of controlled immigration. For all nations this is a hugely contentious area of policy. But I have no doubt London is stronger and more successful through the encouragement of targeted migration.

Isolationism and protectionism now cut across left and right boundaries. They are easy tunes to play but pointless in anything other than the very short-term.

I wish more members of the U.S. Congress would learn the same lessons.

Robert Reich, Wrong Again

President Clinton’s secretary of labor, Robert Reich, complains on Marketplace Radio that the new immigration bill may encourage immigration by high-skilled people. He argued:

A century ago, America’s immigration policy was best summarized in Emma Goldman’s famous lines on the Statue of Liberty: “Give me your tired, your poor, your huddled masses yearning to breathe free.”

It’s a lovely poem, and it’s true that America was the land of opportunity for millions of people. But as Julian Simon pointed out, on the whole immigrants in the 19th century were not tired, poor, huddled masses. He cites findings from economist P. J. Hill:

[I]mmigrants, instead of being an underpaid, exploited group, generally held an economic position that compared very favorably to that of the native born members of the society.

Reich is wrong again. But then, he’s notoriously loose with the facts.

Update: An alert reader points out that I was still half-asleep when I heard this commentary and cut-and-pasted Reich’s words. Of course it wasn’t the anarchist Emma Goldman who wrote the words on the Statue of Liberty, it was the New York City poet Emma Lazarus.

Gordon Brown’s Dismal Fiscal Legacy

What developed nation has taken the biggest steps in the wrong direction since the turn of the century? The answer is not France, Germany, or Sweden. The United Kingdom has that dubious honor. Government spending has jumped from less than 38 percent of GDP in 2000 to more than 45 percent of economic output today. That is the largest increase among OECD nations, and the United Kingdom now has a bigger burden of government than Germany. Higher taxes are an obvious consequence, and Tax-news.com reports on the grim developments:

The average Briton is effectively paying ten pence more on the pound in income tax as a result of Gordon Brown’s ten years in charge of the nation’s purse strings, according to a new report. The study by business advisers Grant Thornton attributes about 70% of this increase in the tax burden to so-called ‘fiscal drag’, also known as ‘bracket creep’ whereby the government fails to adjust marginal income tax brackets in line with wage inflation, meaning more taxpayers have been dragged into the higher income tax bands during Brown’s tenure at the Treasury. This effect also applies in other areas of taxation, such as inheritance tax, where house prices have rocketed during the last ten years, but the threshold at which IHT becomes payable has, comparatively, barely moved. The government’s own figures show that 3.5 million taxpayers now pay tax at the higher rate of 40% - a 58% rise since the Labour government came to power in 1997. …And despite Brown’s decision to decrease the rates of corporate and personal income tax by 2% in his last budget before succeeding Tony Blair as Prime Minister, tax advisers say that lost revenue will be clawed back and more through less-publicised tax changes elsewhere. Francesca Lagerberg, head of Grant Thornton’s national tax office, noted: “Despite headline announcements in this year’s Budget of dropping the basic rate of income tax, aligning national insurance contributions and reducing mainstream corporation tax, the reality is that other increases will lead to a maintenance of the status quo.” “Aligning national insurance to a higher tax threshold will in total eat away most, if not all of the savings generated from cutting the basic rate of income tax by 2 pence to 20 pence from April 2008,” she added.

Albanian Government Approves 10 Percent Flat Tax

According to a regional news report, another nation has joined the flat tax club, meaning that as of July 1 there will be 18 countries with income tax systems that treat taxpayers equally. With a low rate of 10 percent, Albania will have – at least temporarily – the world’s lowest flat tax rate. The corporate rate also will drop to 10 percent, and other tax rates have also been reduced:

In a move aimed at creating a friendlier investment climate and making the economy more competitive, the Albanian government approved a fiscal package last week that includes implementing a 10% flat tax – the lowest level in Southeast Europe. Corporate taxes will also be slashed to 10%. …Advocates of the move say it will bring many benefits. In addition to attracting Foreign Direct Investment, they say, it will encourage the legalisation of the shadow economy and simplify tax collection. Economic activity increases, and so does honest reporting of income, while tax evasion drops. …The government hopes to implement the legislation by July 1st, with the exception of the corporate tax reduction, which will be implemented January 1st, 2008. The Democratic Party-led government has already instituted various tax reductions during the past two years. The most important of these was the reduction of social security contributions from businesses, from 29% to 20%, and a lowering of taxes on small businesses.

American Politicians Lagging in Global Race to Squander Tax Dollars

While U.S. lawmakers do their best to waste money, Europeans politicians inevitably seem to have more expertise when it comes to squandering other people’s money. A good example comes from Finland, where the city of Tampere is using European Union funds (it is easier to finance absurd ideas when other people are paying the bills) so that clowns can entertain city bureaucrats. Indeed, the title of the story on the English-language Finnish website is “Clowns enlisted to raise spirits of Tampere municipal workers.” Sure, American politicians have concocted some crazy ideas, such as building an indoor rainforest in Iowa, but even that bit of pork cannot beat the absurdity of paying clowns to boost the morale of bureaucrats:

The idea for the city clowns came from comedian Mona Ratalahti, occupational well-being trainer Riita Harilo, and its godmother was Kirsi Koski, head of the Mayor’s office. Koski has worked as the city’s head of personnel for three years. ”I have thought about what would be the core of well-being. Yes, it is laughter”, Koski says. “It is all right to laugh at craziness - at what is not said out loud in business discussions.” Ratalahti feels that a clown nose “changes us and the viewer in such a way that forces people to look at things differently”. …Tampere’s city clowns are the 41st idea that the “Creative Tampere” programme has decided to support. The programme has a budget of EUR 12 million to back corporate ideas worthy of development. The EUR 25,000 earmarked for the clowns makes it possible for four artists, who have mostly worked alone, can concentrate on joint projects.