Topic: Tax and Budget Policy

Surprise! Subsidized Projects Not Viable

Sometimes I complain that the media give us a distorted picture of the world by reporting bad news and ignoring the sea of good news, like the drop in heart disease deaths that I celebrated here. I understand why bad news is news and good news isn’t, but I do worry that we get a misleading picture of the world.

But then other times, perhaps contradictorily, I open the newspaper and see a story that seems so obvious that I almost wonder why it’s reported. Like this one in the Washington Post today:

Several projects subsidized by Maryland’s economic development agency are in financial trouble, legislative auditors reported yesterday, citing, in particular, a resort in Western Maryland and a golf course in Calvert County.

Rocky Gap Lodge & Golf Resort, the state-subsidized retreat built for $45 million a decade ago to revive an economically depressed area, has operated in the red for years and is $27 million in debt, the auditors said.

Chesapeake Hills, a golf course that the Maryland Economic Development Corp. took over from Calvert County five years ago, is running a $1.3 million deficit and cannot pay its operating costs without help from the county, the auditors said.

Whattaya know? Projects that weren’t financially viable without a subsidy from the taxpayers turn out to be … not financially viable, even with the subsidy. If there just wasn’t much market demand for a resort in an economically depressed area or a golf course in Calvert County, then it’s no surprise that the projects can’t even make their operating expenses. And of course, projects that are owned, managed, or subsidized by government tend not to be run as efficiently as projects in which individuals and businesses are risking their own money.

We’ve seen a bigger example of this recently in the subprime mortgage market, of course. People who borrowed money they really couldn’t afford discover that they can’t pay it back. That’s why it’s probably best to let the market work in deciding which mortgages, business start-ups, and other projects are financially sound.

The Republicans’ Post-Election Personal Pork Party

At The Hill, I have an article about a little-known dip into the pork barrel: big bonuses for congressional staff if there’s money left over at the end of the year, especially if the money will fall into the hands of the other party at the end of the year.

How can there be money left over when the government is running multi-hundred-billion dollar deficits? Well, you might ask. But each department has its own appropriation, and those accounts often have “money left in the budget” as the end of the year approaches, necessitating the famous end-of-the-year spending spree.

In the congressional case, I found examples like this on committee staff budgets:

The House Energy and Commerce Committee showed similar patterns. In 2005, when the Republican leadership was spending its “own money” on year-end bonuses, several staffers received less than 10 percent of their annual salaries, while a few lucky staffers received extra payments of as much as 17 percent.

But when GOP Energy and Commerce bosses faced losing their chairmanship after the 2006 election, they decided to leave no dollar behind for the Democrats. Lucky staffers then got windfalls of 31 percent on a $35,000 salary, 30 percent on a $50,000 salary, 18 percent on a $100,000 salary, and so on. At least 15 committee staffers got bonuses of between $11,000 and $17,600.

And I concluded, cheekily:

Members of Congress are free to pay their staffers whatever they choose, up to an annual ceiling, so there’s nothing illegal about year-end bonuses, even year-end, post-election, before-the-other-party-gets-in bonuses.

But this pattern illustrates a big difference between the private and public sectors. In the private sector, if your customers become dissatisfied with your product, you tend to make less money. In the public sector, you get a couple of months to double-dip before you lose control of the money. For participating in a Congress that voters booted out of office, these bonuses are a handsome parting gift.

A big tip of the hat to Cato interns Schuyler Daum and Jonathan Slemrod for poring over payroll records, and to LegiStorm for making such information about Congress public and accessible.

The Reagan Revolution Sweeps the World

Steve Moore’s Wall Street Journal column celebrates the global shift to lower tax rates and free markets. To be sure, most foreign politicians are adopting pro-growth policies because of tax competition, not because they share Ronald Reagan’s vision. But the end result is a much stronger global economy:

…the Reagan economic philosophy of lower taxes, less regulation and free trade has never been more in vogue abroad – so much so that it has become the global economic operating system. …nations of old-Europe seem to be in a sprint to see which country can get their tax rates lowest quickest. Nicholas Vardy, the editor of “The Global Guru” economic newsletter calls the phenomenon “Europe’s Reagan Revolution.” …Austria cut its corporate tax rate to keep pace with its neighbor, Slovakia which recently adopted an 19% flat tax. Singapore is cutting taxes to compete with its 16% flat-tax rival Hong Kong. Northern Ireland wants to cut its tax rates so that it can compete with the economic gazelle of Europe, the Republic of Ireland. In 1988 Ireland was a high-unemployment stagnant economy with a 48% corporate tax rate, today that rate is 12.5% and the rest of the world is now desperate to match its economic results. Meanwhile German Finance Minister Peer Steinbrueck sold the latest tax cuts as “an investment in Germany as a business location.” …it is a testament to the Reagan economic revolution launched in 1981 that, a quarter century later, global tax rates are 25 percentage points lower on average today than in the 1970s. And those figures don’t even include this latest round of chopping under Reaganomics 2.0. The enactment of supply-side policies is helping ignite one of the strongest and longest world-wide economic expansions in history.

The Republicans’ Magic Budget Machine

In an article on the 2007 Virginia legislative elections, the Washington Post reports:

GOP candidates will also make the argument that if the party retains control, it would mean lower taxes, controls on development and more education spending.

Lower taxes AND more spending on good stuff – it’s hard to beat that combination. And it’s worked so well at the federal level. But it may be harder to deliver in a state that’s required to balance its budget.

Romney’s New Rx

I’ve got an op-ed out about Mitt Romney’s new health care plan.  Short version (192 words) here.  Long version (745 words) here.

One amusing aspect that I don’t mention in the op-ed: after criticizing Rudy Giuliani for relying on tax breaks to make health insurance affordable to more Americans, Romney proposes doing just that.

It’s going to be a fun campaign.

Krugman on Education, Health Care

A few days ago, New York Times columnist Paul Krugman drew an equivalence between government provision of education and medical care for children:

We offer free education, and don’t worry about middle-class families getting benefits they don’t need, because that’s the only way to ensure that every child gets an education — and giving every child a fair chance is the American way. And we should guarantee health care to every child, for the same reason.

His argument would have more force if government actually ensured that every child gets an education. 

I once attended a dinner discussion with a bunch of health care big-wigs.  One highly educated woman – she is both an M.D. and a J.D. – began the dinner by declaring, “We need to make health care a right in this country, just as we make education a right.”

Later in the dinner, she complained that her organization’s materials must be written at an 8th-grade level to be understood by their target audience. 

I interrupted to ask how she reconciled those two statements: if we really have created a right to education, why the poor reading comprehension?  And if we create a parallel right to health care, how many people’s medical care will be stuck at an 8th-grade level?  Her answer was non-responsive.

It would be nice if Krugman and others would at least acknowledge that tradeoff.

World Socialists Whine about Flat Tax Revolution

I almost feel sorry for hard-core leftists. First, they had to endure the agony of watching the Berlin Wall crumble and the Soviet Union break apart. As depressing as that must have been, they now must be horrified that former communist nations are leading the shift to pro-market flat tax systems. But their angst is my joy. I was greatly amused to read this account from the World Socialist Web Site:

The government of Albania has agreed on a standard tax rate (flat tax) of 10 percent aimed at outdoing its East European rivals and attracting international investors. The government in Tirana is determined to transform the impoverished Balkan state into a haven for multinational companies and western speculators. From the start of next year, corporate taxes will be reduced from 20 to just 10 percent. The basic rate of income tax, which amounted to 5 percent for average incomes and a maximum of 25 percent for top earners, had already been changed to a uniform rate of 10 percent for all incomes on August 1. … Measures aimed at massive tax relief for business and the rich are not specific to Albania. It is the result of a vicious competition between states in both the East and West of Europe aimed at creating the best possible conditions for foreign speculators and the wealthy. In the so-called “first round” in the 1990s, the Baltic states began to drastically lower company and income taxes, introducing tax rates of between 25 and 29 percent. These states—with the exception of some “Special Economic Zones”—suffered a loss of interest from foreign enterprises concerned that tax rates were still too high. The “second round” of cuts was initiated by Russia in 2001. Serbia followed in 2003 with the introduction of a flat tax of 14 percent. In 2005 Ukraine, Slovakia, Georgia, and Romania followed suit. The “new round” has now begun with tax reductions in the Czech Republic and Albania. Plans for further radical tax reductions are currently in discussion in Bulgaria, Croatia, and other states.