Topic: Tax and Budget Policy

Sarkozy, France’s Busy CEO

It must be exhausting to be the chairman and CEO of a nation-state-firm that runs everything from retirement plans to universities to energy firms. Steven Pearlstein reports on France’s “hyperactive new president, Nicholas Sarkozy”:

There he is lunching with student leaders at a local bistro to win their support for reform of the nation’s under-funded and under-performing university system.

Here he is on the phone with Russia’s President Vladimir Putin, sealing the deal for the French oil company, Total, for a 25 percent stake in the management of the giant Shtokman gas field.

Now he is in Toulouse, with German Chancellor Angela Merkel, announcing a new governance structure for Airbus that puts a loyal French technocrat in charge.

And there’s Sarko in Brussels, criticizing the European Central Bank for keeping the euro too high and demanding more leeway for France’s ballooning budget deficit.

Rupert Murdoch probably delegates more than this. But Sarko is determined to prove that he can singlehandedly reform the operations of a production-and-distribution entity far larger and more complex than the notorious business conglomerates that eventually displayed significant diseconomies of scale. He’s like a real-life version of the classic Saturday Night Live sketch of a hard-charging President Reagan driving his aides to exhaustion as he masterminds international financial transactions around the clock and around the world.

But as many of the conglomerates found, it might be easier to focus on the French state’s core business — protecting the life, liberty, and property of French citizens — if it sold off some of its peripheral lines, like universities, gas fields, health insurance, airlines, telephones, gambling….

A Scolding from the EC

The bureaucrats in Brussels may not be able to solve Europe’s demographic problems. They may not be able to promote economic liberalization in Europe’s welfare states. And they may not be able to provide any guidance to nations failing to assimilate large numbers of immigrants. But they can scold European men about not doing the housework.

The EU Observer reports on the latest farce from Brussels:

The European Commission is calling on Europe’s menfolk to help out more at home as a first step to improving women’s career prospects and ending the gender pay gap across the bloc. …EU employment commissioner Vladimír Spidla said, addressing a press conference in Brussels on Wednesday, “It is not possible to reduce the gender pay gap if we do not help out more at home.”

…In the communication, the Commission sets out ways in which the EU can bridge the gender pay gap. It wants the 27 member states to set objectives and deadlines to eradicate the gap, and will also push for equal pay to be made a condition for winning public contracts.

Treasury Secretary Highlights Importance of Competitive Corporate Tax System

Writing for the Wall Street Journal, Secretary of the Treasury Henry Paulson, Jr. warns that America now has an uncompetitive corporate tax system. Mr. Paulson explains that other nations have been slashing their tax rates — and reaping big rewards — while the United States has been sitting on the sidelines. This means less investment in America, which translates into lower wages for American workers:

[T]he U.S. is once again a high corporate tax country. We now have, on average, the second-highest statutory corporate tax rate (including state corporate taxes), 39%, compared with an average rate of 31% for our top competitors… Ireland, for example, has engineered its own economic miracle, in large part due to a reform program that cut corporate tax rates to a level one-third that of the U.S. And the trend continues. Germany will reduce its total rate from 38% to 30% in 2008. France, Japan and the United Kingdom have signaled they may also lower their corporate rates.

…Business tax policy levers, such as the corporate tax rate, depreciation rates and investor taxes, as well as the taxes levied on small businesses through the individual income tax, should strive towards a similar purpose: to encourage economic growth by reducing the tax burden on additional investments. Yet, the current tax code distorts capital flows, hurting productivity, job creation and our global competitiveness. Take just a few examples. Taxes on capital income raise the price of future consumption and discourage saving and capital formation. Reduced capital formation gives labor less capital to work with and lowers labor productivity, reducing real wages and income.

…Over the past two decades, while U.S. tax law has grown more complicated and our statutory corporate income tax rate has increased, other nations have been reducing their rates to replicate our miracle. A study by Treasury economists estimated that a country with a tax rate one percentage point lower than another country’s attracts 3% more capital. It’s not surprising then, that average OECD corporate tax rates have trended steadily downward.

Bush Waxes Philosophical on Health Care

People sick of the big-government conservatism practiced by the Bush administration might be excited at the headline in today’s Washington Post: “Bush: No Deal On Children’s Health Plan/President Says He Objects On Philosophical Grounds.” But President Bush’s philosophical objection to the proposed expansion of the State Children’s Health Insurance Program is in no way a reversal from his stance that big spending is okay as long as Republicans can take credit.

What philosophy does Bush subscribe to?  Apparently, it’s the philosophy that says the federal government should only expand the welfare state by billions of dollars, instead of tens of billions of dollars: “The president said he objects on philosophical grounds to a bipartisan Senate proposal to boost the State Children’s Health Insurance Program by $35 billion over five years. Bush has proposed $5 billion in increased funding and has threatened to veto the Senate compromise and a more costly expansion being contemplated in the House.” 

Later in the article Bush is quoted as saying, “I think it’s going to be very important for our allies on Capitol Hill to hear a strong, clear message from me that expansion of government in lieu of making the necessary changes to encourage a consumer-based system is not acceptable.”

He also said, “I’m worried that there will be a strong incentive for people to switch from the private sector to the government.” 

If only the president had adopted a similar attitude when he approved a $1.2 trillion expansion of Medicare in 2003 in lieu of consumer-based approaches.

Cost Overruns, More Liars

“Liar” is not a very scholarly word, but I don’t know how else to describe some of the comments that come from public officials. It’s not just the farm bill, check out this paragraph from a Washington Post story today on the Virginia highway project:

“Project officials hailed the interchange as ‘on time and under budget.’ But although the mid-2007 target date for completion was met, the final cost was nearly three times what was first projected. A more recent cost estimate of $676 million was ultimately met.”

Well, of course, the final estimate was met because it’s the final estimate. Obviously, what’s important for taxpayers is that politicians and government agencies stick to the numbers that they agree to when they first vote to approve projects.

It is my view that in many, but certainly not all, large government projects there is deliberate subterfuge about ultimate project costs. Many projects balloon in cost 50 percent or more.

For more on cost overruns, see this and this.

Word Abuse

In Washington, no word is more overused and abused than “reform.” But a Washington Post story today shows the abuse taken to new heights:

Farm bloc lawmakers yesterday offered the U.S. fruit and vegetable industry $1.8 billion in new federal grants over the next five years as part of a farm bill that would leave in place far larger subsidies for grain, cotton and dairy producers.

The concessions were part of a balancing act by House Democrats to craft a bill that will satisfy politically powerful farm interests while also bearing a Democratic imprint of reform. The House Agriculture Committee was set to vote on the legislation late last night or today.

The package, unveiled yesterday by Committee Chairman Collin C. Peterson (D-Minn.), also increases funding for land conservation, wetlands protection and nutrition programs – popular with environmental groups and urban lawmakers.

House Speaker Nancy Pelosi (D-Calif.) called the package ‘a good first step toward needed reform.’

Let’s see: Congress is keeping all the old programs, creating new subsidies for fruits and vegetables, increasing funding for conservation and nutrition programs. That’s reform?

The story title is also worthy of The Onion: “Farm Bill Leaves Some Subsidies.” Some subsidies?!

Farm Fibs

My toddlers have recently been having fun with the phrase “liar, liar, pants on fire.” I’d like to set them loose on the farm bill debate in Congress. 

Take a comment today in a Michigan news source by Rep. Timothy Walberg, a member of the House Agriculture Committee: “We want our food cheap, and we’ve become used to that, and that’s where the farm bill comes in. It guarantees cheap and plentiful food.”

But numerous farm programs raise food prices. I’ll give you three: milksugar and related products such as chocolate, and infant formula. And don’t forget about federal ethanol policies, which are pushing up prices for corn and derived products.