Topic: Tax and Budget Policy

British “Fat Tax” Would Mean More Intrusive Government

According to a Reuters report, a new study from the United Kingdom estimates that more than 3,000 lives would be extended if the 17.5 percent value-added tax was imposed on supposedly unhealthy foods. Without endorsing the specific estimates, the underlying economic analysis is sound. Certain foods presumably are unhealthy (at least for people who already are overweight) and taxing those foods will change behavior (just like taxing work, saving, and investment changes behavior).

But this does not mean, as a matter of principle, that the government should use the tax code to dictate private choices. Once politicians wander down that path, what will stop them from taxing people at higher rates if they don’t jog at least three times a week? Or how about tax credits for eating green vegetables? Some might respond that taxpayers have a right to insist on healthy behavior since they are paying – via the government-run health care systems – the medical costs of unhealthy people. But this highlights the problem of a socialized health care system. If people are responsible for the consequences of their own choices, then there is less temptation for nanny-state policies. For what it’s worth, this does not mean that the U.K. should maintain a VAT exemption for food. But the exemption should be eliminated as part of a plan to reduce the general tax burden, not as a scheme to control people’s lives:

A “fat tax” on salty, sugary and fatty foods could save thousands of lives each year, according to a study published on Thursday. Researchers at Oxford University say that charging Value Added Tax (VAT) at 17.5 percent on foods deemed to be unhealthy would cut consumer demand and reduce the number of heart attacks and strokes. The purchase tax is already levied on a small number of products such as potato crisps, ice cream, confectionery and chocolate biscuits, but most food is exempt. The move could save an estimated 3,200 lives in Britain each year, according to the study in the Journal of Epidemiology and Community Health. …Any “fat tax” might be seen as an attack on personal freedom and would weigh more heavily on poorer families, the study warned. A food tax would raise average weekly household bills by 4.6 percent or 67 pence per person. Former Prime Minister Tony Blair has previously rejected the idea as an example of the “nanny state” that might push people away from healthy food.

Government Giveaways

Most Americans are appalled by pork spending, corporate welfare, and other congressional waste. But at least one man relishes federal giveaways. He extols the government freebee. The July 4 Falls Church (Virginia) News-Press notes:

“Mothers, lock up your daughters, because Matthew Lesko, the so-called ‘crazy Free Money Guy,’ will be camping out in front of the U.S. Capitol from August 14-17. Famous for his question-marked suit, Lesko will be answering questions during his campout as part of a program he calls: One Man, 72 Hours, 100,000 Government Freebies.”

So folks, don’t leave the taxpayer rip-offs to the expert Washington lobby firms such as Cassidy and Associates. If you are vacationing in D.C. this August, you can teach yourself how to drain the U.S. Treasury from the Free Money Guy.

(These days pilfering from federal taxpayers has been raised to a fine art form. Indeed, here’s Lesko immortalized in a D.C. art gallery.)

Takeover Accomplished!

Yesterday, Democrats made good on their promise to transform the U.S. House of Representatives from what they said had been a wholly-owned subsidiary of student lending companies under Republicans, into a wholly owned subsidiary of middle- and upper-middle-class freeloaders under them.

By a 273 to 149 vote, the House passed the College Cost Reduction Act of 2007. Its good side is that it would cut several subsidies to lenders in federal loan programs, supposedly saving about $19 billion. The bad part is how it would use those savings. If enacted, the bill would modestly increase Pell Grants – which is not good news if you dislike taxpayer-dollar giveaways, though at least Pell is somewhat geared toward the truly needy – but would focus most benefits on loan programs utilized much more by the financially able. (See table 5 of this report to see loan utilization by family income.)

Indeed, the bill would cut in half – to a tiny 3.4 percent in five years – interest rates on subsidized student loans, and offer $5,000 in loan forgiveness to public servants ranging from police all the way to – get this – prosecutors! That is, it would offer $5,000 until those people had been in their jobs for ten years, at which point the entire remainder of their loans would go bye-bye, eaten by taxpayers who themselves get, approximately, nothing out of this bill.

Needless to say, professional advocates for college kids with huge senses of entitlement – like these guys, these folks, and this gal – are ecstatic about this transfer from one group of thieves to another. As for me, I’m just sorry that it’s too late for poor, common-good-obsessed prosecutors like this guy to have his loans forgiven. Oh, and this famous public servant, too.

A Cautious Cheer for French Tax Cut Package

President Sarkozy’s Finance Minister has unveiled a set of tax cuts. Some of the tax cuts, such as lower death taxes and reducing the income tax so that it never exceeds 50 percent, are well designed. But the pacakge also contains gimmicky proposals such as eliminating tax on overtime (one wonders whether every French worker will seek to work 80 hours one week and zero hours the following week, though the government will probably have a plethora of rules restricting the definition of overtime). The government also wants a tax preference for some mortgages, a silly policy that will probably undermine long-term growth by misallocating capital. While Sarkozy’s package leaves something to be desired, the fact that the French government is seeking to cut taxes rather than the other way around is worth applauding. But before popping champagne corks, the Tax-news.com story includes a worrisome mention that these tax cuts may be accompanied by offsetting tax hikes:

French Finance Minister Christine Lagarde has presented an EUR13.6 billion package of tax cuts to the national assembly… The measures, which will cost up to EUR11 billion in 2008 alone, include the removal of taxes on overtime, reducing taxes on inheritances, capping income tax at 50% and the introduction of tax deductibility on some mortgages. …The package places much emphasis on reducing taxes on the wealthy, a measure sure to spark debate that the government is putting the interests of the rich before looking after its more vulnerable citizens. Lagarde however, argued that such measures are vital if France is to be a place of wealth creation. “All you have to do is go to Gare du Nord on Friday night to Eurostar and Thalys arrivals to understand that these French bankers, who have gone to work in the City, those tax exiles in Belgium, want one thing, to come back to France,” she told lawmakers. …However, it remains unclear from the government’s plans whether some or all of the cost of the tax cuts will be recouped with tax increases or spending cuts elsewhere.

German Corporate Tax Cut is Now Official

Now that the German Senate has given its approval, the corporate tax rate will drop to less than 30 percent beginning next January. Not surprisingly, tax competition was the motivating force. The Tax-news.com story also reveals that Germany will be implementing a lower-rate tax on capital income. The 25 percent rate on interest, dividends, and capital gains will still be too high, but it is an improvement over the current system, which has rates as high as 42 percent:

German lawmakers have given their approval to a key corporate tax reform that will reduce the overall corporate tax burden on companies in Germany by almost 10%, placing the country in the middle of the European corporate tax league table. …

In urging the lawmakers to approve the bill, Peer Steinbrueck, German Finance Minister, argued that the tax cut represents “an investment in Germany as a business location”, making domestic and foreign investments more attractive. …

Germany currently has one of the highest corporate tax burdens in the world, and the business community has long called for rates to be reduced to help breathe life into Germany’s stagnating economy. The new law effectively cuts the corporate tax rate from the current 38.65% to 29.83%. …

The ruling coalition parties have also agreed to introduce a 25% capital gains tax from January 1, 2009. This will replace the current system, whereby capital gains are subject to personal income tax, which can be as high as 42%. This will apply to income from earned interest and dividends, and private investors’ share sales.

Is England Becoming a Nation of Big-Government Snitches?

According to Tax-news.com, about 200,000 Brits have tattled on their neighbors to the tax authority. It is unclear whether this has generated more revenue for the
UK’s bloated public sector, but the more interesting aspect of this story is that the snitches do not get any reward. At least Russians who ratted out family members to the KGB might get a pair of jeans from the West. And Cubans who turn in their colleagues might get their meat ration upped to twice monthly:

Almost 200,000 Britons have shopped their friends, family and colleagues to the tax man in the year since HM Revenue and Customs set up a confidential hotline for taxpayers to inform on those they suspect of dodging their taxes. … However, it is difficult to gauge the effectiveness of the HMRC initiative, as the Treasury reportedly refused to divulge to the Times how many successful prosecutions had resulted from such informants, nor how much extra tax had been brought in. …informants in the UK receive no monetary rewards for shopping tax evaders. …HMRC has said that it needs additional powers and deterrents to extract money from non-payers, in order to reduce the cost and effort of pursuing around 200,000 people through the court system every year.

Anti-Money Laundering Laws Impose Heavy Costs, yet Do Not Hinder Crime and Terrorism

The Associated Press reports that financial institutions in North America are paying 71 percent more over the past three years to comply with government anti-money laundering rules and regulations. Even supporters of the current approach admit that the costs are enormous, totaling about $7 billion yearly (and that estimate is three years old). This steep burden might be worthwhile if it led to a reduction in crime and/or terrorism, but as I have explained elsewhere, there is scant evidence that anti-money laundering laws reduce underlying criminal/terrorist behavior. Indeed, because law enforcement resources are being used to spy on everybody rather than targeted at those who want to harm the country, it is possible that the misallocation of resources required by anti-money laundering policy actually makes America less safe:

Complying with anti-money laundering laws has been much more expensive than banks anticipated, and some still aren’t meeting all requirements, a new survey says. …Among the six regions surveyed, North American banks saw the highest percentage cost increase, with costs rising 71 percent over the last three years. …Many governments require that banks take steps to prevent money laundering. Money laundering involves making certain financial transactions to hide the source, nature or destination of illegal funds. The United States has the Bank Secrecy Act, which was passed in 1970 and amended by the USA Patriot Act of Oct. 26, 2001. It has since been used increasingly to stop the flow of financing to terrorist organizations.