Topic: Tax and Budget Policy

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.

The Show was a Hoax, but the Organ Shortage Is Real!

It is disappointing that it takes the sensationalism of a hoax reality show to focus attention on a very real tragedy.

On Friday June 1st, as part of the Dutch “Big Donor Show,” it was revealed that the woman willing to donate a kidney to one of three lucky contestants in need of an organ was an actress. The whole show was a publicity stunt to motivate the Dutch government to reform its organ donation laws which currently only allow organ donation between family and friends.

In the U.S. organ donation is not just limited to family and friends, but the National Organ Transplant Act of 1984 forbids anyone from receiving “valuable consideration” for a human organ. This provision is interpreted as prohibiting the donor from receiving any compensation beyond the good feeling of having done an altruistic deed. Medical expenses directly related to the transplant and recovery are usually paid by the transplant unit or the recipient’s insurance, but any payment of expenses beyond these initial transplant related costs are legally questionable. Both state and federal lawmakers have introduced legislation to allow organ donors to recover other more distantly related costs such as lost wages, travel expenses and future medical expenses potentially related to the donation.

Given the very real tragedy of an average of seven people dying daily in the U.S. while waiting for an organ that never comes, why not allow “valuable consideration” in order to save lives? Maybe a reality show competition isn’t the most tasteful way to proceed, but giving someone life-long medical coverage, life-insurance, or whatever other arrangement competent adults are willing to make, seems a logical way to proceed.

The common argument that receiving “valuable consideration” for human organs must be prohibited because it offends human dignity is paternalism at its worst. Only the donors themselves are in a position to judge what is or is not an affront to their dignity. It is hard to imagine how saving a life, whether someone is compensated for doing so or not, could ever be an affront to human dignity.

Sigrid Fry-Revere interview on Fox News before show was revealed as a hoax:
http://www.cato.org/realaudio/fry-revere-on-fox-news-05-31-07.html

CBS News report that “Big Donor Show” was a hoax:
http://www.cbsnews.com/stories/2007/06/01/health/printable2876573.shtml

Tax Competition Creating Pressure for Lower Corporate Rate in Canada

Neil Reynolds continues his good work by explaining how tax competition is leading to better policy and that Canada better jump on the tax-cutting bandwagon:

As tax reform sweeps the world, Canada stands resolutely on guard for high rates. …the two essential principles of good government remain unchanged: (1) If you want more of something, subsidize it; (2) if you want less of something, tax it. …Britain’s Margaret Thatcher, a conservative, was the first leader in Europe to cut corporate rates. In the 1980s, she reduced them from 52 per cent to 35 per cent. This was the catalyst. As KPMG observed last year in a global review of corporate taxes, once Britain acted, “other [European] countries seemed compelled to do the same.” …In 1987, Denmark went from 50 per cent to 30 per cent. In 1991, Sweden went from 60 per cent to 28 per cent. In 1992, Norway went from 51 per cent to 28 per cent. In 1993, Finland went from 43 per cent to 25 per cent. Germany and France, bastion countries of Europe, fiercely resisted, trying to turn tax competition into a criminal conspiracy. Yet, in 2000, Social Democrat chancellor Gerhard Schroeder cut Germany’s corporate federal rate from 40 per cent to 25 per cent. (Combined with local and regional corporate taxes, the country’s rate remained one of the highest in the world at 40 per cent.) Now, finally, Germany has capitulated, surrendering unconditionally, cutting its combined rate from 40 per cent to 30 per cent. …France, in turn, will cut its corporate rate, now 33 per cent, by “a minimum of five percentage points” - assuming French President Nicolas Sarkozy, a conservative, keeps this promise. Spain’s socialist Prime Minister, Jose Luis Rodriguez Zapatero, has announced that he will cut rates by as much as France. In the past 14 years (1992-2006), KPMG calculated that the average corporate tax rate in the world has fallen by almost one-third - from 38 per cent to 27 per cent. The economic evidence, the company said, indicates that the countries that adopted lower rates had tended to “do better” than the countries that had not.

Swiss Court Rules Against Obwalden Tax Regime

The Canton of Obwalder created a stir by voting for a tax system that rewards more productive residents with a lower income tax rate. The Swiss Federal Court has ruled against this regime, though the nation’s Finance Ministry quickly noted that the decision does not undermine Switzerland’s support for federalism and tax competition. Swissinfo.org reports:

Canton Obwalden’s degressive tax system, aimed at attracting wealthy residents, has been ruled unconstitutional by the Swiss Federal Court. The country’s highest court said on Friday that degressive income taxes ran counter to constitutional measures designed to ensure taxation according to economic performance. …Obwalden had adopted a degressive income tax system which meant that the richer you are, the less you pay. Those earning over SFr300,000 ($233,000) per year, for example, had a tax rate as low as one per cent. It was introduced in 2006 following a cantonal vote as a way of boosting the fortunes of Obwalden, one of the poorest cantons located in Switzerland’s mountainous centre. …Friday’s court ruling comes in response to a case brought by Communist parliamentarian Josef Zisyadis – who moved to Obwalden to oppose the tax charges… The Finance Ministry said that the court’s decision would neither change the system of tax competition between the cantons nor encourage tax harmonisation. It emphasised that federalism and tax competition were essential parts of Swiss identity that also made the country more attractive for foreign companies.

Good News on Income Mobility

Steven Pearlstein of the Washington Post takes a beating around here sometimes, so I want to draw attention to his dynamite column this week on the non-disappearance of the middle class. Drawing on a new book, Social Stratification in the United States by Stephen Rose, Pearlstein demonstrates that

rumors of the demise of the American middle class are greatly exaggerated. In fact, living standards for most Americans are improving. Not everyone is flipping hamburgers or working at Wal-Mart. To the degree that the middle class is shrinking, it is because more people are rising out of it than falling from it.

Pearlstein takes pains to note that Rose “is not your standard-issue conservative market apologist – far from it. He left medical school to get his PhD in economics, then alternated between teaching and community organizing. He served on the Democratic staff of the Joint Economic Committee and in the economics shop of the Clinton Labor Department.” So you can trust him – he worked for Clinton!

And Rose finds, as Pearlstein lays it out, that there’s a lot more good news than the “sky-is-falling rhetoric of the Democratic left” would lead you to believe. Pearlstein notes:

[I]t is often reported that the median household income in the United States is $44,500. Of course, that takes in households of varying size, from singles to the Brady Bunch. It also includes households headed by workers in the prime of their working years (29 to 59), as well as those just beginning or ending their careers, when earnings tend to be lower. So, to get a truer picture of economic well-being, Rose adjusts the data for household size and excludes those headed by people younger than 29 or older than 59. And when he does, it turns out that the median income for the “typical American family” jumps to $63,000, which in most parts of the country buys a pretty comfortable middle-class lifestyle.

This doesn’t mean the middle class isn’t shrinking. In fact, from 1979 to 2004, Rose calculates, the percentage of households in the “middle class” category – those with incomes of $30,000 to $90,000 – fell to 39 from 47 percent. But it would be hard to describe that as bad news when the proportion of well-off households – those with incomes of more than $90,000 – rose by nearly nine percentage points. During the same time frame, the percentage of households that were poor or near-poor remained about the same.

One of the favorite liberal story lines is that the only way middle class families have been able to maintain their standard of living is by forcing mom to work more hours. But that, too, turns out to be an exaggeration. By looking just at married couples at various points in the income ladder, Rose found that for all but the poorest households, inflation-adjusted income was higher in 2004 than in 1979 even after factoring out any increase in spousal work hours.

It is also a myth that the Great American Jobs Machine is producing mostly lousy, low-paying service jobs. Rose simplifies the government data by putting all jobs in three categories: “elite” jobs, encompassing managers and professionals; “good jobs,” such as those held by supervisors, skilled blue-collar workers, craft workers, police, firefighters and clerical workers; and “less skilled” jobs, such as those held by unskilled machine operators, laborers, sales clerks and waiters. Looking at it that way, it turns out that the number of lousy, low-skilled jobs has been on a long, steady decline since 1979, while the number of “elite” jobs has been growing steadily. The number of “good” jobs has declined marginally as skilled office work has replaced skilled factory work.

Rose is concerned, quite properly, about the condition of the poorest people in the American economy, though he and I would probably disagree on the best way to help them enter the economic mainstream.  But he’s also brought a healthy dose of reality to the debate over “the declining middle class.”

For more on these topics, see the recent posts by Brink Lindsey at his personal website and the award-winning Cato Institute book Cowboy Capitalism: European Myths, American Reality by Olaf Gersemann.

Canadian Columnist Urges Radical Corporate Tax Rate Reduction

Highlighting a recent OECD report that admitted the benefits of tax competition and lower tax rates, a Canadian columnist warns that Canada’s high corporate tax rate is making the nation less competitive. All of the arguments apply even more forcefully to the United States, where the corporate tax rate is about six percentage points higher:

…capital and skilled labour are highly mobile these days. Countries compete aggressively for both with lower and lower tax rates. …The OECD says this competition for lower corporate and personal tax rates will continue. “Globalization favours greater tax competition,” the OECD report says. “It encourages the pursuit of efficiency gains in tax systems - by shifting tax burdens away from capital and labour and toward property and consumption.” …In a single decade, competition has reduced corporate tax rates around the world, the OECD report notes, “in some countries by a considerable amount.” In 1996, the highest corporate tax rate in the world was 60 per cent; in 2006, the highest rate is 40 per cent. …What will the highest rate be a decade hence? Twenty per cent? Ten per cent? Zero per cent? …Whatever the number, it will be much less than 28 per cent and it will necessarily determine Canada’s rate - unless we are not interested in attracting investment capital and highly skilled workers from abroad (or keeping our own from going abroad). Mr. Flaherty’s commitment to lower our corporate rate to 30 per cent over the next five years means his success will in fact ensure failure. You can’t pass the puck to the spot where the receiver now is - he won’t still be waiting there.  Mr. Flaherty needs to pass ahead to the receiver’s future position, which requires a corporate rate of less than 20 per cent by 2011. This ought to be easy. No country has yet hurt itself by reducing tax rates, corporate or personal. …the OECD report tracks the steep decline in corporate rates in one, the subsequent compelling rise in tax revenue in the other. In one decade, the world effectively cut its corporate tax rate in half - and doubled the revenue it gets from it. This is the Laffer Curve, vindicated again. The Laffer Curve expresses a simple, incontrovertible proposition: that decreases in tax rates can increase tax revenue.

We’ll Have Fun, Fun, Fun till the Taxman Takes the Good Times Away

Rising property taxes may tear down a beach amusement park that has lasted 117 years at Ocean City, Md., where thousands of Washington and Baltimore families escape the summer heat. The Washington Post reports:

For 117 summers, generations of children have frolicked through Trimper’s Rides on this beach resort town’s signature boardwalk. But this Memorial Day weekend might begin the last summer they circle the antique wooden carousel, fling around the Tilt-a-Whirl and loop through the Tidal Wave roller coaster.

The Trimpers say they are considering closing the amusement park and arcade this year.

Trimper's Rides, an Ocean City mainstay since 1890, is owned by 14 family members, some of whom are seeking help from the state to keep the park open.  Linda Davidson – The Washington Post

As Ocean City has exploded into a megaresort, property taxes have soared for Trimper’s, which operates on the last chunk of undeveloped land on the town’s three-mile boardwalk. In the past three years, family members said, their assessed property value has tripled, from $21 million to $65 million.

You couldn’t blame the Trimper family if they decided to cash in on the value of their land. But it would be a shame if the family wanted to continue operating the oldest continuously owned amusement park in the United States, and rising property taxes forced them to sell. After all, their income isn’t going up nearly as much as the assessed value of the land. So an owner being taxed on the theoretical value of land that he isn’t planning to sell is then forced by the burden of taxation to sell his land after all.

The power to tax is the power to destroy charming old amusement parks.

We might note that the same phenomenon can destroy environmental amenities. A landowner who prefers to leave his land undeveloped even as development happens around or near him can find the assessed value of his land rising, and thus faces a higher tax burden, and thus feels compelled to sell the land to a developer. I have nothing against development if it’s a market phenomenon, but I don’t like the idea of conservation-minded landowners being forced by the property tax into making a decision they wouldn’t otherwise choose.

Of course, one might object that the Trimpers and the conservation-minded landowners have just as much obligation to pay for the state of Maryland’s budget as any other landowner. And you can hardly expect a big modern state like Maryland to subsist on the taxes it can assess on a three-block area valued at $21 million. So that’s part of the problem–governments today do so much that they can’t be supported with modest levels of taxation.

And then–to bring it full circle–the very people who demand bountiful government services that require burdensome taxes then bemoan the loss of cultural and environmental amenities; so they propose that government subsidize amusement parks, or buy up land and keep it undeveloped, or forbid development in designated areas. Thus requiring more government spending, more taxes, more forced sales, and the cycle continues.

So kids, when you see Trimper’s being demolished to build some more oceanfront hotels and condominiums, remember that big government did it.