Topic: Tax and Budget Policy

Experimental Video on Lowering the Corporate Tax Rate

Andy Quinlan of the Center for Freedom and Prosperity is exploring how videos can be used to advance economic liberty. For his first attempt, he asked me to be a guinea pig, so I have the dubious honor of narrating this video on America’s uncompetitive corporate tax system.

We want some feedback. If you have a chance to watch the video, let me know 1) whether you think the length (almost 9-1/2 minutes) is too long or too short, 2) whether there is too much or too little humor, 3) whether the graphs, charts and other footage match the narration, and 4) whether the case for a lower corporate rate is made in a cogent and cohesive fashion. I’ve already been told that “Celtic” is not pronounced correctly, so no need to pile on regarding that mistake. Andy also knows that he needs to improve the lighting for his second video, so no need to comment on that either. Thanks in advance for any suggestions.

If You Want To Be Loved, Try Being a Swede

No matter what we do, it seems like the world wants to hug us. We build a welfare state and the world loves it.  Try to reduce it, like the present government, and Roger Cohen in the New York Times says it’s funky.

But, ok, it is funky, moderately funky. The four center-right parties that make up the Swedish government since a year ago are influenced by market-liberal ideas from authors and think tanks, and some of the ministers wrote those books themselves. Three of the parties have fairly influential libertarian factions, and the leader of the fourth has said that he has Ayn Rand’s Atlas Shrugged on his bedside table. So expect more tax cuts, privatisation of state companies, an entrenched school voucher system, more private providers and competition in health care and a strong emphasis on deregulation and free trade.

But don’t expect labor market deregulation. When the trade unions organize 80 percent of the workers you don’t pick a fight. And don’t expect a real reduction in public spending. When everybody lives on everybody else’s expense, no one wants to be the first to try to quit. 

Above all, the government will act moderately. The biggest coalition party is actually called “the moderates”, and its ideology is called liberal-conservative – where liberal means liberal (it always confuses Americans), but conservative means that you shouldn’t be too serious, rapid or radical about your liberal ideals.

So in the end, the government will just tip the balance in an intact Swedish middle way between Anglo-Saxon and Continental. Open up and deregulate (after all, this is the country where the social democrats praise free trade) but also tax and spend (after all, this is the country where the new center-right prime minister says that “We don’t want to take away anything, we just want to add.”)

Americans Shifting to Zero-Income Tax States

A story in the Kansas City Star reveals that millions of Americans are moving to states without income taxes. Not surprisingly, politicians and revenue bureaucrats from high-tax states are monitoring escaping taxpayers in hopes of retaining the ability to seize a portion of their income:

No-income-tax states such as Florida, Nevada and Texas are looking increasingly attractive to people getting ready for retirement. …But before you move to a tax haven, it’s important to pay attention to the fine print of how to move. It’s easy to make seemingly minor mistakes that can trigger a painful audit — and a hefty bill — from the high-tax jurisdiction you thought you had left behind. …Some relatively high-tax states are increasingly cracking down on individuals who claim to have moved out of state, but still maintain strong connections to their former homes. Massachusetts plans to hire additional tax examiners in the next few months, some of whom will be assigned to a special “domicile unit” as part of its tax-audit program. … state income tax rates can run as high as 10.3 percent in California and 8.97 percent in New Jersey. Besides Florida, Nevada and Texas, other states with no state income tax for individuals include Washington, Alaska, South Dakota and Wyoming. New Hampshire and Tennessee don’t have a broad wage-based income tax but do tax interest and dividends. …from April 2000 through June 2006, there was a net migration of 2.3 million people moving from states with income taxes to states with no income taxes, an average of more than 1,000 people moving per day, says Richard Vedder, an economics professor at Ohio University in Athens, Ohio, based on an analysis of census data.

Greenspan Condemns Profligate Republicans

The Wall Street Journal reports that the former Chairman of the Federal Reserve Board strongly criticizes President Bush and congressional Republicans for wasting so much money on ill-conceived government programs:

In a withering critique of his fellow Republicans, former Federal Reserve Chairman Alan Greenspan says in his memoir that the party to which he has belonged all his life deserved to lose power last year for forsaking its small-government principles. In “The Age of Turbulence: Adventures in a New World,” published by Penguin Press, Mr. Greenspan criticizes both congressional Republicans and President George W. Bush for abandoning fiscal discipline. …Mr. Greenspan, who calls himself a “lifelong libertarian Republican,” writes that he advised the White House to veto some bills to curb “out-of-control” spending while the Republicans controlled Congress. He says President Bush’s failure to do so “was a major mistake.” Republicans in Congress, he writes, “swapped principle for power. They ended up with neither. They deserved to lose.” …”Little value was placed on rigorous economic policy debate or the weighing of long-term consequences,” he writes.

Insurer Plans to Escape Germany’s High Taxes

Tax-news.com reports on the likely shift to Ireland of a major German insurance company, Hannover Re. This is part of a trend as companies of all types are moving out of high-tax nations, with Ireland and Bermuda being major beneficiaries. (Interestingly, the article notes that the U.S. states of Vermont and South Carolina are havens for captive insurance companies.)

Hannover Re, one of the world’s largest reinsurance companies, is considering switching its operations to Ireland or another low tax jurisdiction, the company’s chief executive told a conference recently. According to Bermuda’s Royal Gazette, Wilhelm Zeller, CEO of Hannover Re, told a press conference at the annual reinsurance gathering, Le Rendez-Vous in Monte Carlo, that the $5.5 billion firm is considering moving from its present base in Germany…. “For us, the ideal location, from a fiscal point of view, would be Ireland,” Zeller stated, although he added that setting up headquarters in Dublin could be costly.

While Ireland’s low 12.5% corporate tax and location within the European Union is a big draw for reinsurance and other companies, Bermuda’s 0% rate of tax has lured many insurance companies to incorporate in the jurisdiction from high-tax countries like the UK. Last year, Lloyds of London underwriting firms Hiscox and Omega set up companies in Bermuda, citing the UK’s 30% income tax and its burdensome regulation. They were swiftly followed in January 2007 by another Lloyds firm, Hardy Underwriting plc.

…The 82 new Bermuda incorporations for 2006 compare very favourably with figures recorded by other jurisdictions such as Vermont, which had 37, South Carolina with 29, and the Cayman Islands with 50.

Norwegian Government Attempts Shakedown as Price of Lower Tax on Shipping

In an excellent example of the benefits of tax competition, Bloomberg reports that Norway’s left-leaning government intends to eliminate the corporate tax on shipping because of pressure from Bermuda, Liberia, and other open-shipping registries. But there is a dark lining to this silver cloud. The politicians want to extort $3.5 billion of alleged back taxes as part of the deal. Needless to say, Norway’s shippers are understandably suspicious about any deal that requires higher payments today in exchange for promises of less tax in the future:

The government said after the market closed on Sept. 7 it would seek 20 billion kroner ($3.5 billion) of payments in exchange for scrapping corporate tax on shipping companies. Shippers have been allowed to defer tax since 1996 provided they don’t use the money for dividends. … “The government is reneging on its previous agreement,” said Rikard Vabo, an analyst at Fearnley Fonds in Oslo who has a “sell” recommendation on BW Gas. “We will probably see shippers move abroad. It will also affect related companies, such as suppliers.” … The government wants to abolish corporate tax on shippers because lower rates outside Norway have encouraged companies to register new vessels in countries such as Liberia and Bermuda. … The Oslo-based Norwegian Shipowners’ Association will “consider everything” to reverse the tax ruling, spokeswoman Marit Ytreeide said by phone today.