Topic: Tax and Budget Policy

Does Globalization Undermine Redistribution?

An article in the UK-based Guardian notes that wealthier regions within nations and wealthier nations within Europe are increasingly unhappy with the amount of money being used to subsidize less productive areas. The article suggests the growing unease is a function of globalization, though it is more plausible to argue that the high tax rates associated with redistributionist policies are becoming more untenable because of globalization:

…disputes over public money and how to spread it fairly are rife across large tracts of Europe, eroding national solidarity, feeding separatism, encouraging populism, and generating friction between Europe’s wealthy centres of excellence and their less fortunate national hinterlands. The rich bits of Europe are revolting. And it is some of the most successful and attractive cities on the continent that are in the revolutionary vanguard. From the fashion and finance mecca of Milan to the hi-tech centre of Munich, from the world’s diamond capital, Antwerp, to the vibrant coastal hub of Barcelona, Europe’s most dynamic cities and regions are increasingly rebelling against “subsidising” the poorer parts of their countries, demanding to keep their home-grown wealth, and causing headaches for central governments. … In Italy, the centre-left government of Romano Prodi has just received a drubbing in local elections, particularly in the north, not least because the north perceives Rome as the agent pilfering its hard-earned cash only to hand it over to the “spongeing” south where the Mafia and Camorra soak up the subsidies. …In Belgium, Flemish nationalists complain that the public sector payrolls in Wallonia are twice the size of those in Flanders. “It’s majority socialist in the south, the last Soviet republic in Europe,” says Filip Dewinter, the Vlaams Belang leader. “They’re stealing our money with the collaboration of the government in Brussels. We’re a hard-working people, very prosperous, low unemployment, and we’re giving them €12bn (£8bn) every year to finance their social security. We can stand alone.” In Germany, the wealthy southern states of Bavaria and Baden-Württemberg balked at the Berlin government’s health service reforms last year because they had to pay more into the national kitty than poorer parts of Germany. In Britain, in the debate over Scottish devolution or independence, the wealthy south-east appears increasingly aggrieved over the Barnett formula that ordains higher per capita public spending in Scotland than in England.

How I Learned to Read the New York Times While Simultaneously Scratching My Head

From a column on tax reform by Floyd Norris in today’s Times:

“Senator Ron Wyden, Democrat of Oregon, has traveled around to promote what he calls a Fair Flat Tax Act, which is basically an attempt to go back to what Mr. Reagan enacted. It would get rid of many deductions — but save some of the more popular ones, like retirement savings accounts and mortgage interest — and have three tax brackets, of 15, 25 and 35 percent.” [emphasis mine]

Scandlen on “The Grand Poobahs of Massachusetts”

In the most recent newsletter from Consumers for Health Care Choices, Greg Scandlen has some fun with the Massachusetts “Connector Authority” created by then-Governor Mitt Romney:

It must be fun to be a Grand Poobah of health insurance in Massachusetts. Here you sit on your Grand Poobah cushion while the peasants come before you to plead their cases. One begs you to limit copays for visits and drugs because they add up pretty quickly. A doctor asks you to disallow deductibles of $2,000 because it provides “inadequate coverage.” Yet a business owner says that is the only kind of coverage they can afford. A self-employed artist requests that you consider net income, not gross income because she spends so much of her gross on art supplies. A consumer advocate asks you to disallow Health Savings Accounts, while an AIDS activist wants you to provide unlimited lifetime benefits. And it is up to you - the All Powerful and Mighty Grand Poobah of the Connector - to grant these wishes or deny them on behalf of the entire fiefdom. All must obey or be severely penalized.

And yet the deadline for obedience (July 1) approaches and a mere 100 people a week (out of the 160,000 required) are signing up for coverage. In the Olden Days we could send Paul Revere to “every Middlesex village and farm” to alert the peasants to their new “responsibility,” but today we’ll have to settle for spending $3 million in taxpayer money on advertising and delay the deadline until November. Surely by then, they will humble themselves before the Poobahs and do as they have been told. There will be no Tea Parties this time around.

Hurray for a Bigger Welfare State!

The Bush administration is deeply infused with a pro-spending, welfare state mentality. It may contain a few conservative officials scattered here and there, but the vast machinery of the Republican executive branch churns out spending proposals, regulations, and big government propaganda just as prior Democratic ones did.

Consider this June 5 press release from the USDA , wherein higher spending and more recipients of government welfare is always a good thing.

Agriculture Secretary Mike Johanns says proudly: “We have increased our nutrition assistance budget by 70 percent since 2001 and we proposed that the 2007 Farm Bill do even more to increase access and participation in USDA programs to help those in need.”

Here’s one particularly silly statement: ”Today’s report highlights the recent growth in the Food Stamp Program — the largest Federal nutrition assistance program, and the nation’s first line of defense against hunger.”

Of course, free markets are the real “first line of defense against hunger.” Has no one in the administration read Adam Smith? It is the self-interest of the butcher, brewer, and baker that we can thank for providing our dinner.

Europeans Continue to Flee

Immigration is not just about Latin Americans moving to the United States for higher wages. It is also about Europeans moving to just about anywhere that has lower taxes.

A column in the Washington Times explains that, as a result, most of Europe’s major economies are suffering a significant brain drain:

Last year more than 155,000 Germans emigrated from their native country. Since 2004 the number of ethnic Germans who leave each year is greater than the number of immigrants moving in. …In a survey conducted in 2005 among German university students, 52 percent said they would rather leave their native country than remain there. …Some complain that the tax rates in Germany are so high that it is no longer worthwhile working for a living there.

…The situation is similar in other countries in Western Europe. Since 2003, emigration has exceeded immigration to the Netherlands. In 2006, the Dutch saw more than 130,000 compatriots leave. …In Belgium the number of emigrants surged by 15 percent in the past years. In Sweden, 50,000 people packed their bags last year — a rise of 18 percent compared to the previous year and the highest number of Swedes leaving since 1892. In the United Kingdom, almost 200,000 British citizens move out every year.

Americans who think that the European welfare state is the model to follow would do well to ponder the question why, if Europe is so wonderful, Europeans are fleeing from it. European welfare systems are redistribution mechanisms, taking money from skilled and educated Europeans….

[A] German sociologist at the University of Bremen, warns European governments that they are mistaken if they assume that qualified young ethnic Europeans will stay in Europe. “The really qualified are leaving,” Mr. Heinsohn says. “The only truly loyal towards France and Germany are those who are living off the welfare system, because there is no other place in the world that offers to pay for them…. It is no wonder that young, hardworking people in France and Germany choose to emigrate,” he explains.

A Gem from Pearlstein

In this morning’s Washington Post (man, I need to do my blogging earlier in the day), business columnist Steven Pearlstein dings Sen. Hillary Clinton (D-N.Y.) for “demonizing the drug companies and health insurers, and turning them into opponents” when she should be enlisting their support for health care reform.

Pearlstein’s column includes this gem:

[Y]ou have to have a pretty finely calibrated moral yardstick to see how drug companies and insurers are any worse than hospitals and doctors, who profit just as handsomely from the current system and have been just as dogged in opposing reasonable reform. And you could add to that list the medical-equipment makers, laboratories and nursing-home operators.

Yes, there are plenty of bootleggers behind government control of health care.  Here’s hoping they don’t start making nice-nice with the Baptists.

Armey Wades into Swampland

Former House majority leader Dick Armey is guest blogging at Time magazine’s Swampland blog about health care and other issues.

When Armey argued against government subsidies and price regulation, Time’s Jay Carney asked a couple of good questions. Here’s how I would have answered them.

“Would we really be better off if we could shop around for the best price on a quadruple bypass? Or chemotherapy?” 

I suggest Carney ask Howard Staab, a 56-year old uninsured contractor in North Carolina who needed a heart valve repaired in 2004. Durham Regional charged $200,000, which Staab couldn’t possibly afford. So he went to India, where a former associate professor of medicine from NYU performed the surgery in a quality hospital for just $10,000. (Mike Tanner and I wrote about Staab and patients with similar stories in our delightful book.)

We don’t need every quadruple bypass candidate to shop around, or to shop internationally, or to shop just on the basis of price.  If only a few of them do so — economists call them the “marginal consumers” — we will establish the kind of competition that reduces prices and improves quality even for patients who don’t have the luxury of time.

“Wouldn’t that lead to even greater disparities between the quality of care received by rich and poor?” 

Personally, I’m mostly concerned with developing better medical care, and making those innovations available to the poor as quickly as possible. Market competition is the best tool for doing so. Other approaches either stifle innovation or keep prices way too high for the poor to afford.