Topic: Tax and Budget Policy

Eminent Domain Abuse Still Rampant in Missouri

I’ve written a new study for the Show-Me Institute examining the problem of eminent domain abuse in Missouri. In the wake of the 2005 Kelo decision, a few state legislatures took decisive action to protect property rights, but many failed to enact comprehensive reforms. Unfortunately, Missouri was in the latter category. The legislature here passed a very timid eminent domain bill in 2006 that made some minor procedural changes and increased compensation for some property owners. But as I document in the study, the legislation has had little or no impact on the frequency of eminent domain projects that primarily benefit politically-connected private developers.

I make two major points in the study that are relevant across the country. First, the moment cities start to threaten the use of eminent domain by designating an area “blighted,” it casts a shadow over the affected area that retards economic development. After all, what home or business owner is going to invest in property that is likely to be demolished in a few years? As a result, “blight” often becomes a self-fulfilling prophesy; properties deteriorate as politicians draw up a new “master plan” for the area.

Second, I point out that eminent domain is most harmful to small business owners and low-income residents who lack the political clout or the deep pockets required to fight the seizure of their properties. As I argue in a new article in The American, “redevelopment” projects punish small business owners who choose to open up shop in struggling neighborhoods. And in McRee Town, the redevelopment project I studied in the most detail, the city demolished apartments that had rents between $275 and $550/month, and replaced them with single-family homes costing more than $200,000. Obviously, the previous occupants were forced to move to other parts of the city, presumably into neighborhoods that are just as slum-like.

Romania Joins the 31-Nation Private Retirement Account Revolution

An English-language story from the European press discusses the privatization of the retirement system in Romania. The system eventually will permit workers to put six percent of their income in personal accounts. This is good news, but there is a dark lining to this silver cloud. I challenged my colleague Jose Pinera earlier this year that the number of flat-tax nations would soon exceed the number of private-account nations. Unfortunately, Jose works too hard, and he keeps adding new nations to his list. Since there are now 21 jurisdictions with flat tax systems, this means I still have a long way to go:

Under a new system launched last month, more than 3 million Romanian workers under 35-years-old must opt for one of 14 competing private pension funds before January 17th, 2008. Those ages 35 to 45 can also decide to join one of the private funds. Starting in 2008, 2% of every worker’s general income will be redirected from the state budget to the chosen private fund. This contribution will gradually increase to 6% by 2015, and the current 9.5% social security contribution to the state system will diminish accordingly. “Several million Romanians will become investors, and the private pension system will educate them in the spirit of a free market economy,” says Romanian President Traian Basescu. …Romania cautiously now joins a club formed by 31 countries – Bulgaria, Macedonia and Croatia among them that have decided to address the demographic pressure on state budgets through privatisation.

Disaster Collectivism

Naomi Klein, darling of the loonie left, has a new book out called The Shock Doctrine: The Rise of Disaster Capitalism. The basic idea is that the insidious forces of neoliberalism take advantage of wars, economic crises, and natural disasters to impose their evil schemes on disoriented and distracted publics. The career of Milton Friedman, the occupation of Iraq, and the bungled response to Katrina are all supposedly cases in point.

Klein is not a serious person, and in this book she does not mount a serious argument. But she does raise an interesting issue: the political implications of crises. It is certainly true that the waves of liberal reform (political as well as economic) that swept the world in the ’80s and ’90s were often triggered by economic crises. Indeed, I wrote a book on the subject in which I interpreted the current episode of globalization as a response to the often cataclysmic breakdown of various state-dominated models of economic development.

There’s nothing terribly surprising about this. Inertia is a powerful force in politics: every status quo has vested interests that benefit from it, while advocates of change push in all different directions and frequently cancel each other out. A crisis, though, can discredit the status quo and demoralize its supporters, while galvanizing particular pro-reform camps and boosting their credibility. Politics suddenly becomes more fluid; rapid and sweeping changes that had no chance of being enacted beforehand now occur in rapid succession.

But it’s ridiculous to portray this dynamic as somehow uniquely favoring one side of the political spectrum. Recall the great triumphs historically associated with the left: the French Revolution was made possible by the financial distress of the ancien regime; the Paris Commune was founded after defeat at the hands of the Prussians; the Russian Revolution was catalyzed by military failures in World War I.

In our own country, it was a one-two punch of cataclysms – the Great Depression, followed by World War II — that brought Big Government to the United States and then consolidated its hold. The unprecedented economic collapse made traditional American attitudes of laissez faire and individual responsibility seem hopelessly outdated; by contrast, the frenetic activity of the New Deal, regardless of the decidedly mixed results, projected boldness and vigor and hope. The subsequent mass mobilization for total war reinforced the shift in political culture. If you watched any of the wonderful new Ken Burns documentary on “The War,” you saw that the “home front” wasn’t just an expression: the diversion of the country’s industrial might to war production, price controls and rationing, extremely high tax rates, war bond drives, and incessant propaganda combined to thoroughly collectivize American society. And it worked: the economy boomed, people reaped the psychological satisfactions of banding together against a common and abominably evil enemy, and in the end America triumphed.

Today people on the left are filled with nostalgia for the political economy of the early postwar decades. I don’t think many of them recognize, though, how heavily their Golden Age depended on the lingering economic and cultural effects of destruction on a mind-boggling scale. They call themselves progressives, yet they pine for the good old days of disaster collectivism.

[cross-posted from]

Catholics against SCHIP

The Rev. Robert A. Sirico is a Catholic priest, as well as president and co-founder of the Acton Institute for the Study of Religion and Liberty.  In today’s Detroit News, he weighs in on the debate over the State Children’s Health Insurance Program:

The Catholic Health Association has blasted President Bush for vetoing a program called SCHIP, the State Children’s Health Insurance Program. How can anyone be against the health of children?

Well, public policy is more complicated than that. When the state gets involved in public health, there are unintended consequences. In fact, there is enough wrong with this program to make it possible to oppose SCHIP in good conscience…

There is not a living soul who would not wish that every person, especially every child, would have access to perfect medical care. But the essential condition for universal coverage is universal prosperity, and the only means available to create that is a flourishing and free economy – a condition that programs like SCHIP help to undermine…

It is folly to seek short-term gains at the expense of long-term economic development. Eliminating taxes and regulations that hinder private industry will make greater strides toward universal coverage than any state program can or will…

What I fear most is that politicians use legitimate issues to gather more power unto themselves and their friends in government. The population becomes more dependent on the public sector and less reliant on the sectors over which they exercise real control.

Amen to that.  Now how do we get the Catholic hospitals to stop taking Caesar’s coin?

Why Can’t Republicans Embrace Corporate Tax Cuts Like Canadian Liberals?

When they were in power, Canada’s left-wing party reduced the corporate tax rate from 28 percent to 19 percent. Now they are proposing to reduce the rate even more (and by more than the trivial 0.5 percentage point reduction proposed by the incumbent Conservative Party). As reported by, the leader of the Liberal Party makes a very strong supply-side/tax competition argument for the lower rate:

Liberal Leader Stephane Dion has pledged to further reduce the Canadian federal corporate tax rate to better compete with other countries and strengthen Canada’s economic sovereignty. …Dion told the Economic Club of Toronto…“A lower corporate tax rate is a powerful weapon in the federal government’s arsenal to generate more investment, higher living standards and better jobs.” …The previous Liberal government reduced the federal corporate tax rate to 19% from 28%. Dion said he would go deeper than the Conservatives have done with their reduction to 18.5% in 2011. …“If you lower the corporate tax rate, you lower the cost of capital for Canadian companies. Therefore, these companies are induced to spend more on capital equipment. As for foreign investment, we need a big hook to snare investment, including Canadian investment, that might otherwise go south of the border. Finally, it would strengthen Canadian companies against foreign takeover,” Dion concluded.

Securing Land Rights for Chinese Farmers

A critical determinant of China’s long-term economic growth and social stability will be whether the wealth of its economic boom can reach the majority of its 700 million farmers, who make up approximately 56 percent of the total population. In the new Cato study, “Securing Land Rights for Chinese Farmers: A Leap Forward for Stability and Growth,” authors Zhu Keliang and Roy Prosterman confirm one fundamental cause of the widening rural-urban income gap: most Chinese farmers still lack secure and marketable land rights that would allow them to make long-term investments in land, decisively improve productivity, and accumulate wealth.