Topic: Tax and Budget Policy

European Central Bank Mocks French Fiscal Policy

An amusing public fight is taking place, with Germany and the European Central Bank on one side and France on the other. I’m not sure whether this calls for a surrender joke or a wry reference to the Iran-Iraq war and how it would be nice for both sides to lose, but I will demonstrate uncharacteristic maturity by instead focusing on the policy implications.

The French, not surprisingly, are wrong. They have been badgering the European Central Bank to mimic the mistakes of America’s Federal Reserve by creating too much liquidity in order to artificially lower interest rates.

Germany is on the side of the Central Bank, which wisely has focused on maintaining the value of the currency (which helps explain why the dollar has been falling compared to the euro). As part of this spat, the head of the European Central Bank very publicly pointed out the wretched state of France’s bloated government budget. The EU Observer reports:

European Central Bank (ECB) chief Jean-Claude Trichet has said that France’s public finances are in “very great difficulty.” “In 2007, according to statistics from the European commission, France will be the country spending the most in public expenditure in relation to gross domestic product, not only within the eurozone but among the 27 members of the European Union”, Mr Trichet told Europe 1 radio on Sunday (23 September). On top of that, “the development of France’s public finances has on average been significantly worse than that of other European countries”, he added. …Mr Trichet’s comments also come as a reply to French president Nicolas Sarkozy, who has repeatedly criticised the ECB lately on a number of points, notably for not cutting interest rates. …Mr Trichet, who has also repeatedly stressed the need for the ECB to remain independent from any political pressure and has been riled by Mr Sarkozy’ comments, pointedly took Berlin as an example of a government which has managed to lower its public expenditure. Currently, Germany’s public spending is nine percentage points of GDP lower than that of France, which has to “adapt faster”, if it wants to benefit best from a global economy, Mr Trichet said.

Europeans Do Not Want American-Style Capitalism

The Financial Times reports on a poll showing that Europeans generally want more government intervention and have little desire for an “American-style” capitalist system. At the same time, the Europeans have little faith that they can compete in the modern economy. It is unclear, though, whether they understand that their support for bigger government is a reason why Europe has trouble competing with the rest of the world:

Europeans have little faith that their continent can compete economically with fast-growing Asian countries – but are even more convinced that it should not become more like the US. …multinational corporations are seen by Europeans as more powerful than governments, while those polled generally believed that regulations protecting workers’ rights should be strengthened rather than relaxed. …When asked whether Europe’s economy should be more like that of the US, the results were clear-cut. Those saying it should not, included 78 per cent of Germans, 73 per cent of the French, 58 per cent of the Spanish. In both Italy and the UK, 46 per cent opposed the US model. …Asked if a free-market, capitalist economy was the best system, Spanish and German respondents agreed overall, but the French and Italians did not. The British were less clear, although there was more support than opposition for a “capitalist” system.

The unintentionally amusing (or sad) part of the story is that America does not have an “American-style” capitalist system. The difference between the United States and Europe is that America has a medium-size welfare state while most European nations have large-size welfare states. The difference is not trivial, which is why America is more prosperous, but Europeans have a very distorted view of the United States thanks to ideologically biased information sources such as Michael Moore and CNN International.

Sink This SCHIP

That’s the catchy title of my oped in today’s New York Post:

The State Children’s Health Insurance Program is set to expire on Sept. 30. Unfortunately, neither side in Washington seems to have considered letting this SCHIP die…

Congress could make coverage more affordable simply by letting consumers and employers purchase out-of-state coverage…

Sweeping away those trade barriers would make coverage more affordable without increasing government spending, trapping families in low-wage jobs or increasing prices for private purchasers.

President of Senegal to Speak at Cato

Since becoming the president of Senegal in 2000, Abdoulaye Wade has been one of Africa’s most vocal proponents of liberal economic reforms. As he recently said, “I don’t want money, and I don’t want hand-outs. I want trade agreements….I believe in a liberal economy and have never put much faith in the state-run economy, because it fails….The state should intervene only to create the conditions necessary for the private sector to thrive. I am counting on the private sector, because it is crucial to Senegal’s future.” Join us on September 28 to hear President Wade discuss economic reforms in Senegal and the future of liberalization on the African continent.

Washington Post’s Popular Programs

Washington Post, September 18: “The Democratic Congress is considering 2008 spending bills that increase funding for politically popular programs….”

Washington Post, September 19: “With a difficult war debate looming and presidential vetoes for a host of popular legislation….”

Washington Post, September 20: “Republicans and Democrats in the [Virginia] General Assembly proposed election-year spending increases for popular programs….”

Notice any pattern? 

The Washington Post is a great paper, but like many papers it reveals a pro-spending bias when it reports on government budget issues. One aspect of this is the common portrayal of any increase or cut as affecting “popular programs.” Every type of program is portrayed as “popular,” whether it provides benefits to 50% of Americans or just 0.05% of Americans.

Presumably, Post reporters don’t do a public poll to find out which programs really are ”popular.” Instead, they just automatically stick the word in stories to perhaps suggest, “Ohhh, policymakers better not cut spending on that one or else there will be hell to pay.”

I’ve noticed this for years in the PostHere’s one on federal grants to local governments: “According to the police group, the most controversial proposals include a $376 million reduction in the popular Community Oriented Policing Services program….”

Washington Post readers sometimes complain that its stories are too wordy. Well, “popular” is one word that editors can look to chop out.  

Upcoming Cato Forum on the Rights of Terminally Ill Patients

In 2006, a panel of the D.C. Circuit Court of Appeals ruled that terminally ill patients have a constitutionally protected right to purchase and use experimental drug treatments not yet approved by the federal government. 

On August 7 of this year, the full D.C. Circuit overturned the panel ruling, holding that terminally ill patients have no such constitutional right.

On September 25, this coming Tuesday, the Cato Institute will host a policy forum titled, “Should the Government Insert Itself between Dying Patients and Unproven Therapies?“ 

Debating the rights of terminally ill patients will be Scott Ballenger, the lead counsel for the plaintiffs in that case; Ezekiel Emanuel, a bioethicist with the National Institutes of Health and a leading critic of the panel’s ruling; and yours truly.

The forum will be from 12-1:30pm, followed by a luncheon.  Register here.

Maryland to Boost Virginia’s Competitiveness

The geese that lay the golden eggs are about to fly south, but not because winter’s approaching. Instead, greedy politicians in Maryland are seeking to impose California-style income tax rates on the state’s most productive people. Even some local Democrats realize this is going to be a boon for Virginia, where the top income tax rate will be about four percentage points lower.

The Washington Post reports on Maryland Gov. Martin O’Malley’s unintentional campaign to boost Virginia’s economy:

Gov. Martin O’Malley yesterday proposed the first major overhaul of Maryland’s income tax brackets in 40 years, offering what he called a “more progressive” system in which high-end earners would pay more.…

“We must be very cautious that we’re not asking people to go live in other jurisdictions, where taxes are not as high,” said Sen. Rona E. Kramer (D), chairwoman of Montgomery [County]’s Senate delegation. “Northern Virginia is a very appealing place, and it’s right across the river.” …House Minority Leader Anthony J. O’Donnell (R-Calvert) called the plan “a historic beating up on Marylanders through the income tax,” noting that the top marginal rate would increase by nearly 37 percent.

…Under O’Malley’s plan, Montgomery residents in the highest bracket would pay a combined state-county rate of 9.7 percent, which County Executive Isiah Leggett (D) said yesterday is “not acceptable.” …The combined rate of 9.7 percent would also exceed the current top marginal rates in the region. In Washington, the top rate is 8.5 percent; in Virginia, 5.75 percent; and in Delaware, 5.95 percent. Maryland would not be alone in imposing higher rates on upper-income earners. California, for example, applies a rate of 10.3 percent on incomes of more than $1 million.