Topic: Tax and Budget Policy

Labor Union Members Protest against Pro-Growth Reforms in Czech Republic

Even though neighboring flat tax nations such as Slovakia are growing faster and creating more jobs, the labor movement in Prague is protesting reforms that would improve the Czech Republic’s competitiveness. The International Herald Tribune reports on this self-destructive impulse:

Around 15,000 labor union members protested in downtown Prague Saturday against the government’s proposed tax reforms and cuts in welfare spending. …If approved, a 15-percent flat tax on personal income would be introduced in 2008. Currently, the personal tax rate ranges from 12 percent to 32 percent, depending on income. The corporate tax rate would be cut from 24 percent to 19 percent by 2010. The draft also includes cuts in social benefits, unemployment benefits, maternity leave payments and health care spending. The labor unions claimed that only the wealthy would benefit from the proposed changes.

Europeans Leading on Postal Privatization

While many European governments deserve criticism for their high tax rates and destructive welfare states, sometimes America is the nation that is lagging when it comes to free market reform.

Corporate tax rates are one example, since every European nation has a lower rate than America. Social Security reform is another area, since many European nations have funded systems based on personal accounts.

And, as the Wall Street Journal explains, the Europeans are also beating America when it comes to postal reform. Several nations already have eliminated government monopoly systems and others are heading in that direction, though backwards nations such as France are trying to block continent-wide liberalization:

Bulgaria, Estonia, Finland, Sweden and the U.K. have opened their postal markets completely; Germany and the Netherlands have said they plan to do so soon. Brussels began liberalization efforts back in 1997 and a 2002 law envisioned an open postal market by January 1, 2009.

Yet five years after that tentative deadline was set, and with 18 months still to go, the likes of France’s La Poste complain that they need more time to prepare. It’s unclear what exactly they will be able to accomplish in those extra two years that they couldn’t manage in the first dozen.

One safe bet is they’ll continue piling up easy profits to use in new businesses they’ve started. To take one example, La Poste, Deutsche Post and others have used the proceeds from their letters monopolies — a €90 billion business in Europe — to open banks.

In the meantime, consumers increasingly have to break the bank just to send a letter. In the 10 members of the EU-15 that haven’t completed or planned postal liberalization, the average stamp price rose by 7 European cents, or about 18%, between December 2001 and February 2007, according to data from the Free and Fair Post Initiative. In the five countries that have liberalized, the average price fell by 2 cents, or about 4%. Studies show that full market opening, including cross-border competition, could drive prices down by as much as 20% to 25%.

Earmarks

As annual spending bills wind their way through Congress this year, there are ongoing battles over earmarked funding for members’ pet projects.

To get a sense of what the battle is about, check out this newly released list of earmarks in the House Interior appropriations bill.

People scour such lists looking for embarrassing bridges to nowhere in Alaska and indoor rainforests in Iowa.

But the real issue is federalism, not earmarks. Many of these funding projects are not federal responsibilities at all. Look at all the local sewer facilities on the list under the EPA. Why can’t Seattle, Buffalo, and other cities fund their own toilet pipes?

Of course, they can. But the idea of federalism has disappeared from public discussion in an orgy of state and local lobbying of compliant Washington politicians. For history and analysis of this issue, see here

(Oh, wait a minute, take that back — my guy Jim Moran (D-VA) scored $700K to clean up Four Mile Run beside where I live in Northern Virginia. Nice job Jim! You’ve got my vote!) 

My 56-Word Review of SiCKO

SiCKO was a very funny film, and I praise Michael Moore for starting the conversation and pointing out many horrors of the U.S. health care system. 

But from a policy standpoint – and I say this more in sadness than in anger – SiCKO was so breathtaking a specimen of ignorant propaganda that it would make Pravda blush.

Oppressed Canadians Finally Reach Tax Freedom Day

American taxpayers worked until April 30 before they earned enough money to satisfy the rapacious demands of federal, state and local tax collectors. This is discouraging, but Americans should be grateful that they don’t live in Canada. The Fraser Institute has revealed that the average Canadian worked until June 20 before quenching the appetites of the political class. Taxpayers in Newfoundland and Labrador are still working as serfs for government. Their tax freedom day won’t arrive until July 1:

Starting tomorrow, Canadians have paid off the total tax bill imposed on them by government and can finally start working for themselves, according to The Fraser Institute’s annual Tax Freedom Day calculations. “If you look at the average Canadian family’s total tax bill, each and every dollar they earn before June 20 would be required to pay the taxes owing to all levels of government. It takes until June 20 before they begin earning money for themselves,” said Niels Veldhuis, The Fraser Institute’s Director of the Centre for Tax Studies. …This year Tax Freedom Day falls four days earlier than in 2006. The latest Tax Freedom Day in Canadian history was in 2000, when it fell on June 25. Tax Freedom Day moved forward to June 17 in 2001 before steadily retreating to June 24 in 2005 and 2006. “Even with the recent improvements, Tax Freedom day still falls almost two months later than in 1961, the earliest year for which we have calculations,” Veldhuis said. …Tax Freedom Day varies from province to province, depending on the taxation levels of each provincial government. Alberta enjoys the earliest Tax Freedom Day on June 1, followed by New Brunswick and Prince Edward Island (June 14), BC and Manitoba (June 16), Ontario and Nova Scotia (June 19), and Saskatchewan (June 22). Quebec has the second-latest Tax Freedom Day, on June 26, while Newfoundland and Labrador wait the longest, until July 1.

Google Gets Sucked into the Parasite Economy

The Washington Post reports that Google “does not intend to repeat the mistake that its rival Microsoft made a decade ago.”

Microsoft was so disdainful of the federal government back then that it had almost no presence in Washington. Largely because of that neglect, the company was blindsided by a government antitrust lawsuit that cost it dearly.

Mindful of that history, Google is rapidly building a substantial presence in Washington and using that firepower against Microsoft, among others.

This story just keeps repeating itself. People build companies, and then activists, competitors, and politicians notice that they have deep pockets. It happened to Microsoft, then to Wal-Mart.  When the parasite economy first started lapping at Google last year, I wrote this:

Founders Larry Page and Sergey Brin and many other wealthy officers of the company got rich the only way you can in a free market: by producing something other people want. A lot of brilliant people worked long hours producing computer software that hundreds of millions of people chose to use, in the midst of a highly competitive market that offered lots of other options.

But in our modern politicized economy – which National Journal columnist Jonathan Rauch called the “parasite economy” – no good deed goes unpunished for long. Some people want to declare Google a public utility that must be regulated in the public interest, perhaps by a federal Office of Search Engines. The Bush administration wants Google to turn over a million random Web addresses and records of all Google searches from a one-week period. Congress is investigating how the company deals with the Chinese government’s demands for censorship of search results by Chinese users.

So, like Microsoft and other companies before it, Google has decided it will have to start playing the Washington game. It has opened a Washington office and hired well-connected lobbyists. One of the country’s top executive search firms is looking for a political director for the company.

What should concern us here is how the government lured Google into the political sector of the economy. For most of a decade the company went about its business, developing software, creating a search engine better than any of us could have dreamed, and innocently making money. Then, as its size and wealth drew the attention of competitors, anti-business activists, and politicians, it was forced to start spending some of its money and brainpower fending off political attacks. It’s the same process Microsoft went through a few years earlier, when it faced the same sorts of attacks. Now Microsoft is part of the Washington establishment, with more than $9 million in lobbying expenditures last year.

Google has become a brilliantly useful company. We can’t imagine how we got along without it. I can’t even imagine how I got along without Google Desktop. Some of us appreciate that; others believe that becoming indispensable imposes obligations on a company. Google has started to find out how it feels to be the most flagrantly successful company in America.

Alas, Google seems to have taken to Washington all too enthusiastically. As the Post notes,

In its first major policy assault on a competitor, Google’s Washington office helped write an antitrust complaint to the Justice Department and other government authorities asserting that Microsoft’s new Vista operating system discriminates against Google software. Last night, under a compromise with federal and state regulators, Microsoft agreed to make changes to Vista’s operations.

So Google’s brilliant staff are now spending some of their intellect thinking up ways to sic the government on Microsoft, which is once again forced to give consumers a less useful product in order to stave off further regulation. The Post’s previous story on Google’s complaint called it ”allegations by Google that Microsoft’s new operating system unfairly disadvantages competitors.”

Bingo! That’s what antitrust law is really about–not protecting consumers, or protecting competition, but protecting competitors. Competitors should go produce a better product in the marketplace, but antitrust law sometimes gives them an easier option–asking the government to hobble their more successful competitor.

Recall the famous decision of Judge Learned Hand in the 1945 Alcoa antitrust decision. Alcoa, he wrote, “insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connection and the elite of personnel.” In other words, Alcoa’s very skill at meeting consumers’ needs was the rope with which it was hanged.

I look forward to more competition between Microsoft and Google–and the next innovative company–to bring more useful products to market. But I’m saddened to realize that the most important factor in America’s economic future – in raising everyone’s standard of living – is not land, or money, or computers; it’s human talent. And some part of the human talent at another of America’s most dynamic companies is now being diverted from productive activity to protecting the company from political predation and even to engaging in a little predation of its own. The parasite economy has sucked in another productive enterprise, and we’ll all be poorer for it.