Topic: Tax and Budget Policy

Washington—the Anti-Economic Center

“Two West Coast senators are leading an effort to increase the number of cross-country flights out of [convenient but overcrowded] Reagan National Airport, a move that could lead to more noise over neighborhoods and jam already filled parking lots,” reports the Washington Post. 

Sens. Gordon Smith (R-Ore.) and Maria Cantwell (D-Wash.) have amended a Federal Aviation Administration reauthorization bill to allow up to 20 additional takeoffs and landings a day.

“It’s about connecting West and East Coast economic centers,” said R.C. Hammond, spokesman for Smith, elaborating on the senator’s motivation for the amendment.

Actually, Washington isn’t really an economic center. It’s more like an anti-economic center. Washington doesn’t do business, it impedes business, and subsidizes business, and regulates business, and cripples business. New York, Baltimore, Atlanta – those are East Coast economic centers. Not Washington, the city of lobbyists and government contractors.

Just what is it that businesspeople from Seattle and Portland would come to Washington for? They’d go to New York and Atlanta to make business deals. But they’d come to Washington to lobby for subsidies, or for regulations on their competitors, or to try to get a piece of the $2.9 trillion federal budget. But not to do actual wealth-creating business in the marketplace.

Some people say that West Coast senators want direct flights from National Airport to their home towns to make travel more convenient for them. If so, they should say so. But don’t tell us that the country would benefit from more Lobby Express flights.

Fighting for Earmarks

“Republicans will seek a House vote next week admonishing a senior Democrat who they say threatened a GOP member’s spending projects in a noisy exchange in the House chamber, Minority Leader John Boehner said Friday,” according to the AP.

Their target is Rep. John P. Murtha, D-Pa., a 35-year House veteran who chairs the appropriations subcommittee on military spending.

Murtha, 74, is known for his gruff manner and fondness for earmarks – carefully targeted spending items placed in appropriations bills to benefit a specific lawmaker or favorite constituent group.

During a series of House votes Thursday, Murtha walked to the chamber’s Republican side to confront Rep. Mike Rogers, R-Mich., a 43-year-old former FBI agent. Earlier this month, Rogers had tried unsuccessfully to strike a Murtha earmark from an intelligence spending bill. The item would restore $23 million for the National Drug Intelligence Center, a facility in Murtha’s Pennsylvania district that some Republicans say is unneeded.

According to Rogers’ account, which Murtha did not dispute, the Democrat angrily told Rogers he should never seek earmarks of his own because “you’re not going to get any, now or forever.”

“This was clearly designed to try to intimidate me,” Rogers said in an interview Friday. “He said it loud enough for other people to hear.”

Now it’s true that there’s a House rule that prohibits “lawmakers from placing conditions on earmarks or targeted tax benefits that are based on another member’s votes.” Wouldn’t want anybody to oppose your earmarks just because you opposed his.

But really – after they lost control of Congress partly because of their profligate spending and their multiplying earmarks – this is what Republicans choose to fight over? They’re going to draw a line in the sand on C-SPAN to defend Mike Rogers’s right to put special-interest earmarks in appropriations bills? That ought to bring the independent and libertarian and small-government voters streaming back.

All Wet

Today’s NYT has a fascinating story on the recovery of some $500 mi18ship600.jpgllion in gold and silver coins from a colonial-era shipwreck in the Atlantic. The recoverer is Odyssey Marine Exploration, a publicly traded firm (AMEX: OMR). Odyssey made headlines a few years ago when it salvaged $75 million in coins from the Civil War-era shipwreck of the SS Republic off Savannah, Ga.

The Times notes that Odyssey’s latest find will fuel the already-bitter battle between “academic” and commercial marine achaeologists over treasure-hunting and recovery. The article includes this fusillade from the academics:

Kevin Crisman, an associate professor in the nautical archaeology program at Texas A&M University, said salvage work on shipwrecks constituted “theft of public history and world history.”

He said the allure of treasure hidden under the sea seemed to blind the public to the ethical implications. “If these guys went and planted a bunch of dynamite around the Sphinx, or tore up the floor of the Acropolis, they’d be in jail in a minute,” Mr. Crisman said.

As a marine archaeology buff, I’ve eagerly followed the exploits of both academic archaeologists like Bob Ballard and treasure hunters like Mel Fisher. To be sure, the two groups operate differently — academics can pursue more scholarly study of their wrecks because they have the luxury of government and/or foundation funding for their work, while commercial archaeologists must please their investors, who want financial returns and/or the joy of recovering and owning pieces of history.

With that distinction made, I have to say that Crisman should go soak his head. Odyssey’s latest find and Mel Fisher’s Atocha salvage work most certainly are not thefts of “public” or “world” property because neither the public nor the world owns the wrecks. If a ship is lost outside of territorial waters then, at best, the ship’s original owner or insurer owns the wreck, and it often is the case that no one legally owns a wreck until someone discovers and begins working it. (There sometimes are bitter legal fights between the ship’s owner, insurer, and the wreck’s discoverer when a discovery is made.) Chrisman’s comparing Odyssey’s discovery and salvaging of its latest wreck to the destruction of properties like the Sphinx or Acropolis is all wet.

Just as important, commercial incentives motivate the discovery of wrecks and the advance of marine archaeology. (Indeed, why didn’t the academics beat Odyssey to the Republic or Fisher to the Atocha?) It took Fisher more than a decade of searching to find the wreck of the Santa Margarita, and another five years to find her sister ship, the Atocha. To recover artifacts from wrecksites, Fisher invented a simple yet ingenious device, the “mailbox,” to pump clear water into the site to improve visibility and sweep away sand that covers the wreck. And, using money from his share of the more than $400 million recovered from the Santa Margarita and Atocha, Fisher financed other expeditions and established a nonprofit maritime heritage museum. Crisman’s dismissal of treasure hunters and commercial archaeologists as being irresponsible yahoos who care only about riches seems little more than academic snobbery.

Moreover, Crisman’s portrayal of academic archaeologists as selfless scholars who protect history and advance the public’s interest is bilgewater. Academic archaeologists love working wrecks as much as treasure seekers do — the joy of finding and exploring wrecks, harvesting artifacts, and holding history in their hands. Just like treasure hunters, the academics want legal protections to ensure that only they can salvage from the wrecks they discover, and they squirrel away the salvaged artifacts in their offices and labs. One day, perhaps, those artifacts will be put on display so the public can look but not touch, but how is that much different than Mel Fisher’s museum or the selling of artifacts to private collectors who often then put the artifacts on display?

There certainly is room in marine archaeology for both the treasure hunters and the academics. But there isn’t room for the elitist attitude that only academic archaeologists should have the right to touch history and commercial ventures are equivalent to destroying the Acropolis.

Solving the Organ Shortage: A Move in the Right Direction

Jon Christiansen, a former Republican congressman from Nebraska, has founded an organization to create grassroots initiatives to help overcome resistance to providing organ donors with financial compensation.

Currently, under the National Organ Transplantation Act, it is illegal to provide “valuable consideration” for an organ. As a result, only altruistic donations are allowed and an average of seven people die every day waiting for an organ that never comes.

Christiansen’s new organization is called the American Organ Coalition. Christiansen, who is the group’s executive director, can be contacted by e-mail at jonlc [at] united [dot] net">jonlc [at] united [dot] net.

New Zealand Tax Reform

In yet another sign of the liberalizing impact of tax competition, New Zealand lawmakers are lowering the nation’s corporate tax rate and moving toward a territorial tax regime (the common-sense approach of only taxing income earned inside national borders).

Kiwi officials openly admit that these reforms are driven by a need to compete with other nations, further confirming the need to protect and promote fiscal rivalry from the anti-competition schemes of international bureaucracies such as the Organization for Economic Cooperation and Development.

Tax-news.com reports on the New Zealand reforms: 

New Zealand Finance Minister Michael Cullen has announced a 3% cut in the country’s rate of corporate income tax along with a series of other measures designed to improve the nation’s international business competitiveness.

The most significant component of Cullen’s 2007 Budget, announced in parliament on Thursday, was the decision to reduce the rate of corporate tax to 30% from April 1, 2008. ”Business has long argued that such a reduction will assist in boosting productivity and competitiveness and attracting more foreign direct investment increasing labour productivity and wage rates,” Cullen stated, adding that the move would also “reduce the attractiveness of structuring businesses so as to report minimal profits within New Zealand.”

…[A]ccording to Cullen, the review of the international business tax regime could be of greater significance than the corporate rate cut or the research and development tax credit in contributing to future economic growth and could cost far less. “Our current tax rules in relation to New Zealand companies investing in offshore activity impose additional costs that are not faced by businesses resident in other countries. This has created an incentive for New Zealand firms to migrate,” Cullen observed. Currently, New Zealand taxes New Zealand residents on their worldwide income. This includes any income that is earned by a foreign company that is controlled by New Zealand residents.

Irish Business Leader Explains Why Optional Tax Base Harmonization Leads to Mandatory Tax Rate Harmonization

Big businesses have rarely been principled defenders of individual liberty. A good example is the fight over a harmonized corporate tax base in Europe. Some multinational companies like this approach because it means one tax return instead of 27 tax returns. But this short-sighted approach overlooks the inevitable misuse of power by politicians who will want to manipulate the system for their own benefit. An Irish business leader explains in the Financial Times:

Businesses should wake up to the fact that, if work to harmonise European Union tax systems succeeds, they will face huge uncertainty regarding their tax liabilities, pay higher tax bills and face a more rigid corporate tax regime. Lázsló Kovács, the tax commissioner, is firmly set on introducing a legislative proposal by the end of 2008 to harmonise the corporate tax base across the Union. …Separate accounting for cross-border transactions within a group would be eliminated, and group profit would be shared by means of a set formula between member states and taxed at the rate applicable in each state. …To date, business has expressed surprisingly little scepticism about this untested assertion. Such a sanguine attitude is misplaced.

 …companies doing business in Europe would pay higher tax bills. …CCCTB would drive some investment to more flexible and competitive tax jurisdictions outside the EU. Business lobbies have only backed the scheme if CCCTB is optional for companies. But, for how long could it remain optional? If simplicity and a reduction in administration costs are part of the raison d’être , then running an additional system side by side with national tax regimes makes no sense. The Commission said in 2006 that: “CCCTB should initially [my italics] be proposed as optional for companies”, and on May 2 it said: “CCCTB should be optional … where these [existing rules] are maintained alongside the CCCTB by member states.” …Despite assurances that it does not intend to extend this work to cover the tax rate, the Commission has a long history of pushing for harmonised tax rates – and a common tax base is a prerequisite of tax rate harmonisation. When the Commission embarked on this initiative, France and Germany made no secret that their end-game was tax rate harmonisation.

Uncle Sam: Electrician

My new Cato policy analysis goes into great detail about how the federal government uses your tax money to subsidize businesses.  In fiscal 2006, the “corporate welfare state” cost $92 billion, all of which funded programs that provide unique benefits to particular companies or industries.

One of these programs is the Rural Utilities Service (RUS).  A relic of the New Deal, the goal of the program was to electrify the countryside.  Now that reading by candlelight in the boonies is a thing of the long forgotten past, the RUS has morphed into a fountain of cash for rural electricity co-ops. 

As a story on the front page of this morning’s Washington Post highlights, it’s always easier to create a program than to kill it:

The key to the longevity of the Agriculture Department’s programs for rural utilities has been the [electricity co-ops’] powerful political voice. More than 30,000 members gave an average of $41 last year to the co-op association for political contributions. Given their geographic scope, the co-ops can mobilize letter-writing campaigns across a vast number of states and congressional districts.

To learn more about the corporate welfare budget generally, tune in to my live interview on Bloomberg Radio’s “On the Economy” today at 6:30 pm Eastern.  A podcast about the corporate welfare state will be featured on the Cato website on Tuesday.