Topic: Tax and Budget Policy

Congress Looks at Stadium Subsidies

This Thursday the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform will hold a hearing titled, “‘Build It and They Will Come’: Do Taxpayer-financed Sports Stadiums, Convention Centers and Hotels Deliver as Promised for America’s Cities?”

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,” Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports – or a possible negative effect.

In Regulation magazine, (.pdf) Dennis Coates and Brad Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

Humphreys will testify at Thursday’s hearing.

Happy Birthday for EU Bureaucrats

The European Union is celebrating its 50th anniversary, but citizens in most nation are understandably underwhelmed. As an article at Foreignpolicy.com explains, the European Union is a remarkably anti-democratic institution.

Today’s EU resembles a sort of undemocratic Habsburg Empire. Its legislation is proposed by a Commission of unelected bureaucrats who have now apparently lost control of their own staffs and who themselves are usually political outcasts from their national political systems. Decisions on whether to adopt their often bizarre initiatives are then taken in total secrecy by the Council of Ministers or the European Council, before being rubber-stamped by the federalist parliament and imposed on the citizens of member states, whose national legislatures can do absolutely nothing to alter their directives or regulations. Indeed, 84 percent of all legislation before national parliaments, according to the German Ministry of Justice, now simply involves implementing Brussels diktats. All this makes European politics undemocratic at all levels, and opinion polls reflect the public’s growing disillusionment.

Daniel Schwammentahl of the Wall Street Journal, meanwhile, notes that politicians who favor more European centralization treat voters as obstacles to be overcome in their drive for a more powerful bureaucracy in Brussels:

…as Valéry Giscard d’Estaing, the former French President and main drafter of the constitution, said last year, rejecting his chef d’oeuvre “was a mistake which will have to be corrected.” In other words, Europeans are given a free vote as long as they vote for what the Brussels mandarins think is best for them. In a newspaper interview last week, Ms. Merkel diagnosed a certain alienation between the EU and its citizens, the root cause of which she located in the people’s alleged impatience with the slow pace of decision making in Brussels. “To change that we need an EU constitutional treaty,” she said. Come again? The chancellor wants to fight the citizens’ alienation by ignoring democratic votes that expressed that very alienation?

Tax Reform is the Best Way to Reduce Tax Evasion

A column in the Pittsburgh Post-Gazette reviews new academic research indicating that high tax rates encourage tax evasion. Most politicians think the solution is more power for the IRS, but the columnist points to ideas that are much more likely to work and much more consistent with the protection of a free society. First, shrink the size of government so that taxpayes are less likely to be angry about grotesque examples of waste, fraud, and abuse. Second, adopt a simple and fair system such as the flat tax:

The pressure to cheat, Dr. Antenucci said, comes from the big payoff. “The top tax rate is 35 percent. In this investment investment environment, people scratch to make a 5 percent to 8 percent return, and there is 35 percent sitting right there.” …”When people read about a $500 coffee pot being sold to the government, people don’t want to pay their taxes,” he said. …The professors advocate attacking the problem on several fronts. First, create a tax system where cheating is extremely difficult. One way would be to switch to a flat tax or national sales tax.

Prosperity Creates More Leisure, But Is “Unfair” to the Rich

An article at Slate.com looks at data showing a big increase in leisure time, especially among those with lower incomes:

In 1965, the average man spent 42 hours a week working at the office or the factory; throw in coffee breaks, lunch breaks, and commuting time, and you’re up to 51 hours. Today, instead of spending 42 and 51 hours, he spends 36 and 40. What’s he doing with all that extra time? He spends a little on shopping, a little on housework, and a lot on watching TV, reading the newspaper, going to parties, relaxing, going to bars, playing golf, surfing the Web, visiting friends, and having sex. Overall, depending on exactly what you count, he’s got an extra six to eight hours a week of leisure—call it the equivalent of nine extra weeks of vacation per year. For women, time spent on the job is up from 17 hours a week to 24. With breaks and commuting thrown in, it’s up from 20 hours to 26. But time spent on household chores is down from 35 hours a week to 22, for a net leisure gain of four to six hours. Call it five extra vacation weeks.

And because those with lower incomes have disproportionately gained from this trend, the author mockingly asks whether they should be forced - as part of the campaign to reduce inequality - to donate unpaid labor to the “less fortunate” with more money but less free time:

…a certain class of pundits and politicians are quick to see any increase in income inequality as a problem that needs fixing—usually through some form of redistributive taxation. Applying the same philosophy to leisure, you could conclude that something must be done to reverse the trends of the past 40 years—say, by rounding up all those folks with extra time on their hands and putting them to (unpaid) work in the kitchens of their “less fortunate” neighbors. If you think it’s OK to redistribute income but repellent to redistribute leisure, you might want to ask yourself what—if anything—is the fundamental difference.

New Bipartisan Bill Shows Key Senate Committee May Not Be Sympathetic to Dorgan’s Fiscal Protectionism

In a positive development, the Democratic Chairman of the Senate Finance Committee and a senior Republican on the Committee have introduced legislation to make “deferral” permanent for U.S. financial services companies that compete in global markets. This is not nearly as good as pure territorial taxation, but it is a step in the right direction. Equally important, it shows that the Finance Committee may not be very receptive to the protectionist and discriminatory Dorgan legislation - which would end deferral and impose immediate worldwide taxation on American companies with operations in selected low-tax jurisdictions. Tax-news.com reports:

Senators Max Baucus (D-Mont.) and Orrin Hatch (R-Utah) have introduced legislation which they say will protect the jobs that US financial services companies have created in the US, by keeping the industry on an equal tax footing with its international competitors. When foreign financial services companies earn income abroad, it’s not subject to taxation until the money is brought back to the parent company at home. The law giving American companies this tax treatment here at home is set to expire next year. The Senators’ bill would make the ‘Subpart F’ exception for active financing income permanent, so that US firms and their workers are not disadvantaged by tax burdens their competitors don’t face. “We need to make sure that US tax rules don’t make financial services companies less competitive in the world arena, and less able to keep good-paying jobs here at home,” Baucus stated. …“America’s tax laws shouldn’t handicap companies striving to lead in a very competitive global marketplace,” Hatch added. …“When we tax US companies working overseas, we increase their overhead and allow their competitors to undercut them,” Hatch noted. “That hurts American workers, business, our influence abroad, and – ultimately – the tax revenue we’re able to collect. Renewing legislation that puts our top-notch financial companies on competitive footing is good for business and good for our country.”

Tax Havens Protect Against Greedy Government

The New York Times has a story reviewing developments in the private banking industry. The article notes a couple of important points. First, high-tax nations - and the international bureaucracies that represent those nations - resent Swtizerland for serving as a refuge:

For generations, Europe’s wealthy journeyed through mountains and valleys to quietly stash their money with Switzerland’s bankers, famed for taking their secrets to the grave. …many of the country’s detractors complain that Switzerland remains the world’s prime tax haven. The European Union and the Organization for Economic Cooperation and Development have pressured Switzerland to loosen its bank secrecy.

Second, the article notes that high-tax countries can get at least some money to return home if they remove and/or reduce the tax penalites:

Several countries, including Italy and Belgium, have lured back untaxed assets held abroad by decreeing an amnesty for tax evasion. But that is not the biggest challenge.

Third, tax competition is creating other havens for people seeking to avoid not only punitive taxes, but also other forms of oppression:

As Swiss bankers penetrate markets abroad they are facing like-minded competitors from elsewhere in the world. Dubai and Singapore have cultivated sophisticated private banking hubs, offering discreet financial services and a tax haven aimed at luring away wealthy clients. And just as the Swiss have moved overseas, foreign banks like Citibank have flocked to Switzerland. Geneva, once a sleepy lakeshore town, now has branches of 100 foreign banks.

Lastly, the article notes that Switzerland has a completely different approach from America. Unlike the US - which has a so-called Bank Secrecy Act that strips away financial privacy, Swtizerland still respects the fundamental right to privacy. Citizens are treated like adults - a relationship that is facilitated by a better tax regime:

Unlike regulations in the United States, Swiss law forbids bankers from divulging information about clients or their assets, under threat of penalty. Tax evasion is not considered a crime.

In Praise of Administrative Costs

Advocates of socialized medicine, such as Physicians for a National Health Program, love to argue that America’s health care sector is less efficient than socialized systems because private insurers appear to have higher administrative costs. In yesterday’s New York Times, Tyler Cowen reveals the flaw in that logic:

The monitoring, marketing and overhead costs of private insurance are what allow more expensive medical treatments through the door. It is precisely because competing insurance companies spend money evaluating the appropriateness of claims that they are willing to pay for so many heart bypasses, extra tests, private hospital rooms and CT scans.

If European health care systems appear to have lower administrative costs, it is because, rather than scrutinizing claims, they limit the overall amount they will spend on medical services. Of course, that just means they shift costs to patients who either must pay for medical services themselves, or deal with the costs of waiting.

If the U.S. Medicare program appears to have lower administrative costs, it is because, rather than scrutinizing claims, Medicare just shovels money out the door. That merely shifts those costs onto taxpayers by driving up Medicare spending and taxes. 

In Medicare Meets Mephistopheles, Cato adjunct David Hyman delights in the irony that medicine-socializers praise one of Medicare’s greatest failings (inadequate oversight of claims payment) as if it were a virtue.