Siding with Governments over People, Pope Criticizes Tax Havens

It is rather disappointing that so many religious figures think that compassion should be a function of the state and that bigger government is good for the less fortunate. This approach not only undermines personal responsibility, but it also is anti-empirical because of the ever-growing body of evidence showing that high tax rates and excessive spending hinder growth and thus make it harder for poor people to climb the economic ladder.

Notwithstanding this real-world evidence, the UK-based Times reports that the Pope is about to attack tax havens as part of broader call for more redistribution. Not surprisingly, Italy’s Prime Minster is delighted that his nation’s taxpayers are being told to behave like sheep:

In his second encyclical – the most authoritative statement a pope can issue – the pontiff will denounce the use of “tax havens” and offshore bank accounts by wealthy individuals, since this reduces tax revenues for the benefit of society as a whole. …In it the pontiff focused on “those peoples who are striving to escape from hunger, misery, endemic diseases and ignorance and are looking for a wider share in the benefits of civilisation”. He called on the West to promote an equitable world economic system based on social justice rather than profit. …[Italian Prime Minister] Mr Prodi asked, adding: “If memory serves, St Paul exhorted the faithful to obey authority.”

IMF Wants Higher Taxes in Japan

The International Monetary Fund is urging higher taxes in Japan, though this is not exactly newsworthy since the IMF routinely endorses higher taxes in its country reports (Article IV consultations). To be fair, the IMF does say that it would be a good idea to control spending. And the international bureaucracy wants taxes to be raised in a less-destructive manner. Nonetheless, the notion that Japan will be more prosperous with a higher tax burden (which would be used to finance a bigger government) is rather fanciful. Tax-news.com reports:

The International Monetary Fund (IMF) last week published the conclusions reached by its assessment team during the recently completed Article IV consultation with Japan. …The Article IV report continued: “Most Directors considered that given the size of the task at hand, additional revenue measures will be needed, including for base broadening. They indicated that revenue measures could be best identified in the context of a broad reform of the tax system that addresses the challenges posed by Japan’s aging society and globalization. Among possible measures, increasing the consumption tax has the benefit of being less detrimental to growth and equitable across generations. Some Directors, however, viewed the authorities’ focus on expenditure adjustments as broadly appropriate at this juncture.”

This story, which is so similar to hundreds of other reports on IMF-endorsed tax hikes, raises an interesting question: Does anybody know if the IMF has ever recommended that a country reduce its tax burden?

Bush: The Biggest Taxer in World History

The Treasury Department reported Friday that federal revenues reached $2.12 trillion ($2,120,000,000,0000) for the first ten months of fiscal year 2007. In both current and inflation-adjusted dollars, that puts the federal government on course for the most revenue it’s ever collected in a year. Indeed, it’s the most revenue any government in the history of the world has ever collected. And yet it’s not enough to satisfy the voracious appetites of the spenders in Congress and the administration. Spending was $2.27 trillion for the same ten months.

It seems that the deficit problem in Washington is not a result of insufficient tax revenue but rather the inexorable growth of spending on everything from earmarks to entitlements to war.

To be sure, the U.S. economy is the largest national economy in history, and that’s the main reason for record tax levels. And tax revenues are not at their peak in terms of percentage of GDP–though they’re getting close. Earlier in the year OMB estimated that revenues as a percentage of GDP would reach 18.5 percent in 2007. But as of a month ago that figure had reached 18.8 percent, approaching the levels that typically produce popular demand for relief. But as spending interests become stronger and more widespread in Washington, popular demand for lower taxes faces more resistance. It seems safe to conclude that George W. Bush will go down in history as the biggest taxer and the biggest spender ever.

P4P: I Disagree with Arnold Kling and Dr. Bob

Arnold Kling agrees with Dr. Bob regarding existing efforts to pay physicians for quality – known as pay-for-performance, or P4P – rather than for the volume and intensity of the services they deliver.  Dr. Bob argues:

  1. “High quality — while not invariably more expensive — is often so.”
  2. “[B]y and large,” the guidelines that physicians are supposed to follow “don’t exist — except in a few relatively straightforward areas of medicine.”

I agree with those statements, but I disagree with their conclusions. 

Though the first statement is true, it is also true that a lot of the expensive stuff that doctors deliver is not high quality.  For 30 years, researchers at Dartmouth Medical School have found it very easy to demonstrate that some doctors do a lot more expensive stuff than other doctors do (e.g., specialist consultations, hospital stays, etc.).  But they have found it very, very hard to find any evidence that that extra stuff makes patients any healthier or happier.  Thus, a lot of the expensive stuff that doctors do isn’t high-quality care.

Though the second statement is true, it is also true that where evidence-based guidelines do exist, patients still don’t get the “high-quality” care that the guidelines recommend.  According to Elizabeth McGlynn and her colleagues, patients receive such recommended care only about 55 percent of the time.  (I put “high-quality” in quotes because not every patient should receive what the experts recommend.  But it would be a stretch to say that 45 percent of patients are outliers.)  Even when evidence-based guidelines exist, doctors don’t follow them.

Quality suffers both because physicians don’t do enough of what they should, and do too much of what they shouldn’t.

Physicians generally support P4P incentives that pay them more to do more of the former. But they really hate P4P incentives that penalize them for doing too much of the latter.  (The American Medical Association supports only two types of P4P incentives: those that increase the incomes of some physicians, and those that increase the incomes of all physicians.)

I think third-party P4P, where insurers reward providers for high-quality care, is a fine idea – provided the patient gets to choose her insurer.  For a good overview of the quality problems in the U.S. health care sector, the difficulties in implementing third-party P4P, and why the federal government should stay out of the P4P business, read my law journal article.

What Are You, Some Kind of Communist?

I never sprung for their six(!)-volume history of Whitewater, but I used to love the Wall Street Journal’s Clinton-bashing during the ’90s. Sure, writers for the WSJ could get a little, uh, exuberant with some of their charges, but even if they couldn’t prove that our 42nd president was a drug-running rapist, you could usually count on finding some good dirt on Bill and Hill on the editorial and op-ed pages. 

Well, boy, do I feel like a useful idiot now. It turns out that by savaging our president throughout the ’90s, the Journal was “taking a page from the old Soviet playbook.” Say it ain’t so, Paul Gigot!

Anyway, that’s what I got out of ”Propaganda Redux,” the op-ed by Ion Mihai Pacepa that ran in Tuesday’s Wall Street Journal, even though the author’s main focus, predictably, is on Bush-bashing. Pacepa is “the highest-ranking intelligence official ever to have defected from the Soviet bloc,” so he knows something about anti-American commie tactics, like spreading doubts about the president. You see:

Sowing the seeds of anti-Americanism by discrediting the American president was one of the main tasks of the Soviet-bloc intelligence community during the years I worked at its top levels. This same strategy is at work today, but it is regarded as bad manners to point out the Soviet parallels. For communists, only the leader counted, no matter the country, friend or foe.

As Pacepa recounts, Soviet bloc spies would stop at nothing in their disinformation campaign, portraying “Nixon as a petty tyrant, Ford as a dimwitted football player and Jimmy Carter as a bumbling peanut farmer.” When you think how close Americans came to believing some of that stuff, it really gives you a chill. We might well have lost the Cold War. 

Yet even today, over a decade and a half after the collapse of the Soviet Union, the ominous parallels remain. As Pacepa notes, “At the 2004 Democratic National Convention, for example, Bush critics continued our mud-slinging at America’s commander in chief.” This will not do, for, as Pacepa explains in the last paragraph:

[T]he communists got it right. It is America’s leader that counts.

And there you have it. Right in the pages of the Wall Street Journal. The second Clinton presidency sure is going to be interesting.   

…or Sometimes as Tragedy and Farce

“History repeats itself: first as tragedy then as farce,” according to Karl Marx. Not to be outdone, Congress and the president have gone Karl one better by managing both at once.

The “America Competes Act,” signed into law today by President Bush, is pungently reminiscent of the National Defense Education Act of 1958, passed during the techno-existential crisis that followed the Soviet Union’s 1957 launch of Sputnik, the world’s first artificial satellite.

The impact of the NDEA was slight. Adoption of new federally-sponsored curricula and teaching methods was slow and uneven, and the bureaucratic process through which the money was allocated did a predictably bad job of weeding out good scientific instruction programs from bad ones — so it isn’t clear that faster or broader adoption would have been desirable.

In addition to repeating that earlier mistake, the “America Competes Act” is also deeply ironic — its methods run precisely counter to its motivations. Spurred by the necessity of keeping up with foreign competitors in our global economy, Congress has decided to resort to central planning. What they have given us, in other words, is the “America Competes Via Central Planning Act.”

There is a painfully obvious, irony-free alternative: We can increase our global competitiveness in education by forcing all schools to compete for the privilege of serving each and every student. America, more than any other nation in history, has proven that market competition drives up quality and drives down costs across the entire economy. And yet, in the area of education, we remain unconsciously but inextricably wedded to a Marxist approach, despite overwhelming evidence of its inferiority.

It is as though Congress, like “international man of mystery” Austin Powers, has just awoken after sleeping in suspended animation since the 1960s, unaware of how the Cold War turned out.

Basil Expedition:  The Cold War is over!
Austin Powers:  Well!  Finally those capitalistic pigs will pay for their crimes, eh? Eh comrades? Eh?
Basil Expedition:  Austin… we won.
Austin Powers:  Oh, groovy, smashing!  Yay capitalism!

Uh, Congress? We won, and market forces work as well in education as in every other field.

The More You Tax, the Less You Get

An article in USA Today notes that big tax hikes on tobacco have dramatically reduced consumption of cigarettes. This is hardly surprising. Indeed, politicians openly state that they want higher tobacco taxes to discourage smoking, and their economic analysis is correct (even if their nanny-state impulses are not).

It is frustrating, though, that the same politicians quickly forget economic analysis when the debate shifts to taxes on work, saving, investment, and entrepreneurship. But just as tobacco consumption fell when taxes rose, it is inevitable that there will be less productive activity if statists in Congress follow through on plans to hike tax rates on capital gains and corporate income:

As Congress weighs the biggest federal cigarette tax hike in history, a
USA TODAY analysis finds that higher state taxes on smokers have produced sharp declines in consumption. The amount of decline in smoking is directly tied to the size of the tax increase, the analysis shows. Cigarette sales fell 18% in North Carolina last year after the tax was raised in two steps to 35 cents from a nickel. The tobacco-growing state resisted higher cigarette taxes until 2005.

Elsewhere: Connecticut has increased its tax to $1.51 from 50 cents per pack in 2002. Since then, per capita consumption of cigarettes has fallen 37%.
New Jersey raised its tax to $2.40 from 80 cents in 2002. Smoking has dropped 35%.

…Thomas Briant, executive director of the National Association of Tobacco Outlets, agrees that consumption will fall about 6% if a $1 federal tax is imposed but says the high tax will have negative effects. State governments will suffer a sharp decline in revenue, and black-market sales and thefts will increase to avoid the draconian tax, he says.