How Clever Is ‘Al Qaeda in Iraq’?

Anna Mulrine, US News and World Report, July 25, 2007:

As President Bush continues to stress al Qaeda as the chief threat to Iraq’s stability — a reprised effort to establish a link between al Qaeda in Iraq and the 9/11 attackers — U.S. military forces on the ground in Iraq are fighting a complex war in regions with vast networks of overlapping loyalties — and few foreign fighters. Most members of al Qaeda in Iraq, say commanders on the ground, are local Iraqi outcasts.

“I can count them [foreign fighters] as a total I have engaged, dead or alive, in the 10 months I’ve been here on one hand,” says Col. David Sutherland, the U.S. commander of coalition forces in the hotly contested area of Diyala province, an insurgent stronghold region some 35 miles northeast of Baghdad. There, Sutherland says, those involved in al Qaeda are largely dispossessed locals, not jihadists who have come from elsewhere. “The recruiting program is [that] al Qaeda may send five or eight individuals into a village. They recruit from those who have no power base, no place in society,” including, he adds, former male prostitutes and the mentally ill.

Osama bin Laden, al Qaeda, November 5, 2004:

[I]t was easy for us to provoke this administration and to drag it [after us]. It was enough for us to send two Jihad fighters to the farthest east to hoist a rag on which “Al-Qa’ida” was written — that was enough to cause generals to rush off to this place, thereby causing America human and financial and political losses, without it accomplishing anything worthy of mention, apart from giving business to [the generals’] private corporations. Besides, we gained experience in guerilla warfare and in conducting a war of attrition in our fight with the iniquitous, great power, that is, when we conducted a war of attrition against Russia with Jihad fighters for 10 years until they went bankrupt, with Allah’s grace; as a result, they were forced to withdraw in defeat, all praise and thanks to Allah. We are continuing in the same policy — to make America bleed profusely to the point of bankruptcy, Allah willing. And that is not too difficult for Allah.

Trillion Dollar Man

The recent budget update from the Bush administration shows that federal spending will be $2.918 trillion in fiscal 2008. That means that spending increases under Bush will break the $1 trillion mark when the new fiscal year begins in October. Spending was $1.863 trillion when he came to office in fiscal 2001.

Bush’s last budget year will be fiscal 2009, at which time he is projecting to spend $3.016 trillion. Thus in eight short years, with relatively low inflation, this president and spendthrift congresses will have blasted through both the $2 trillion spending mark and the the $3 trillion mark.

More Evidence for a Corporate Rate Cut

Glenn Hubbard, the former chairman of the Council of Economic Advisers, comments in a Wall Street Journal column ($) that the corporate income tax hurts workers. He cites recent research showing that a lower corporate tax rate would have a substantial Laffer Curve effect.

As explained in a recent Tax & Budget Bulletin, the rest of the world is moving toward lower tax rates. The longer U.S. policy makers wait to implement similar reforms, the larger the losses for American workers:

[T]he tax may be borne not entirely (or even principally) by owners of capital, but by workers. Globalization plays a role. In an open economy, with mobile capital, a source-based tax like the corporate tax will lead to a capital outflow, reducing investment and productivity and wages.

…In other research assuming that the world-wide capital stock is fixed, William Randolph of the Congressional Budget Office finds that labor bears about 70% of the corporate tax. …A recent paper by Kevin Hassett and Aparna Mathur of the American Enterprise Institute analyzes data across countries and over time, concluding that for countries that are part of the Organization for Economic Cooperation and Development (OECD), a 1% increase in corporate tax rates results in a 0.8% decrease in manufacturing wage rates.  …A recent survey and study by KPMG shows, for example, that competition for investment continues to drive down tax rates around the globe, with further cuts in the pipeline from China, Germany, Singapore and Britain, among others. The desire for these cuts comes in part from the significant responsiveness both of real investment and taxable income to corporate tax rates. …Recent research by Michael Devereux of the University of Warwick suggests, though, that the revenue-maximizing corporate tax rate in OECD countries is likely less than 30%. That is, higher corporate investment (and subsequent corporate profits and corporate tax revenue) and shifts in taxable income by multinational firms will substantially reduce the revenue “cost” of a corporate rate cut from the present 35% to, say, 30%.

Cutting the corporate tax rate would be positive for investment, productivity and economic growth. It would also reduce a tax burden now borne in large part (or even entirely) by labor, bolstering wages. And business responses to the tax cut will offset much of the “static” revenue cost.

Urgency on Corporate Tax Reform

The U.S. Treasury held a conference today regarding the growing uncompetitiveness of the U.S. corporate tax system.

Scholars and heads of large corporations have been pointing out the serious problems with the corporate tax for more than 15 years. There is now a growing consensus that the complex and high-rate corporate tax needs to be overhauled.

Here are some of the themes discussed today:

  • Europe is on a corporate tax-cutting binge. Today, the U.S. federal plus average state corporate tax rate stands at 40 percent, which is much higher than the average rate of 24 percent in the European Union. It appears that foreign rates will keep on falling for some time, putting an ever greater squeeze on U.S. competitiveness.
  • Intel Corporation stressed that tax costs are an important consideration when they locate new semiconductor plants. Over a 10-year time frame, Intel figures that it costs $1 billion more to build and run a plant in the United States over competing countries such as Ireland and Malaysia. About 70 percent of the U.S. cost disadvantage stems from taxes.
  • General Electric noted that taxes are not the key issue in determining where it builds new plants. Instead, in GE’s case, tax rules on foreign income determine whether, say, a U.S. or German company ends up owning a new facility in other countries such as Brazil. From a tax perspective, the United States is a bad place to locate the headquarters of a multinational corporation. Most economists believe that damages the U.S. economy.
  • There is a trend toward “territorial” corporate tax systems, with about two-thirds of countries having such systems today. A U.S.-style “worldwide” system is less and less popular because it puts home-country corporations at a disadvantage in global markets.
  • Several speakers stressed that a greater share of corporate value is in the form of intangible property such as patents. Intangible property is more mobile than tangible property, and thus easier to relocate to low-tax jurisdictions.
  • Peter Merrill of PricewaterhouseCoopers noted that because of higher capital mobility, a greater share of the U.S. corporate tax burden is falling on U.S. workers. Kevin Hassett of the American Enterprise Institute has shown statistically that higher corporate tax rates mean lower worker wages.
  • Supply-side economists have long pushed for tax breaks on new capital investments. But there was widespread agreement at the Treasury roundtable that getting the corporate tax rate down is more important than incentives such as investment tax credits. A lower corporate rate reduces all the distortions in the corporate tax code and directly responds to the challenges of growing global capital mobility.

The only red herring I noticed was a repeated suggestion that we should “broaden the base” of the corporate tax to pay for a corporate rate cut. But there is very little broadening that we could do that wouldn’t be economically damaging. There are not a great number of obvious loopholes in the corporate income tax. (There is lots of tax avoidance, but that is a different issue.) The Treasury listed some targeted loopholes in a recent report, but I bet most people at the conference today would object to repealing most of those, such as “deferral of income from controlled foreign corporations.”  

Anyway, kudos to Treasury Secretary Henry Paulson for the important conference and beginning some momentum for corporate tax reform. 

See here for more background on international tax competition and corporate tax reform.

FBI’s Argument is ‘Absurd’

Today, a federal judge awarded plaintiffs $101 million in a lawsuit that was filed against the federal government. FBI officials looked the other way as the plaintiffs were framed for crimes that they did not commit. FBI lawyers said there was no merit to the lawsuit because the FBI had no obligation to come forward with the information it had. The federal judge said that was “absurd.” 

Will the FBI headquarters inform the tourists who visit their facility of its peculiar legal argument? The question sorta answers itself, doesn’t it?   

A great legal victory, to be sure. Unfortunately, I expect the government attorneys will offer a substantially lower amount — or threaten to drag the case through the appellate courts for several more years. Still, this is an important precedent.

It is an outrage that so many wrongfully convicted people get little or no compensation. I don’t know how these politicians can spend the enormous sums that they do and let this go on. Do we need any additional argument for term limits (pdf)?

Previous coverage of this litigation can be found here.

‘God Created Man on Friday’

The title quote is from a language textbook soon to be used in a bilingual Hebrew-English charter school in Florida. Many other religiously themed passages also appear in the book, though they are to be used for translation rather than devotional purposes. Is this constitutional?

Probably, but it’s hard to say. What can be said for sure is that it already has been and will continue to be a source of controversy in the community. This is yet another reason why charter schools do not go far enough on the path to educational freedom.

 So long as all taxpayers are compelled to fund a school, that school must dilute its curriculum to a lowest common denominator: it must contain nothing truly objectionable to any organized interest group, or it will be the subject of contention and quite often litigation. For a full discussion of the social conflicts caused by conventional public schools, please Neal McCluskey’s fascinating paper “Why We Fight.”

Fortunately, there is a simple alternative to charter schools that provides freedom of choice not just to parents but to taxpayers as well: education tax credits. As I’ve previously discussed here and here, non-refundable education tax credits do not constitute public funding and can allow universal access to the educational marketplace without forcing people to subsidize education that they find morally objectionable.

So for anyone who is truly concerned with separation of church and state, and with minimizing social conflict, education tax credits are the answer. To claim that these religious and social concerns are one’s reasons for objecting to school choice while ignoring the tax credit solution is either lazy or disingenuous.

Illegal Manicure in the ‘Live Free or Die’ State

In response to to my post about a (possibly) illegal hairdresser in Massachusetts, Michael Hampton of Homeland Stupidity forwards a link to a priceless local New Hampshire news report. (It’s two years old, but it’s new to me and to this blog.)

Free State Project member Mike Fisher performed an illegal manicure right in front of the “Live Free or Die” state’s Board of Barbering, Cosmetology and Esthetics. (Motto: Yew Best Drop That Thar Em’ry Board, Son.)

When the police asked Fisher if he had a license to perform that thar manicure, Fisher said no. When the police issued him a summons and asked that he stop performing that thar manicure, Fisher refused. So the cops slapped handcuffs on this dangerous outlaw and put him in a squad car. Fisher reportedly received a 30-day suspended sentence, with a vow from the judge that if Fisher receives so much as a traffic ticket, it’s off to the pokey he goes.

I wonder what the Granite State wasn’t doing with the time and resources used to arrest and prosecute Fisher.