Securing Land Rights for Chinese Farmers

A critical determinant of China’s long-term economic growth and social stability will be whether the wealth of its economic boom can reach the majority of its 700 million farmers, who make up approximately 56 percent of the total population. In the new Cato study, “Securing Land Rights for Chinese Farmers: A Leap Forward for Stability and Growth,” authors Zhu Keliang and Roy Prosterman confirm one fundamental cause of the widening rural-urban income gap: most Chinese farmers still lack secure and marketable land rights that would allow them to make long-term investments in land, decisively improve productivity, and accumulate wealth.

Universal Coverage: Check Your Freedom at the Door

Today, the Cato Institute releases a study by attorney Kent Masterson Brown titled, “The Freedom to Spend Your Own Money on Medical Care: A Common Casualty of Universal Coverage.”  Brown addresses a dark side of universal coverage that proponents tend to de-emphasize:

Most people would agree that a patient should always be able to spend his own money on the health care services he desires. Yet that freedom is often threatened or denied when government tries to provide universal health insurance coverage, as in the U.S. Medicare program, which provides health insurance to seniors and people with disabilities. Over the past 20 years, the Medicare bureaucracy—and to a lesser extent Congress itself—has limited the freedom of Medicare beneficiaries to purchase medical services with their own money. Those limitations violate beneficiaries’ right to privacy, undermine a tool that could reduce the burden Medicare imposes on taxpayers, and may deny care to Medicare beneficiaries outright, or deny them access to the highest quality care available.

Brown was the lead attorney in Stewart et al. v. Sullivan (1992) and United Seniors Association et al. v. Shalala (1999), two cases challenging Medicare’s efforts to eliminate beneficiaries’ freedom to spend their own money as they wish.

Note that New York Times columnist Paul Krugman, presidential candidate Dennis Kucinich, and others want “Medicare for All,” while Hillary Clinton wants to open Medicare or a similar program to all Americans.

This debate is going to be fun.

Bush Administration Seeks More Risky Government Housing Handouts

John Berlau of the Competitive Enterprise Institute explains in the Wall Street Journal how the Federal Housing Administration has hindered the effective functioning of the housing market - and how Congress and the White House want to make the problem even worse:

Both Mr. Frank and President Bush support major increases in the limits on the value of loans the agency can make, which are contained in a bill that passed the House of Representatives last month. Only 72 Republicans, mostly members of the conservative Republican Study Committee, voted against the bill. A similar bill cleared the Senate Banking Committee 20-1. But before the FHA’s loan spigots are opened up, a little due diligence by the political sector is in order. The FHA’s recent credit history shows it is far from the prudent institution it is said to be. By its own estimate, next year the agency expects to be in the red, paying out more for defaulted loans than borrowers pay to it in insurance premiums. …The agency poses more than just a threat to taxpayers. The collapse of whole segments of the housing market can be traced to FHA-subsidized mortgage products. Despite its decreasing market share, the FHA appears to have played a significant role in the current mortgage “meltdown” attributed to subprime loans. For the past three years, delinquency rates on the oh-so-safe mortgages insured by the FHA have consistently been higher than even those of the dreaded subprime mortgages. …FHA-insured loans have also been at the center of some of the worst excesses of the housing boom, including mortgage fraud, loans made without income verification, and property “flipping” with inflated appraisals. …In both the Clinton and Bush administrations, the FHA’s response to private alternatives for low-income borrowers was to aggressively compete with them – by making the agency’s own lending standards even more “subprime” than those of the private sector. Since its inception in 1934, the FHA has required a down payment – originally 20%, but gradually whittled down to 3% – for a home loan. …Despite these trends, HUD Secretary Jackson’s biggest concern has appeared to be not the FHA’s solvency, but the government agency’s loss of business to the private sector. “I am absolutely emphatic about winning back our share of the market,” he told the Washington Post in 2005. Looking at the agency’s dismal performance over the past few years, we can predict that, if the FHA racks up more “wins,” taxpayers and low-income home buyers will likely be suffering the losses.

Democratic Candidates Uniformly Bad on Capital Gains Tax Issue

The Wall Street Journal opines about the universal support for higher capital gains tax rates by the leading Democratic presidential candidates. Hillary is the “moderate,” seeking to raise the rate to 20 percent, while Obama and Edwards want a 28 percent rate. Yet as the WSJ explains, the capital gains tax is a perverse form of double taxation that ultimately hurts workers by reducing the amount of capital in the economy:

When it comes to taxes, Barack Obama is no Jack Kennedy. The Illinois Senator recently announced that he wants to raise the capital gains tax to restore “fairness” to the tax code. That makes it a three-peat: All of the leading Democratic contenders for President have endorsed higher taxes on stock ownership. Hillary Clinton is the “moderate” in that so far she’d merely raise the tax to 20% from the current 15% – a 33% increase. John Edwards and Mr. Obama want to nearly double it, to 28%. …roughly 52% of American adults own stock in some form, and last year 8.5 million of these investors paid a capital gains tax. The value of those assets will decline if capital gains taxes go up because financial markets instantly capitalize higher taxes on stock profits into lower stock prices. …Since we already tax corporate earnings at 35% through the corporate income tax, taxing those profits again when the stock is sold imposes a double tax on risk capital. That’s why 12 industrialized nations, including Hong Kong and Korea, impose a zero capital gains rate. …A study by former Treasury Department economist Gary Robbins has found that from 1946-1998, about 90% of the returns to capital investment accrued to workers in the form of higher wages, because when workers have more tools like computers, forklifts and robotic equipment, they produce more.

Cut Taxes to Keep Those Assets Here

The Wall Street Journal had a tiny “In Brief” story on October 10 with the headline “To Help Reduce Tax Load, 3M to Move Plants Abroad.”

Here’s the story:

Manufacturing conglomerate 3M Co. plans to move more of its operations to low-tax locations overseas in coming years as it attempts to reduce its overall tax rate. Chief Financial Officer Pat Campbell said the move is designed to help the St. Paul, Minn., maker of products ranging from transparent tape to stethoscopes achieve a tax rate of 30.5% by 2012, a reduction of about 2.5 percentage points. That would mean a $150 million to $200 million increase in 3M earnings.

If 3M had said that it was moving plants abroad in search of lower wages, the story would have been on the front page, rather than buried in the back as a small notice. The lack of news coverage on international tax competition is odd, given the general concern about the health of the U.S. manufacturing industry.  

Here is a presentation regarding 3M’s strategy by the firm’s CFO. Check out:

Page 35: “Moving Assets to Low Tax Growth Markets.” Observation: Corporate investment flows to countries that have both strong growth potential and low taxes.

Page 38: The chart shows that 3M has a higher effective tax rate at 33% than the average of its peers at 27%. Observation: U.S. corporations pay high tax rates.

Page 39: “Locate capacity in low-tax locations with common shipping locations to growth markets.” Observation: Taxes are not the only locational factor, but are part of a strategy that also requires optimizing logistics and market locations.

Message to U.S. policymakers: cut the corporate tax rate to allow 3M to keep more of its $1.5 billion in annual capital investments here.

Globalization and Food Safety

The Washington Post has an interesting story today about E. coli on lettuce. A batch of lettuce produced in California last month passed through numerous screenings and was sent to U.S. grocery stores. Some of it was also sent to Canada, and the government there found E. coli, which led to a major recall across both countries.

Here are some speculations:

  • Globalization increases the safety of American-produced goods because those goods must often pass muster in foreign markets where consumers and governments have different standards and safety procedures.
     
  • I don’t know whether American or Canadian food safety procedures are better, but a diversity of systems generates greater information, which allows producers and governments everywhere to improve quality.
     
  • Globalization doesn’t lead to a “race to the bottom” on environmental standards as critics often claim. Some countries, such as Japan, apparently have very high standards on food, and that tends to push up standards elsewhere. When Japanese importers demand strict standards from Chinese food producers, Americans consuming Chinese products also benefit.