Bush to Congress - Unhand that Candy!

Last week, the House passed an energy tax bill that would dole out some $18 billion worth of renewable energy tax breaks. To pay for it, they would increase taxes (advertised falsely as eliminating equivalent tax breaks) to the same degree on everyone’s favorite kicking-post, “Big Oil.” The bill is now in the Senate, and most observers doubt that the latter aspect of the bill will survive.

Okay, so what does the adminstration say about this? Andy Karsner, assistant secretary for energy efficiency and renewable energy at the DoE, sticks to the standard administration script - he wants the spending but not the taxing. At an energy conference hosted by the administration today, Greenwire (subscription required) reports that he said, “Stop holding the ‘candy’ hostage to political arguments and games and distractions!”

So this is what conservative Republicanism has come to. Corporate welfare (at least, some corporate welfare) is candy. Subsidies are, presumably, akin to chocolate. Well, if so, then it’s time for these guys to go on a diet. Better yet, it’s time for these guys to get out of town. Let’s take away everyone’s candy and call it a day.

Bloomberg Columnist Defends Tax Havens

Matthew Lynn of Bloomberg has an excellent column about the Germany-Liechtenstein tax controversy. Lynn explains that the fiscal sovereignty of low-tax jurisdictions should not be hindered just because politicians in other nations are greedy for more revenue. He also explains that competition between nations should be applauded, not persecuted, and he makes the key point that criminals and terrorists prefer to use “onshore” banks (even the United Nations has admitted bad guys avoid so-called tax havens). Key excerpts include:

Over the past few weeks, [Angela Merkel] has been leading an all-out assault on her tiny neighbor Liechtenstein. Its crime? Not cooperating in Germany’s investigation of alleged tax evaders. The tussle between Germany and Liechtenstein is just the overture to a wider battle between the big European nations and the tiny low-tax principalities. Next up: Monaco and Andorra. And yet, the attacks are completely unfair. Places such as Monaco and Liechtenstein have a right to keep banking secrecy and shouldn’t be forced to act as tax enforcers for other countries. Germany should spend more time worrying about why so much wealth is fleeing its borders – and less time picking on places a mere fraction of their size. … You can see why the tax havens are an irritation for the big European governments. In a world of increasing mobility, and better communication links, it has become easier for the wealthy to shift their base to a more tax-friendly environment. Half the British corporate establishment seems to be based in Monaco these days. Plenty of Germans appear to be storing money away in
Liechtenstein. … Germany has a right to set whatever laws it likes for people living in Germany. If it wants to ban its citizens from holding accounts – or setting up trusts and foundations – in other countries, it can do so (and deal with the flight of people and capital). But it can’t harass other countries into changing their practices. If people invest in low-tax countries or in legal structures such as foundations, their tax liability is their business, not the responsibility of the host nation. For most legitimate investors, low-tax principalities provide a useful alternative to the high-tax, big-government consensus that suffocates much of Europe. Lastly, it is ludicrous to say that this kind of tax “competition” is unfair. All competition is unfair. These are small nations entitled to make their living any way they want to. It is no more unfair than Germany’s proficiency at making cars, or the French aptitude at making wine. Should the Germans shut down their luxury-car industry because it makes life difficult for auto workers in the rest of Europe? Of course not. So why should Liechtenstein close its financial-services industry? Naturally, tax havens should make sure they aren’t harboring assets for criminals or terrorists. And yet, that is a red herring. Mounir el-Matassadeq, the only person to stand trial over the Sept. 11 terror attacks in the U.S., operated out of Hamburg, not Liechtenstein. One of the suspected hijackers used accounts in Florida, not Monaco. In reality, terrorists use everyday banks because they attract less suspicion.

New Paper on Electronic Employment Eligibility Verification

For all its wonders, technology is not something policymakers can sprinkle on deep-seated economic and social problems to make them go away. Electronic employment eligibility verification - the idea of automated immigration-background checks on all newly hired workers - illustrates this well.

A national EEV program would immerse America’s workers and businesses in Kafkaesque bureaucracy and erode the freedoms of American citizens, even as it failed to stem illegal immigration.

Ultimately, there is no alternative but for Congress to repair the broken immigration system by aligning legal immigration with our nation’s economic demand for labor.

Read about it in my new paper, “Electronic Employment Eligibility Verification: Franz Kafka’s Solution to Illegal Immigration.”

The Crazy Talk Express

… just keeps rolling along. The other day, the topic of conversation turned to autism and vaccines. “There is strong evidence,” John McCain said, “that indicates that it’s got to do with a preservative in vaccines.”

Strong evidence, eh? If so, that evidence has escaped the attention of the Institute of Medicine of the National Academy of Sciences, which recently published a thorough review of the data available on this matter and, well, shot John McCain’s opinion to pieces. But what do they know? John McCain has been studying this issue for years - in between his investigation of human growth hormones in baseball, of course, and a panoply of other pressing medical and scientific matters.

Seriously, what the …? Is John McCain the political equivalent of Cliff Clavin? Or will he say just about anything to get a vote?

It’s one thing when Robert F. Kennedy, Jr. peddles this nonsense. He’s a Deep (very deep)-Green-Environmentalist, and environmentalists like him are at eternal war with the Periodic Table. This narrative of mercury-killing-kids-for-drug-company-profit comes naturally to him, so one makes allowances in his case. (Fun aside: the next time RFK Jr. talks about the moral and intellectual imperative to defer to the consensus of science when it comes to global warming, ask him [or his image on television] to square that instinct with the dangerous nonsense he’s spouting about vaccines. But I digress.) But for John McCain to offer the same tripe is something else entirely. How many kids have to die in Boulder, Colorado, to deliver John McCain to the White House?

Okay, perhaps that’s a little unfair (emphasis on “perhaps” and “little”), but the question remains. John McCain: cynical panderer or dangerous crackpot? We report, you decide.

Europeans Launch New Attack against Tax Competition

Hoping to get the ability to track – and tax – flight capital, uncompetitive welfare states in Europe are launching a new attack against so-called tax havens. Nations such as France and Germany want to expand the savings tax directive so that financial privacy laws are emasculated and more forms of saving and investment are subject to extra layers of taxation. Fortunately, there are some EU nations that still respect privacy rights, and they are very reluctant to change their policies merely because other nations have bad tax law. Moreover, non-EU jurisdictions such as Switzerland and Liechtenstein are even more likely to resist. The International Herald Tribune reports on the conflict:

Under pressure from Germany, the European Commission will draw up new proposals this year that are likely to widen the scope of legislation on tax evasion - and close a loophole under which trusts and some other savings escape the same controls as cash. …However the newest initiative seems destined to re-ignite the long-running and bitter EU battle over banking secrecy. On Tuesday, Luxembourg, Belgium and Austria hinted that they would resist any moves to force them to provide information to other tax authorities on the savings of nonresident investors. …Germany and Britain want Luxembourg, Belgium and Austria to agree to exchange information so that the EU can apply pressure to the non-European jurisdictions to do the same. Broadly speaking, the tax also is only applied on interest earned on cash deposits, not dividends or the type of trusts that were being used in Liechtenstein. During a meeting Tuesday, the German finance minister, Peer Steinbrück referred specifically to the “spectacular case of tax fraud” emanating from Liechtenstein, according to one official who attended the closed-door discussion. …”German tax payers have effectively been made fools of by high earners using the system to avoid paying tax,” said Steinbrück, who described evasion as a “social and moral issue,” the official added. …”Tax paradises in practice become tax parasites,” argued Anders Borg, the Swedish finance minister. …However the EU is likely to be much more divided about banking secrecy. Jean-Claude Juncker, Luxembourg’s premier and finance minister, made a veiled threat at the Tuesday meeting to stall any potential changes. “I look forward to many years of fascinating, fundamental, discussion,” Juncker said, according to the official. …Kovacs also said that he would escalate efforts to persuade other jurisdictions to abide by the terms of the deal, including Hong Kong, Macao and Singapore.

The Fierce Urgency of Shame

Last week’s decision by the Air Force to spend up to $100 billion over the next 30 years on an airborne fuel tanker built by a partnership of Northrop Grumman and the European Aeronautic Defense and Space Company (EADS) – rather than by Boeing – offers a teachable moment about an ugly, age-old truth regarding American politics. To wit, well organized political constituencies – and the politicians that cater to them – are perfectly willing to rip off the country for a buck and a vote.

The United States Air Force reports that the Airbus airborne fuel tanker outperforms the Boeing airborne fuel tanker on all five relevant selection criteria. So the issue is quite simple: Should the Air Force buy the best plane possible for the United States military, or should the Air Force buy the best plane possible for some politically well-connected investors and workers and force the military to operate sub-optimal weapons systems as a consequence?

The fact that well organized interest groups – namely, Boeing Corporation and the workers that would be employed by the tanker contract – are unconcerned with the injury they would do to both U.S. taxpayers and the U.S. military in the course of making a few extra bucks should not surprise. It’s a story that could be retold dozens of times over. The fact that Boeing and the workers associated with Boeing wrap themselves up in patriotic garb in the course of hobbling America’s military abroad is what truly grates.

I don’t know whether the military really needs a new airborne fuel tanker, whether a new airborne fuel tanker is a good buy for the taxpayer, or whether the Airbus model really outperforms the Boeing model (and given the track record of military procurement bureaucracies, it’s not unimaginable that the Air Force might have gotten this wrong). I do know, however, that if the military is going to buy one, its decision about what model to buy ought to be based on pure, unadulterated merit – leavened by a concern for getting the best performance bang for the contract buck given the limited resources of the American taxpayer.

Any other consideration forced on the military is a raw declaration that our military’s fighting power should suffer for somebody’s pay check. Those making that argument while boasting about their love for country ought to be deeply ashamed.

Note to the idealists: Both Barack Obama and Hillary Clinton have expressed opposition to the Air Force decision. Now, either they know something about the technical details of the Airbus and Boeing airborne tankers that has escaped the Air Force’s attention, or the promise of a “new politics” is as empty as one might expect.

Conservatives and Free Trade

Robert Lighthizer tries to make the case in this morning’s New York Times that conservative Republicans should all be pragmatic protectionists.

It’s telling that the op-ed column does not present one bit of evidence that trade barriers have actually made America a more free and prosperous country. His argument, rather, is one of name dropping: Many liberals, including Ted Kennedy, have “supported the advance of free trade” while many conservatives, including Ronald Reagan, have prudently deviated from “free-trade dogma.”

Lighthizer paints a misleading caricature of Ronald Reagan’s trade legacy. It’s true that Reagan bowed to protectionist pressure more often than he should have, but in his words and most of his deeds, he came down squarely in favor of free trade. As I noted in an op-ed published shortly after Reagan’s death in June 2004:

Reagan’s heart and head were clearly on the side of free trade. While president, he declared in 1986: “Our trade policy rests firmly on the foundation of free and open markets. I recognize … the inescapable conclusion that all of history has taught: The freer the flow of world trade, the stronger the tides of human progress and peace among nations.’

It was the Reagan administration that launched the Uruguay Round of multilateral trade negotiations in 1986 that lowered global tariffs and created the World Trade Organization. It was his administration that won approval of the U.S.-Canada Free Trade Agreement in 1988. That agreement soon expanded to include Mexico in what became the North American Free Trade Agreement, realizing a vision that Reagan first articulated in the 1980 campaign. It was Reagan who vetoed protectionist textile quota bills in 1985 and 1988.

And Ted Kennedy as a free trader? His trade record is mixed, but on most votes in recent years, he has come down against trade liberalization. According to our new trade vote web feature, “Free Trade, Free Markets,” Kennedy voted against the Central American Free Trade Agreement, the Chile and Singapore FTAs, presidential trade promotion authority, and the 2000 African trade bill. He voted in favor of China currency sanctions, exempting anti-dumping laws from WTO negotiations and the trade-distorting farm bill now making its way through Congress. If that’s the record of a free-trader, then the term has lost any meaning.

Whether a conservative should support free trade ultimately turns on what THAT label means. If conservative means one who opposes change and wants to preserve the status quo, then free trade is probably not the right policy. But if conservative means one who favors individual liberty, free markets, limited government, and a more peaceful world, free trade is a grand slam.