Is the Czech Republic Joining the Flat Tax Club?

Although the government lacks a majority in Parliament, the Czech Republic’s Prime Minister has announced a 15 percent flat tax. According to Tax-news.com, the proposal will be unveiled next month:

Czech Prime Minister Mirek Topolanek has reportedly stated that his government’s plan to introduce a flat income tax is a near certainty. In comments made to the daily Hospodarske Noviny newspaper, Topolanek said that at the moment, a 15% flat tax rate is “certain”. … The reform package will be published by the government in April. … Initially, the coalition had planned to introduce a flat tax at a rate of 17% to 19%. Corporate tax in the Czech Republic was reduced to 24% last year, and personal income tax rates are levied at progressive rates to a maximum of 32%.

Given the government’s precarious hold on power, it is unclear whether the proposal will be enacted. A Czech news service notes that the economic community likes the flat tax, but there is some concern that it will not get enough votes:

Analysts are cautiously optimistic that the government’s upcoming flat tax and other tax reforms, set to be announced April 3, may strengthen public finances. However, while all the analysts spoken to by CBW agree a tax reform is much needed, and that the proposals published thus far would have a positive impact on the economy, they caution that the draft legislation is still a long way from the law books and is likely to change before it gets there. … David Marek, macroeconomic analyst, with brokerage Patria Finance said that the lower corporate tax rates are the most important part of the reform because they will give the Czech Republic one of the lower corporate tax rates in Europe and encourage foreign direct investment.

But if it did get enacted, it would create additional pressure on Western Europe’s welfare states. One can only imagine that French and German politicians are praying that the flat tax is not adopted.

Market Education Debate, Part Three

Sara Mead of Education Sector continues our discussion of education markets here. She rounds out her post by impugning my professional integrity, but not before she has misrepresented my position. I’ll begin at the beginning.

Mead claims that I advocate letting Chilean children languish under its current voucher system which financially discriminates against private schools serving the poor. I said no such thing. Among the many changes I would make to the Chilean system, the first would be to equalize public and private sector funding levels.

Mead then manages to combine two distinct errors into a single sentence: the first, a misrepresentation of the evidence, and the second, a non-sequitur. She writes: “Leave aside that it’s not clear [that expanding Chile’s choice program] would be desirable, since poor students in Chile’s private schools perform less well than those in its public schools.”

First, as I pointed out in my previous post, Chile’s government schools only outperform the private sector when they receive between 150 and 300 percent of the voucher amount – and it is government schools serving the poor that enjoy targeted federal funding programs not available to the private sector. When they receive only about as much as the voucher, or even somewhat more, government schools perform worse. So, by equalizing funding across sectors, Chile could make significantly more efficient use of its educational dollars in serving all its children. This 2002 finding by Sapelli and Vial is discussed in detail in the pieces to which I have previously linked.

Second, the non-sequitur: Even if Chile’s government schools were outperforming its private schools in serving the poor (which, taking funding levels into account, they are not) it would not follow that the choice program lacked value. That’s because the competition produced by the choice program has been improving achievement simultaneously in both government schools and private voucher schools. This result was demonstrated by researcher Francisco Gallego, and is also cited in the pieces I’ve linked to.

Next, let’s turn to the Netherlands. Ms. Mead complains that “Coulson doesn’t even engage with my argument that the situation of the Netherlands is fundamentally different from that of the United States in ways that make it unhelpful as an example here.” Mead presented no such argument. She simply claimed, without rational justification, that because the Dutch adopted a voucher system to end religious strife and ideological dissatisfaction over the content of government schooling, their experience doesn’t apply to us. A claim is not an argument, and this particular claim is simply wrong.

The earlier Dutch conflict over the content of its government schools is not a point of divergence between our countries, it is a point of similarity. St. Augustine’s Church was burned to the ground in 1844 during Philadelphia’s “Bible Riots” which were fought over which version of the Bible, Protestant or Catholic, would be used in government schools. To this day, there is a an ongoing cultural battle between Red and Blue America over what should be taught in public schools. Both our countries are pluralistic, and there is no reason to believe that the general international pattern of supply rising to meet demand under school choice programs would magically take a holiday in the United States.

If Mead wants to attempt an argument to the contrary, she is welcome to do so, but she hasn’t made one yet.

A related point that Mead does not seem to have internalized is that the usefulness of the international data is to be found in the patterns that exist across nations. When a consistent pattern of success or failure can be discerned for some given school system across many different times and places, it suggests that there is something truly systemic at work, and not simply accidents of circumstance – because the circumstances are different, but the results similar. The degree of confidence of such conclusions is proportional to the breadth of evidence across which the patterns are found – so the more evidence we look at, the more sure we can be.

Supply has always risen to meet demand in the private education sector, across nations, except to the extent it has been obstructed by government interference, such as the funding discrimination that exists in most nations, or the regulations imposed on private schools that stifle the specialization that contributes to their appeal. Sometimes it rises even despite these impediments, as in India and parts of Africa today.

This search for patterns across time and place has a name: “natural experimentation,” and it is used by researchers in fields from epidemiology to cosmology. It is also the methodology underpinning Jared Diamond’s fascinating analysis of the fates of human societies in his Pulitzer Prize-winning Guns, Germs, and Steel.

Ms. Mead, apparently unfamiliar with this analytic technique, is at a loss to understand why I have looked so far and wide to study market forces in education. Unable to discern that reason, she decides to impugn my integrity instead.

Mead characterizes me as a “disingenuous” ideologue who spends a lot of his “time trying to find examples that will support his ideological support for vouchers.” I, she claims, am “much more interested in expanding choice” for its own sake, whereas she, she tells us, is “much more focused on expanding the supply of high-quality schools serving poor kids.”

The truth, as I explained above, is more prosaic: I have studied the evidence of market versus bureaucratic school systems, serving children at all income levels, wherever it is to be found. Far from avoiding the study of conflicting evidence, I have sought it out, in both my historical work and my review of the modern international research. But Ms. Mead wouldn’t know that, because she is, by her own admission, unfamiliar with my work.

To impugn a scholar’s professional integrity by claiming that they cherry pick their data, without actually being familiar with that person’s work, shows poor judgment and a lack of intellectual rigor. Poor kids – all kids – deserve better from the education policy community.

Europe Takes Another Step Toward Tax Harmonization

Even though several nations are opposed, the European Commission plans to harmonize the definition of taxable income for corporations. It is true that the current system is a hassle for multinational companies, requiring 27 different tax returns for firms operating in all EU nations. But there are good ways and bad ways to address this problem. Allowing firms the option of choosing the “common” tax base would ensure that the bureaucrats in Brussels had less of an incentive to use the new system as a way of extorting more money from businesses. Another option would allow firms to use their home country’s definition of taxable income – an approach that would promote rather than retard tax competiiton since governments would have an incentive to attract companies by using a pro-growth definition of taxable income. Needless to say, the European Commission is not using either of these approaches. The EU Observer reports:

The European Commission is set to press ahead with introducing a single EU company tax base by 2010 in only a limited number of member states, circumventing national veto power in the sensitive tax area. … EU member states are deeply divided over possible harmonization, with 12 capitals in favour, five to seven against and the rest remaining undecided. Britain, Ireland and the Baltic states fear that the next step for Brussels would be interference in the levels of their corporate taxes, an area where EU states compete with each other as well.

Five Years Is a Long Time, Part 3

Here’s what McCain-Feingold did and did not do.

1. BCRA successfully prohibited most party soft money fundraising by federal officials.

So what? 527 groups took up most of the slack.

2. Parties raised as much hard money in 2006 as they had soft and hard money in 2002.

Yes, but they did not raise as much soft and hard money as they would have in 2006 if BCRA had not been passed. This had an interesting consequence…

3. BCRA cost the Democrats 20 House seats in the 2006 election.

Here’s why.

4. BCRA made it illegal to broadcast advertising for a movie criticizing the president of the United States.

If the ads were to run 30 days before a primary or 60 days before a general election. Unless, of course, the film enjoys the media exemption.

5. BCRA criminalized attempts to get people to contact their member of Congress.

If they mention a member’s name in an ad, if it’s 30 or 60 days, you know the drill. But the Supreme Court may yet overturn this part of the law.

6. BCRA may destroy the presidential public financing system.

By raising the hard money contribution limits, thereby making it possible for presidential candidates to run outside the system. But credit must also go to the Internet for lowering the costs of fundraising.

7. BCRA enabled a majority of the Supreme Court to be cowardly in the face of a frontal assault on the First Amendment.

Did I say cowardly? I meant BCRA gave the Court the chance to show “proper deference to Congress’ ability to weigh competing constitutional interests in an area in which it enjoys particular expertise.”

8. BCRA did not prevent corruption.

Remember why congressional Republicans were in trouble in 2006? BCRA didn’t prevent that corruption. Nor did it punish the malefactors. The voters did.

9. BCRA did not restore confidence in government.

Yes, I know. People should not have too much confidence in government. But justices of the Supreme Court care about such things. The American National Election Studies trust in government index fell in 2004 after rising continuously from 1994 to 2002. No prizes for guessing whether it fell or rose in 2006, surely one of the worst years on record for people’s faith that their government is not corrupt. So BCRA passes in 2002 and trust in government falls thereafter.

10. BCRA made John McCain a credible candidate for the presidency.

For now, at least.

11. BCRA did not hurt the Republican party.

They did that all by themselves.

Undermining America’s Social Capital with Redistribution

A new report from the Tax Foundation analyzes the degree of redistribution imposed by government. According to the study:

America’s lowest-earning one-fifth of households received roughly $8.21 in government spending for each dollar of taxes paid in 2004. Households with middle-incomes received $1.30 per tax dollar, and America’s highest-earning households received $0.41. Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in federal, state and local taxes. In 2004, between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending policy.

This huge shift of resources punishes those who produce and rewards those who do not. This hurts economic performance by distorting incentives. Investor’s Business Daily identifies another problem that may be equally troublesome. Massive amounts of redistribution create an entitlement mentality. People being to think that government owes them a living. And as an editorial from IBD notes, public opinion data are trending in the wrong direction:

…the U.S. tax code is becoming more progressive, not less. No one minds helping the truly needy. But as with welfare in the pre-1996 reform era, reliance on government can become a habit — imposing huge costs on our national economy. Worse, a ‘what’s in it for me?’ attitude seems increasingly the norm. Once a nation of stoic, self-reliant individualists, America now seems full of people who think other taxpayers owe them something. They see the ‘system’ as a giant cow to be milked — and damn the cow. This is backed up by polling data. In a 1994 Pew poll, 57% agreed with the statement ‘Government should care for those who can’t care for themselves.’ Today, it’s 69%.

Moving (Government) Forward Faster

Washington, D.C., mayor Adrian Fenty released his proposed budget last week.  Titled “Moving Forward Faster,” it’s an example of the sort of thing you’d expect from a D.C. mayor who is quite fond of the nanny state.

To avoid having to read the entire document yourself, here’s the punch-line:  Government spending – that is, expenditures financed by locally-derived revenue, not federal transfers – grows by a proposed 8.8 percent.  By way of comparison, the city’s budget under Mayor Anthony “Baseball” Williams grew by an annual average of 7.5 percent.

But the large increase can be explained by a growing DC population, right?  Nope.  The most recent Census numbers show that the city’s population fell between July 2005 and July 2006.  Even if fewer people flee to Virginia or Maryland this year – or even if more people start actually moving in the opposite direction – it’s virtually impossible that the population growth figures will spike by nine percent.  Average annual population growth since 2003, for instance, hasn’t even come close to breaching the one-percent mark.

Fenty describes his budget proposal as “fiscally conservative” in his transmittal letter to the DC Council.  Yet maybe we shouldn’t ridicule him for that.  Since he’s operating in a city where a Republican president who spends taxpayer money almost as fast as Lyndon Johnson also calls himself “fiscally conservative,” perhaps the mayor is just mimicking the local custom.

Five Years Is a Long Time, Part 2

What has the Bipartisan Campaign Reform Act accomplished over the last five years?

Not much. But don’t take my word for it. Mark Schmitt helped fund the struggle for BCRA as a program officer at the Open Society Institute. Now he has written a candid and thoughtful analysis that begins:

Judged by the most visible results on promises like getting big money out of politics or cleaning up politics, campaign finance reform has been, to put it mildly, a disappointment.