Bad Tax System and Predictable Bureaucratic Sloth Put Americans at Greater Risk of Adverse Consequences in Cases of Identity Theft

A story in reports on sloppy security at the IRS. The Treasury Inspector General for Tax Administration found numerous instances of confidential taxpayer information being improperly safeguarded. The article highlights the risks for taxpayers, mostly because of identity theft, but the untold story is that much of the risk is a function of the current tax system. Taxpayers today are forced to divulge information about their financial assets. Why? Because the internal revenue code contains pervasive double-taxation of income that is saved and invested. So if a thief steals an IRS laptop, he may be able to determine all of a taxpayer’s assets. Under a flat tax system, by contrast, there is no double-taxation. Income is taxed only one time, when first earned, and there is no additional tax if people save and invest their after-tax income. The only personal information the IRS would need to enforce a flat tax is the size of the taxpayer’s household and the level of wage and pension income. Under a national sales tax (assuming politicians could be trusted to completely eliminate the income tax), the IRS would have no personal taxpayer information:

…a new government report…has revealed just how vulnerable taxpayer data contained on employee laptops is to theft, fraud and other criminal abuses. The report by the Treasury Inspector General for Tax Administration (TIGTA) found that hundreds of IRS laptop computers and other computer devices had been lost or stolen, employees were not properly encrypting data on the computer devices, and password controls over laptop computers were not adequate. TIGTA concluded that as a result, “it is likely that sensitive data for a significant number of taxpayers have been unnecessarily exposed to potential identity theft and/or other fraudulent schemes.” The report prompted harsh criticism from Grassley, the senior Republican on the Finance Committee, who commented that: “Thieves are very good at mining sensitive data for their own end. One stolen IRS laptop could put thousands of taxpayers in jeopardy. It’s hard to see why this is still a problem when the IRS knew about it more than three years ago.” …The TIGTA report shows that theft of IRS computer equipment potentially containing sensitive information on thousands of taxpayers is running at alarmingly high levels. Between January 2, 2003, and June 13, 2006, IRS employees reported the loss or theft of at least 490 computers. A large number of IRS laptops were stolen from employees’ vehicles and residences, but 111 incidents occurred within IRS facilities, where employees were likely not storing their laptop computers in lockable cabinets while they were away from the office. …TIGTA also evaluated the security of backup data stored at four offsite facilities and found that data was not encrypted and adequately protected at the four sites. For example, at one site, non-IRS employees had full access to the storage area and the IRS backup media. Envelopes and boxes with backup media were open and not resealed. At another site, one employee who retired in March 2006 had full access rights to the non-IRS offsite facility when TIGTA inspectors visited in July 2006.

National Standards, Aussie Style

If the U.S. does decide to homogenize its education system with uniform national standards and tests, our misery may be lessened by some companionship from the land down under.

Australia is currently toying with the same idea, and columnist Kevin Donnelly is trying to keep his country from biting that particular bullet (or rather, the muzzle of the gun housing it).

Donnelly tempts fate, however, by suggesting a federal government role in evaluating national curricula proposed by independent sources. It’s a small political step from evaluation to prescription, and there’s no compelling reason to think that government involvement would help. 

Albania Joins the Flat Tax Club

Spurred by tax competition, the flat tax revolution continues to generate positive results. Albania will have a 10 percent flat tax beginning in January 2008. The corporate rate also will be 10 percent, as will the payroll tax. The latter reform is particularly interesting since many of the flat tax nations in Eastern Europe retain punnitive payroll tax rates - a policy that undermines the pro-growth and pro-employment effects of the flat tax. The Southest European Times reports:

In a bid to promote growth and improve the business climate, the administration of Albanian Prime Minister Sali Berisha plans a major overhaul of the tax system. The biggest change is a switch to a flat tax. “As of January 1st, 2008, Albania will have implemented the 10% flat tax system, one of the lowest in Europe,” Berisha told a business community meeting in late March. Corporate taxes, currently at 20%, are to be slashed in half. Social security contributions from businesses will likewise be capped at 10%. The government and other supporters of the reform say it will widen the taxable base and simplify tax administration, while also making Albania an easier place to invest. According to Finance Minister Ridvan Bode, the changes will lead to a more streamlined fiscal system. “The flat tax helps eliminate the potential arbitrage between corporate tax, dividend taxes and the income tax,” he says. VAT and other taxes will also be gradually reduced in order to woo investors, the minister added. …In the past, the IMF has been wary of plans to reduce taxes in Albania. This time, however, it seems more receptive – provided the overhaul is combined with more effective revenue collection. “We will negotiate with the Albanian government about the tax reduction, depending on the tax collection,” IMF representative Ann Margaret Westin told the press.

Where’s the “D”?

Alexander Russo blogs today about the disconnect in education between research and practice.

Mike Lieberman has done a good job explaining this disconnect in books like Public Education: An Autopsy. He points to the fact that, in other fields, there is a powerful market incentive for applied research. It’s R and D, not just R, and the only justification for the former is the latter. When you don’t have a market, you don’t have that systemic incentive for applied R&D. Instead, pedagogical methods are chosen for their ideological appeal (e.g. whole language), by accident (the infamous California case where Nobel laureate in physics Richard Feynman revealed that several members of his textbook adoption committee had actually rated a blank math textbook), or by conflict of interest (because there ARE incentives in our current school systems, they just aren’t market incentives that make it desirable to find and implement the best, most efficient methods).

High Taxes are Hurting Michigan’s Economy

An onerous tax burden, combined with the inevitable inefficiencies that occur when politicians try to pick winners and losers, are causing Michigan’s economy to lag compared to other states. A column in the Wall Street Journal notes that the governor wants higher taxes - policies that will accelerate Michigan’s decline:

Michigan’s private sector is contracting compared to the expanding tax bases of every other state. The economic fog will lift when policies are enacted that make Michigan a good place to do business for newcomers as well as for existing firms. This won’t happen if the legislators in Lansing, the state capital – who advocate heavier tax burdens on the remaining taxpayers to subsidize or attract firms handpicked by government officials – get their way. These targeted subsidies simply redistribute scarce income. Nor is the governor, Jennifer Granholm, moving in the right direction. Her recent call to impose a 2% tax on most services is a nonstarter. But she’s also calling for a new tax on the estates of wealthy residents, giving those with the means an even more urgent reason to leave. Michigan’s slide will continue.

If Michigan policy makers want the state to prosper, they should return to the policies that originally helped create wealth. First on the list would be repeal of the personal income tax:

Michigan was a formidable competitor prior to 1967, when the state had no personal income tax. Why not return to these days by abolishing the state’s 3.9% personal income tax and replace it with nothing? Even a slow phase-out of the tax will allow the state to vie for business, new jobs and private-sector investment with fast-growing Florida, Texas and the nearly half-dozen other states that do not levy an income tax. If Florida and Texas – two of the fastest growing states in the union – can survive without income taxes, Michigan can too.

Federal Stem Cell Funding in the Future?

On Thursday, April 12, two bills dealing with embryonic stem cell funding will come up for votes by the U.S. Senate. The president has promised to veto one of the bills should it come to his desk, but he supports the other. Ironically, the vague language of one of the bills and subsequent confusion in the press regarding the provisions of both bills have made passage of a funding bill more likely.

Here is my summary of what the bills would do: S. 5, which is essentially the same bill as the one passed by the House in January, allows federal funding of a wide range of embryonic stem cell research. S. 30, a “compromise” bill negotiated with the White House, allows federal funding of embryonic stem cell research but of a kind that is essentially worthless.

But that is not how the bills have been described in the press. Two examples follow:

The Washington Times reported this morning:

The White House yesterday signaled support for legislation that provides federal funding for stem-cell research using embryonic cells that have no chance of surviving.

The legislation, authored by Sen. Johnny Isakson, Georgia Republican, seeks a middle ground in the highly charged debate over stem-cell research. His bill skirts moral concerns over using embryonic stem cells while ensuring federal funding for the breakthrough science.

Mr. Isakson’s bill would allow scientists to conduct research on embryos they determine are incapable of surviving in the womb but whose stem cells are still viable for research. The bill would also allow funding for research on stem cells from embryos that have died during fertility treatments.

The Kaiser Family Foundation’s reported something similar:

The White House on Thursday announced its support for a bill (S 30), co-sponsored by Sens. Norm Coleman (R-Minn.) and Johnny Isakson (R-Ga.), that would allow federal funding for stem cell research using embryos with no chance of survival, the Washington Times reports (Lopes, Washington Times, 4/6).

Currently, federal funding for human embryonic stem cell research is allowed only for research using embryonic stem cell lines created on or before Aug. 9, 2001, under a policy announced by President Bush on that date.

Coleman and Isakson’s measure would fund research on stem cells taken from “dead” human embryos or extracted from living embryos without destroying them. In addition, it would allow federal funding for research on stem cell lines derived from embryos that are not likely to survive during the freezing process or in the womb.

I’m sure the reporters who wrote those articles had access to some interpretations by members of Congress or the White House to which I’m not privy. But I don’t see much similarity between what they describe and the actual language of the two pieces of legislation. Here is what the two bills, in relevant part, actually say:

S 30: It is the purpose of this Act to—

(1) intensify research that may result in improved understanding of or treatments for diseases and other adverse health conditions; and

(2) promote the derivation of pluripotent stem cell lines without the creation of human embryos for research purposes and without the destruction or discarding of, or risk of injury to, a human embryo or embryos other than those that are naturally dead.

By contrast, 

S 5: (b) Ethical Requirements— Human embryonic stem cells shall be eligible for use in any research conducted or supported by the Secretary if the cells meet each of the following:

(1) The stem cells were derived from human embryos that have been donated from in vitro fertilization clinics, were created for the purposes of fertility treatment, and were in excess of the clinical need of the individuals seeking such treatment.

(2) Prior to the consideration of embryo donation and through consultation with the individuals seeking fertility treatment, it was determined that the embryos would never be implanted in a woman and would otherwise be discarded.

(3) The individuals seeking fertility treatment donated the embryos with written informed consent and without receiving any financial or other inducements to make the donation.

The appeal of S. 30 to both sides of the debate may be that “without risk of injury” is open to interpretation. Those in favor of embryonic stem cell research can claim that funding for research done without the intent of injuring embryos, even if it in fact might injure some embryos, is acceptable. Those who worry about the well-being of embryos are likely to interpret the phrase very narrowly, as not allowing the funding of any research with even a potential for harming embryos.

The result will be the same whether both, neither, or one of the bills is passed. The nonsensical waste of time debating federal funding will continue, while researchers who truly care about making progress will do so with private funding.

Let’s Just Put Spengler Back on the Bookshelf, Hm?

There are questions about why the British sailors and marines conducted themselves in the way they did during captivity, and the British military will be taking up these questions, no doubt, in the coming days. But some of the declinism baloney on the Right (and Left) has gotten a bit nuts.

Peter Scoblic says let’s just all relax for a moment:

The specter of Western decline is an old conservative and neoconservative trope that wasn’t true during the cold war and is even less applicable now. Great Britain has two active carrier battle groups and spends more on its defenses than all but four countries, lagging significantly behind only the United States and China. It also deploys 16 megatons of nuclear explosives on its Trident submarines. That’s about 1,000 times the power of the bomb that destroyed Hiroshima. Put it this way: If British leaders woke up one day and decided that Iran should no longer exist, Iran would no longer exist.

Reading some of the commentary on this matter, you’d conclude that Iran was going to regularly start challenging the British Navy as a result of the propaganda victory it scored here. I’m not holding my breath.