Why Do European Politicians Want Tax Harmonization?

While it is possible that European politicians have a genetic predisposition for statist policies, I’ve never thought this is why they support tax harmonization. Self interest is a far more reasonable answer. More specifically, European nations generally have high fiscal burdens. For instance, government spending consumes nearly half of economic output in EU countries, compared to one-third of GDP in the United States.

Not surprisingly, this translates into a higher tax burden, which means jobs and investment generally flee Europe. Tax harmonization is an attempt to stop labor and capital from escaping by creating, for all intents and purposes, a “fiscal fence.” But European politicians also want to undermine tax competition because they know the situation is going to get worse. According to a new report, demographic changes almost certainly are going to result in an even bigger welfare state in the future. This means increasingly harsh tax rates on the remaining productive people - which means politicians will try even harder to prevent taxpayers from escaping. The EU Observer reports on the key statistic that is causing angst for Europe’s political class:

According to demographic predictions, the EU’s population will not only shrink by almost 20 million people by 2050, but its make-up will also change dramatically. While there are currently about four working people of working age for each person of pension age in the EU’s 27 member states, there will be fewer than two people to support every elderly person by 2050, with the population gradually ageing.

The Politics of Free Speech Change for the Better

The politics of free speech are changing fast.

The presidential public financing system is all but dead, largely because the candidates are raising so much money they don’t need to dun the taxpayers for campaign cash. The Democrats have raised a lot more money for the coming election than the Republicans. The Supreme Court is starting to favor free speech in campaign finance cases and casting a cold eye on laws like McCain-Feingold.

For most of the past three decades, so-called “reform” groups have dominated DC battles about campaign finance. These special interest groups lobbied Congress while their lawyers practiced the art of restricting speech before the Federal Election Commission.

Now that too is changing. A new group, SpeechNow.org, has formed to fight restrictions on speech. They just asked the Federal Election Commission to issue an advisory opinion about whether their fundraising must follow the contribution limits in federal election law.

Contribution limits exist–in law, if not in fact–to prevent corruption or the appearance of corruption. But SpeechNow.org is not giving money to federal candidates for office, and it is not incorporated (corporations cannot legally give money to parties or candidates). The organization is funded solely by individuals, some of whom want to give more than $5,000 to support the work of the new group.

What are they planning to do? The Center for Competitive Politics, which along with the Institute for Justice provides legal counsel to SpeechNow.org, says that “the group wants to run TV ads supporting and opposing candidates on free speech issues during the 2008 election cycle.”

Think about that for a minute. A group of citizens wants to come together to pool their resources to speak out for and against candidates on matters concerning free speech. They don’t plan to give candidates or the parties money, so the corruption threat does not exist. What could be more in line with the First Amendment and the Constitution? And yet… SpeechNow.org finds itself asking the Federal Election Commission “mother may I?” just to exercise its constitutional rights.

That should make you angry.

But think about this too. SpeechNow.org is something different from what we’ve heard on these issues for so many years, a group that plans to defend the First Amendment outside the courtroom. And somewhere in this nation is at least one person who is willing to give SpeechNow.org more than $5,000 for that effort.

That gives me hope.

Should the Government Have a Monopoly on Money?

Writing for the New Republic, Alvaro Vargas Llosa asks the fundamental question of whether the Federal Reserve has been a net plus or a net minus for the American economy. Looking at the Fed’s track record, which includes disasters like the Great Depression and serious mistakes like the more recent high-tech and housing bubbles, Llosa astutely wonders whether money is too important to be left in the control of government:

Some of the country’s greatest economists, including Nobel Prize winners, have been saying for years that the Federal Reserve has probably caused more problems than it has solved since its creation in 1913. Its role in the last century’s boom and bust cycles is a matter of record; it looks as though it played a similar role in the current housing market crisis too. While the creation of the Federal Reserve was essentially a response to a series of bank runs, those crises were mild compared to the ones that were to follow. … All in all, financial instability has been far greater since the creation of the Federal Reserve. What did the Great Depression teach us? Essentially that even with the best of intentions, it is impossible for the authorities to manage the supply of money in accordance with the exact needs of the economy. A country’s economy is the sum of millions of people making decisions that no single individual is in a position to anticipate. … The current housing market and debt market crises are in good part the children of the Federal Reserve. By cutting rates 13 times between 2001 and 2003, and then keeping them very low for years, monetary policy contributed to the housing bubble. …once again, the Fed has turned out to be a factor of financial instability.

How Much Defense Spending Is Enough?

Over at the National Interest, my boss Ted Carpenter has been slugging it out with former senator Jim Talent over (originally) Fred Thompson’s proposal to spend 4.5% of GDP on defense.

Ted notes correctly that we already spend as much on defense as the rest of the world combined, but Sen. Talent is nonplused. To the contrary, he protests that

the Navy must buy new DDG-1000 destroyers, ramp up procurement of Virginia-class submarines, and buy large numbers of littoral combat ships and the next-generation cruiser. The Air Force must buy its new superiority fighter, the F-22, as well as Joint Strike Fighters or equivalent aircraft and additionally fund its strategic-airlift requirement, design and build a new tanker and develop an interdiction bomber to replace the B-52. The Army must modernize and replace almost its entire capital stock of fighting vehicles.

How does Ted oppose doing the things Sen. Talent says we “must” do? Because, according to Talent, he

ignores the risks created by: the collapse of democracy in Russia, the rapid growth of Chinese power and the reemergence of Chinese national ambitions, the proliferation of nuclear weapons to rogue states and unstable governments, the rise of Islamic fanaticism empowered by the tools of asymmetrical warfare, and the intense ethnic and religious rivalries that have led to genocide on a vast scale in Europe, Africa and Asia in the last twenty years.

This is an interesting exercise in bait-and-switch. So the justifications for buying new battleships, the Joint Strike Fighter, and a new bomber are supposed to include all of these things? How is the Joint Strike Fighter going to deal with the collapse of democracy in Russia? How would new battleships help us deal with nuclear proliferation? And how would a new bomber help us deal with “the rise of Islamic fanaticism empowered by the tools of asymmetric warfare” or “the intense ethnic and religious rivalries that have led to genocide on a vast scale in Europe, Africa and Asia in the last twenty years”?

The only plausible case Mr. Talent could be making is that we should be preparing these tools because ultimately we’re going to have a shooting war with the Chinese. And indeed, if one were inclined to look seriously at the prospect of a shooting war with the Chinese, many of these tools are ones you’d like to have. Then again, a shooting war with the Chinese would also collapse the global economy and possibly have macroeconomic effects that would be felt for decades. Also, a lot of people would die.

Alternatively, if we’re going to get ourselves ready to replicate our experience in Iraq with Iran, the responsible thing to do would be to scrap a lot of these technologies and invest heavily (and quickly!) in a large-scale expansion of the ground forces. The men and women who have taken orders from this administration in the Army and Marine Corps have served valiantly, but they aren’t supermen. At some point, those who advocate endless wars in the Middle East (to be fair, I’m not sure what Sen. Talent’s views are on the Iran question) are going to have to decide which is more important: these large-ticket defense items, or equipping the DOD with the tools it needs to enact the strategies given it by the political leadership in this country.

Alternatively, we could spend 10 or 12 percent of GDP on defense, but I haven’t heard that proposal floated in serious quarters. Another alternative would be to continue initiating wars in the Middle East, continue preparing for war with China, and continue all of the other security commitments America has taken on in the past decades, on what would be the shoestring budget of 4.5 percent of GDP, inadequate to support any of these policies sufficiently.

It’s not clear how Sen. Talent proposes to deal with these tradeoffs, but what’s certainly unhelpful is pretending that the DDG is a workable solution to proliferation. In addition, given that he throws around accusations of “weakening” the United States as opposed to a “strong” United States, it’s worth observing that the charge is coming from a proponent of the current war, which has done more than anything in 40 years to weaken our country.

For a much sounder assessment of where we are and where we should go, see Richard Betts’ article in the current Foreign Affairs, “A Disciplined Defense.”

The Right Way to Engage China

The United States and China reached an agreement yesterday on a dispute over alleged Chinese export subsidies. In exchange for the U.S. government dropping a case it was pursuing through the World Trade Organization, China agreed to end subsidies that the U.S. claimed were promoting exports and hindering imports of steel, wood, IT products, and other manufactured goods.

Details of the case aside, the announcement shows how trade disputes with China can be resolved without resort to threats of retaliatory tariffs. This is not the first time China has changed its trade laws in response to pressure from the United States through the WTO. In 2004, China dropped a discriminatory tax refund on domestically produced semiconductors after the U.S. government filed a complaint.

Today’s announcement is another vindication of resolving trade disputes with China through a rules-based system rather than through threats of unilateral retaliation. China’s accession to the WTO in 2001 not only committed China to lowering trade barriers on a broad range of goods and services; it also brought China into the generally effective WTO dispute settlement mechanism.

In two weeks, Treasury Secretary Paulson, U.S. Trade Representative Susan Schwab and other cabinet members will meet with their Chinese counterparts in Beijing as part of the ongoing Strategic Economic Dialogue. As today’s announcement verifies, the SED represents the right approach to encouraging China to continue its evolution toward a more free and open economy.

NCLB: Putting Swine before PIRLS?

At least among education wonk-ish types, it’s well known that on national and international assessments American students perform best in 4th grade, decline by 8th grade, and do dismally in high school. Well yesterday a report was released—the Progress in International Reading Literacy Study (PIRLS)—which hinted that even our vaunted 4th graders might be losing ground. And this despite the fact that since 2002 the federal No Child Left Behind Act (NCLB) has “demanded” good results starting in the 3rd grade.

There is, it should be noted, a bit of good news in PIRLS: Our kids scored above the PIRLS average—set at a “scale score” of 500—in both 2001 and 2006. But then, one would expect our kids to perform above average since we are the world’s leading economic power and, according to the PIRLS report, our gross national income (GNI) per-capita, after adjusting for purchasing power, was surpassed by only Norway and Luxembourg among PIRLS participants.

And then there’s the bad news. It starts with our average score dropping a tad between 2001 and 2006, going from 542 to 540. Worse, several countries and territories we’d beaten in 2001, including Russia, Hong Kong, and Singapore, surpassed us in 2006. And we can’t blame poverty for our problems: None of the places that moved ahead of us, at least as measured by GNI, are as well off as we are economically.

Importantly, the analytical limitations of average scores, and the generally small changes seen between 2001 and 2006, make PIRLS far from a final word on either NCLB or the general progress (or lack thereof) of American education. However, when coupled with other recent testing results, PIRLS adds to an increasingly clear conclusion about NCLB: the law is at best having no positive impact on American education, and is very likely having a negative one.

Judicial Restraint and the Second Amendment

Paul Helmke, president of the Brady Campaign to Prevent Gun Violence, has a column on HuffingtonPost and the Atlanta Journal-Constitution arguing that the Supreme Court should uphold the D.C. gun ban and reject the idea that when the Constitution says “the right of the people to keep and bear arms shall not be infringed,” it means that people have the right to keep and bear arms. His basic argument, summed up in the title, is that “The will of the people must not be overruled.” He pounds away at that theme:

Last March, the District of Columbia saw judicial activism replace the will of the people….

More than 30 years ago, the elected representatives on the D.C. City Council decided to enact a system of strict gun laws to help protect public safety. The people in D.C. strongly support these laws….

[The Court of Appeals] imposed their own policy preferences on the people of D.C.

It was a textbook example of judicial activism at its worst….

If the justices reject judicial activism and refrain from substituting their own policy preferences for the people’s elected representatives, then the District of Columbia will prevail. And so will the American people.

As a lawyer and a lifelong Republican, I have deep respect for judicial precedent, for American history and for a close reading of all the words in the Constitution. As one who served as mayor of Fort Wayne, Ind., for 12 years, I also believe in the importance of local communities being able to pass the laws they believe will help keep them safe.

It’s a powerful argument, and it may well resonate with the conservative justices who think that judges often overreach and “substitute their own policy preferences” for those of the people’s elected legislators. But I wonder if Helmke really believes that judges should respect the will of legislators and not strike down laws. Does he believe that the Warren Court should not have struck down school segregation, which was clearly the will of the people’s elected representatives–and no doubt the people–in Kansas, as well as in South Carolina and Virginia, whose similar cases were combined with Brown? Does he believe that the Supreme Court was wrong to strike down Virginia’s law against interracial marriage in 1967? The Texas law outlawing sodomy in 2003? The Communications Decency Act in 1997? Does he indeed think the John Marshall Court was wrong to invalidate a section of the Judiciary Act of 1789 in Marbury v. Madison? That’s the implication of his ringing words in defense of legislative absolutism.

I don’t think he believes this for a minute. I am sure he agrees with Cato’s constitutional scholars that the Supreme Court has an obligation to strike down laws that exceed the powers granted to Congress or that violate the rights protected in the Bill of Rights. He just doesn’t want the Court to apply that rule to the right to keep and bear arms. But in fact there’s an increasingly broad consensus among scholars that the Second Amendment protects an individual right to bear arms. And thus the Court should do its duty and find that an absolute ban on gun ownership by law-abiding citizens clearly exceeds any power of reasonable regulation that might be permitted under a properly understood Second Amendment.