Russian Parliament Rejects Proposal for So-Called Progressive Taxation

Russia’s flat tax has been remarkably successful. Growth is reasonably strong and tax compliance has improved. Indeed, inflation-adjusted personal income tax revenues have been growing at double-digit rates. Despite this record of success, some politicians wanted to re-impose discriminatory tax rates on more productive taxpayers. Fortunately, as Tax-news.com reports, this misguided scheme was rejected:

The Russian State Duma, the lower house of parliament, has voted to reject two amendments to the Russian tax code that would replace Russia’s flat rate of tax on personal income with a progressive system whereby those who earn more pay more tax. The amendments concerned article 224 of the tax code, which stipulates that Russian tax residents pay income tax at a rate of 13% regardless of their income, and were introduced by the nationalist Rodina party, who argue that the current tax system disproportionately hits the poorest taxpayers. One of the amendments proposed no tax on individual incomes up to 60,000 rubles per year, a 10% tax on incomes from 60,000 to 120,000 rubles, a 13% tax on incomes from 120,000 to 1.2 million rubles, a 20% tax on income from 1.2 million to 3.6 million rubles and a 30% tax on income over 3.6 million rubles. The bill was opposed by both Deputy Prime Minister Alexander Zhukov and the speaker of the State Duma, Boris Gryzlov.

Florida Enjoys No-Income Tax Status

While New Hampshire residents are famous for their aversion to the income tax, Florida taxpayers also are spared from this odious levy and state politicians wisely avoid any mention of the income tax. As the Gainesville, Florida, newspaper reports, even Democrats are reluctant to broach the subject. Not surprisingly, tax competition plays a role. The original amendment banning the income tax was motivated by a desire to attract productive people, an approach which simultaneously - and deservedly - punished high tax states:

…one potential new revenue source, common in most states, remains unthinkable and unmentionable in Florida: a personal income tax. “It’s a terrible way to tax,” said House Policy and Budget Committee Chairman Ray Sansom “We would never consider something like that. That would be the last thing. It’s sort of over our dead bodies.” Sansom, R-Destin, said House Republicans never gave income tax the slightest thought when they came up with their tax-swap proposal. …Senate Democrats also never considered an income tax when they drew up their proposal… Florida’s income tax aversion dates to 1924, when voters banned it through an amendment to the state constitution. The state remains a tax haven more than 70 years later… Politicians saw the ban as a way to attract wealthy people and encourage them to invest in Florida at a time when other states just were beginning to tax incomes.

More Negative Consequences of Government Intervention

Many writers, including Cato experts, have noted the negative economic consequences of ethanol subsidies. While the direct effects are bad, government intervention also has negative indirect effects. As the UK-based Times notes, the subsidies are driving up the price of corn, hurting not only poor Mexicans but also American meat buyers:

Typically, meat production in the United States rises by about 2 per cent a year, but the pressure from American ethanol producers manufacturing road fuel from corn has sent the price of maize soaring to $4 a bushel. The USDA is predicting that the 2006 corn crop will sell for an average of $3.10 a bushel at the farm gate, the highest for a decade. Faced with extortionate feed costs, cattle and poultry farmers are rearing fewer animals and slaughtering them early. That means a sudden reversal in the annual meat production gain, representing a fall of 1.7lb per person. “There is a new demand component,” Shayle Shagam, a livestock analyst at USDA, said. “Livestock producers have to bid against the ethanol industry to get supplies of corn.” The biofuel revolution’s unpleasant negative consequence was first felt south of Rio Grande, when the escalating price of corn affected a food staple. Mexico’s tortilla inflation crisis is spreading north to the heartland of rib-eye steak and chicken wings. The USDA predicts that food prices will rise by up to 3.5 per cent this year as farmers rein in output in response to feedstock costs.

Substantiating the Libertarian Vision, One Anecdote at a Time

Yesterday, it was six seconds to get a “yes” from a private entity when a government official took eight days, four hours to reach “no.”

Today, “Why is it that one guy with a laptop can accomplish more in 20 minutes that an army of city officials and bureaucrats can in as many weeks?

While the D.C. Taxicab Commission dithers over issuing a new map, some guy just went ahead and made one on Google maps.

Can We Blame the Record Trade Deficit for Global Warming, Too?

An Associated Press story today on the latest trade deficit numbers noted as an aside, “The trade gap has set new records for five consecutive years, a period when the country lost more than 3 million manufacturing jobs.” 

Thoughtful people can disagree about the long-term implications of the trade deficit, but there is no evidence that the trade deficit itself is responsible for the recent drop in manufacturing employment.  

Manufacturing employment has been on a downward trend, not because of imports, but because of soaring productivity in the sector. In fact, overall manufacturing output in the United States continues to increase. American factories can produce more with fewer workers because the remaining workers are so much more productive.  

During the 1990s, the trade gap set new records for seven years in a row (1994–2000). That was also a period of robust domestic growth in which the country added almost a quarter of a million manufacturing jobs.  

As for the most recent string of record trade deficits (2002-2006), one could also describe that period as one when: 

… the real output of American factories grew by 14 percent.    

… the country added a net 6 million new jobs.   

… the unemployment rate fell from 5.8 percent to 4.5 percent.   

… annual real GDP grew by $1.5 trillion, or 15 percent.  

… the net household wealth of Americans grew from $38.8 trillion to $55.6 trillion.  

As I’ve written recently in a Cato Free Trade Bulletin, the reality behind the trade deficit numbers is more multi-faceted than the public discussion in Washington would lead us to believe. 

IMF Wants to Confiscate Portion of Gold Holdings

International bureaucracies are infamous for bloated budgets, and the International Monetary Fund certainly is a good example. Its headquarters are plush, its staff enormous, its pay extravagant, and salaries are tax free. Nice work if you can get it, as the old saying goes.

Unfortunately for the IMF, nations today generally are avoiding the organization, meaning the bureaucracy isn’t collecting as much “income” from its loan portfolio. So the IMF created a committee to review its financial future. Not surprisingly, this IMF-approved committee did not decide to shrink the IMF staff. Instead, it came up with a novel scheme to seize a portion of the national gold reserves held by the IMF. If a private bank decided to seize depositors’ funds to maintain the country club memberships of management, there would be appropriate outrage.

Hopefully, this proposal to loot the gold reserves will be met with similar scorn. A column in the Wall Street Journal reviews the issue:

And the IMF seeks a new wellspring of funding to support the expansive lifestyle to which it has become accustomed. A Committee of Eminent Persons was assembled to find the money.  …The Committee emerged with a proposal to use 13 million ounces, or an eighth of the gold stockpile [stored at the IMF], to establish an IMF endowment, an independent income stream for the Fund in perpetuity.

But this isn’t really the IMF’s gold. The bullion belongs to the U.S., Germany, Brazil, Ghana and other nations. More than one-quarter of it belongs to developing countries. If the IMF is allowed to open the door to this vault, fears of new missions and unrestrained spending will be confirmed. The gold and the gain it can bring should be returned to national treasuries.

India’s poor could do more with the $1.5 billion that is rightfully theirs than the IMF. …A staff of 500 instead of 3,000 and a budget of $400 million instead of $1 billion would be easily sustained by the investment income on the Fund’s $10 billion of existing reserves.

New at Cato Unbound: Ruut Veenhoven on Increasing Happiness

If you’re tired of hearing about how modern life is making us miserable, today’s Cato Unbound essay by Ruut Veenhoven, director of the World Database of Happiness, will come as a gust of fresh empirical air. Veenhoven says the most recent data show an increase in average levels of self-reported happiness in the United States and European Union, and that we’ve seen a much more dramatic increase in the number of years people can expect to live happily.

The number of Happy Life Years has risen in all Western nations over the last decade. This comes as no surprise, since life-expectancy has increased in all nations and average happiness has increased in most nations. What is a surprise, however, is the size of the gains. Over the last 33 years, no less than 6.2 additional Happy Life Years were added in the EU, 4.5 in Japan, and 6.2 in the U.S. This increase in overall quality of life is unprecedented in human history.

If you really think life in liberal market democracies is getting worse, the data tell a different story.