Congress Backs Official Idiocy

Here’s Congress siding with Boston’s idiotic public officials. The Terrorist Hoax Improvements Act of 2007 would allow government officials to sue people who fail to promptly clear things up when those officials mistakenly think that they have stumbled over a terrorist plot.

There’s nothing in the bill allowing individuals or corporations to sue government officials when hare-brained overreactions interfere with their lives and business or destroy their property.

The NYT’s IRS Puff Piece

In advance of a rigged Senate Finance Committee hearing, the New York Times recently ran an article that blindly accepted the assertions of those who want more powers and money for the Internal Revenue Service.

Part of the article dealt with a report from the Government Accountability Office  that purports to show that offshore tax evasion is easy because of a three-year time limit. Yet buried later in the article is an acknowledgement that the time limit is not binding.

The real issue is that IRS agents actually are subject to poor performance reviews if it turns out that they were engaging in baseless harassment of law-abiding taxpayers. Needless to say, the reporter did not bother to interview anyone representing the interests of taxpayers:

The IRS is curtailing audits of many people who use offshore tax havens, even when agents see signs of tax evasion, because agents fear they cannot meet a three-year deadline for finishing an examination, congressional investigators have found. In a report to be released on Thursday, the GAO found that I.R.S. agents are so hobbled by “dilatory tactics” by offshore taxpayers and other problems that it takes almost two and a half years to complete a typical audit.

…The average assessment of unpaid taxes tripled to $17,500 for the limited number of audits that were allowed to run longer than three years, and it shot up to nearly $100,000 for the small number allowed to run four or five years.

…As part of its inquiry, the G.A.O. examined 12 offshore tax audits. …Audits can be pursued for more than three years, but agents have to meet tough requirements and their findings can be dismissed and the agents reprimanded if the unpaid taxes turn out to be smaller than expected.

It’s also worth noting that the story allowed a left-wing law professor to make an extremely weak claim about the amount of tax evasion taking place offshore, even though the so-called offshore sector does not show up in IRS tax-gap estimates and the Congressional Research Service has determined that similar evasion estimates are, for all intents and purposes, fabrications:

…Reuven S. Avi-Yonah, a professor of law at the University of Michigan who will testify at the Senate hearing on Thursday, estimated last year that the United States could be losing as much as $50 billion from international tax maneuvering.

Romney ‘Loves’ Government-Run Health Care

Asked during last night’s Republican debate about whether his campaign was downplaying his health care plan, former Massachusetts governor Mitt Romney replied, “I love it.” While praising the plan as a model of bipartisanship — and citing support for it from both Ted Kennedy and the Heritage Foundation — Romney failed to tell viewers what was in the plan.

It’s worth reminding people, therefore, that the plan Romney loves:

  • Imposes an unprecedented individual mandate, requiring everyone in Massachusetts to purchase a government-designated insurance product or face thousands of dollars in tax penalties.
  • Significantly increased Medicaid eligibility and provided taxpayer-funded subsidies for a family of four earning as much as $62,000 year, effectively extending welfare well into the middle class.
  • Creates a Hillary Clinton managed-competition-style regulatory authority called the Massachusetts Health Care Connector. This new regulatory body has already mandated that every health care policy sold in the state must cover prescription drugs and has outlawed policies with deductibles of more than $2,000.
  • Imposes a penalty on businesses that do not provide health insurance to their employees (although in fairness, this provision was enacted over Governor Romney’s veto.)
  • Greatly expands the state’s health care bureaucracy, creating at least 10 new boards, commissions, and other institutions to study and regulate health care.

Last night’s debate was held at the Ronald Reagan Library in California. The Gipper must surely be spinning in his grave.

Digg, Hacking, and Civil Disobedience

Randy Picker asks when civil disobedience is acceptable, and concludes that posting HD-DVD encryption keys doesn’t cut it:

I wouldn’t think that not being able to play an encrypted high-definition DVD on your platform of choice would fall into that category. I understand fully that people disagree about whether digital rights management and the Digital Millennium Copyright Act are good copyright policy. I also understand that users can be frustrated by limitations imposed by DRM (I’ve run into those myself). But I think the DMCA (and the DRM that it makes possible) is a long, long way from the sorts of laws for which civil disobedience is an appropriate response. Simply not liking the law is not enough. There must be more, something that recognizes the nature of reasonable disagreement over law, and the range of possible legitimate variations about those laws.

Ed Felten points out some of the reasons that geeks felt so strongly about this case. Partly it was geeks’ knee-jerk opposition to censorship. Partly it’s a protest against the DMCA.

There are a variety of reasons that the DMCA is bad public policy. I presented some of them in a paper I did for Cato last year. But instead of rehashing those arguments, let me quote an excellent essay by Paul Graham about America’s heritage of hacking. Prof. Picker dismissively characterizes this week’s incident as a dispute over “being able to play an encrypted high-definition DVD on your platform of choice,” but from the perspective of computer programmers it’s about something more fundamental than that:

Hacking predates computers. When he was working on the Manhattan Project, Richard Feynman used to amuse himself by breaking into safes containing secret documents. This tradition continues today. When we were in grad school, a hacker friend of mine who spent too much time around MIT had his own lock picking kit. (He now runs a hedge fund, a not unrelated enterprise.)

It is sometimes hard to explain to authorities why one would want to do such things. Another friend of mine once got in trouble with the government for breaking into computers. This had only recently been declared a crime, and the FBI found that their usual investigative technique didn’t work. Police investigation apparently begins with a motive. The usual motives are few: drugs, money, sex, revenge. Intellectual curiosity was not one of the motives on the FBI’s list. Indeed, the whole concept seemed foreign to them.

Those in authority tend to be annoyed by hackers’ general attitude of disobedience. But that disobedience is a byproduct of the qualities that make them good programmers. They may laugh at the CEO when he talks in generic corporate newspeech, but they also laugh at someone who tells them a certain problem can’t be solved. Suppress one, and you suppress the other…

It is by poking about inside current technology that hackers get ideas for the next generation. No thanks, intellectual homeowners may say, we don’t need any outside help. But they’re wrong. The next generation of computer technology has often — perhaps more often than not — been developed by outsiders.

In 1977 there was, no doubt, some group within IBM developing what they expected to be the next generation of business computer. They were mistaken. The next generation of business computer was being developed on entirely different lines by two long-haired guys called Steve in a garage in Los Altos. At about the same time, the powers that be were cooperating to develop the official next generation operating system, Multics. But two guys who thought Multics excessively complex went off and wrote their own. They gave it a name that was a joking reference to Multics: Unix.

The latest intellectual property laws impose unprecedented restrictions on the sort of poking around that leads to new ideas. In the past, a competitor might use patents to prevent you from selling a copy of something they made, but they couldn’t prevent you from taking one apart to see how it worked. The latest laws make this a crime. How are we to develop new technology if we can’t study current technology to figure out how to improve it?

Why are programmers so violently opposed to these laws? If I were a legislator, I’d be interested in this mystery — for the same reason that, if I were a farmer and suddenly heard a lot of squawking coming from my hen house one night, I’d want to go out and investigate. Hackers are not stupid, and unanimity is very rare in this world. So if they’re all squawking, perhaps there is something amiss.

Could it be that such laws, though intended to protect America, will actually harm it? Think about it. There is something very American about Feynman breaking into safes during the Manhattan Project. It’s hard to imagine the authorities having a sense of humor about such things over in Germany at that time. Maybe it’s not a coincidence.

Hackers are unruly. That is the essence of hacking. And it is also the essence of Americanness. It is no accident that Silicon Valley is in America, and not France, or Germany, or England, or Japan. In those countries, people color inside the lines.

No-Tax Texas Out-Competes High-Tax Arkansas

Writing in National Review, Greg Kaza discusses how Texas has been growing faster and creating more jobs than Arkansas. Much of the credit, he writes, is due to the fact that Texas has no state income tax while Arkansas penalizes workers with a  tax rate of 7 percent: 

Employment growth in Texas has been significantly higher than in Arkansas during periods of economic expansion. The population in Dallas has nearly tripled in the post-WWII period, while the population in Little Rock has barely doubled in size. Per capita personal income in Texas is 94 percent of the U.S total. In Arkansas it’s 77 percent of the nation’s total, a level that has hardly budged since the 1970s.

The list of statistical disparities is long, and there’s a good reason why: While Arkansas and Texas share a common border, each taxes income and capital in radically different ways. Arkansas has a top income-tax rate of 7 percent, the highest among the bordering states. Texas, however, does not impose an income tax. The imbalance is the same for capital gains: Arkansas taxes them. Texas does not. As a result, we can see a very basic economic principle at work: Talent and capital always will flow toward higher returns.

Bloated Salaries at the World Bank

The controversy involving Paul Wolfowitz  is seemingly devoid of any policy issues, but it has brought to light some of the exorbitant waste at the World Bank. Nearly 1,400 employees have salaries above the amount given to America’s secretary of state. But even that comparison is misleading, since World Bank bureaucrats get tax-free compensation.

The Wall Street Journal comments on the sweet deal — and virtual lifetime tenure — of the staff:

American taxpayers supply some 17% of the bank’s capital, and a new round of fund raising for the bank’s International Development Association is about to commence. If Congress is going to ante up the $7 billion or so the bank is expected to request, the least it can do is insist on more accountability….

Of its roughly 10,000 employees, no fewer than 1,396 have salaries higher than the U.S. Secretary of State; clearly “fighting poverty” does not mean taking a vow of poverty at “multilateral” institutions. At the time of Ms. Riza’s departure from the bank, she was a Grade “G” (senior professional) employee; the typical salary in that grade hovers around the $124,000 mark. For the next level, Grade “H”—the level to which Ms. Riza was due to be promoted—salaries average in the $170,000 range, with an upper band of $232,360. No fewer than 17% of bank employees are in this happy bracket.

Even sweeter, all of this is tax-free to non-Americans. U.S. employees have to pay U.S. tax but have their income taxes reimbursed by the bank. As with any public bureaucracy, these jobs are also impossible to lose for anything other than gross incompetence or venality.

Singapore Becoming One of the World’s Stellar Tax Havens

The New York Times has a thorough story detailing how officials in Singapore are taking advantage of globalization to diversify the nation’s economy. Bank secrecy and good tax law are particularly helpful in attracting capital from people suffering from fiscal oppression:

This affluent city-state of 4.5 million people is aiming to be a sanctuary for the world’s wealthy and their money, Asia’s answer to Geneva and Zurich. … Now the tiny enclave at the tip of the Malay peninsula is trying to carve out a new niche for itself in the global economy by bolstering banking secrecy laws and offering generous tax incentives. “I can’t think of any other place where private banking is growing so much as in Singapore,” said Henrik Mikkelsen, a private banker at Commerzbank in Singapore. “We want to be the Switzerland of Asia.” … Almost 40 private banks now have regional operations in Singapore, including Swiss stalwarts such as Bank Julius Baer. Citigroup’s headquarters for all private banking outside the United States is now in Singapore, as is the global banking headquarters of Standard Chartered Bank of Britain. …Robert Chandran, who emigrated to the US from India and made fortunes in California real estate and the fuel oil business. In 2005, contemplating retirement, he moved his company and family here, bought a luxury condominium downtown and space in a waterfront resort with parking for yachts. He traded in his American passport for one from Singapore. Chandran said he was lured by Singapore’s blend of Western conveniences with Asian values and by the Government’s zeal for keeping Singapore competitive. “They don’t have global taxation,” he said, which means that his capital gains and interest income from outside Singapore are not taxed here. …Tax rates are low as well. Singapore does not tax capital gains or interest income. Its top income tax rate is 20 per cent, and it does not tax income earned outside Singapore. … Singapore had already beefed up its banking secrecy laws in 2001. While many banks are moving their back offices to India, bankers here say Singapore’s secrecy rules are so tight, they are moving the data centres handling their private banking transactions from India to Singapore. … Singapore’s secrecy rules do not extend to anyone involved in terrorism or smuggling.