Singapore Cuts Corporate Tax

If the average state levy is included, the U.S. corporate tax rate is about 40 percent, which is higher than the coporate rate in every European welfare state. American companies also must endure heavy regulatory burdens — especially in the aftermath of Sarbanes-Oxley.

Politicians fret that America is losing manufacturing jobs and they complain when American companies build plants overseas. Contrast the short-sighted behavior of U.S. lawmakers with those in Singapore. As noted by tax-news.com, the government of Singapore has just announced that the corporate tax rate is being reduced to 18 percent to boost international competition. The government also is boosting the value-added tax, so Singapore is not a perfect role model, but at least lawmakers understand the negative impact of high corporate tax rates:

In his Budget Statement for the Financial Year (FY) 2007, Second Minister for Finance, Tharman Shanmugaratnam announced a two percentage point reduction in the corporate income tax rate to 18% to sharpen Singapore’s competitive edge. However, the corporate tax cut will be balanced against a number of revenue raising provisions, such as…an increase in the GST rate from 5% to 7%.

How Big-Government Conservatism Brought Down the Republican Revolution

For conservatives generally and the Republican Party in particular, now is a time of intense soul-searching. For the first time in a dozen years, Republicans have lost control of Congress. As a result, they are being forced to reexamine who they are and what they stand for. Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution, a new book by Cato scholar Michael D. Tanner, provides an incisive analysis of the roots and core beliefs of big-government conservatism and the major currents that fueled its growth—neoconservatism, the Religious Right, supply-side economics, national greatness conservatism, and Newt Gingrich–style technophilia—and offers a detailed critique of its policies on a wide range of issues.  Leviathan on the Right is a clear warning that, unless conservatives return to their small-government roots, the electoral defeat of 2006 is just the beginning.

OECD Says Sweden Should Consider Abolishing the State Income Tax

In a report on the Swedish economy, the Organization for Economic Cooperation and Development revealed more of its schizophrenic nature (see this article for more information on the OECD’s Jekyll and Hyde personality). While the Paris-based bureaucracy has become infamous for its so-called harmful tax competition project that seeks to penalize jurisdictions with pro-growth tax law, the economists at the OECD often write studies and reports that reflect a solid understanding of the negative impact of government intervention. The Policy Brief on the Swedish economy is a good example. As excerpted below, it notes the problems of high tax rates and excessively generous welfare benefits. It calls for the elimination of the wealth tax and reductions in punitive marginal tax rates. It even suggests that Sweden abolish the state income tax:

…the new government has renewed the commitment for sound macroeconomic framework conditions and will stick to the target for general government net lending of 2% of GDP over the cycle which is necessary to keep public finances on a sustainable path. Underlying this target is the assumption that taxes can be sustained at current levels which could be difficult in the future, not least due to mobile tax bases and international tax competition. …the share of 20 64 year olds who depend on public income transfers has declined to 20% in 2006, but it remains well above the 15-16% of 1990-91. …Sickness absence among those employed and the number entering disability pension increased rapidly from the late 1990s. The numbers are now falling, although the stock of disability pensioners remains among the highest in the OECD. …Letting people keep a bit more of the value they create is vital to encourage both labour supply and entrepreneurship. The plans to abolish the wealth tax should therefore be endorsed, as it sets in at a rate of 1½ per cent already from wealth slightly above the average price of a metropolitan-area one-family house. Abolition of the wealth tax might lead to repatriation of capital, possibly making more investment capital available for new small firms. Marginal income taxes are also important, though, because high rates kick in already from slightly above average full-time earnings. The combination of social contributions, income and consumption taxes drives the effective marginal tax rate above 70% for over a third of the full-time employed, helping to explain why working hours for those employed are below the OECD average. …Moving up the threshold by SEK 100 000 from 105% to 135% of average full-time earnings, for example, would halve the number of persons exposed to the above-70% combined marginal tax rate, which results when the state income tax sets in on top of social contributions, municipal income tax and consumption taxes. …In fact, completely abolishing the state income tax would cost just 1½ per cent of GDP.

French “Conservative” Candidate Calls for Hedge Fund Tax

While most nations are trying to liberalize their economies, both major candidates in France are competing to promise higher taxes and more spending. Sarkozy is supposed to be the market-oriented candidate, but he has endorsed higher taxes on financial services - and is suggesting sympathy for a higher VAT, according to MSNBC:

Nicolas Sarkozy will push for a European tax on “speculative movements” by financial groups, such as hedge funds, if he wins this year’s French presidential elections. …his plan to tax financial flows is likely to dismay US and UK financial groups, as well as parts of the French business community, which largely prefers him to Ms Royal. …His comments echo the traditional Gaullist suspicion of capitalism and financial investors, for which Mr Chirac has become well known. Mr Sarkozy’s attack on speculative finance mirrors the views of some business leaders. Claude Bébéar, chairman of insurer Axa, France’s biggest institutional investor, yesterday pilloried the “dictatorship of the market” and the “short-term interests” of hedge funds. …[Sarkozy’s] record as finance minister was notably dirigiste. He intervened to save Alstom, the engineering group, from bankruptcy and brokered an all-French merger of Aventis and Sanofi to avert a takeover by Switzerland’s Novartis. …Mr Sarkozy admitted he was watching Germany’s three percentage point increase in VAT with interest.

The story also notes that Sarkozy also was an interventionist finance minister. The net result is that France almost surely will continue to stagnate, regardless of who replaces Jacques Chirac.

Genes, Patents and Honest Dealings

Michael Crichton wrote an excellent op-ed, “Patenting Life,” in Tuesday’s New York Times.

I find it hard to disagree with Crichton’s comments, but it might be worth mentioning that his article really deals with two separate arguments. One is that taking something that belongs to others, i.e., actual physical material, without their permission is wrong. The second issue is that innovation is the proper subject of patents, not mere discovery. In the first situation, the question is whether patients should have a right to share in patents developed using their tissue or genes. In the second, the question is whether the genes themselves – not just the products created with them – should be patentable.

Self-determination and self-ownership are essential in a free society. Actual physical material such as tissue samples or actual genes taken from a person’s body should not be acquired or used without informed consent – that includes not using a patient’s tissue to develop and market cell lines or to develop and market medical therapies without the patient’s express consent. It is dishonest to provide patients with misleading consent forms. Some give the impression a patient’s tissue is medical waste that the hospital or doctor should be free to dispose of as necessary. Other consent forms acknowledge that a patient’s tissue may be used to gain knowledge but say nothing of the potential profits to be gained either from that knowledge or from the actual use of the tissue itself.

For consent to tissue acquisition to be informed it must clearly identify a patient’s options: 1) Is the patient making a gift of the tissue and expressly relinquishing any potential profits from medical products developed with that tissue? 2) Is the patient being paid for his tissue and willingly relinquishing any claim to profits from products that may be developed using that tissue? Or, 3) Is the patient being promised a percentage of the profits, should any materialize? Patients must not only be aware of these options but also understand them for there to be true informed consent. To do otherwise is to take something from them under false pretenses.

Patents on genes themselves is a different issue. I’m not a patent lawyer, but if Crichton is correct, it seems the courts have confused the discovery of something new in nature with the creation of something new, i.e., confused pure discovery with innovation. Scientists are awarded Nobel Prizes for discovering new elements, new species, or new diseases, but they usually aren’t, and shouldn’t be, awarded patents for such discoveries. Patents should only be awarded if something new is created – a new process, a new test, a new technique, a new cure, etc. Imagine if Casey and Jacobi had been awarded patents for their 1973 discovery of the Hawaiian Po’ouli Honeycreeper. Anyone who wanted to go looking for the Po’ouli bird would have to pay Casey and Jacobi a licensing fee. Innovative processes used to test for certain genes or their mutations or special processes for recording information about genes should potentially be patentable, but, not the genes themselves – no more than it makes sense to patent the rare and hard to find Po’ouli.

One further distinction is worth making. A patent might be justified if a scientist manipulated a gene to create something new. If a patent were awarded, the patent holder should be required to share his profits with the person from whom the original gene was acquired unless, after full and complete disclosure, that person had willingly and with full understanding relinquished his rights to such profits.

Deferred Gratification and Income Inequality

The Economist reports on an interesting new study showing that members of a Bolivian tribe who understood the value of deferred gratification also experienced higher income gains:

One phenomenon that is almost unique to humans is deferred gratification—in other words, patient anticipation of a reward. Dr Reyes-Garcia and her colleagues therefore guessed that as the Tsimane’ became more enmeshed in modern society, the more patient of them would do better than the less. The Tsimane’s traditional subsistence economy depends on folk knowledge and learned skills that have quick pay-offs. Formal schooling does not pay off for years, but opens the door to bigger potential incomes. To test their idea, the researchers offered all 151 adults in two Tsimane’ villages a choice between receiving a small amount of money or food immediately, getting a larger amount if they were willing to wait a week, and getting a larger amount still in exchange for several months’ wait for payment. They found that the more education a villager had, the longer he was willing to delay gratification in return for a bigger reward. Five years later, Dr Reyes-Garcia and her colleagues came back again. They re-interviewed 100 of their volunteers (the other 51 were unavailable for one reason or another) and found that those who had shown most patience in the original experiment had also seen their incomes increase more than those of their less patient counterparts. The effect was relatively small—the incomes of the patient had grown 1% a year faster than those of the impatient. Over a lifetime, though, that adds up to a significant amount of inequality. The patient, then, could take their place alongside the lucky, the smart and the violent at the top of society’s heap.

These results are similar to research in advanced societies. All other things equal, successful people tend to recognize the value of sacrificing today in order to enjoy more income/consumption/wealth in the future. But consider what this research implies for the current political debate about income inequality. Leftists are beating the drums for higher tax rates and more income redistribution, in part because they insist that rich people are either lucky or that their wealth is earned at the expense of the less fortunate (the fixed-pie fallacy). But if income differences are the result of individual choices, these arguments are less persuasive. Rather than seeking to punish success, honest leftists should focus their energies on figuring out how to create a culture of deferred gratification in poor communities.