Some Good News on the Budget

Thanks in large part to the heroic efforts of Senators Jim DeMint and Tom Coburn, the corrupting culture of budget earmarks has hit a big bump in the road. Even more important, government spending is no longer climbing quite as fast. To be sure, it is hardly a victory to hold the growth of annual appropriations to the rate of inflation. After all, many of the programs being appropriated should be completely abolished. Moreover, annual appropriations does not include entitlement programs, many of which are growing at twice the rate of inflation. But in a town enriches itself by transferring income and wealth from the productive to the special interests, even a slowdown in the rate of spending growth is welcome news. The Wall Street Journal explains:

On Thursday, White House budget director Rob Portman issued little-noticed guidance to all federal departments and agencies that no Congressional requests for spending should be accommodated unless they are “specifically identified in statutory text” – which is to say, the law. This may sound like it ought to be regular practice, but it’s a revolution in the Beltway. That’s because, in order to dodge the legislative earmark limits that Mr. Byrd has been bragging about, Members have been speed-dialing executive branch officials and asking them to fund their specific earmark requests out of agency budgets even though they were purged from the larger budget bill. This Congressional lobbying can be hard for the average federal bureaucrat to refuse, since he doesn’t want to offend those on Capitol Hill who control his budget. …this means the Fiscal 2007 federal budget could have the fewest number of these pork-barrel projects in many a year. By the way, thanks to efforts late last year by GOP Senators Jim DeMint of South Carolina and Tom Coburn of Oklahoma to block a last-minute bipartisan spending splurge, the 2007 budget holds overall federal appropriated spending to the rate of inflation; recent years have often seen three times that.

Collins’ Confusion

A couple of weeks ago, I went up to Maine to speak about identification issues at a community meeting in Augusta.  This was the night before the state legislature voted overwhelmingly to reject the REAL ID Act. Maine’s bold step catalyzed a nationwide rebellion, and states across the country are now passing resolutions to reject REAL ID.

Along with that resolution, the Maine legislature will be moving a bill that specifically prevents the secretary of state from spending any funds to comply with REAL ID. A real one-two punch.

Now, here’s a little inside baseball: The resolution was introduced by the Democratic Majority Leader of the Senate, Libby Mitchell, and the bill was introduced by Republican Representative Scott Lansley. As can happen, Republicans were a little concerned that the Democrat-introduced resolution would eclipse the Republican-introduced bill in this Democrat-majority legislature. But Mitchell and Lansley got together to be the lead co-sponsors of each others’ measures. Maine is doing the kind of bipartisan cooperation that is so rare in Washington, and Republican Lansley stands to get proper credit for his leadership on this issue.  But …

Along comes U.S. Senator Susan Collins, Republican of Maine, who this week confounded things by introducing a bill to defend and support the REAL ID Act. Her bill would give the DHS two more years to coerce states into implementing this national ID, and it would fiddle around the edges of the rulemaking process. Delaying implementation helps a national ID go forward in a big way because it gives the companies and organizations that sustain themselves on these kinds of projects time to shake the federal money tree and get this $11 billion surveillance mandate funded.

It’s all very confusing. First of all, Senator Collins’ move to support REAL ID faces right into a headwind known as “the will of the people of Maine.”  The state legislature overwhelmingly voted to reject REAL ID. Senator Collins, famous seeker of compromise, appears to be compromising not among the differing interests of her voters, but among the interests of her voters and the interests she hears from in Washington.

Secondly, Republican Collins is crossing up state Republican leaders like Scott Lansley and muddying the party’s message at home. Someone is looking out-of-touch. (Hint: It’s not Scott Lansley.)

The famously moderate Collins is backing a law that is most strongly favored by immoderate anti-immigrant groups.

Here’s what is most bizarre: Collins is moving to support REAL ID even though it stripped out identification provisions in the Intelligence Reform and Terrorism Prevention Act that she is widely credited with crafting!

Senator Collins may be confused. I know I am. Unfortunately, her move to protect REAL ID has attracted some support. Senator Collins should disavow this bill as a blunder, or explain her conversion to support of the REAL ID Act and a national ID.

Senate Homeland Security and Governmental Affairs chairman Joe Lieberman called the drivers license provisions of REAL ID “unworkable“ when it was attached to a military spending bill and rammed through the Senate without a hearing or vote. The passage of an additional two years will make them no more workable.

A More ‘Social’ EU

Nine EU nations are calling for a greater focus on “social protection” and “social rights” in order to promote “social Europe.” Needless to say, “social” is a code word for bigger government.

Most of the nine nations are in the usual-suspects category, but Hungary and Bulgaria are strange additions. Do they really think they can overcome the legacy of communism by shackling themselves to socialism?

The EU Observer reports on the latest skirmish in Europe’s fight against globalization:

France, Italy, Spain, Cyprus, Bulgaria, Luxembourg, Hungary, Belgium and Greece have all signed up to a two-page long declaration in which they argue that the 27-country bloc should be more than just an internal market. Calling their statement, which has been sent to all member states, “enhancing social Europe” the currently nine-strong group want to use the ongoing negotiations on the EU constitution as a springboard for their ideas.

It continues by saying that a Europe of 27 member states “cannot just be a free trade zone but shall guarantee the necessary balance between economic freedom and social rights.” Social Europe is defined as a set of “common values” such as social justice, equality and solidarity.

The call for more social Europe goes to the heart of a debate in Europe about the extent to which the bloc should adapt to the force of globalisation and the extent to which it should set certain social, environmental and work standards, which detractors say could hamper growth and competitiveness.

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.