Articles in the Financial Times and the Economist Defend Tax Competition

The Economist has an entire section on the “offshore” world in the latest issue. Among the key findings are that so-called offshore financial centers promote growth and discourage wasteful government:

…the most vexing problem that highly mobile financial flows pose for governments is that when they cross borders they may take tax revenues with them. …As companies become ever more multinational, they find it easier to shift their activities and profits across borders and into OFCs. …Financial liberalisation—the elimination of capital controls and the like—has made all of this easier. So has the internet, which allows money to be shifted around the world quickly, cheaply and anonymously. …tax, regulatory and other competition is healthy because it keeps bigger countries’ governments from getting bloated. Others argue that OFCs may be an inevitable concomitant of globalisation. “Even if today’s OFCs were somehow stamped out, something like them would pop up to take their place,” says Mihir Desai of Harvard Business School. Some academics have found signs that OFCs have unplanned positive effects, spurring growth and competitiveness in nearby onshore economies. …International organisations have launched various initiatives to try to get OFCs to tighten supervision, co-operate more with foreign governments to catch tax cheats and, at least in Europe, eliminate “harmful” tax practices. OFCs think such initiatives are designed to force them out of business. The countries that set these standards “are an oligopoly trying to keep out smaller competitors. They are both players and referees in the game. How can they be objective?”, asks Richard Hay, a lawyer in Britain who represents OFCs. …the broader concern over OFCs is overblown. Well-run jurisdictions of all sorts, whether nominally on- or offshore, are good for the global financial system.

A column in the Financial Times takes an even stronger position. It notes that tax competition encourages more responsible behavior by lawmakers. It also explains that low taxes are not akin to subsidies, and points out that anti-tax-competition advocates will not be satisfied until all pro-growth tax policies are exterminated:

The European Commission seems to recognise no limits in its drive to impose tax harmonisation across Europe. Having issued a sanction against Luxembourg last July for its preferential tax regime on holding companies, Brussels is now trying to put pressure on a country outside the European Union by targeting Swiss cantons’ tax breaks and low business tax rates. Such a move, if it succeeds, will hurt not only the Swiss but all taxpayers in Europe. Tax competition gives you - the entrepreneur or citizen - the opportunity to escape fiscal pressure from your own government by moving to jurisdictions with more favourable tax regimes. It gives strong incentives for all governments to lower taxes, allowing taxpayers to keep more of their money and making markets less distorted. Such tax competition has existed for some time in Europe and is being intensified by globalisation. Luxembourg and Switzerland, for example, can be considered in a sense to be tax havens at Europe’s heart, benefiting not just European but world taxpayers. Those benefits are being undermined by Brussels’ campaign to condemn places with favourable tax regimes. …The Commission has a strange concept of free trade. It is easy to grasp how public subsidies to business - which involve confiscating resources from some parties and giving them to others - should be regarded as “state aid”. But how can the fact that certain taxes are not levied be placed on the same footing? …This harmonisation logic will inevitably lead EU bureaucrats to attack other regimes that benefit taxpayers, be they in the EU or outside. In Ireland, for example, the corporate tax rate is lower than in Swiss cantons and in Estonia undistributed corporate profits are simply not taxed. When can we expect pressure on Ireland to raise its rates or on Estonia to repeal a system that has contributed to its economic dynamism?

Who You Gonna Believe, Me or Your Lying Eyes?

Here’s Representative Barbara Cubin’s (R-WY) letter to state legislators regarding the REAL ID Act, as reported in the Casper Star-Tribune:  “The new driver’s licenses will allow state and federal law enforcement to check the authenticity of a license, but will not grant access to state databases of private information.”

Now here’s section 202(d) of the REAL ID Act:

To meet the requirements of this section, a State shall adopt the following practices in the issuance of drivers’ licenses and identification cards: …

(12) Provide electronic access to all other States to information contained in the motor vehicle database of the State. 

(13) Maintain a State motor vehicle database that contains, at a minimum–

(A) all data fields printed on drivers’ licenses and identification cards issued by the State; and

(B) motor vehicle drivers’ histories, including motor vehicle violations, suspensions, and points on licenses.

Who you gonna believe?

The Growing Welfare State

Unemployment is low, the stock market is booming, we’ve had 10 years of welfare reform – and “America’s welfare state is bigger than ever,” reports the Associated Press.

The number of families receiving cash benefits from welfare has plummeted since the government imposed time limits on the payments a decade ago. But other programs for the poor, including Medicaid, food stamps and disability benefits, are bursting with new enrollees.

The result, according to an Associated Press analysis: Nearly one in six people rely on some form of public assistance, a larger share than at any time since the government started measuring two decades ago.

Note that this story only looks at the welfare state for the poor. Far more than one in six Americans are dependent on such government programs as Social Security, Medicare, unemployment compensation, and so on, as Sen. Jim DeMint has been warning for years. More than 48 million people received a Social Security check last year, for instance.

But the AP investigation does show the weakness of welfare reform after 10 years. As Cato scholars have noted, many people have left the “welfare rolls” only to remain dependent on Medicaid, food stamps, housing subsidies, and other means-tested transfer programs.

The AP report was printed on many newspaper websites, but it didn’t appear in the nation’s largest papers. It should get more attention. Presidential candidates should be asked whether they think it’s bad that almost 50 million Americans are on welfare or welfare-related programs. What would they do to reduce dependency? And how long can a nation remain free if half its citizens are dependent on government hand-outs?

Pots & Kettles at the RNC

Somehow, I’ve found myself on an email distribution list for the Republican National Committee’s opposition research team.  Every couple of days or so, I get something documenting how the Democrat of the moment is out to lunch on this or that issue, speaking or acting hypocritically about some matter, or is an all-around crook or ne’er-do-well.  These packaged emails - intended primarily for the press - are the equivalent of political drive-by shootings with footnotes.

Today’s edition, however, is exquisite.  Titled “Hillary’s Kerryaoke on Energy,” it purports to document Hillary Clinton’s crazy statements and votes on energy policy.  Here’s what we learn:

  • Hillary Clinton is a big proponent of energy independence and calls for a big Manhattan-style project to get us there.  “ ‘If we landed a man on the moon and brought him back safely to Earth within a decade as President Kennedy had promised in 1961, we know we can do this,’ said Clinton to the AP the other day in the course of promoting her $50 billion program to reduce the nation’s dependence on foreign oil.  The RNC’s complaint?  She sounds just like John Kerry did in 2004.  My complaint?  She sounds just like President Bush, who proposes to spend at least that much to jack-up the Strategic Petroleum Reserve - and that’s before we even begin tallying up the costs associated with his ethanol madness, his clean coal, nuclear power, and renewable energy subsidies, and a plethora of related costly interventions.  
  • Hillary Clinton wants to impose special taxes on oil company profits to help fund this $50 billion initiative of hers.  Can’t complain with the RNC attack here.  But someone ought to remind these young operatives that George Bush is likewise happy to levy special taxes on oil companies to fatten government coffers.
  • Hillary Clinton voted 17 times against ethanol subsidies and even once dared to cast a procedural vote against an energy bill containing clean coal subsidies.  The RNC is outraged - OUTRAGED! - that the New York Senator would eschew federal attempts to rig energy markets and intervene in private investment decisions.
  • Hillary Clinton has voted eight times to prevent drilling in the Arctic National Wildlife Refuge.  I’m not sure that the “free market” position is to drill, but I am pretty sure that drilling there would have no appreciable impact on U.S. energy security.

You’ll probably hear some echoes of this RNC hit-piece on right-wing talk radio shows over the next week or so.  The point the RNC is trying to make is that she TALKS a good game regarding energy independence, but hasn’t always voted that way.  Well, if I have to choose between someone who means the crazy rhetoric he is dishing out and one who really doesn’t, I’ll take the latter. 

Government Identity Programs in Collapse?

Government Computer News has had a number of articles recently about the problems besieging the Transportation Worker Identity Card (or TWIC), one of a number of government identification systems nominally responding to the post-9/11 threat environment.  It should be no surprise to government watchers that a service provider for TWIC, viewed by many as unqualified, happens to be in the district of the former Chairman of the House Appropriations Committee’s Homeland Security Subcommittee.

The REAL ID Act is a bigger government identity control project, by far, which attempts to force states to convert their drivers’ licenses into a national ID card.  Regulations implementing REAL ID are widely expected to be released this week.  

Even while the architects of the surveillance state gather to talk about implementation, the Washington Post has an article out today that is probably best taken as the first post mortem on REAL ID

The headline (“As Bush’s ID Plan Was Delayed, Coalition Formed Against It”) wrongly attributes REAL ID to the Bush Administration, which was not a proponent of REAL ID, though the President did accept it as part of a military spending bill.  The article correctly attributes responsibility to Rep. James Sensenbrenner (R-WI), the former Chairman of the House Judiciary Committee.

Though the Bush Administration has room to distance itself from this colossal unfunded national surveillance mandate, a prominent member of the Administration appears to have consumed the REAL ID Koolaid - in quantity.

“If we don’t get it done now, someone’s going to be sitting around in three or four years explaining to the next 9/11 commission why we didn’t do it,” Homeland Security Secretary Michael Chertoff told the Senate’s Homeland Security Committee on Feb. 13.

Secretary Chertoff’s shameless terror-pandering is matched only by his ignorance of identification’s utility as a security tool.  People who understand identification know that it does not provide security against committed threats.

It’s unfortunate that government works by trial and error, but this trial may soon show that a national ID is error.

Market Education Could End the Culture War

Over at SayAnythingBlog, Rob notes a case of two Boston families complaining that their children were taught about homosexuality in elementary school. The parents, apparently religious conservatives, objected to the lesson being taught without parental consent. A federal judge has just told them: tough luck.

Yet another skirmish in the culture war. We’ve gotta keep fighting it, and we’ve gotta keep racking up winners and losers, right?

Wrong. Rob notes:

this is exactly the sort of thing school vouchers would solve.  School crossing the line and teaching your kid about things you find morally offensive?  Or things that should wait until they’re a little older?  Take your kids to a different school.

While I’ve argued that education tax credits do a better job than vouchers of avoiding such conflicts (scroll down the linked page to “Conviction, Compulsion, and Conflict”), this is essentially the same argument that Cato’s ed. staff has been making regarding all the values battles that arise due to our official government school system.

A free market in education can allow families to obtain the sort of education they value for their own children without forcing them to impose those values on their neighbors. Our existing school system, by contrast, creates an endless battle over what will be taught in the schools.

Rob gets it, and a lot of other people are starting to get it, too.

Europeans Want More Tax Harmonization — Which Means Higher Taxes

There already is a minimum fuel levy in the European Union, but governments are allowed to impose higher taxes (but never lower taxes, of course). This tax difference is causing some truckers to drive longer distances to buy fuel where diesel taxes are lower. The proposed response to this alleged problem is to reduce the difference in the tax among jurisdictions. Needless to say, the Euro-crats have decided that the solution is higher tax rates for all nations.

The EU Observer reports on the latest evidence that tax harmonization is always a scheme to increase government power:

EU tax commissioner László Kovács is set to table a proposal to harmonize the minimum level of excise duties at €359 per 1000 litres of diesel in 2012 and subsequently at €380 in 2014, a move which would see most EU states increasing their current rates.

According to Mr Kovács’ paper — seen by EUobserver — such a rise would stamp out so-called fuel tourism, as big trucks now make detours from their routes to tank in a state where it is the cheapest, generating more greenhouse gas emissions as well as losses to some EU states’ coffers. Germans, for example, are willing to drive two to four additional kilometres for each euro cent price differential compared to a neighbouring country in the case of gas oil. Fuel tourism cost Germany €1.9 billion in 2004.

…[O]ne Lithuanian diplomat [is now] saying the Brussels proposal should be scrapped as it would translate into an overall increase in prices and inflation. “It could freeze Lithuania’s euro hopes”, a diplomat told EUobserver, adding “taxes remain one’s competitive edge and countries with high rates have taken a voluntary risk”.