Religious Think Tank Defends Tax Competition

A scholar from the Acton Institute looks at the tax battle between Swtizerland and EU leaders in Brussels, and exposes the misguided morality of the politicians who denounce tax competition:

The war of words was ignited by the French rock star Johnny Hallyday’s decision in late 2006 to move to Gstaad, Switzerland, because he was tired of France’s exorbitant tax-rates. Mr. Hallyday joins an exodus of individuals and companies from France, Germany, Italy, and Austria taking advantage of Switzerland’s 21 percent overall tax-rate and considerably lower corporate tax-rates. Liechtenstein, Switzerland’s tiny neighbor, maintains even lower tax-rates and has benefited from a similar flight.

For corporate tax-exiles in Switzerland, the situation is especially advantageous. Each canton sets its own corporate tax-rates. This has triggered intense competition between cantons anxious to attract new businesses. In January 2006, for example, the central Swiss canton of Obwalden reduced its corporate tax-rate to 6.6 percent. Over 11 months, it attracted 376 new companies. No wonder large corporations such as Google and IBM have located their European headquarters in Zurich.

Outside Switzerland, the response has been extraordinary. Some French socialists have accused Switzerland of “looting” its neighbors. This is somewhat strange, given that no-one is forcing these individuals and companies to move to Switzerland. Some would suggest that the real “looters” are French governments of left and right who have raised taxes over the past 40 years to such levels that even many relatively modestly well-off French citizens have left or invested their capital in off-shore tax-havens.

…“Tax-harmonization” in the EU, incidentally, never means lowering tax-rates. It invariably involves raising taxes to the same high level. It was on this basis that, when faced with companies leaving Germany to base their headquarters in 19 percent flat-tax Slovakia, Germany’s ex-chancellor Gerhard Schroeder once accused Slovakia of “un-European” behavior. To be truly European — apparently — means giving about half your income to the government.

The European Commission Is Free Market?!?

There is nothing terribly newsworthy in a story from the EU Observer about a move to the left by the European Commission, but it is revealing that the report indicates that the Brussels-based bureaucracy has a free market reputation.

This is, after all, the bureaucracy that pushes for tax harmonization between countries and operates a Soviet-style agricultural subsidy system. But, then again, maybe the bureaucrats are free market when compared to French and German politicians:

The European Commission on Wednesday appeared to be trying to shrug off its reputation as a free-market bulwark, releasing a vision on the future of the EU’s single market which is notably sensitive to social concerns. 

…The current team of commissioners led by Jose Manuel Barroso generally has a pro-market reputation, not least in Germany and France.

…The paper also states that “many European citizens have raised concerns about the perceived disruptive impacts of globalisation,” adding that it is a “matter of social justice” to “anticipate and accompany change for the people and sectors directly affected by the market opening.” Brussels already runs the so-called Globalisation Adjustment Fund which was introduced by Mr. Barroso in 2005 after French president Jacques Chirac criticised the EU for failing to respond to massive lay-offs in France by U.S. computer maker Hewlett-Packard.

The Wisdom of Walter Williams

George Mason University’s Walter Williams is a skilled economist who can spout jargon when necessary, but it is his ability to put economic principles in common-sense language that sets him apart from most of his peers. How many Americans would cease worrying about the trade deficit, for instance, if politicians copied Walter’s words and explained that America and Japan (or China, or Germany, etc.) do not trade with each other:

When I purchased my Lexus, did I deal with the U.S. Congress, the Japanese Diet, George Bush and Shinzo Abe, or did I deal with Toyota and its intermediaries? If we erroneously think of international trade as occurring between the U.S. and Japanese governments, then all Americans, as voters, have a say-so. But what is the basis of anyone having a say-so when one American engages in peaceable, voluntary exchange with another person, be they Japanese, Korean, British, Chinese or another American?

Tax Cuts North of the Border

America traditionally has enjoyed a competitive advantage over Canada, but the Conservative government in Ottawa has announced addtional tax cuts, including reductions in the corporate rate. The rest of the world is responding to tax competition, and the high corporate tax rate in the US is becoming an ever-larger problem for American companies in the global marketplace. Unfortunately, there is no groundswell – or even idle gossip – for a reduction in America’s punitive corporate tax. Tax-news.com reports on the new tax cuts in Canada: 

Jim Flaherty, Canadian Minister of Finance, has announced that he will table the second budget of Canada’s Conservative administration under Prime Minister Stephen Harper on March 19, 2007. …Key tax measures contained in the 2006 budget included the long-promised 1% cut in Goods and Services Tax to 6%, a 2% cut in the general corporate tax rate by 2010, eliminating the corporate surtax on all corporations by 2008, axing the federal capital tax, and increasing the amount of income eligible for the lowest rate of corporate tax for small businesses. In addition, this bottom rate will be reduced by 1% to 11% by 2009.

Parents More Schooled. Kids Less Educated. — NAEP

The 2005 NAEP Reading and Mathematics test scores for 12th Graders have just been released.

Here’s the detail you’ll hear in all the media coverage: Reading achievement has hit its lowest point in the entire period since the first comparable score was collected back in 1992. (The math test has changed, so no trend analysis is possible).

Here’s a detail you won’t see in many news stories: The highest degree earned by students’ parents has gone up substantially since 1992. In that year, 41 percent of students reported that at least one of their parents was a college graduate. Today, it’s 47 percent. Researchers have long known that parents’ level of education is a strong predictor of children’s academic success, so this increase in the share of college graduates among parents should be associated with higher student achievement (other things being equal). But achievement went down. Significantly. If the home environment is now more conducive to learning, but less learning is actually taking place, that leaves… the schools.

So: No, the NCLB isn’t helping. No, more money isn’t helping (it’s up more than 20% per pupil since 1992, in real inflation-adjusted dollars). It’s. The. Schools. We suffer from an education monopoly. Monopolies are bad.

A one-size-fits-few state-run school system simply can’t produce the kind of innovation and improvement we take for granted in the competitive, free enterprise sector of our economy. We need to inject parental choice and competition into our education system if we want to see the trend lines going up instead of down.

New at Cato Unbound: Inequality Denialism = Global Warming Denialism?

The Earth is heating up, and so is the conversation on income inequality at Cato Unbound! University of Oregon economist and proprietor of the popular econo-blog, Economist’s View, writes:

This debate reminds me of the debate over global warming, though using the word “debate” implies there is more disagreement than there really is.

[…]

The inequality debate appears to be unfolding similarly with those who would like to avoid policies to address inequality, policies such as more progressive taxation, hoping to keep the first question open as long as possible or claiming that the rise in inequality is the inevitable result of natural market forces and we should not interfere.

Cornell University economist Richard Burkhauser takes exception:

I give Mark Thoma high marks for raising the rhetorical stakes in this debate to the point where those who remain more skeptical of the evidence for substantial increases in income inequality since 1989 are relegated to the status of contrarian ideologues unwilling to sign onto Mr. Gore’s “Inconvenient Truth.” But isn’t this a bit much, even for a true believer?

Burkhauser goes on to argue that there has been no detectable increase in inequality within the bottom 99 percent of the income distribution. But, “what about that other 1 percent?” Burkhauser inquires:

Here Reynolds and [Gary] Burtless strongly disagree. Reynolds argues that even including that 1 percent in the mix there has been no great increase in income inequality since 1988 and Burtless offers counter proof based on other data sets. I am not yet sure who is right between them, but I am very sure that Thoma is wrong. It is still reasonable to be skeptical of both arguments.

Stay tuned for more from Burtless, Reynolds, and Krueger and Perri.

Mugabe Eats Cake, Zimbabweans Eat…

My Cato colleague Marian Tupy is currently traveling in Africa and unable to blog, so I thought I’d post this snippet from from a New York Times story that would be dear to Marian’s heart:

JOHANNESBURG, Feb. 21 — President Robert G. Mugabe of Zimbabwe turned 83 on Wednesday to the strains of the song “God Bless President Mugabe” on state-controlled radio, along with an interview on state television, a 16-page paean to his rule in Harare’s daily newspaper and the prospect of a grand birthday party — costly enough to feed thousands of people for months, his critics argued — on Saturday.

Zimbabwe’s economy is so dire that bread vanished from store shelves across the country on Wednesday after bakeries shut down, saying government price controls were requiring them to sell loaves at a loss. The price controls are supposed to shield consumers from the nation’s rampant inflation, which now averages nearly 1,600 percent annually.

Mugabe is a piece of work: Not only has his thugocracy destroyed the civil society necessary for a healthy nation and economy, not only has his monetary policy imploded the Zimbabwean currency, not only will history remember him as (in the words of Nobel laureate Archbishop Desmond Tutu) a “caricature of an African dictator,” but he has the audacity to stage a phony national celebration of his birthday.

Hat tip to the NYT for the great headline, photo, and endquote.