Pro-Business Does Not Mean Pro-Freedom or Pro-Market

Representatives of the business community frequently are the worst enemies of freedom. They often seek special subsidies and handouts, and commonly conspire with politicians to thwart competition (conveniently, they want competition among their suppliers, just not for their own products). Fortunately, most business organizations still tend to be - on balance - supporters of limited government. But as the Wall Street Journal notes, some state and local chambers of commerce have become relentless enemies of good policy: 

…many chambers of commerce on the state and local level have been abandoning these goals. They’re becoming, in effect, lobbyists for big government. In Colorado, a coalition of property owners, conservative think tanks, anti-tax groups and small businesses fought against a ballot initiative in 2005 that was intended to gut the state’s Taxpayer Bill of Rights (Tabor). They lost, and as a result state spending will expand by $5 billion over the next five years, costing the average family several thousand dollars in higher taxes. It was not the teachers’ unions or class-warfare liberals who spearheaded the campaign against Tabor, however – it was the Denver Chamber of Commerce. …In Virginia, the state and local chambers, along with big-business allies, have spent more than $4 million in recent years on ballot initiatives and legislative lobbying to raise $2 billion in taxes for roads, rails, buses and schools. This year they want a billion more for transportation, despite the state’s multibillion-dollar surplus, and have even threatened to run candidates against fiscal conservatives in the legislature who take a “no new taxes” pledge. …In New Jersey – home of some of the worst schools in the nation – the state chamber took out an ad with the teachers’ unions opposing a school-voucher initiative for families in inner cities. The ad was withdrawn only after pro-school reform business members hollered in protest. Last summer taxpayers revolted when Democratic Gov. Jon Corzine called for a $1.5 billion hike in the sales tax; but “the chamber and other business groups sat on their hands in order to avoid making enemies with the legislature,” notes Frayda Levin, New Jersey director of Americans for Prosperity. In Oklahoma the state chamber filed a petition with the state Supreme Court to block eminent domain reform, and vowed to fight a taxpayer-led movement to enact a Colorado-style Tabor. Massachusetts? The state chamber and allied business groups oppose an income tax cut.

Proposed Hedge Fund Regulations Would Limit Options for All but the Rich

The nanny-state mentality of the Bush Administration and its appointees shows no sign of abating. The latest farce comes from the Securities and Exchange Commission, which want to prohibit all but the very wealthy from taking advantage of successful hedge fund investing. Richard Rahn comments in the Washington Times:

Financial regulation is most often justified by arguing it is needed to protect all participants from those who would engage in fraud or theft, and to protect unsophisticated investors from losing money in investments they do not understand. The U.S. Securities and Exchange Commission (SEC) has just proposed that the amount of liquid net worth an individual must have before investing in hedge funds and other so-called risky investments be raised to as much as $2.5 million. People meeting a net liquid worth requirement are considered “accredited investors.” …Even though most people would agree it is important to try to protect “widows and orphans” from unscrupulous and/or incompetent financial promoters, there is a fine line between protecting those who need protection and denying freedom to those who don’t. Does it make sense to prohibit a person who has recently obtained a graduate degree in finance from a leading business school from buying and selling hedge funds, because he or she has not yet accumulated some arbitrary amount of wealth – while legally allowing any adult man or woman to take all of his or her wealth and go to Las Vegas and blow it at the gambling tables?

America’s High Corporate Tax Rate Hurts Competitiveness

As other developed nations race to cut corporate tax rates in order to attract jobs and investment, politicians in the United States are sitting on their hands. Kevin Hasset of the American Enterprise Institute explains how this hurts America:

Imagine you are the CEO of a major U.S. manu­facturing company. You are looking to locate a new domestic plant. All other factors being equal, would you locate the plant in the state with the highest taxes? Now, make that question international. Would you locate a plant in a country with high taxes or low? The obvious answer points to a growing eco­nomic problem for the United States. Among the 30 wealthy countries that make up the Organization for Economic Cooperation and Development (OECD), the U.S. ranks sec­ond, just below Japan, for the highest combined tax rate (federal and state) on corpo­rate profits. Our position in the world hierarchy is rela­tively new. In 1994, the U.S. ranked 18th. But since then, other nations have been cutting rates—from an average of 37 percent to 28 percent—while the U.S., at 39 percent, has main­tained its high level. …most foreign multinationals are head­quartered in countries that charge taxes only on domestic operations. If a French firm locates a plant in Ireland, then all of the profits of the Irish plant are taxable in Ireland, but are free from French tax­ation. So French firms have an enormous incentive to locate in the country with the lowest taxes they can find. That rules out the United States. …the latest literature suggests that relative tax rates are a big, big deal. Indeed, the dramatic flow of international capital to the lowest tax environment is one of the strongest and most reliable findings in the history of economic science. If a country lowers its rate below its rivals, as Ireland, now with a 12.5 percent rate, began doing more than a decade ago, then multinationals flood that nation with capital. It’s very much in the data. …The status quo—one of the most unfriendly tax policies toward business on earth—is unacceptable to anyone who cares about the future of American industry. No one should be surprised if our best firms continue to flee overseas and if foreign-based firms prefer locating their plants outside America.

What Goes Around Comes Around

Last week’s formal WTO challenge of certain Chinese tax laws by the United States should obviate an important reality. If China is running afoul of its commitments and the United States expects China to make amends, the United States must lead by example. That brings us to the zeroing dispute, with its latest twists and turns.

After much internal deliberation, the Commerce Department announced late last year that it would alter its antidumping calculation methodology by no longer “zeroing” dumping margins under the average-to-average comparison methodology in original investigations (described in this post). This decision was in response to a WTO indictment stemming from a complaint filed by the EC in 2003. January 17, 2007 was to be the effective date of the change, but implementation was postponed at the request of Sen. Max Baucus (D-MT) and Rep. Charles Rangel (D-NY), chairs of the Finance and Ways and Means Committees, respectively, who wanted more time to educate Congress about the ruling, the change in practice, and its implications.

Just before the announced postponement, another indictment was issued by the WTO Appellate Body concerning the zeroing practice in a complaint lodged by Japan in 2004. That ruling was much broader in scope, condemning zeroing under almost every conceivable comparison methodology and in both investigations and administrative reviews.

As a result of that latest ruling, the Ways and Means Committee has been soliciting comments from interested parties on how the United States should respond. Congress and the administration are said to be working closely, exploring U.S. options, one of which is simply NOT to comply. 

Noncompliance is a legitimate option, and that is part of the beauty of the rule of trade law within the WTO. Contrary to the view of some of its detractors, the WTO is not world government. It does not impose the will of some faceless bureaucracy on powerless countries. It does not usurp national sovereignty. On the contrary, the WTO is powerless as a stand-alone entity. Its rules are the product of the consensus of its members, and to establish new rules, consensus among all of its 150 members is required. (This helps explain the slow going of the Doha Round and the eight-year duration of the previously-concluded round of multilateral trade talks — the Uruguay Round). Members do not have to comply with rulings, which are always framed in the benign, “sorry-to-trouble-you” tone that “recommends” that rules or laws or measures be brought into conformity with this or that WTO agreement.

Despite this comply-if-you-will approach, the dispute settlement system has endured 12 years and 358 disputes with compliance or mutually-agreed resolution achieved in every case concluded thus far. One reason for this record of success is that, should members choose not to comply, the complainant whose gripe goes unresolved is often entitled to retaliate or “suspend concessions.” This retaliation often takes the form of raising tariffs, but could include other measures. 

Another incentive to comply is that noncompliance could be contagious. It’s nice to have the theoretical option of disregarding the verdict, but exercising that option can be costly and risky. If the United States chooses to ignore the Appellate Body’s findings in the Japanese zeroing case and fails to revise its zeroing practice, the Chinese may be more inclined to take this approach if and when its tax laws are found to violate its WTO commitments. One of the major justifications for encouraging and welcoming China’s membership in the WTO was that membership would improve prospects that Chinese policies going forward would be transparent, predictable, and fair. And that would encourage greater commercial engagement. If China comes to view its WTO obligations as optional, the economics of the trading system and the political support for it will suffer immensely.

Montgomery County Socialism

For readers in or around the DC area, the Washington City Paper has a nice cover story on the draconian Department of Liquor Control in the People’s Republic of Montgomery County, Md. The DLC is a government agency that controls the supply and distribution of every drop of alcohol sold in MC.

The piece sketches out some of the nightmarish experiences that business owners in MC have to go through to procure otherwise widely-available wines, and how the county outrageously cranks up the prices and provides godawful service to the business owners. (For example, a bottle that sold for $240 at a shi-shi DC restaurant is available for MC restaurant owners to purchase from the county for $260. They’d then have to mark it up themselves, again, to make a profit.)

Finally, the author of the piece interviews the director of the DLC, George Griffin, and asks him, “What gives?”

Griffin then proceeds to reel off some impressive statistics on how control jurisdictions have lower rates of underage drinking and fewer alcohol-related traffic fatalities for people under 21 than open jurisdictions. (An independent study forwarded to me by the National Alcohol Beverage Control Association seems to confirm his stats.) But then Griffin pauses briefly and delivers a disarmingly direct kicker to his list of justifications for MoCo’s system: “And that’s in addition to the $22 million that we give the county in unrestricted funds.”

Since taking over the DLC in 2001, after disgraced director Howard L. Cook Jr. was forced to leave for misusing a county credit card (among other misdeeds), Griffin will be the first to admit the contradictory nature of his job. It’s both to promote the “moderation and responsible behavior in all phases of distribution and consumption”…and to make a buttload of money to dump into the county’s budget. In the last five and a half years alone, the DLC has transferred more than $100 million to the general fund.

It isn’t just fine wines, either. When I was in college, I worked at a Bethesda pizza place to pay the bills. I recall during one of our busiest seasons, we ran out of all draft pilsner beer — Bud, Bud Light, Miller Light, etc. We begged, pleaded, beseeched the county to bring us more. Business had gone into the toilet, with no beer to serve with the pizza. The response from the DLC? ”We’ll be there when we get there.” They got there about a week later.

Meanwhile, DC restaurant owners are laughing all the way to the bank:

Some drinkers are already laughing at the wine choices in MoCo. “Nobody can think of a single restaurant that’s in Montgomery County that has anything approaching a noteworthy wine list,” says Mark Slater, chef sommelier at Citronelle, who once co-owned a restaurant in the county. “I don’t know why the citizens of the county even let that stuff go on. It’s punitive.”

Get the whole sorry scoop here.

Blacks Used Gun Ownership to Fight the KKK

Ken Blackwell’s Townhall.com column favorably comments on how 2nd Amendment rights enabled oppressed blacks to defend themselves in the Jim Crow south:

In his 2004 book, The Deacons for Defense: Armed Resistance and the Civil Rights Movement, Tulane University history professor Lance Hill tells their story. Hill writes of how a group of southern working class black men advanced civil rights through direct action to protect members of local communities against harassment at schools and polling places, and to thwart the terror inflicted by the Ku Klux Klan. He argues that without the Deacons’ activities the civil rights movement may have come to a crashing halt.

…Following a KKK night ride in Jonesboro, the Deacons approached the police chief who had led the parade and informed him that they were armed and unafraid of self-defense. The Klan never rode through Jonesboro again. Local cross burnings ceased when warning shots were fired as a Klansmen’s torch met a cross planted in front of a black minister’s home. The initial desegregation of Jonesboro High School was threatened by firemen who aimed hoses at black students attempting to enter the building. When four Deacons arrived and loaded their shotguns, the firemen left and the students entered unscathed. It was this series of efforts by the Deacons that caused the Klan to leave Jonesboro for good.

Similar work in Bogalusa, Louisiana drove the KKK out of that town as well, and led to a turning point in the civil rights movement. Acting as private citizens in lawful employment of their constitutional rights, the Deacons demonstrated the real social impact of the freedoms our nation’s founders held dear.

…Gun control measures, from the slave gun bans of the 1700s South to the Brady Bill regulations of the 1990s, have unfairly targeted black Americans and have worked to curtail a disproportionate number of their constitutional rights.