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Cato Daily Dispatch for May 12, 2004

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(Links to outside sources were active as of the date of this dispatch; however, not all news sources maintain links to current stories indefinitely. Some links also may require registration.)

Bush Imposes Sanctions on Syria
Trade Deficit Reaches All-Time High
Senate Breaks Deadlock on Corporate Tax Bill

Bush Imposes Sanctions on Syria

"After months of debate within his administration, President Bush imposed economic sanctions against Syria on Tuesday, charging that it has failed to take action against terrorist groups fighting Israel and halt the flow of foreign fighters into Iraq," the New York Times reports.

"Bush issued an executive order banning virtually all American exports, except for food and medicine, and barring flights between Syria and the United States, except during emergencies. The president also told the Treasury Department to freeze the assets of Syrians with known ties to terrorism, weapons of mass destruction, the occupation of Lebanon or terrorist activities in Iraq."

In "The Syria Accountability Act: Taking the Wrong Road to Damascus," United Press International Foreign Editor Claude Salhani writes: "Although the Syria Accountability Act provides the United States with a new collection of sticks with which to beat Damascus, there are precious few carrots to encourage continued cooperation by Syria in the fight against Al Qaeda. The Syria Accountability Act leads in the wrong direction in the fight against anti-American terrorists by escalating an unnecessary conflict in the Middle East that will only strengthen those who wish us harm."

Trade Deficit Reaches All-Time High

"The trade deficit swelled to an all-time high of $46 billion in March as a stronger U.S. economy stoked Americans' appetite for foreign-made cars, TVs and other goods," the Associated Press reports.

"Although imports grew faster than exports, sales of U.S. goods and services to other countries also climbed in March, to their highest level on record. This was encouraging news for U.S. manufacturers and exporters."

The Web site for Cato's Center for Trade Policy Studies sets the record straight on trade deficits: "America's trade deficit is not a cause for alarm. It is not caused by 'unfair' trade practices abroad or a lack of industrial competitiveness at home. The trade deficit results from a net inflow of foreign capital into the United States, capital drawn by America's vibrant and growing economy. Without this capital inflow, domestic interest rates would be higher, investment lower, and long-term growth rates slower.

"Imports do not harm the American economy. They raise the living standards of U.S. workers and provide low-cost inputs and capital equipment for American industry. Imports do not reduce the number of jobs in our economy. They help to create better jobs by allowing Americans to shift resources to sectors where we can be even more productive."

Senate Breaks Deadlock on Corporate Tax Bill

"The Senate yesterday broke a two-month deadlock and approved a major corporate tax bill that would end a trade dispute with Europe and shower U.S. corporations with billions in new tax breaks," the Washington Post reports.

"The bill, approved 92 to 5, would provide $170 billion in corporate tax cuts over the next decade to replace export subsidies previously granted to U.S. firms by Congress that prompted $4 billion in retaliatory tariffs by the European Union."

In "Replacing the Scandal-Plagued Corporate Income Tax with a Cash-Flow Tax," Cato Director of Fiscal Policy Chris Edwards argues that "the flawed structure of the corporate income tax has been a key driver of corporate waste and inefficiency" and is at least partially responsible for the Enron-style financial scandals of late.

"Currently, the U.S. statutory corporate rate is the second highest among the 30 major industrial countries," he writes. "That high rate reduces investment, encourages firms to move profits abroad, and provides incentives to push the legal margins of the tax code."

Jonathan Block, editor, jblock@cato.org