• SUPPORT CATO
• FOR STUDENTS
• FOR MEDIA
• FREE NEWSLETTERS

• HOME

• ABOUT

• BLOG

• BOOKSTORE

• EVENTS

• EXPERTS

• MULTIMEDIA

• PUBLICATIONS

Books

Reviews & Journals

Public Filings

Policy Studies

Opinion & Commentary

• RESEARCH AREAS

• SPEAKERS BUREAU

• SUPPORT CATO

• CATO UNBOUND

• DOWNSIZING
  GOVERNMENT.ORG

• ELCATO.ORG

Cato Dispatch for May 8, 2009

Subscribe to the Cato Dispatch via email

(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.)

Obama Taking Another Step toward Making American Companies Less Competitive

President Obama kept a campaign promise and unveiled a plan this week to put a stop to the use of tax havens, which, as U.S. News and World Report's Amanda Ruggeri wrote, would "undo many of the tax advantages that corporations reap for investing overseas."

In The Wall Street Journal, Senior Fellow Richard Rahn lays out the policy the federal government should implement:

The correct policy for the United States to follow is to reduce its corporate tax rate to make it internationally competitive, and to move toward a tax system that does not punish savings and productive investment so severely. We know from the experiences of many countries that reducing tax rates and simplifying the tax code improve both tax compliance and economic growth. Tax protectionism should be rejected because it is at least as destructive to economic growth and job creation as are tariffs on goods and services.

Writing in Forbes, Daniel J. Mitchell explains why this move is just another setback for American companies trying to remain competitive:

In a competitive global economy, this is a huge disadvantage for an American company. This is why politicians, in an unusual display of common sense, created a policy known as "deferral," which allows American companies — in some circumstances — to delay the extra tax. U.S. businesses still don't get to compete on a level playing field, but deferral does significantly reduce the self-imposed tax discrimination caused by America's worldwide tax system.

Ideally, policymakers would try to fix this competitive disadvantage by lowering the corporate tax rate or shifting to territorial taxation (the commonsense notion of only taxing income earned inside national borders). In the strange world of Washington, however, moving in the right direction does not seem to be an option. President Obama has proposed to make America's tax system even less competitive by restricting deferral.

Mitchell narrated a three-part video series on the subject, presenting the economic and moral cases for tax havens, and a final video that dispelled myths associated with the practice.

Mitchell spoke on Capitol Hill last month about the role of tax havens. He also made the case for why tax havens are a blessing in Foreign Policy magazine.

Pakistan Forces Attempt to Take over Taliban Stronghold. How Should the U.S. Respond?

The Associated Press reports that Pakistani troops have taken the fight to militants in the Swat valley, ending a three month truce between the government and Taliban forces.

Cato foreign policy analyst Malou Innocent, who traveled to Pakistan last year to study the situation on the ground, says that we shouldn't be too surprised that the peace treaty did not end well.

U.S. policymakers and defense planners must keep in mind the constraints Pakistani leaders are operating under. After 9/11, Pakistan was caught in an unenviable and contradictory position: the need to ally openly with the United States and the desire to discreetly preserve their militant assets as a hedge to Indian influence.

…Thus far, the United States has been unable to encourage Pakistan to ignore its traditional rival and ultimately, Pakistan's civilian leaders and defense planners must determine if insurgents or India poses a greater threat.

Innocent outlined how the United States should react to increasing violence in the region in a Policy Analysis published last month:

Instead of "surging" into this volatile region, the United States must focus on limiting cross-border movement along the Afghanistan-Pakistan frontier and supporting local Pakistani security forces with a small number of U.S. Special Forces personnel.

…U.S. aid to Pakistan must be monitored more closely to ensure Pakistan's military does not divert U.S. assistance to the purchase of weapons systems that can be used against its chief rival, India. Most important, U.S. policymakers must stop embracing a single Pakistani leader or backing a single political party, as they unwisely did with Pervez Musharraf and the late Benazir Bhutto.

New Videos from Cato

Nearly every day, Cato scholars appear on major news broadcasts to offer commentary on current events. Here are a few recent highlights, as well as an original video:

• In a Cato video, free speech and campaign finance experts discuss the soon-to-be decided Supreme Court case, Citizens United v. FEC.
• On CNBC, Dan Mitchell debates Robert Reich about Obama's new plan to stop corporations from using tax havens.
• Cato Chairman Robert A. Levy examines the nation's current gun laws on PBS.
• Appearing on Fox News, Malou Innocent discusses the United States' involvement in Pakistan.

While you're there, subscribe to Cato's YouTube channel.

Chris Moody, editor, cmoody@cato.org