200708

August 20, 2007 11:03AM

Tax Code Industrial Policy

Millionaire football fans are among the beneficiaries of supposed emergency hurricane tax relief according to an AP report. The only positive aspect of this story is that the special tax breaks deprive politicians of extra money to waste (though they will continue to borrow and waste, so don’t get too excited). Actually, this corrupt form of tax-code industrial policy also has another positive attribute – it is an excellent example of why the internal revenue code should be junked and replaced with a simple and fair flat tax:

...federal tax breaks designed to spur rebuilding are flowing hundreds of miles inland to investors who are buying up luxury condos near the University of Alabama's football stadium. About 10 condominium projects are going up in and around Tuscaloosa, and builders are asking up to $1 million for units with granite countertops, king-size bathtubs and 'Bama decor, including crimson couches and Bear Bryant wall art. …And they intend to take full advantage of the generous tax benefits available to investors under the Gulf Opportunity Zone Act of 2005, or GO Zone, according to Associated Press interviews with buyers and real estate officials. …The GO Zone was drawn to include the Tuscaloosa area even though it is about 200 miles from the coast and got only heavy rain and scattered wind damage from Katrina. …The GO Zone investor tax breaks are credited with contributing to the condo boom in Tuscaloosa.

August 20, 2007 10:41AM

Now Who Looks Stupid?

People who argue that patients are too dumb to make their own health care decisions rarely consider how dumb government is.  According to yesterday's New York Times:

In a significant policy change, Bush administration officials say that Medicare will no longer pay the extra costs of treating preventable errors, injuries and infections that occur in hospitals, a move they say could save lives and millions of dollars.

That's right.  For the past 42 years, the federal government has paid hospitals to give grandma an infection, drop her on the floor, or leave a sponge inside her -- and then paid the hospital more to put her back together again.  That is, if the infection didn't kill her.

Does anyone really believe that if each patient controlled the health care dollars that employers and the government now control, that it would take patients 42 years to stop rewarding hospitals for medical errors?  In other areas of your life, how often do you give more money to a business that screwed you over?

August 20, 2007 9:08AM

British Tories Bungle Tax Cut Message

The Conservatives in the United Kingdom have been lost in the wilderness ever since the Thatcher years, and recent efforts to recapture the tax issue illustrate the Party’s incompetence. As reported by the BBC, a working group has proposed some decent tax reforms, including an attack on Britain’s death tax. The head of the group even made a pro-growth argument for the reform, but the Party’s Shadow Chancellor then confuses the message by stating that any tax cuts must be financed by tax increases (the Tories, like American Republicans, are unwilling to control the size of government):

A Conservative government should abolish inheritance tax because it penalises too many middle-income families, a policy group recommends. …Led by former Cabinet minister John Redwood, the Competitive Challenge working group says the government has introduced many "stealth taxes" since Labour came to power 10 years ago. …Mr Redwood told BBC Radio 4's Today programme his proposals would not require cuts in public services because they would help the economy grow. …"Any reductions in specific taxes will have to be balanced by tax increases elsewhere, most notably green taxes," [Shadow Chancellor George Osborne] added.

The Labour Party instantly seized on the mistake. As noted in the Guardian, the Tories are now being criticized for supporting “crippling” tax hikes:

A bitter war of words has broken out over Tory proposals for £21 billion in targeted tax cuts. Labour warned that the plans, put forward by former Cabinet minister John Redwood, would require "crippling" increases in fuel duty and other charges for homeowners, businesses, holidaymakers and motorists.

August 20, 2007 9:05AM

Making $600 Toilet Seats Seem Like a Bargain

Like other parts of government, the Pentagon is famous for wasting money, but a recent Bloomberg report makes $600 toilet seats seem like a good deal from the discount bin at Wal-Mart:

A small South Carolina parts supplier collected about $20.5 million over six years from the Pentagon for fraudulent shipping costs, including $998,798 for sending two 19-cent washers to an Army base in Texas, U.S. officials said. The company also billed and was paid $455,009 to ship three machine screws costing $1.31 each to Marines in Habbaniyah, Iraq, and $293,451 to ship an 89-cent split washer to Patrick Air Force Base in Cape Canaveral, Florida, Pentagon records show. …The scheme unraveled in September after a purchasing agent noticed a bill for shipping two more 19-cent washers: $969,000. That order was rejected and a review turned up the $998,798 payment earlier that month for shipping two 19-cent washers to
Fort Bliss, Texas, Stroot said.

August 18, 2007 7:40AM

NR Condemns Fair Tax Proposal

In a move that is sure to generate feedback, National Review is urging Republican candidates not to support the Fair Tax. The editorial is somewhat disconcerting since NR should be happy that at least some Republicans are talking about free-market ideas. The same logic could be used, after all, to argue that Republicans should not support Social Security reform or advocate the elimination of the Department of Education.

I’ve always thought the flat tax is a politically better way of getting to a system that taxes economic activity only one time and at one low rate (see here for more information), so I don’t have a dog in the Fair Tax fight. But I am nonetheless disappointed that the flagship publication of the conservative movement is discouraging GOPers from bold proposals:

The tax code needs major reform to become fairer, simpler, and more efficient. The Fair Tax is one instantiation of those goals, but its political impracticality makes it fatally flawed. If conservatives force a choice between a Fair Tax and no tax reform at all, the latter is what they are likely to get.

…The great, undeniably attractive selling point of the Fair Tax is that it would allow the country to dispense with the IRS. But the sad truth is that if the federal government is going to collect as much money as it currently does — which the Fair Taxers say their system would — its methods of tax collection will inevitably be intrusive. …[E]very country that has ever tried to impose retail sales taxes this high has quickly moved to a Value Added Tax levied at every stage of production. Consumers rarely see or keep track of these taxes, and they seem to be fairly easy for governments to raise.

…A candidate who ran on the national sales tax would be able to run on nothing else. He would have to spend all of his time defending the idea. Off the top of our heads, we can think of three devastating lines of attack an opponent could use in television ads. One ad could argue that getting rid of the mortgage deduction would send home prices into free fall (something that voters are going to find especially worrisome now). Another could ask why senior citizens, having paid taxes all their lives as they made income, should have to spend their retirements paying taxes on everything they use that money to buy. A third could simply ask voters if they look forward to paying a brand new tax.
There are answers to each attack. But no Republican candidate, especially in the daunting environment of 2008, is going to want to have to make them. Republicans cannot win a national election without the tax issue. If they ran on the national sales tax, Republicans would be taking one of their natural strengths and making it into a liability.

August 18, 2007 7:19AM

Solution Already in Place for Chinese Product Safety Problems

The recent spate of recalls involving products manufactured in China has elicited cries from the public for better regulatory oversight and glee from protectionists who seek to demonize all trade with China. But increased government screening or an outright import ban would be unnecessarily intrusive and prohibitively expensive. The solution that makes the most sense is already working.

There is nothing more immediately deleterious to the bottom line than the kind of bad publicity that connotes wanton disregard for the vulnerable and innocent. Think Exxon Valdez and oil-drenched, arctic sea mammals; think Kathy Lee Gifford and allegations of sweatshop labor; and now, think Mattel and sick children. Companies pay dearly even for the perception that they have transgressed.

Large quantities of poisonous products ending up in consumers’ toy chests, medicine chests, and refrigerators constitute serious transgressions, which should be punished and relegated to the very rare occurrence. For its recent woes, Mattel is being punished. The company’s stock value took a hit, its revenues are projected to decline as we head into the holiday buying season, it will incur huge costs refunding and replacing purchases of tainted toys, and it will be spending hundreds of million of dollars to improve its safety audits. Meanwhile, Chinese factories that compete for Mattel’s business have every financial incentive to clean up their own acts.

If Mattel fails to win back the confidence of American parents, it could be facing extinction. But allowing Americans to decide whether they will purchase Mattel products, or other products made in China, is preferable to Congress or the administration making that decision for them.