Archives: 01/2008

Laffer Curve Video

Working in Washington can be very exasperating, and few issues are as frustrating as the Laffer Curve. Even market-friendly lawmakers frequently misinterpret the relationship between tax rates, taxable income, and tax revenue. The other 90 percent of politicians are even worse. Using straw-man arguments, they defend a revenue-estimating system that is based on the absurd notion that tax policy never has any impact on economic performance. I’ve complained vociferously (see here, here, and here), but that hasn’t worked.

It’s time to try something new. Regular readers of this blog may have seen the videos I narrated on tax competition and the corporate income tax. These videos, produced by the Center for Freedom and Prosperity, will never compete with Pamela Anderson, but they seem to get a decent amount of traffic by public-policy standards. So the Center has now released a video on the Laffer Curve with yours truly (a.k.a., the George Clooney of the free market movement) again serving as narrator. Indeed, this video is the first of a three-part series.

I sent the video to Art Laffer, who was kind enough to say, “This video is a great common-sense tutorial that shows the real relationship between tax rates, taxable income, and tax revenue. I hope it is widely viewed so that more people understand the need for pro-growth tax policy.” But I also want negative feedback. As in previous cases, I would welcome suggestions on how to make these videos more effective. Needless to say, feel free to share all of them with your friends and colleagues.

The Need for Judicial Oversight of Domestic Intelligence Gathering

I’m always hesitant to disagree with a fellow Cato scholar, especially one with a resume as impressive as Roger Pilon’s. But I thought Roger’s op-ed in the Wall Street Journal yesterday on the FISA debate missed a couple of important points.

Let me start with a couple of points on which everyone in the FISA debate agrees. First, no one disputes that the president has the authority to conduct purely foreign intelligence-gathering without court oversight. And as Ryan Singel has ably documented purely foreign eavesdropping has always been unregulated by FISA. If the NSA wants to splice into a fiber optics cable off the coast Great Britain, bribe a Syrian telephone employee for access to the telephone network, or install eavesdropping equipment on every cell phone tower in Iraq, FISA has nothing to say on the subject.

Second, virtually everyone agrees that changes are needed to allow the interception of foreign-to-foreign communications as they pass through infrastructure in the United States without judicial interference. Indeed, the Democratic House passed legislation to that effect back in October. We would not be having this debate today if the president had not threatened to veto that legislation.

The dispute is over what safeguards are appropriate to ensure that the intelligence community’s surveillance activities here in the United States are limited to genuine foreign intelligence. Roger’s position appears to be that neither the courts nor Congress may place any restrictions on domestic surveillance activities that the president declares to be related to foreign intelligence gathering. But that’s not good enough. Without judicial oversight, there is no way to know if the executive branch is properly limiting its activities to spies and terrorists, or if they’ve begun to invade the privacy of petty criminals or even law-abiding individuals. This is no hypothetical scenario. The FBI conducted extensive surveillance of Martin Luther King Jr. and other civil rights and anti-war leaders in the 1960s and 1970s, which was one of the reasons Congress enacted new safeguards in the first place.

The White House complains that the process for obtaining permission from the Foreign Intelligence Surveillance Court is too burdensome. But as our own Mark Moller has explained, most of the paperwork burden that the White House now complains about so bitterly was created by the administration’s own procedures for approving FISA applications. The paperwork required by FISA itself was fairly light. And not only did the Foreign Intelligence Surveillance Court reportedly almost never turn down an eavesdropping application, but the law also included an emergency wiretapping provision that allowed intelligence officials to wiretap first and then get a warrant afterwards.

In short, FISA gave the intelligence community plenty of flexibility to perform the domestic wiretaps they needed to keep Americans safe. But crucially, the government had to tell the court who it was spying on, so that the court could verify that the law was being followed. That’s an important safeguard that ensures that the president doesn’t exceed his constitutional authority and encroach on the privacy of law-abiding citizens. The Protect America Act severely crippled that protection, and it would be a serious mistake for Congress to make the damage permanent.

President Bush Keeps the Faith on Trade, Immigration

There was much for libertarians and small-government conservatives to pick apart in President Bush’s State of the Union speech last night, but the president deserves hearty applause for his two passages on trade and immigration.

On trade, Bush urged Congress to approve pending agreements that would lower trade barriers between the United States and Colombia, Panama, and South Korea. He reminded Congress that the agreements would reduce barriers to U.S. exports and deepen our commercial and diplomatic ties to friendly nations and their 100 million citizens.

Those non-economic factors loom especially large in the Colombia agreement. As the president told Congress:

These agreements also promote America’s strategic interests. The first agreement that will come before you is with Colombia, a friend of America that is confronting violence and terror, and fighting drug traffickers. If we fail to pass this agreement, we will embolden the purveyors of false populism in our hemisphere. So we must come together, pass this agreement, and show our neighbors in the region that democracy leads to a better life.

The president even reminded Congress, albeit subtly, that the gains from trade are not just about exports when he said. “Trade brings better jobs and better choices and better prices.” Yes, it’s about time somebody in high office put in a good word for the consumer benefits of more robust import competition!

On immigration, President Bush stood on equally solid ground. He touted the beefed up border security under his administration, but then reminded Congress that enforcement without reform is not enough:

… we also need to acknowledge that we will never fully secure our border until we create a lawful way for foreign workers to come here and support our economy. This will take pressure off the border and allow law enforcement to concentrate on those who mean us harm.

We must also find a sensible and humane way to deal with people here illegally. Illegal immigration is complicated, but it can be resolved. And it must be resolved in a way that upholds both our laws and our highest ideals.

In 89 words, President Bush effectively summarized what I’ve been saying and writing all along about the right way to reform our broken immigration system and protect our security.

Atilla Yayla Found Guilty

Atilla Yayla, the courageous leader of the Association for Liberal Thinking in Turkey, who has spoken at the Cato Institute and taken part in Cato conferences and programs, has been found guilty of allegedly insulting the founder of the modern Turkish state, Mustafa Kemal Ataturk. The 15 month prison sentence was suspended.

Background from my previous blog posts here and here.

The New York Times ran a piece on Friday on the likely direction for freedom of speech in Turkey, “Turkey to Alter Speech Law,” which focuses on Atilla’s case.

Atilla is a brave man and a friend of the liberty of everyone. Please write to the Turkish Ambassador in your country, respectfully (please) requesting that proceedings be undertaken to void the sentence. Here is the info for the Turkish Embassy in the USA.

Wiretapping Laws Violated

Government agents are rarely prosecuted when they violate the wiretapping laws.  Instead, the government uses those laws against the people!  Massachusetts police, for example, arrested a law student who used his cell phone to record a drug arrest

It is bad enough when a cop loses his temper and makes a false arrest.  It is much worse when prosecutors calmly decide to press forward with the case and set a legal precedent.

The Real Story from the Interview with Saddam’s Interrogator

There’s been a decent bit of buzz over the 60 Minutes interview that ran last night with George Piro, Saddam’s Arabic-speaking interrogator. To my mind, though, there wasn’t too much new information in the piece. This, however, while not new, is as alarming as it’s ever been:

out of 10,000 FBI agents, only about 50 speak Arabic.

You go to war with the FBI you have, to be sure. But the fact that the administration has spread these people as thinly as possible by opening new fronts in the struggle against terror at every opportunity is a truly dark legacy.

Despite Losing Business to Flat Tax Neighbors, Hungarian Politicians Clinging to High Tax Rates

The Budapest Times has a feature story noting that many of Hungary’s neighbors have simple and fair flat tax system and wondering whether the nation can afford to retain a system base on high tax rates:

Bulgaria and Albania joined Russia, Slovakia, Romania and nine other Central and Eastern European countries by adopting a flat tax system at the beginning of the year. Four of Hungary’s seven neighbours have already chosen the flat tax option. In fact, flat tax is now the preferred system among the post-communist economies of Central and Eastern Europe. Is Hungary – already suffering the lowest rate of economic growth of the new EU member states – in danger of being left behind? …To western Europeans, this may sound like the utopian stunt of a madman, but in fact flat tax policies – until recently little more than a theoretical notion dreamt up by economists – have rapidly caught on in the developing economies of central and Eastern Europe since Estonia opted for the novel system in 1994.

In addtion to explaining how the flat tax improves tax compliance, the article notes that many companies are relocating in Slovakia because that country’s tax system is much more conducive to productive activity. The Hungarian fiscal system, by contrast, is very punitive:

With a flat rate of tax, regardless of how much a person earns, he pays the same proportion of his wage to the state. With progressive tax, a pay rise can lead to an increase in the percentage claimed by the government. …a simple, low-rate tax which is easy to collect and difficult to evade is likely to raise more money than a high-rate tax system that is full of loopholes and which nobody fully understands. …Compare Hungary with Slovakia. Hungary’s northern neighbour has opted for the purest of flat tax systems. Employers’ and employees’ income tax contributions are fixed at 19%, as is corporate tax and even VAT. Thousands of Hungarian companies have already relocated their headquarters to Hungarian-speaking southern Slovakia – not only are taxes lower, but accounting has been made child’s play. Hungarian employers must pay 16% income tax and 29% social security on payroll, while employees pay between 18% and 36% income tax plus a host of social and other contributions. The net result of this is that the government receives up to double what the employee takes home. 

Even though Hungary’s growth rate is sluggish and the nation is losing jobs and investment to other nations with better tax systems, the politicians are stubbornly refusing to join the flat tax revolution. This is bad news for Hungary’s workers:

The small, conservative opposition party the Hungarian Democratic Forum has long been calling for the adoption of a flat tax model. Party leader Ibolya Dávid argued last year, when the Czech Republic chose to follow its southern neighbour Slovakia into the flat tax world, that Hungary risks losing out in the battle for foreign investment and lagging behind if it does not follow suit. …Earlier this year, it was reported that two of four possible alternatives included the adoption of a flat tax model. However, last week Magyar Hírlap reported that the cabinet working group had ruled out any such move.