Tag: Canada

More Family-Based Immigrants in Australia & Canada than in the United States

The United States’ immigration system favors family members over workers.  About two-thirds of all green cards issued annually are to immigrants whose qualification for being here is their relationship to American citizens or other green card holders.  This is in contrast to countries with so-called merit-based immigration systems that favor skilled immigrants, such as Australia and Canada.  Only 24 percent and 31 percent of annual immigrants to those two countries, respectively, gained permanent status through family connections.  Comparing the composition of the immigrant flow obscures important differences in immigration policy: Canada and Australia allow in many more immigrants than the United States does as a percentage of the population.

The United States allows in about a million lawful permanent residents a year, the largest number of any country, but that is a small percentage of the almost 325 million people who already live in the United States – about 0.3 percent annually.  By comparison, Australia Canada each allow in about 250,000 immigrants a year but they are much smaller countries with about 23 million and 35 million residents, respectively.  Thus, as a percentage of their populations, the annual inflow of immigrants into Canada and Australia is significantly larger than in the United States.  The annual number of immigrants to Australia is equal to 1.1 percent of the Australian population while the annual number to Canada is equal to about 0.7 percent of the Canadian population, which makes them 3.5 and 2.4 times as open to immigration as the United States, respectively (Figure 1).  If the United States were to copy Australia or Canada’s merit-based immigration policies, our government would admit about 2.3 million to 3.5 million immigrants annually.     

Figure 1

Immigrant Inflow as a Percent of Population, 2013

 

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada

Corporate Tax Rates and Revenues in Britain

If Republicans succeed in slashing the federal corporate tax rate from 35 percent to 20 percent or less, the tax base will expand as investment increases and tax avoidance falls. There is no need for a legislated expansion in the tax base, as the GOP is proposing with its “border adjustment” scheme. The tax base will broaden automatically over time to offset the government’s revenue loss from the rate cut.

New evidence comes from Britain, which has enacted a series of corporate tax rate cuts. A study by the Centre for Policy Studies includes this chart. It shows the tax rate falling from 35 percent to 20 percent since the late 1980s and corporate tax revenues as a percentage of gross domestic product (GDP) trending upwards. As the rate has fallen, the tax base has grown more than enough to keep money pouring into the Treasury.

Does legislated base broadening explain the increase in U.K. tax revenues? Not for the most recent round of rate cuts. In 2010-11, the government collected £36.2 billion from a 28 percent corporate tax. The government expected its corporate tax package—including a rate cut to 20 percent—to lose £7.9 billion a year by 2015-16 on a static basis. That large expected loss indicated that the package had little legislated base broadening. Study author Daniel Mahoney sent me a table confirming that the package included only modest base-broadening measures that were mainly offset by base-narrowing measures.

The government’s dynamic analysis of the corporate tax package projected a revenue loss of about half of the static amount over the long run. But that analysis was apparently too pessimistic: actual revenues in 2015-16 had risen to £43.9 billion. So in five years, the statutory tax rate fell 29 percent (28 percent to 20 percent) but revenues increased 21 percent (£36.2 billion to £43.9 billion). That is dynamic!

Looking at the longer term, the CPS study says, “In 1982-83 when the rate was 52%, corporation tax receipts yielded revenues equivalent to 2% of GDP. Corporation tax now raises over 2.3% of GDP when the headline rate is at just 20%.” The Brits have scheduled a further rate cut to 17 percent.

Canada’s experience also shows that when you slash the corporate tax rate, substantially more profits appear on corporate returns over time. Canada cut its federal corporate tax rate from 28 percent and higher in the 1980s to just 15 percent today, but it collects about the same amount of corporate tax revenues as a share of GDP now as then.

The British and Canadian experiences show that large corporate tax rate cuts lose governments little if any money. There is no need for risky changes to the corporate tax base, as House Republicans are proposing with border adjustments. That approach would disrupt the economy and invite retaliation from our trading partners for no economic gain.

The CPS study suggests that British industry has responded strongly to tax rate cuts, with rising investment and higher wages for workers. That’s what we want here. So Republicans should put aside their complex base-broadening plan, and just slash the corporate tax rate to the British-Canadian range of 15 to 20 percent.

The CPS study is here.

If You Want Good Fiscal Policy, Forget the Balanced Budget Amendment and Pursue Spending Caps

Back in 2012, I shared some superb analysis from Investor’s Business Daily showing that the United States never would have suffered $1 trillion-plus deficits during Obama’s first term if lawmakers had simply exercised a modest bit of spending restraint beginning back in 1998.

And the IBD research didn’t assume anything onerous. Indeed, the author specifically showed what would have happened if spending grew by an average of 3.3 percent, equal to the combined growth of inflation plus population.

Remarkably, we would now have a budget surplus of about $300 billion if that level of spending restraint continued to the current fiscal year.

This is a great argument for some sort of spending cap, such as the Swiss Debt Brake or Colorado’s Taxpayer Bill of Rights.

But let’s look beyond the headlines to understand precisely why a spending cap is so valuable.

Paul Martin: The Bill Clinton of Canada, Only Much Better

Imagine how weird it would be if the Cato Institute and Americans for Tax Reform praised Barack Obama for fiscal responsibility. And think how inconceivable it would be for the Heritage Foundation and the National Taxpayers Union to applaud Tim Geithner for economic stewardship.

The Canadian version of that happened while I was at the conference of the World Taxpayers Association in Vancouver two weeks ago.

The event was organized by the Canadian Taxpayers Federation and the main speaker was Paul Martin of the Liberal Party, who served as finance minister from 1993 to 2002, and then as prime minister from 2003 to 2006. I should add, for context, that the Liberal Party in Canada is not a classical liberal party with a track record of free markets and small government.

But Paul Martin was honored because he was responsible, while finance minister, for one of the best records of fiscal restraint of any policymaker in recent history (click here for international comparisons).

I’ve pointed out that the burden of spending fell under Bill Clinton, and I’ve even acknowledged that the federal budget hasn’t grown much under Obama, at least once you get past his first couple of years. But Paul Martin was far more frugal. And since Canada has a parliamentary system, there’s no ambiguity about who deserves credit. He restrained spending when his party had control.

What happened to generate the good results? For all intents and purposes, he imposed a spending freeze. And I’m talking a nominal spending freeze, not the kind of fake fiscal discipline you get when politicians make “cuts” off an inflated baseline. Because the budget was successfully restrained, that addressed both the problem of too much spending and the symptom of red ink.

Mirror, Mirror, on the Wall, Which Nation Has Increased Welfare Spending the Fastest of All?

There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

Challenge for Keynesian Anti-Sequester Hysterics, Part I: Why Did Canada’s Economy Boom When the Burden of Spending Was Sharply Reduced?

In this appearance on Canadian TV, I  debunk anti-sequester hysteria, pointing out that “automatic budget cuts” merely restrain government so that it grows $2.4 trillion over the next 10 years rather than $2.5 trillion.

I also point out that we shouldn’t worry about government employees getting a slight haircut since federal bureaucrats are overcompensated. Moreover, I warn that some agencies may deliberately try to inconvenience people in an attempt to extort more tax revenue.

But I think the most important point in the interview was the discussion of what happened in Canada in the 1990s.

This example is important because the Obama White House is making the Keynesian argument that a smaller burden of government spending somehow will translate into less growth and fewer jobs.

Nobody should believe them, of course, since they used this same discredited theory to justify the so-called stimulus and all their predictions were wildly wrong.

But the failed 2009 stimulus showed the bad things that happen when government spending rises, and maybe the big spenders want us to think the relationship doesn’t hold when government gets put on a diet?

Well, here’s some data from the International Monetary Fund showing that the Canadian economy enjoyed very strong growth when policymakers imposed a near-freeze on government outlays between 1992 and 1997. 

 

For more information on this remarkable period of fiscal restraint, as well as evidence of what happened in other nations that curtailed government spending, here’s a video with lots of additional information.

By the way, we also have a more recent example of successful budget reductions. Estonia and the other Baltic nations ignored Keynesian snake-oil when the financial crisis hit and instead imposed genuine spending cuts.

The result? Growth has recovered and these nations are doing much better than the European countries that decided that big tax hikes and/or Keynesian spending binges were the right approach.

Paul Krugman, not surprisingly, got this wrong.

Creating a Human Freedom Index

Until now, no global index measuring human freedom consistent with a classical liberal approach has existed. Today, as part of the Human Freedom project sponsored by Cato, the Fraser Institute, and the Liberales Institut, we are releasing the first such attempt (.pdf) devised by my colleague Tanja Stumberger and by me. The index is a chapter in Towards a Worldwide Index of Human Freedom (.pdf) (published by Fraser and Liberales).

Using indicators consistent with the concept of negative liberty—the absence of coercive constraint—we have tried to capture the degree to which people are free to enjoy classic liberties in each country: freedom of speech, religion, individual economic choice, and association and assembly. The freedom index is composed of 76 distinct variables including measures of safety and security, freedom of movement, and relationship freedoms such as assembly or legal discrimination against gays.

In this preliminary index New Zealand ranks as the most free country in the world, followed by the Netherlands and then Hong Kong. Australia, Canada, and Ireland follow, with the United States ranking in 7th place.

As we mention in our essay, “The purpose for engaging in this exercise is to more carefully explore what we mean by freedom, and to better understand its relationship to any number of social and economic phenomena. Just as important, this research could improve our appreciation of the way in which various freedoms relate to one another.”

The index thus allows us to look at which freedoms are most under threat in which parts of the world, the relationship between economic freedom and personal freedom at different stages of development, and the relationship between human freedom and democracy, to name a few examples.

We have benefited from the input of numerous scholars around the world who have participated in several seminars as part of this project, many of whom have also contributed chapters to the book published today. Fred McMahon provides a nice survey (.pdf) of the literature on defining freedom that serves as a good introduction to the topic. Our index is being updated and revised along the lines of recommendations we have received since this version was drafted. We also thank Bob Lawson and Josh Hall for providing critiques (published in the book) on the index, the bulk of which we agree with. Further recommendations and criticisms are also most welcome as we continue to refine this work in progress.

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