I testified before the House Ways & Means Committee yesterday. As always, my trip inside the belly of the beast was an interesting adventure.
The tax‐writing committee was holding a hearing on the value‐added tax. I was on a panel with five other witnesses, and all of the other people testifying were sympathetic to a VAT. But since I had truth on my side, that made it a fair fight (though it did cross my mind that it’s not a good sign when a Republican‐controlled committee stacks the witnesses in favor of a European‐style tax system).
I made two points. First, a VAT is less destructive than the current income tax. As such, if we somehow repealed the 16th Amendment and replaced it with something ironclad that would prevent the income tax from ever again haunting the land, I would gladly make a trade.
But that’s not going to happen, so my second point was to warn that the VAT would be a recipe for bigger government. And even though some of my fellow witnesses said the revenue could be used to reduce deficits, I pointed out that Europe adopted VATs beginning in the 1960s and that hasn’t stopped welfare states such as Greece and Portugal from spending themselves into a fiscal crisis.
This chart, which is similar to what I included in my testimony, compares spending and debt levels in EU-15 nations (Western Europe) and the United States. As you can see, the burden of spending and debt is onerous in America (red columns), but even worse in Europe (blue columns).
That doesn’t prove that a VAT causes bigger government and more debt, to be sure, but it certainly seems to suggest that the other side is smoking dope when they claim a VAT will lead to deficit reduction. Instead, it seems like Milton Friedman was right when he warned that, “In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with.”
I made some of these points in my VAT video.
My Washington Examiner column this week looks at the rush to score partisan points over the horrific slaughter in Norway last Friday.
In it, I argue that blaming Al Gore for the Unabomber, Sarah Palin for Jared Loughner, or Bruce Bawer for Anders Breivik makes about as much sense as blaming Martin Scorcese and Jodie Foster for the actions of John Hinckley. In general, “invoking the ideological meanderings of psychopaths is a stalking horse for narrowing permissible dissent.”
And right on cue, here’s today’s New York Times editorial on Breivik, decrying “inflammatory political rhetoric” about Muslim immigration in Europe:
Individuals are responsible for their actions. But they are influenced by public debate and the extent to which that debate makes ideas acceptable — or not. Even mainstream politicians in Europe, including Prime Minister David Cameron of Britain, Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France have sown doubts about the ability or willingness of Europe to absorb newcomers. Multiculturalism “has failed, utterly failed,” Mrs. Merkel said last October.
Oh, Grey Lady: you had me at “individuals are responsible for their actions,” but you lost me after “but.”
Because, maybe there are, in fact, limits to the ability or willingness of Europe to absorb newcomers. And perhaps multiculturalism has failed. I don’t know — I don’t live in Europe, and I don’t follow its immigration debates closely. But contra the Times’ editorialists, it seems to me that these ideas are “acceptable,” in the sense that they might actually be true, and that you ought to be able to debate them without thereby becoming morally responsible for the actions of lone psychotics.
Virtually every European immigration skeptic manages to participate in that debate without resort to violence, just as vanishingly few hard‐core environmentalists try to promote their ideas by means of armed assault. The actions of the deranged few don’t tell us much about what’s wrong with those political stances.
As others have pointed out, the notion that you should “watch what you say” in political debates amounts to giving a sort of “heckler’s veto” to the biggest nutjobs within earshot.
As a means of avoiding horrifying — but thankfully rare — events like mass shooting sprees, it doesn’t seem terribly promising. But it might help you temporarily intimidate your ideological opponents — which is why it’s a perennially popular tactic.
It’s hard to imagine how we would get through life without necessities like bacon and duct tape. But have you ever thought about how the free market gives you so much for so little?
Here’s a video that should be mandatory viewing in Washington. Too bad politicians didn’t watch it before imposing government‐run health care.
And since we’re contemplating the big‐picture issue of whether markets are better than statism, here’s some very sobering polling data from EurActiv:
A recent survey has found deep pessimism among European Commission staff on a wide range of issues, including the course of European integration over the past decade and the likelihood of success of the EU’s strategy for economic growth. Some 63% partially or totally agreed that “the European model has entered into a lasting crisis.”
This is remarkable. Even the statist über‐bureaucrats of the European Commission realize the big‐government house of cards is collapsing, yet politicians in Washington still want to make America more like Europe.
I’m not a big fan of the rating agencies. I’ve warned in TV interviews that they generally wait too long before downgrading profligate governments.
So when the rating agencies finally catch up to everyone else and lower their outlook for failing welfare states such as Greece and Portugal, one would think that this would be seen as a useful – albeit late – warning sign. But European politicians are not very happy about this development. At the risk of mixing metaphors, they want everyone to keep their heads buried in the sand and to continue complimenting the emperor on his new clothes.
Here are some excerpts from a BBC report.
The European Commission has strongly criticised international credit ratings agencies following the downgrade of Portugal by Moody’s. The Commission said the timing of the downgrade was “questionable” and raised the issue of the “appropriateness of behaviour” of the agencies in general. Earlier, Greek Foreign Minister Stavros Lambridinis said the agencies’ actions in the debt crisis had been “madness”. Ratings agencies have downgraded Greece and Portugal many times recently. …German Finance Minister Wolfgang Schaeuble told a news conference that he wanted to “break the oligopoly of the ratings agencies” and limit their influence. …”The timing of Moody’s decision is not only questionable, but also based on absolutely hypothetical scenarios which are not in line at all with implementation,” said Commission spokesman Amadeu Altafaj. “This is an unfortunate episode and it raises once more the issue of the appropriateness of behaviour of credit rating agencies.” Commission President Manuel Barroso added that the move by Moody’s “added another speculative element to the situation”.
This is not the first time this has happened, by the way. Back in January, I mocked the President of the European Council for whining that “bond vigilantes” had the nerve and gall to demand higher interest rates to compensate for the risk of lending money to incontinent governments.
The big-government advocates at the Center for American Progress recently released a series of charts designed to prove America is a low-tax nation. I wish this was the case.
The United States does have a lower overall tax burden than Europe, which is shown in one of the CAP charts, but that doesn’t exactly demonstrate that taxes are low in America. Unless, of course, you think weighing less than an offensive lineman in the NFL is proof of being skinny.
But the one chart that jumped out at me was the one showing that the United States collects less corporate tax revenue than other developed nations. The CAP document states, with obvious disapproval, that “Corporate income tax revenue in the United States is about 25 percent below the OECD average.”
The obvious implication, at least for the uninformed reader, is that the United States should increase the corporate tax burden.
But here’s some information that CAP didn’t bother to include in the study. The U.S. corporate tax rate is more than 39 percent and the average corporate tax rate in Europe is less than 25 percent.
So let’s ponder these interesting facts. CAP is right that the U.S. collects less tax revenue from corporations, but even they would be forced to admit (though they omit the info from their report) that the U.S. corporate tax rate is much higher. Let’s see…higher tax rate-lower revenue…lower tax rate-higher revenue…this seems vaguely familiar.
Could this possibly be an example of that “crazy” concept of (gasp!) a Laffer Curve? To be sure, it is only in rare cases, when tax rates get very high, that researchers find that high tax rates lose revenue. In most cases, the Laffer Curve simply implies that higher tax rates won’t raise as much money as politicians want.
But have our friends at CAP inadvertently identified one of those cases where a tax cut (i.e., a lower corporate tax rate) would “pay for itself”?
There certainly is strong evidence for this proposition. In a 2007 study, Alex Brill and Kevin Hassett of the American Enterprise Institute found that the revenue-maximizing corporate tax rate is about 25 percent (click chart to enlarge).
Somehow, I suspect this wasn’t their intention, but I want to thank the statists at CAP for reminding us about the self-destructive impact of high tax rates.
For those who want to learn more about the Laffer Curve, these three videos will make you more knowledgeable than 99 percent of people in Washington (not a big achievement, I realize, but the information is still useful).
A study on anti‐Semitism in Germany offers the disturbing finding that “communities that murdered their Jewish populations during the 14th‐century Black Death pogroms were more likely to demonstrate a violent hatred of Jews nearly 600 years later,” during the Nazi era. But cities
with more of an outward orientation — in particular, cities that were a part of the Hanseatic League of Northern Europe, which brought outside influence via commerce and trade — showed almost no correlation between medieval and modern pogroms. The same was true for cities with high rates of population growth — with sufficient in‐migration, the newcomers may have changed the attitudes of the local culture.
Free trade helps lead to peace, prosperity, and the erosion of prejudice.
I’ve been battling the Organization for Economic Cooperation for years, ever since the Paris‐based bureaucracy unveiled its “harmful tax competition” project in the late 1990s. Controlled by Europe’s high‐tax welfare states, the OECD wants to prop up the fiscal systems of nations such as Greece and France by hindering the flow of jobs and capital to low‐tax jurisdictions.
Guided by a radical theory know as Capital Export Neutrality, the OECD wants to impose global tax rules that would prevent taxpayers from ever having the ability to benefit from better tax law in other jurisdictions. This is why, for instance, the international bureaucrats are anxious to undermine national tax laws – such as America’s favorable treatment of bank deposits from overseas – that enable people to escape onerous tax regimes.
Bolstered by support from the Obama Administration, the OECD now is taking its campaign to the next level. At its Global Tax Forum in Bermuda, which ends later today, the bureaucrats unveiled a new scheme that effectively would result in the creation of something akin to a World Tax Organization.
The vehicle for this effort is a Multilateral Convention on Mutual Administrative Assistance in Tax Matters. This may sound dry and technical, but the OECD wants all nations to participate in this pact, which has existed for a couple of decades but was radically expanded last year to give high‐tax governments sweeping new powers to impose bad tax law on income generated in low‐tax jurisdictions.
But the real smoking gun is that the OECD has put itself in charge of the “co‐ordinating body” that will have enormous powers to interpret the agreement, modify the pact, and resolve disputes – thus giving itself the ability to serve as judge, jury, and executioner.
This is a profoundly dangerous development with all sorts of very troubling implications. Since I’m in Bermuda trying to destabilize this effort, I don’t have time for extensive analysis, but here’s a press release from the Center for Freedom and Prosperity and here are some of my immediate concerns.
- Higher tax burdens. If high‐tax governments succeed is imposing this Multilateral Convention (insert “World Tax Organization” whenever you see that term), tax competition will be undermined and politicians will respond by increasing tax burdens. This is why nations such as France have been pushing this scheme, of course, and why left‐wing academics have long dreamed of this type of arrangement.
- Risk to human rights. Amazingly, the Multilateral Convention is open to repressive regimes, which then would have access to all sorts of sensitive and confidential taxpayer information. Already, the thuggish dictatorship of Azerbaijan has signed up, as well as the unstable nation of Moldova and the corrupt government of Mexico. The implications are grim, including the sale of private data to criminal gangs, the loss of sensitive information to hackers, and the direct misuse of American tax returns.
- Loss of sovereignty. For all intents and purposes, the Multilateral Convention outlaws certain pro‐growth tax policies and discourages others. Equally worrisome, it creates a system allowing foreign tax collectors to cross borders. The Obama Administration has specifically acquiesced to this provision, so perhaps we will soon see corrupt Mexican tax authorities harassing businesses and individuals on American soil.
- Outlawing tax avoidance. The OECD historically has tried to portray its efforts as a fight against tax evasion, but the Multilateral Convention explicitly talks about “combating tax avoidance.” This should not be a surprise since the Capital Export Neutrality ideology is based on the notion that taxpayers should have zero ability to lower their tax burdens. This means we can fully expect an assault on all forms of tax planning, with American companies almost sure to be among the first to be in the OECD’s crosshairs.
The final insult to injury is that American taxpayers are the biggest funders of the OECD, providing nearly one‐fourth of the bureaucracy’s bloated budget. So our tax dollars are being used by OECD bureaucrats (who receive tax‐free salaries!) to dream up new ways of increasing our tax burdens. In case you need any additional reasons to despise this bureaucracy, here’s a video detailing its anti‐free market activities.
And since I’m recycling some videos, here’s one explaining why tax competition is so important.