Topic: Tax and Budget Policy

A Flat Tax in New Brunswick?

Canada’s Atlantic provinces historically have been statist, but decades of big government have not worked and now policy makers are looking to adopt a growth-friendly 10 percent flat tax to boost the economy.

Alberta already has a flat tax, which has worked well, so tax competition is having a positive impact on Canadian fiscal policy. The Telegraph Journal has more details:

The New Brunswick government is considering a fundamental rebalancing of the tax system tilting towards consumption taxes and relieving citizens and businesses from the burden of hefty income taxes with a flat tax by 2012. Finance Minister Victor Boudreau released the government’s discussion document on tax reform on Wednesday that proposes replacing the system of four different tax brackets with a single rate of 10 per cent, which would tie the province with Alberta for the lowest tax rate. Large businesses also stand to gain under the various proposals that could see their corporate taxes fall from 13 per cent as far as five per cent, giving it the lowest rate in Canada. …To pay for the deep tax cuts, the document is suggesting the Harmonized Sales Tax be raised by two per cent, essentially moving into the tax room vacated by the federal government. …Niels Veldhuis, a senior economist at the Fraser Institute, insisted the 10 per cent single rate would act as an incentive to keep young New Brunswickers home and attract new immigrants to the province. “I would label this as a revolutionary document because it doesn’t focus on one aspect of the tax system. It goes through and delineates what are the major problems with New Brunswick’s taxes, from personal income tax, corporate income tax, to capital taxes to property taxes,” Veldhuis said. “I think this is a model for the other provinces because these are very important topics; the province should be commended for putting this out there and the aggressiveness.” Finn Poschmann, the director of research for the C.D. Howe Institute, said a flat tax will also be a benefit for families. “Flat rate tax makes life a little bit simpler, that is worth something,” Poshmann said. “For flattening the tax system is good for rewarding investment, rewarding work so when you take on an extra shift or get some overtime pay, you don’t blast up through the bracket schedule.” …Tom Bateman, a political scientist at St. Thomas University, said…the Liberals appear to be outflanking [the Tories] on the taxation issue. “It is consistent with the government’s general view that it needs to market to play a greater role in economic development,” Bateman said. “In that respect that would put the Liberal Shawn Graham government firmly on the right of the political spectrum. This should make every Progressive Conservative blush I would think.”

Gravy Train for European Politicians

In the dark days of the Soviet Union, the political elite (known as the nomenklatura) enjoyed immense privileges, including uncluttered roadway access on special ”Chaika lanes.” There’s now a new version of Chaika lanes, only this time the nomenklatura are members of the European Parliament. According to the UK-based Times, they are getting a special train to ferry them between Brussels and Strasbourg. Needless to say, the taxpayers who finance this elitist boondoggle will not be allowed to ride the train:

After years of being accused of riding the Brussels gravy train, members of the European parliament are about to step aboard a real one. A Eurocrats-only express service will be launched next month to ferry MEPs and officials in luxury at 186mph between one European parliament in Brussels and the other in Strasbourg. The buffet car will, of course, be fully stocked. The Strasbourg Express will leave Brussels for the first time at 9.57am on Monday, July 7. Each return journey will cost the taxpayer about £158,000, but the fare-paying public will be banned. MEPs will pay £170 for a return ticket, but will then be reimbursed. “The public will not be able to buy tickets or use this train,” said Thalys, the high-speed train operator that will run the service. …Every month, when the European parliament moves to Strasbourg, the “train of shame” will leave Brussels on a Monday, returning the following Thursday, with up to 377 MEPs and officials travelling each way in three spacious carriages. It is widely seen in Brussels as a gimmick to boost the French, whose insistence on maintaining the second parliament in Strasbourg makes such journeys necessary in the first place.

Whose Side Are You On?

In an article about the wave of conservative reform under Louisiana governor Bobby Jindal, the New York Times writes:

Meanwhile the House is considering an income tax cut that would cost the state $300 million. 

Another way to say that would be:

Meanwhile the House is considering an income tax cut that would save the taxpayers $300 million.

It all depends on whether you identify with the taxpayers or the tax consumers.

Only in France, Part II

Not surprisingly, the French are leading an effort to impose EU-wide regulations on executive compensation, as reported by the UK-based Independent:

France, which takes over the presidency of the EU on 1 July, will ask finance ministers to consider a European directive to curb disproportionate bonuses or golden handshakes to company bosses. …The French finance minister, Christine Lagarde, said companies must put their own house in order or face a rash of national, or EU, legislation to clamp down on “excesses”. French officials said Paris felt that, without such an EU-wide curb, large companies or highly paid executives would evade national curbs by exercising their right to move from one EU country to another. …President Nicolas Sarkozy has already spoken out against large “golden parachutes” to failed business leaders. Although often presented in Britain and the US as a kind of French Mrs Thatcher, he has called for the “moralisation of capitalism”, something closer to the late President Charles de Gaulle’s statist and social approach to business.

But give them some credit. French politicians are clever enough to realize that imposing bad policy on French companies would cause firms to migrate to less-oppressive jurisdictions. That is why they want anti-market rules to be imposed across the continent (much as they support tax harmonization so that all nations have bad tax law and France is not disproportionately impacted).

In an ideal world, French politicians would avoid new taxes and regulation and instead would investigate whether existing government policies - such as anti-takeover restrictions - were insulating corporate management from investor oversight. But that would mean reducing the power and influence of government, so that option is not part of the discussion.

The Global Flat Tax Revolution

There’s good news and bad news in the world of tax policy. The good news is that a growing number of nations now have flat tax systems instead of so-called progressive tax schemes that punish people for contributing more to economic growth. The bad news is that the United States is conspicuously absent on the list of flat-tax jurisdictions. Defenders of the internal revenue code often argue that a flat tax is an impractical idea, but this new video (narrated by yours truly) demonstrates that the flat tax is working very well and spreading rapidly as nations compete to offer more attractive tax policy to the world’s investors and entrepreneurs.

One small correction is already necessary. The video states that there are 24 flat tax jurisdictions, but it has recently been shown that Trinidad & Tobago is now a member of the flat tax club. Hopefully, the list will grow rapidly and the video will quickly be outdated.

Surprise! Stadium Predictions Flawed

The Washington Examiner reports:

Attendance at Nationals Park has fallen more than a quarter short of a consultant’s projections for the stadium’s inaugural year, cutting into the revenue needed to pay the ballpark bonds and spurring a D.C. Council member to demand the city’s money back.

The District’s ability to pay down the debt on the publicly financed ballpark depends in part on the number of people who show up to the games, David Catania, independent at-large, wrote in a letter Tuesday to Chief Financial Officer Natwar Gandhi. 

A study was commissioned in 2005 by Gandhi’s office. Written by Los Angeles-based Economics Research Associates, the report predicted attendance at the 41,000-seat ballpark would average 39,130 in year one, dropping to 32,737 in year four.

But paid attendance through 28 games has averaged only 29,141, Catania said, 26 percent lower than the consultant’s estimates. The Nationals are drawing the 15th-best crowd in baseball, according to ESPN, with a team that is in last place in the National League East and a 22-31 record as of Wednesday.

“It appears now,” Catania wrote, “that ERA may have seriously overestimated ticket sales, which represents a major portion of stadium-related revenues.”

Gandhi says it doesn’t matter, the bonds can be paid off with attendance as low as 10,000 per game. Which raises the question: if it’s that easy to pay for the stadium, why didn’t the multi-millionaire team owners agree to pay for it themselves?

Of course, these economic projections for subsidized stadiums are always vastly overstated. As Dennis Coates and Brad Humphreys wrote in a 2004 Cato study criticizing the proposed stadium subsidy, “The wonder is that anyone finds such figures credible.”

Several Cato studies over the years have looked at the absurd economic claims of stadium advocates. In “Sports Pork: The Costly Relationship between Major League Sports and Government,” Raymond Keating finds:

The lone beneficiaries of sports subsidies are team owners and players. The existence of what economists call the “substitution effect” (in terms of the stadium game, leisure dollars will be spent one way or another whether a stadium exists or not), the dubiousness of the Keynesian multiplier, the offsetting impact of a negative multiplier, the inefficiency of government, and the negatives of higher taxes all argue against government sports subsidies. Indeed, the results of studies on changes in the economy resulting from the presence of stadiums, arenas, and sports teams show no positive economic impact from professional sports — or a possible negative effect.

In Regulation magazine, (.pdf) Coates and Humphreys found that the economic literature on stadium subsidies comes to consistent conclusions:

The evidence suggests that attracting a professional sports franchise to a city and building that franchise a new stadium or arena will have no effect on the growth rate of real per capita income and may reduce the level of real per capita income in that city.

And in “Caught Stealing: Debunking the Economic Case for D.C. Baseball,” Coates and Humphreys looked specifically at the economics of the new baseball stadium in Washington, D.C., and found similar results:

Our conclusion, and that of nearly all academic economists studying this issue, is that professional sports generally have little, if any, positive effect on a city’s economy. The net economic impact of professional sports in Washington, D.C., and the 36 other cities that hosted professional sports teams over nearly 30 years, was a reduction in real per capita income over the entire metropolitan area.

And yet millionaire owners and mayors with Edifice Complexes keep commissioning these studies, and council members and editorial boards keep falling for them.