New Estimates of Corporate Tax Rates

Corporate tax reduction is at the center of the tax reform debate in 2017. While the United States has the highest statutory corporate tax rate in the OECD, some pundits claim that U.S. companies are not so hard done by because they pay low effective rates. Effective tax rates are calculated in various ways, but they generally measure actual taxes paid as a percent of the tax base.

Canadian tax scholar Jack Mintz has released new estimates of corporate tax rates in a Tax Foundation study. He calculates marginal effective tax rates, meaning the additional taxes paid on profits earned from a new investment. This is the rate that drives real investment decisions by corporations.

Mintz finds that the United States has the third highest marginal effective corporate tax rate among 34 OECD countries. The U.S. rate in 2017 is 34.8 percent, which compares to the OECD average rate of 19.2 percent. Only France and Japan had higher rates. Our NAFTA trading partners have rates around 20 percent, as shown in the figure.

Cato held a forum on Capitol Hill earlier this week to discuss tax reform. Ryan Borne described recent British corporate tax changes:

Since 2010, the U.K. has substantially reduced its headline corporation tax rate, from 28% to 19% today with a plan to reduce it to 17% by 2020. This forms part of a longer-term trend: the U.K. had a corporate income tax rate as high as 52 percent in 1980.

In 2013, the UK government dynamically scored this overall rate cut and looked at general equilibrium effects, and estimated that within 18 years somewhere between 45%-65% of lost receipts will have been recouped as a result of increased economic activity. But early signs suggest that official statistics may have underestimated the positive effects of the cut.

In fact, looking broadly across the past 30 years there appears to be little evidence that cutting corporation tax from 52 to 19 percent has fundamentally reduced revenue. Looked at as a proportion of national income, revenues from corporation tax have fluctuated cyclically between 1.7% and 3.5% of GDP, and are currently at 2.6%, which is the same rate as seen in 1985, when the main rate of tax was 40% and the Thatcher boom was well underway.

Does the White House Have a Syria Strategy?

With the news that the United States has for the second time attacked targets linked to Syria’s Assad regime—in this case a convoy near Western forces in Al Tanf—concerned observers may be worrying that the Trump administration has chosen to make a major change in its Syria strategy. Fear not! As Secretary of Defense James Mattis told reporters:

“We’re not increasing our role in the Syrian civil war, but we will defend our troops. And that is a coalition element made up of more than just U.S. troops…”

Instead, you should probably just fear the fact that the United States no longer seems to have a Syria strategy.

Certainly, the Obama administration’s strategy towards Syria was inconsistent and vague. From the President’s statements early in the Syrian uprising that “Assad must go,” to his infamous red line comment, the Syrian chemical weapons deal, and the decision to intervene against ISIS, it often seemed as though the Obama administration was unsure whether it was willing to accept the Assad regime as part of a Syrian transition or not.

Nonetheless, throughout Obama’s term, the United States took no direct military action against Assad, and—other than arming a small number of rebels early in the conflict—largely ignored the question of Assad’s future, focusing instead on the campaign against ISIS.

With his disinterest in human rights, and his willingness to cooperate with Russia, the Trump administration was initially expected to be more conciliatory towards Assad than Obama. Yet only days after senior U.S. officials publicly stated that the U.S. priority was not to remove Assad, the President fired 59 Tomahawk missiles at a Syrian air base.

Yesterday’s attack marks the second such incident. That they don’t constitute an official policy change is in large part because they were apparently authorized by commanders in the field, reflecting Trump’s desire to delegate key military decisionmaking down the chain of command.

Yet in many ways, this highlights the dangers of such delegation: though the strikes may have been necessary to protect American and British Special Forces based near al-Tanf, they carry risks of retaliation for U.S. troops in Syria and Iraq, as well as the potential for escalation with Syrian regime forces, Iranian-backed militias, or even Russian forces.

Targeting decisions like this, made at the tactical level, are thus deeply worrying. As ISIS continues to decline, military advances will bring both sides closer, raising the potential for conflict that could drag the United States deeper into the Syrian quagmire.

Unfortunately, lack of clarity about the Assad regime and allied forces is only one of the important questions that the Trump administration has so far failed to address in Syria. Though the headlines largely focused on the disgraceful behavior of Turkish President Erdogun’s bodyguards in beating up protestors, his D.C. visit last week also yielded no apparent progress on the brewing Turkish-Kurdish conflict in Northern Syria.

Indeed, the Trump administration recently took the decision to directly arm Syria’s Kurdish rebels, one of the most effective forces against ISIS. This was probably the right decision, but strains relations with Turkey, our NATO ally, which considers these groups as terrorists, and is engaged in bombing them.

At the same time, Trump appears to look more favorably on Russian plans for resolving and ending the Syrian conflict than his predecessor, but has taken an openly hostile attitude towards Iran, one of the other signatories of the de-escalation plan, and a major player on the ground in Syria. These two positions cannot be easily reconciled.

Thanks to a recent boost under the new administration, there are now at least a thousand U.S. troops in Syria training and working with ground forces fighting ISIS. It is these troops—and the larger number of U.S. forces in neighboring Iraq—who are most placed at risk by the new administration’s incoherent approach to Syria.

Whether or not the White House realizes it yet, tactical decisions like the one made yesterday by commanders on the ground in Syria risk dragging the United States even further into this complex war. The only way they can avoid it? Develop a coherent Syria strategy. 

Methods of Presidential Defenestration

How do you solve a problem like the Donald? In a much-discussed column that ran Tuesday, Ross Douthat offered “The 25th Amendment Solution for Removing Trump.” Our 45th president has, by now, Douthat argues, demonstrated a breathtaking lack of the minimum requirements for the position he holds: including “managerial competence, a decent attention span… [and] a measure of restraint and self-control.” But given that his offenses thus far smack less of “high crimes [than] simple omni-incompetence,” removal under the 25th Amendment, on the grounds that Trump is “unable to discharge the powers and duties of his office,” is constitutionally “more appropriate” than impeachment, Douthat writes.

As a libertarian, I’m a sucker for crazy, longshot ideas, so of course I enjoyed the column. But Douthat’s argument rests on an unexamined assumption: that the impeachment power is categorically unavailable in cases of “omni-incompetence.” I don’t think that’s right. As I argue in a forthcoming piece for Reason magazine, this is the rare congressional power that’s actually broader than Congress believes it to be. (I’m sure Nick Gillespie’s going to love it.) 

The view that you can’t impeach a president for gross incompetence is widely shared, and some of the legislative history behind Article II, section 4, supports it. According to Madison’s notes on the Constitutional Convention, when George Mason moved to add “or maladministration” to the list of impeachable offenses, Madison objected that “so vague a term will be equivalent to a tenure during pleasure of the Senate.” Mason then substituted “high Crimes and Misdemeanors,” and that’s what we ended up with.

But that text does not preclude all cases of “maladministration.” As the Nixon-era House Judiciary Committee report on “Constitutional Grounds for Presidential Impeachment” noted, “at the time of the Constitutional Convention, the phrase ‘high Crimes and Misdemeanors’ had been in use for over 400 years” in British impeachments,” and extended to negligent discharge of duties, “procuring offices for persons unfit and unworthy of them,” and other transgressions falling short of grave criminality. Early American commentators, like Justice Joseph Story, understood the phrase to include offenses “growing out of personal misconduct, or gross neglect, or usurpation, or habitual disregard of the public interests, in the discharge of the duties of political office.” 

Government Can’t Even Plan for Its Own Survival

Economists and (classical) liberals have long criticized the failures of government planning, from Hayek and Mises and John Jewkes to even Robert Heilbroner. Ron Bailey wrote about centralized scientific planning, Randal O’Toole about urban planning, Jim Dorn about the 1980s enthusiasm for industrial planning, and I noted the absurdities of green energy planning

One concern about planning is that it will lead government to engage in favoritism and cronyism. So who would have guessed that when the leaders of the federal government set out to plan for their own survival—if no one else’s—in the event of nuclear attack, they failed?

That’s the story journalist and author Garrett Graff tells in his new book Raven Rock: The Story of the U.S. Government’s Secret Plan to Save Itself—While the Rest of Us DieAs the Wall Street Journal summarizes:

COG—continuity of government—is the acronymic idée fixe that has underpinned these doomsday preparations. A bunker was installed in the White House after Pearl Harbor, but the nuclear age (particularly after the Soviet Union successfully tested an atomic bomb in September 1949) introduced a nationwide system of protected hideaways, communications systems, evacuation procedures and much else of a sophistication and ingenuity—and expense—never before conceived….

Strategies for evacuating government VIPs began in earnest in the early 1950s with the construction of Raven Rock, an “alternate Pentagon” in Pennsylvania near what would become known as Camp David, and Mount Weather, a nuclear-war sanctuary in Virginia for civilian officials….

In 1959, construction began on a secret refuge for Congress underneath the Greenbrier, a resort in West Virginia. In the event of an attack, members of Congress would have been delivered by special train and housed in dormitories with nameplated bunk beds.

The most important COG-related activities during the Kennedy administration came during the Cuban Missile Crisis in October 1962, the closest this country has come to a nuclear war. Not only was the military mobilization chaotic—“one pilot bought fuel for his bomber with his personal credit card”—but VIP evacuation measures were, for the most part, a debacle: “In many cases, the plans for what would happen after [a nuclear attack on the U.S.] were so secret and so closely held that they were almost useless.” …

The Air Force also acquired, for the president’s use, four Boeing 747 “Doomsday planes” with state-of-the-art communications technology, which were nicknamed “Air Force One When It Counts.”…

The Trump-Russia Connection: Context Is Crucial

The Justice Department’s appointment of former FBI director Robert Mueller as Special Counsel takes the ongoing investigation of Russia’s alleged interference in the 2016 presidential election and possible collusion between Trump campaign officials and the Russian government to an entirely new level.  If the investigation is to be truly objective and informative, some crucial issues need to be addressed. 

Above all, it is imperative to determine the full context of the Trump-Russia relationship.  The old parable about a group of blind men feeling limited portions of an elephant and reaching erroneous conclusions applies here.  Without context, someone feeling the elephant’s trunk may express unwarranted confidence that it is a thick rope.

One of the issues that must be examined is the extent and nature of the contacts between members of Trump’s election campaign team and Russian officials.  To determine that in a dispassionate manner will not be easy.  An anti-Russia hysteria has reached alarming proportions in the past few months, eerily resembling the McCarthy era in the 1950s.  As I note in a recent article in the American Conservative, there appears to be a concerted effort to make Russia a pariah.  Indeed, at least two House Democrats have voiced objections to any contact whatsoever between the Trump administration and Russian officials.

That attitude is both unrealistic and potentially very dangerous.  Even during the worst days of the Cold War, U.S. leaders never severed communications with Moscow.  In fact, constructive dialogues produced some worthwhile agreements with America’s totalitarian adversary, including the treaty banning atmospheric nuclear tests in 1963.  To adopt an unprecedented, hardline attitude now toward post-Soviet Russia, which is a conventional rather than a totalitarian power, would be irresponsible.

“What’re You In For?” “Lemonade.”

From a Boston Magazine article about the push for a tax on soft drinks in Massachusetts: 

Caroline Apovian, a professor at the Boston University School of Medicine and the director of the Nutrition and Weight Management Center at Boston Medical Center, says that sugary drinks should be regulated similarly to alcohol.

“We regulate alcohol,” she says. “We do not sell alcohol to children. We tax it and you can’t drink while you are working.”

If the day comes that sugary drinks are regulated like alcohol, I feel that I and many other parents will need to throw ourselves on the mercy of the court. Not only have we procured sweet tea, sports drinks, Dr. Pepper, and similar items for underage members of our household – think of how the law treats procuring controlled beverages for minors! – but, sinking deeper into iniquity, we have even enabled our offspring to set up as dealers and manufacturers themselves, plying their neighbors and friends with the fatal decoctions just to pocket the resulting quarters of revenue. 

And the worst of it, as they never tell you ahead of time, is not the legal consequences we might face if Prof. Apovian had her way: it’s that you wind up squeezing all the lemons yourself.

Statement on H.R. 2431 - A Bill to Criminalize Millions of Peaceful People

Statement for the Record of the Cato Institute[1]
Submitted to the House Committee on the Judiciary
Markup on
“H.R 2431 - Michael Davis, Jr. and Danny Oliver in Honor of State and Local Law Enforcement Act”
Thursday, May 18, 2017

The Michael Davis, Jr. and Danny Oliver in Honor of State and Local Law Enforcement Act (H.R. 2431) purports to empower states and localities to take action against serious criminals who have violated immigration law.[2] In reality, the bill is a vehicle for a massive expansion of the federal government and of federal power over states and their citizens.

The legislation imposes new mandates on states and uses federal grants to coerce them into following the bidding of the federal authorities. These requirements undermine the federalist system that the Founders intended. Even where it does grant certain state agencies greater powers, it does so while undermining the authority of the state legislatures. It authorizes state and local law enforcement personnel to enforce immigration laws without any authorization from their state legislature to do so and without any training.

The powers that it authorizes will inevitably lead to violations of the civil liberties and privacy of ordinary Americans. Any state official who suspects someone of violating immigration law can demand that they prove their status in the United States and hold them if they fail to do so – all without so much as a request from the federal agencies. It grants states access to federal surveillance databases that include U.S. citizens, compromising Americans’ privacy.

Its provisions that criminalize illegal presence and ordinary status violations would unnecessarily turn millions of peaceful people into criminals and push America further down the road of overcriminalization. This bill would impose billions of dollars in costs on taxpayers with very little benefit.[3]