As other developed nations race to cut corporate tax rates in order to attract jobs and investment, politicians in the United States are sitting on their hands. Kevin Hasset of the American Enterprise Institute explains how this hurts America:
Imagine you are the CEO of a major U.S. manufacturing company. You are looking to locate a new domestic plant. All other factors being equal, would you locate the plant in the state with the highest taxes? Now, make that question international. Would you locate a plant in a country with high taxes or low? The obvious answer points to a growing economic problem for the United States. Among the 30 wealthy countries that make up the Organization for Economic Cooperation and Development (OECD), the U.S. ranks second, just below Japan, for the highest combined tax rate (federal and state) on corporate profits. Our position in the world hierarchy is relatively new. In 1994, the U.S. ranked 18th. But since then, other nations have been cutting rates—from an average of 37 percent to 28 percent—while the U.S., at 39 percent, has maintained its high level. …most foreign multinationals are headquartered in countries that charge taxes only on domestic operations. If a French firm locates a plant in Ireland, then all of the profits of the Irish plant are taxable in Ireland, but are free from French taxation. So French firms have an enormous incentive to locate in the country with the lowest taxes they can find. That rules out the United States. …the latest literature suggests that relative tax rates are a big, big deal. Indeed, the dramatic flow of international capital to the lowest tax environment is one of the strongest and most reliable findings in the history of economic science. If a country lowers its rate below its rivals, as Ireland, now with a 12.5 percent rate, began doing more than a decade ago, then multinationals flood that nation with capital. It’s very much in the data. …The status quo—one of the most unfriendly tax policies toward business on earth—is unacceptable to anyone who cares about the future of American industry. No one should be surprised if our best firms continue to flee overseas and if foreign‐based firms prefer locating their plants outside America.
Last week’s formal WTO challenge of certain Chinese tax laws by the United States should obviate an important reality. If China is running afoul of its commitments and the United States expects China to make amends, the United States must lead by example. That brings us to the zeroing dispute, with its latest twists and turns.
After much internal deliberation, the Commerce Department announced late last year that it would alter its antidumping calculation methodology by no longer “zeroing” dumping margins under the average-to-average comparison methodology in original investigations (described in this post). This decision was in response to a WTO indictment stemming from a complaint filed by the EC in 2003. January 17, 2007 was to be the effective date of the change, but implementation was postponed at the request of Sen. Max Baucus (D-MT) and Rep. Charles Rangel (D-NY), chairs of the Finance and Ways and Means Committees, respectively, who wanted more time to educate Congress about the ruling, the change in practice, and its implications.
Just before the announced postponement, another indictment was issued by the WTO Appellate Body concerning the zeroing practice in a complaint lodged by Japan in 2004. That ruling was much broader in scope, condemning zeroing under almost every conceivable comparison methodology and in both investigations and administrative reviews.
As a result of that latest ruling, the Ways and Means Committee has been soliciting comments from interested parties on how the United States should respond. Congress and the administration are said to be working closely, exploring U.S. options, one of which is simply NOT to comply.
For readers in or around the DC area, the Washington City Paper has a nice cover story on the draconian Department of Liquor Control in the People's Republic of Montgomery County, Md. The DLC is a government agency that controls the supply and distribution of every drop of alcohol sold in MC.
The piece sketches out some of the nightmarish experiences that business owners in MC have to go through to procure otherwise widely-available wines, and how the county outrageously cranks up the prices and provides godawful service to the business owners. (For example, a bottle that sold for $240 at a shi-shi DC restaurant is available for MC restaurant owners to purchase from the county for $260. They'd then have to mark it up themselves, again, to make a profit.)
Finally, the author of the piece interviews the director of the DLC, George Griffin, and asks him, "What gives?"
Griffin then proceeds to reel off some impressive statistics on how control jurisdictions have lower rates of underage drinking and fewer alcohol-related traffic fatalities for people under 21 than open jurisdictions. (An independent study forwarded to me by the National Alcohol Beverage Control Association seems to confirm his stats.) But then Griffin pauses briefly and delivers a disarmingly direct kicker to his list of justifications for MoCo’s system: “And that’s in addition to the $22 million that we give the county in unrestricted funds.”Read the rest of this post »
Since taking over the DLC in 2001, after disgraced director Howard L. Cook Jr. was forced to leave for misusing a county credit card (among other misdeeds), Griffin will be the first to admit the contradictory nature of his job. It’s both to promote the “moderation and responsible behavior in all phases of distribution and consumption”…and to make a buttload of money to dump into the county’s budget. In the last five and a half years alone, the DLC has transferred more than $100 million to the general fund.
Ken Blackwell’s Townhall.com column favorably comments on how 2nd Amendment rights enabled oppressed blacks to defend themselves in the Jim Crow south:
In his 2004 book, The Deacons for Defense: Armed Resistance and the Civil Rights Movement, Tulane University history professor Lance Hill tells their story. Hill writes of how a group of southern working class black men advanced civil rights through direct action to protect members of local communities against harassment at schools and polling places, and to thwart the terror inflicted by the Ku Klux Klan. He argues that without the Deacons’ activities the civil rights movement may have come to a crashing halt.
…Following a KKK night ride in Jonesboro, the Deacons approached the police chief who had led the parade and informed him that they were armed and unafraid of self‐defense. The Klan never rode through Jonesboro again. Local cross burnings ceased when warning shots were fired as a Klansmen’s torch met a cross planted in front of a black minister’s home. The initial desegregation of Jonesboro High School was threatened by firemen who aimed hoses at black students attempting to enter the building. When four Deacons arrived and loaded their shotguns, the firemen left and the students entered unscathed. It was this series of efforts by the Deacons that caused the Klan to leave Jonesboro for good.
Similar work in Bogalusa, Louisiana drove the KKK out of that town as well, and led to a turning point in the civil rights movement. Acting as private citizens in lawful employment of their constitutional rights, the Deacons demonstrated the real social impact of the freedoms our nation’s founders held dear.
…Gun control measures, from the slave gun bans of the 1700s South to the Brady Bill regulations of the 1990s, have unfairly targeted black Americans and have worked to curtail a disproportionate number of their constitutional rights.
The teacher unions are not having a very good year. Utah is on the verge of a sweeping school choice plan, and South Carolina may be next.
The Wall Street Journal explains:
South Carolina could be next. Legislation is now being drafted to allow nearly 200,000 poor students to opt out of failing public schools by giving them up to $4,500 a year to spend on private school tuition. Middle class parents would be eligible for a $1,000 tax credit.
Governor Mark Sanford, a Republican, also wants to create more choice within the public system by consolidating school districts so students who can’t afford to live in a certain zip code aren’t forced into the worst public schools — a system that now consigns thousands of African‐American students to failing schools. In his State of the State Address last month, Mr. Sanford branded the current districts a “throwback to the era of segregation.” The comment drew hardly a flutter in the legislature, he told us, because “everyone knows it’s true.”
Despite a 137% increase in education spending over the past two decades and annual per pupil spending that exceeds $10,000, South Carolina schools trail the nation in performance. The state ranks 50th in SAT scores, only half of its students graduate from high school in four years and only 25% of eighth graders read at grade level. The Governor’s budget puts it this way: “The more we expose students to public education, the worse they do.”
In last year’s elections three legislators paid for their opposition to school choice with their seats. One freshman reformer is Representative Curtis Brantley, an African‐American Democrat from rural Jasper County who defeated a white incumbent in a June primary. He told us he supports school choice because something must be done to shake up the status quo.
Romania’s flat tax is generating results that would make French politicians delirious with joy — huge increases in tax revenue. Income tax collections jumped 44.7 percent in 2005, the year the flat tax was introduced. (Sadly, the increased revenue isn’t keeping pace with Romanian government spending; as the country works to meet the various conditions for EU membership, its budget deficit is growing, which has led to complaints from Brussels.)
Rather than learn from this “Laffer Curve” example, the high‐tax nations that dominate the EU are complaining about Romania’s “harmful tax competition.” A Hungarian news service reports:
Romania increased spending on roads, railways, pensions and other areas last year, mainly in December, to bring standards closer to those in the EU, which it joined on January 1.
…The Finance Ministry said today the government boosted revenue to 31.8% of GDP last year from 30.3% the previous year, helping meet a key EU recommendation. EU Monetary Affairs Commissioner Joaquin Almunia said last year that budget revenue as a proportion of GDP was lower than in any EU nation and recommended the country increase it. Economic growth, which the government has estimated at about 8% last year from 4.1% in 2005, also stimulated revenue collection, the finance ministry said.
…Romanian government spending increased 25% last year in nominal terms and accounted for 33.5% of GDP, from 31.2% in 2005, the ministry said. Income tax collection rose 44.7% to 9.8 billion lei ($3.8 billion). Romania has said income tax revenue has consistently increased since January 1, 2005, when it introduced a flat tax of 16% on corporate and personal income, the lowest in eastern Europe. It replaced a corporate tax rate of 25% and a personal income tax rate of as high as 40%.
Failure is rewarded in Washington, and the Federal Emergency Management Agency is a prime example. Its squandering of money after last year’s hurricane season was astounding even by government standards.
If Republicans had a shred of principles, they would have used the fiasco to argue that responding to natural disasters is not a proper role of the federal government. Instead, FEMA gets a bigger budget.
The Associated Press reports on new evidence of FEMA’s reckless stewardship of taxpayer funds:
In the neighborhood President Bush visited right after Hurricane Katrina, the U.S. government gave $84.5 million to more than 10,000 households. But Census figures show fewer than 8,000 homes existed there at the time.
…The pattern was repeated in nearly 100 neighborhoods damaged by the hurricanes. At least 162,750 homes that didn’t exist before the storms may have received a total of more than $1 billion in improper or illegal payments, the AP found. The AP analysis discovered the government made more home grants than the number of homes in one of every five neighborhoods in the wake of Katrina.
…[T]he AP’s findings are similar to those of a February report by the Government Accountability Office, which found hurricane aid was used to pay for guns, strippers and tattoos. The GAO concluded that between $600 million and $1.4 billion was improperly spent on Katrina relief alone. In one neighborhood GAO scrutinized, at least one person gave an address as a cemetery. Records show FEMA gave 27,924 assistance grants worth $293 million in that neighborhood. The AP’s analysis shows only 18,590 homes existed, meaning up to $98 million in aid could have been disbursed improperly or illegally.