Archive for June, 2010
Taiwan Cuts Corporate Taxes
From the subscription magazine Tax Notes today:
Taiwan’s Legislative Yuan (parliament), in an attempt to attract foreign investors, on May 28 passed legislation cutting the island’s corporate tax rate from 20 percent to 17 percent, retroactive to January 1…
The lower corporate tax rate will make Taiwan more competitive with its East Asian rivals Singapore, whose rate is also 17 percent, and Hong Kong, whose rate remains slightly lower at 16.5 percent.
The reduced rate ‘will make us even more competitive and will help attract international businesses to set up their headquarters in Taiwan. We believe we’ll see the positive results in the next several years,’ lawmaker Alex Fei of the ruling Kuomintang.
If you were the CEO of an international company that made semiconductor chips, laptops, or other manufactured products, would you locate your next plant in the United States — where the corporate rate is about 40% — or Taiwan where it is less than half of that?
Companies build new factories, buy machines, and hire workers in order to earn after-tax profits. Our government swipes twice as much of those profits as the Taiwanese government, so our economy obviously gets fewer factories and machines and lower wages than otherwise.
The global business environment is changing, and we need to change with it. I’m not sure why that is so hard for U.S. policymakers to understand.
See here for corporate effective tax rates around the world.
Buy this book to read about the global tax revolution.
The Sleazy Combination of Big Business and Big Government
There’s an article today in the Wall Street Journal showing how already-established companies and their union allies will use the coercive power of government to thwart competition. The article specifically discusses efforts by less competitive supermarkets to block new Wal-Mart stores. Not that Wal-Mart can complain too vociferously. After all, this is the company that endorsed a key provision of Obamacare in hopes its hurting lower-cost competitors. The moral of the story is that whenever big business and big government get in bed together, you can be sure the outcome almost always is bad for taxpayers and consumers.
A grocery chain with nine stores in the area had hired Saint Consulting Group to secretly run the antidevelopment campaign. Saint is a specialist at fighting proposed Wal-Marts, and it uses tactics it describes as “black arts.” As Wal-Mart Stores Inc. has grown into the largest grocery seller in the U.S., similar battles have played out in hundreds of towns like Mundelein. Local activists and union groups have been the public face of much of the resistance. But in scores of cases, large supermarket chains including Supervalu Inc., Safeway Inc. and Ahold NV have retained Saint Consulting to block Wal-Mart, according to hundreds of pages of Saint documents reviewed by The Wall Street Journal and interviews with former employees. …Supermarkets that have funded campaigns to stop Wal-Mart are concerned about having to match the retailing giant’s low prices lest they lose market share. …In many cases, the pitched battles have more than doubled the amount of time it takes Wal-Mart to open a store, says a person close to the company. … For the typical anti-Wal-Mart assignment, a Saint manager will drop into town using an assumed name to create or take control of local opposition, according to former Saint employees. They flood local politicians with calls, using multiple phones to make it appear that the calls are coming from different people, the former employees say. …Former Saint workers say the union sometimes pays a portion of Saint’s fees. “The work we’ve funded Saint to do to preserve our market share and our jobs is within our First Amendment rights,” says Jill Cashen, spokeswoman for the United Food and Commercial Workers Union. Safeway declined to comment. …Mr. Saint says there is nothing illegal about a company trying to derail a competitor’s project. Companies have legal protection under the First Amendment for using a government or legal process to thwart competition, even if they do so secretly, he says.
FLASH: Liberal White House Nominates Liberal Judge!
From the first round of Clinton Library documents regarding Elena Kagan’s White House service, we can now all be shocked – shocked! – that President Obama’s Supreme Court nominee is a liberal. It’s a mystery why the punditocracy thought someone who despaired at Ronald Reagan’s election, staffed the Michael Dukakis campaign, clerked for Thurgood Marshall, and advised Bill Clinton would be anything else. But this is what passes for news in Washington these days.
We already knew that the solicitor general was a genial but cautious careerist, rarely expressing her own opinions but forever strategizing over the next rung on the ladder that would take her to her high school dream of sitting on the Supreme Court. And we knew that she was a moderate legal academic – meaning she sits comfortably to the left of the country as a whole. Well, now we know that Kagan is a technocrat who is for abortion rights, affirmative action, and campaign finance regulations, but against guns.
Some conservatives may see this as an “a-ha” moment, and rabid progressives may be breathing a sigh of relief. But really these so-called revelations are not going to change the story, either in terms of the final confirmation vote or in the court of public opinion.
What the media should be asking, and what the American people deserve to know, is how Kagan views the Constitution – especially what limits it places on an out-of-control federal government. In a prophetic 1995 book review, the nominee expressed frustration at the “vapid and hollow charade” that the confirmation process had become and demanded that both senators and judicial nominees engage in more substantive discussions. Let’s see if the Kagan hearings meet that Kagan standard.
Why We Need Fewer Public School Jobs, Not More
That’s the topic of a commentary I just wrote at BigGovernment.com, tied to recent efforts to prop up public school employment with another $23 billion bailout. I won’t repeat the text of that post here, but thought the two charts bear repeating. The first shows that employment has grown 10 times faster than enrollment over the past 40 years.
The second chart shows how the total cost of sending a single child through the public school system has changed over the years, along with trends in student achievement.
Dartmouth Withstands the NYT, but the Left Cannot Withstand Dartmouth
Research by scholars at Dartmouth Medical School suggests that Americans waste gobs of money on medical care. Last week, The New York Times ran a fairly lame critique of the Dartmouth research, by Reed Abelson and Gardiner Harris. Kate Steadman of Kaiser Health News provides a good synopsis of expert reaction to the story and writes, “Conservative and libertarian health policy bloggers were largely silent, ignoring the debate.” Although this libertarian wasn’t exactly ignoring the debate, the categorization is largely fair. More about that in a moment.
Abelson and Harris’s portrayal of the Dartmouth research is completely at odds with my understanding of that research.
Source: www.dartmouthatlas.org
Decades ago, Dartmouth researchers stumbled across what may be the best method of detecting wasteful spending in an economic sector as complicated as medicine. They noticed that patients in some areas consume a lot more medical care than patients in other areas — more office visits (to specialists in particular), more diagnostic tests, more procedures, more hospitalizations, et cetera. And they began to question whether the patients who consume more care actually benefit from that additional care. They have therefore spent the past few decades measuring both geographic variation in medical consumption, as well as any benefits for which they can find data. Do patients in high-spending areas start out sicker than patients in low-spending areas? Do they end up healthier? Are they more satisfied with their care? My sense is that the Dartmouth researchers are scientists trying to capture the empirical reality of America’s health care sector. They have been doing this for a long time, they are very good at it, and they consistently find that a lot of the medical care that Medicare patients consume appears to provide no value.
That finding has drawn intense criticism, not least from health care providers in high-spending areas, whose resource use it calls into question. Dartmouth researchers have tried to address those criticisms by approaching the issue from whatever angles the data will allow. Read the rest of this post »
A Look at the Contract From America
The Contract From America is a very interesting political document, seeking to rally people around a set of policies that—unlike the Contract With America from years ago—was generated from the bottom up.
On the WashingtonWatch.com blog, I’ve been assessing the ten items in the Contract From America. The Tea Party movement stands for a lot of ideas in a lot of people’s minds. Here’s a chance to see what substantive policies are important to a large cross-section of this political movement.
Is Mickey Kaus Fashionable?
Why is a New York Times profile of blogger-turned-U.S. Senate candidate Mickey Kaus on the front page of the Sunday Styles section? He’s smart. He’s interesting. Stylish he ain’t. Maybe it’s because he’s running his whole campaign against Barbara Boxer on a budget that would buy a Birkin bag.
I probably disagree with Kaus on most things, including one of his two big issues, illegal immigration. But I’m glad to see a Democrat making an issue of the excessive power and cost of government employee unions just as a populist revolt against those unions seems to be building.
You read it in the New York Times, Californians: Mickey Kaus is in Style this week.
You Don’t Need to Waste More Money to Shrink Government
It’s rather symbolic of what’s wrong with Washington that a commission ostensibly created to promote deficit reduction is seeking a bigger budget, as noted in the Tax Notes story excerpted below. Rather than impose a bigger burden on taxpayers, though, I will generously suggest that they could easily fulfill their mandate by perusing Cato’s Downsizing Government website. And if they really want to do the right thing, they can always just look at Article I, Section VIII, of the Constitution and get rid of existing programs and activities that are not enumerated powers of the federal government.
Saddled with a tight deadline and great expectations, members of President Obama’s deficit reduction commission say they may not have the resources necessary to meet their task. The National Commission on Fiscal Responsibility and Reform, which the president created through an executive order in February, is charged with developing a plan by December 1 that would stabilize the budget deficit by 2015 and reduce the federal debt over the long term. The group is widely expected to consider a combination of tax reforms and spending cuts. But despite the weighty demands, the panel has only a fraction of the staff and budget of standing congressional committees. The panel’s own cochairs and Senate Majority Leader Harry Reid, D-Nev., have criticized the meager resources and called for more support. …The White House has set aside the resources to provide the equivalent of four full-time salaries and $500,000 in operating costs for the commission, fiscal commission Executive Director Bruce Reed told Tax Analysts.
(h/t: TaxProf)
Kazakhstan’s Approach to Bank Failure
Gillian Tett has an interesting column in today’s Financial Times, discussing the recent resolution of one of Kazakhstan’s largest banks, BTA. What’s novel about this particular bank resolution? Well instead of the taxpayer, or the rest of the banking sector, covering a large hole in BTA’s balance sheet, the bondholders are taking the hit (of course shareholders are also taking a loss).
Some of this is probably due to politics; the bondholders in this case are mostly foreign, and of course, the taxpayers are domestic voters. Not that the foreign bondholders didn’t lobby for a bailout.
But putting the politics aside, this represents a real test of whether we are stuck only with the choice of bailouts or mass panic, as argued by the Bernanke-Paulson-Geithner crowd. If, in the weeks ahead, Kazakhstan, and particularly its other banks, are still able to tap the debt markets and its economy does not crater, then I believe we have sufficient evidence to end bailouts here in the United States and start letting the bondholders, instead of the taxpayer, take the losses.
Will lending costs to Kazakhstan banks likely go up? Of course, that is the point. One of the most damaging aspects of the 2008 bank bailouts was the elimination of whatever market discipline remained, in terms of large bank creditors. As most financial institutions fund 90% plus of the activities via borrowing, we simply cannot rely solely on equity, management, and regulators to police their behavior. Only if creditors really have something to lose will we ever have any hope of ending “too-big-to-fail.”
Florida’s Education Tax Credit Program Helps Public School Students
Are Florida’s celebrated test-score gains caused by the state’s education tax credit program? Maybe. What is certain is that Florida’s education tax credit program significantly increases student achievement in public schools.
David Figlio, a respected economist at Northwestern University and the official researcher for Florida’s education tax credit program, has completed the most rigorous analysis of how a private school choice program impacts public school performance.
The achievement effects increase in relation to the availability and diversity of private schools near the school. Schools with the most to lose make bigger gains. The kicker? All this happened BEFORE any kids left their public school. The performance gain came from the THREAT of competition.
On average, student achievement increased 1 percent for every standard deviation increase in the concentration of private school competitors before any students even used the program.
In schools on the margin of getting Title I funds from their district — in other words, those with the most to lose from losing poor students — the increase was over 3 percent before any students left. That means schools that had a medium level of competition private schools would see a more than 6 percent rise in scores and at the highest levels of competition that would reach nearly 13 percent.
Elementary and middle school student performance increased about 1.5 percent. Again, that means a 3 percent gain for medium competition and over 6 percent at the highest level of competition. Six years in, the average gain in schools facing more competition doubled to about 2 percent.
These effects are being called small by many, including Figlio. But it depends on what you mean by small. Those minority 4th grade test score gains that have been celebrated; they constitute a 5 percent increase on the NAEP. The grade school and marginal Title I impacts start looking pretty big in this context. And remember, this program supports less than 1 percent of students. And it saves money. Just think of the possibilities as it grows and competition expands dramatically.
In addition, these measures don’t capture what the cumulative effect of the increased competition might be. Are these gains ratcheting up student achievement? Has the growth in the size of the program increased its impact on achievement? And will the most recent expansion, which has no near-term limit, boost public school student achievement even more?
Figlio is continuing to analyze the data and I eagerly await his next installments . . .
Prosecutors and the Forfeiture Laws
Child pornography is against the law. You can go to jail if you make it, distribute it, or possess it. There is also a law that says the government can seize property that is “used” to distribute child pornography. So prosecutors can seize computer equipment from someone who engages in such criminal conduct. Pretty straightforward.
But in a recent case, the federal agents not only seized the computer, but the house and the 19 acres of land on which the house was located. The prosecution argued — and an appellate court agreed [pdf] — that there was a “substantial connection” between the acreage and the offense. That is just absurd.
I am also aware of a local case in which federal agents violently executed a search warrant in a child porn-in-the-computer-case. Early morning raid, guns drawn, neighbors detained, the works. It was as if the agents were looking for a killer who recently escaped from Leavenworth. More overkill.
Adam Smith Quote of the Day
“In great empires the people who live in the capital, and in the provinces remote from the scene of action, feel, many of them scarce any inconveniency from the war; but enjoy, at their ease, the amusement of reading in the newspapers the exploits of their own fleets and armies. To them this amusement compensates the small difference between the taxes which they pay on account of the war, and those which they had been accustomed to pay in time of peace. They are commonly dissatisfied with the return of peace, which puts an end to their amusement, and to a thousand visionary hopes of conquest and national glory, from a longer continuance of the war.”
- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book 5, Chapter 3
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