Acting as the Typhoid Mary of the Global Economy, the OECD Urges Higher Taxes in Latin America
Is it April Fool’s Day? Has somebody in Paris hacked the website at the Organization for Economic Cooperation and Development? Have we been transported to a parallel dimension where up is down and black is white?
Please forgive all these questions. I’m trying to figure out why any organization—even a leftist bureaucracy such as the OECD—would send out a press release entitled, “Rising tax revenues: a key to economic development in Latin American countries.”
Not even Keynesians, after all, think higher taxes are a recipe for growth.
Ah, never mind. I just remembered that the OECD is a hotbed of statism, so the press release makes perfect sense. After all, the U.S.-taxpayer-funded organization has become infamous for reflexively advocating big government.
- The OECD has an anti-tax competition project designed to prop up Europe’s bankrupt welfare states.
- The OECD is pushing a “Multilateral Convention” that is designed to become something akin to a World Tax Organization, with the power to persecute nations with free-market tax policy.
- The OECD has endorsed Obama’s class-warfare agenda, publishing documents endorsing “higher marginal tax rates” so that the so-called rich “contribute their fair share.”
- The OECD pulled off a hat trick of bad policy in a 2010 document, promoting a value-added tax, Obama’s global warming agenda, and failed Keynesian stimulus.
- The OECD endorsed Obamacare, as I explain in this video.
- The OECD even advocates higher taxes when nations are in the middle of economic crisis.
With this dismal track record, it’s hardly a surprise that the Paris-based bureaucracy is now pushing to undermine prosperity in Latin America. Here’s some of what the OECD said in its release.
Additional tax revenues enable governments to simultaneously improve their competitiveness and promote social cohesion through increased spending on education, infrastructure and innovation. Latin American countries have made great strides over the past two decades in raising tax revenues.
You won’t be surprised when I tell you that the Paris-based bureaucrats do not bother to provide even the tiniest shred of proof to support the silly claim that higher taxes improve competitiveness. But that shouldn’t be surprising since even Keynesians don’t believe something that absurd.
And the claim about social cohesion also is a bit of a stretch given the riots, chaos, and social disarray in many European nations.
The only accurate part of the passage is that Latin American nations have increased tax burdens over the past 20 years. To the tax-free bureaucrats at the OECD, that is making “great strides.”
Let’s see what else the OECD had to say.
Despite these improvements, significant gaps between Latin America and OECD countries remain. The average tax to GDP ratio in OECD countries is much higher than in Latin American countries (33.8% compared to 19.2% in 2009, respectively). As the countries in the region still find themselves in relatively strong economic conditions, now is the time to consider reforms that generate long-term, stable resources for governments to finance development.
Wow. The OECD is implying that Latin American nations should mimic OECD nations. In other words, the bureaucrats in Paris apparently think it makes sense to tell nations to copy the failed high-tax, welfare-state model of countries such as Greece, Italy, and Spain.
Is that really the lesson they think people should learn from recent fiscal history? Are they really so oblivious and/or blinded by ideology that they issued the release as these European nations are in the middle of a fiscal crisis?
Helping to Explain Greece’s Collapse in a Single Picture
Politicians in Europe have spent decades creating a fiscal crisis by violating Mitchell’s Golden Rule and letting government grow faster than the private sector.
As a result, government is far too big today, and nations such as Greece are in the process of fiscal collapse.
But that’s the good news — at least relatively speaking. Over the next few decades, the problems will get much worse because of demographic change and unsustainable promises to spend other people’s money.
(By the way, America will suffer the same fate in the absence of reforms.)
Here’s one stark indicator of why Greece is in the toilet.
Look at the skyrocketing number of people riding in the wagon of government dependency (and look at these cartoons to understand why this is so debilitating).
By the way, Greece’s population only increased by a bit more than 16 percent during this period. Yet the number of bureaucrats jumped by far more than 100 percent.
And don’t forget that this chart just looks at the number of bureaucrats, not their excessive pay and bloated pensions.
With this in mind, do you agree with President Obama and want to squander American tax dollars on a bailout for Greece?
Everything You Need to Know about Whether State and Local Bureaucrats Are Over-Compensated, in One Chart
The showdown in Wisconsin has generated competing claims about whether state and local government bureaucrats are paid too much or paid too little compared to their private sector counterparts.
The data on total compensation clearly show a big advantage for state and local bureaucrats, largely because of lavish benefits (which is the problem that Governor Walker in Wisconsin is trying to fix). But the government unions argue that any advantage they receive disappears after the data is adjusted for factors such as education.
This is a fair point, so we need to find some objective measure that neutralizes all the possible differences. Fortunately, the Bureau of Labor Statistics has a Job Openings and Labor Turnover Survey, and this “JOLTS” data includes a measure of how often workers voluntarily leave job, and we can examine this data for different parts of the workforce.
Every labor economist, right or left, will agree that higher “quit rates” are much more likely in sectors that are underpaid and lower levels are much more likely in sectors where compensation is generous.
Not surprisingly, this data shows state and local bureaucrats are living on Easy Street. As the chart illustrates, private sector workers are more than three times as likely to quit their jobs.
This helps explain why the unions are treating the Wisconsin debate as if it was Custer’s Last Stand. The bureaucrats know they have comfortable sinecures and they are fighting to preserve their unfair privileges.
The only bit of semi-good news for Wisconsin taxpayers is that state and local bureaucrats are not as lavishly over-compensated as federal bureaucrats.
This Center for Freedom and Prosperity video looks at all of the data and reveals a pecking order. Federal bureaucrats are at the kings and queens of compensation. State and local bureaucrats are like the nobility. And private sector taxpayers are the serfs that worker harder and earn less, but nonetheless finance the entire racket.
The video closes with a very important point that the right pay level for many bureaucrats is zero. This is because they work for programs, departments, and agencies that should not exist.
No Recession in Washington
Forbes looks at new data on household income in different metro areas:
Median family incomes across the country decreased dramatically from 2008 to 2009, and no region was left untouched by the recession. But despite shrinking paychecks nearly across the board, some cities still stand out for their bigger-than-average salaries.
To find the places where Americans earn the most, we looked at median family income data for 2009, as reported by the U.S. Census Bureau. In September, as part of its annual American Community Survey, the Census released updated data for several hundred Metropolitan Statistical Areas — geographic entities defined by the U.S. government that roughly correspond to major cities.
The place with the highest median family income is the Washington, D.C., metro area, which includes the nation’s capital, as well as wealthy suburbs in Virginia and Maryland. In 2009 families in this region earned a median income of $102,340, a 0.7 percent increase from 2008. D.C. also boasts a better than average unemployment rate of 5.9 percent, far below the September’s 9.2 percent national average.
As we’ve reported here before, these trends began even before the Obama administration started concentrating job creation on the federal sector. In the middle of the Bush bubble, the Washington Post reported:
The three most prosperous large counties in the United States are in the Washington suburbs, according to census figures released yesterday, which show that the region has the second-highest income and the least poverty of any major metropolitan area in the country.
Rapidly growing Loudoun County has emerged as the wealthiest jurisdiction in the nation, with its households last year having a median income of more than $98,000. It is followed by Fairfax and Howard counties, with Montgomery County not far behind.
This of course reflects partly the high level of federal pay, as Chris Edwards and Tad DeHaven have been detailing. And it also reflects the boom in lobbying as government comes to claim and redistribute more of the wealth produced in all those other metropolitan areas.
To slightly amend a ditty I posted a few years ago,
Mamas, don’t let your babies grow up to be cowboys,
Don’t let ‘em make software and sell people trucks,
Make ‘em be bureaucrats and lobbyists and such.
Nine Key Ballot Initiatives to Watch
While everyone is focused on the battle to see which party will control the House and/or Senate, there are several issues that voters will directly decide that deserve close attention. Here are nine initiatives that I’ll be watching next Tuesday.
1. Imposing an income tax in the state of Washington - This is the one I’ll be following very closely. I have a hard time thinking that voters would be dumb enough to impose an income tax, but the Pacific Northwest is a bit crazy on these issues. Oregon voters, for instance, approved higher tax rates earlier this year.
2. Stopping eminent domain abuse in Nevada - This initiative is very simple. It stops the state from seizing private property if the intent is to transfer it to a private party (thus shutting the door that was opened by the Supreme Court’s reprehensible Kelo decision).
3. Marijuana legalization in California - Proponents of a more sensible approach to victimless crimes will closely watch this initiative to see whether Golden State voters will say yes to pot legalization, subject to local regulation. (David Boaz and Juan Carlos Hidalgo already have commented on the implications of this vote)
4. Strengthen rights of gun owners in Kansas - If approved, this initiative would remove any ambiguity about whether individuals have the right to keep and bear arms.
5. Protecting health care freedom in Arizona - For all intents and purposes, this is a referendum on Obamacare. I’m hoping that it will pass overwhelmingly, thus giving a boost to the repeal campaign. There’s apparently a similar initiative in Oklahoma, but it hasn’t gotten as much attention.
6. Reducing benefits for bureaucrats in San Francisco - If one of the craziest, left-wing cities in America decides to require bureaucrats to make meaningful contributions to support their bloated pension and health benefits, that’s a sign that the gravy train may be in jeopardy for bureaucrats all across the nation.
7. Making it easier to increase government spending in California - The big spenders want to get rid of the two-thirds requirement in the state legislature to approve a budget. This would pave the way for even bigger government in a state that already is close to bankruptcy.
8. Reducing the sales tax in Massachusetts - The entire political establishment is fighting this proposal to roll back the sales tax from 6.25 percent to 3 percent, and pro-spending lobbies are pouring big money into a campaign against the initiative, so you know it must be a good idea.
9. Controlling benefits for bureaucrats in Louisiana - The initiative would require a two-thirds vote to approve any expansion of taxpayer-financed benefits for government employees.
Russian Government Announces 20 Percent Reduction in Number of Bureaucrats
Russia will cut its army of bureaucrats by more than 100,000 within the next three years, saving 43 billion rubles ($1.5 billion), Finance Minister Alexei Kudrin said on Monday. “We assume more than 100,000 federal state civil jobs will be cut within three years. The government has already included a schedule for cutting the number of federal civil servants in the draft budget for the next three years and coordinated it with ministries and agencies,” Kudrin told President Dmitry Medvedev, who in June ordered a 20 percent cut in the number of bureaucrats. Under the government plan, ministries and agencies will have to sack five percent of their staff in 2011 and 2012, and 10 percent in 2013. …In the last three years, the number of bureaucrats in the federal government had increased by nearly 20,000, in regional governments by 60,000 and at municipalities by 50,000, he said.
Overpaid and Undertaxed
I sympathize with almost all taxpayers, but it’s difficult to feel sorry for government workers who get in trouble with the IRS. Compensation packages for federal bureaucrats are twice as lucrative as those for workers in the productive sector of the economy and their pensions are similarly extravagant. Yet they often can’t be bothered to fully pay their taxes, owing billions of dollars to the IRS according to a Washington Post report.
Among the biggest scofflaws are the folks at the Postal Service, who have accumulated more than $283 million of unpaid taxes. Retired bureaucrats, meanwhile, have amassed nearly $455 million of back taxes. Even tax collectors sometimes fall behind. Treasury Department bureaucrats owe $7.7 million. How hard can it be for them to walk down the hallway and cough up? Or do they think they’re exempt since their boss barely got a slap on the wrist after “forgetting” to declare $80,000?
The most startling part of the story, though, is the degree of tax dodging on Capitol Hill. Here’s an excerpt from the story:
Capitol Hill employees owed $9.3 million in overdue taxes at the end of last year…. The debt among Hill employees has risen at a faster rate than the overall tax debt on the government’s books, according to Internal Revenue Service data. …The IRS data… shows 638 employees, or about 4 percent, of the 18,000 Hill workers owe money, a slightly higher percentage than the 3 percent delinquency rate among all returns filed nationwide. …”If you’re on the federal payroll and you’re not paying your taxes, you should be fired,” [Congressman] Chaffetz said in an interview. He said the policy should apply across the board and “there should be no special exemptions.”
The shocking part about this blurb, at least to me, is not the 638 staffers who owe money to the IRS. It’s the fact that there are 18,000 bureaucrats working for Congress. Do 100 Senators and 435 Representatives really need that many attendants? How I long for the good ol’ days, when each politician had about two staffers. I suspect it’s no coincidence that the federal government was a much smaller burden back when there were far fewer staff.
State Bureaucrats Continuing to Advance REAL ID
Across the country, state legislatures have objected to, and outright rejected, the national ID and surveillance mandate imposed on them by the REAL ID Act. Passed in May 2005 with a compliance deadline three years later, the law has never been implemented. The Department of Homeland Security has repeatedly threatened to deny air travel to people from the states refusing compliance, then backed down when states have not caved to its demands.
But state legislatures are one thing. State-level bureaucrats are quite another. And they are hedgehogging along, positioning their states to implement the national ID law.
Writes Alan Greenblatt in State Legislatures magazine:
In a number of states, motor vehicle departments are doing the behind-the-scenes work necessary to move closer to compliance, including updating computer systems, installing face-recognition software and setting up more secure card production rooms. . . . [E]very state is moving toward compliance. Even in the 14 states where legislatures have explicitly rejected REAL ID through laws or resolutions, some moves have been made in the direction of compliance.
Politicians come and go, but the bureaucrats are in it for life. And they can grow their portfolio be building a national ID.
Why Should Politicians and Bureaucrats Decide Whether Breast-Cancer Patients Can Take Avastin?
Today’s Washington Post contains an article titled, “FDA Considers Revoking Approval of Avastin for Advanced Breast Cancer.” An excerpt:
The debate over Avastin, prescribed to about 17,500 women with breast cancer a year, has become entangled in the politically explosive struggle over medical spending and effectiveness that flared during the battle over health-care reform: How should the government balance protecting patients and controlling costs without restricting access to cutting-edge, and often costly, treatments?
A better question is: why should the government be the one to strike that balance? Why shouldn’t some women be able to sign up for a health plan that covers Avastin, while others are free to make a different choice?
It’s Summer in Washington and the Livin’ Is Good
“According to a new Regional Income Earnings Index developed by the Martin Prosperity Institute, Greater Washington, D.C. is the nation’s metropolitan region with the highest income,” writes Richard Florida, author of The Rise of the Creative Class.
Washington, which produces rules, regulations, and political consulting services, ranks just ahead of San Jose and Stamford, Connecticut, where people invest their own money to produce software and allocate capital for a complex economy.
Even before the Obama administration started concentrating job creation on the federal sector, the Washington Post was reporting –
The three most prosperous large counties in the United States are in the Washington suburbs, according to census figures released yesterday, which show that the region has the second-highest income and the least poverty of any major metropolitan area in the country.
Rapidly growing Loudoun County has emerged as the wealthiest jurisdiction in the nation, with its households last year having a median income of more than $98,000. It is followed by Fairfax and Howard counties, with Montgomery County not far behind.
This of course reflects partly the high level of federal pay, as Chris Edwards has been detailing. And it also reflects the boom in lobbying as government comes to claim and redistribute more of the wealth produced in all those other metropolitan areas.
To slightly amend a ditty I posted a few years ago,
Mamas, don’t let your babies grow up to be cowboys,
Don’t let ‘em make software and sell people trucks,
Make ‘em be bureaucrats and lobbyists and such.
The Pension Tsunami
That’s the name of the website of Jack Dean, who is interviewed in this new Reason.tv video about how excessive pension promises to bureaucrats are creating a fiscal nightmare for state and local governments.
Filed under: General; Government and Politics; Health Care; Tax and Budget Policy
Dan Mitchell Gets Results
I gave a speech in Hungary about two weeks ago and now the government has announced a big step in the direction of better fiscal policy. My role was about as meaningful as the rooster crowing, followed by the sunrise, but this is still good news. According to Reuters, “Hungary’s new government plans to introduce a flat personal income tax of 16 percent from 2011, as well as a 15 percent cut in public sector wages.” Those are the headline initiatives, but the fiscal reform package includes other good policies. Here’s a blurb from The Economist.
After a three-day emergency cabinet meeting over the weekend, Viktor Orban, the prime minister, announced the government’s new economic programme this afternoon. The battered forint quickly jumped almost 2% in response. …The introduction of a 16% flat personal income tax is a daring move, and could have important repercussions beyond balancing the state’s books. Unemployment, or at least that element of it which is declared, is nudging 12%, and one reason is Hungary’s cumbersome bureacracy and heavy tax burden. Now Mr Orban has announced that corporation tax for companies with annual profits of less than 500m forints will be reduced from 19% to 10%. Ten more small and bothersome taxes are set to be abolished altogether.
A few years ago, when several nations each year were adopting the flat tax, I arbitrarily decided that this rock classic would be the theme song of the tax reform movement. Sadly, it doesn’t look like we’ll get to play it in America anytime soon.
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