My mom recently handed me a large bag of stamps she had collected as a child. There are thousands of stamps from about 100 countries, most from the 1910s to the 1950s. It’s a treasure trove.
My daughters and I started digging through them, and we checked out Internet resources on philately, a hobby I know little about.
Here are a few observations:
- Most old postmarked stamps are worth relatively little. I guess the reason is high supply and low demand.
- The world’s first postage stamp was the British Penny Black in 1840, which portrayed Queen Victoria. Stamps were introduced as part of U.K. postal reforms to cut government waste and mismanagement. The first U.S. stamps in 1847 showed Franklin and Washington. Canada’s first stamp in 1851 did not show a government leader, but instead the clever and industrious beaver.
- Great Britain used to rule a vast area of the globe, and dozens of nations had the British monarch on their stamps. And many countries used to honor American liberty on their stamps, such as these fascinating issues from the 1930s. I doubt whether that happens much anymore.
- Small countries often have attractive stamps. Some of the prettiest I have are from the Caribbean and Africa. The least attractive are from Germany and the United States. In a competitive world, small countries know that they must put in an extra effort. (See photo). It’s a similar situation with corporate tax rates today: small countries tend to have low and competitive rates, but the United States has an ugly 40 percent rate.
- U.S. postage stamps and currency have long been printed by the government, although postage stamp printing was privatized in 2005. By contrast, Canadian stamps and currency have long been printed by private firms, such as the Canadian Bank Note Company.
- Hyperflation plays out on stamps. I have a Deutsches Reich 5 mark stamp that is stamped with heavy black ink “2 Millionen.” Another says “4 Millionen.” (See photo). Here is the interesting story of these relics of government folly.
- I have a German Democratic Republic stamp with a cute portrait of Marx, Engels, and Lenin. (See photo). The communist government is showing off that it has computers and oil refineries.
In the stamp bag, my mom saved an October 1948 Woman’s Day article “Inside Stories about Stamps.” Under the heading “Private Enterprise,” it says “until the 1880s, private firms in several American cities operated postal systems of their own in open—often violent—defiance of federal postal laws. Probably the last of these carriers was the St. Louis City Delivery Company which the Post Office finally suppressed in 1883.”
Ironically, the federal government imposed the Sherman Antitrust Act only seven years later to stomp out monopolies, but not government monopolies of course.
“Building bigger roads actually makes traffic worse,” asserts Wired magazine. “The reason you’re stuck in traffic isn’t all these jerks around you who don’t know how to drive,” says writer Adam Mann; “it’s just the road that you’re all driving on.” If only we had fewer roads, he implies, we would have less congestion. This “roads-induce-demand” claim is as wrong as Wired’s previous claim that Tennessee fiscal conservatives were increasing Nashville congestion by banning bus-rapid transit, when actually they were preventing congestion by banning the conversion of general lanes to dedicated bus lanes.
In support of the induced-demand claim, Mann cites research by economists Matthew Turner of the University of Toronto and Gilles Duranton of the University of Pennsylvania. “We found that there’s this perfect one-to-one relationship,” Mann quotes Turner as saying. Mann describes this relationship as, “If a city had increased its road capacity by 10 percent between 1980 and 1990, then the amount of driving in that city went up by 10 percent. If the amount of roads in the same city then went up by 11 percent between 1990 and 2000, the total number of miles driven also went up by 11 percent. It’s like the two figures were moving in perfect lockstep, changing at the same exact rate.” If this were true, then building more roads doesn’t make traffic worse, as the Wired headline claims; it just won’t make it any better.
However, this is simply not true. Nor is it what Duranton & Turner’s paper actually said. The paper compared daily kilometers of interstate highway driving with lane kilometers of interstates in the urbanized portions of 228 metropolitan areas. In the average metropolitan area, it found that between 1983 and 1993 lane miles grew by 32 percent while driving grew by 77 percent. Between 1993 and 2003, lane miles grew by 18 percent, and driving grew by 46 percent.
That’s hardly a “perfect one-to-one relationship.”
The paper also calculated the elasticities of driving in relationship to lane kilometers. An elasticity of 2 would mean a 10 percent increase in lane miles would correspond with a 20 percent growth in driving; an elasticity of 1 would mean that lane miles and driving would track closely together. The paper found that elasticities were very close to 1 with standard errors of around 0.05. Even though this is contradicted by the previously cited data showing that driving grew much faster than lane miles, this is the source of Turner’s “perfect one-to-one relationship.”
I have a serious problem with this result, mainly because my analysis of driving and highway capacity data for the 101 largest urban areas from 1982 through 2011 produces very different results. Yes, there is a correlation between an increase in road capacity and an increase in driving. But the correlation is far from perfect and it is very far from one-to-one.
Looking at the same years as Duranton & Turner, in more than 90 percent of urban areas, driving grew far faster than lane miles. On average, driving grew more than twice as fast as lane miles. But in Boston between 1983 and 1993, freeway capacities grew by less than 1 percent, while driving grew by more than 35 percent. In Madison, capacities grew by 35 percent, while driving grew by less than 20 percent. The wide range in differences between urban areas suggests that, not only are Duranton & Turner’s elasticities wrong, their standard errors are far too low. (You can check my results by downloading Texas Transportation Institute data for 101 urban areas.)
One source of error in Duranton & Turner’s paper may be in their definition of urbanized area. They first collected data for metropolitan areas (which include entire counties that contain urban areas), then estimated the share of driving within those metropolitan areas that takes place in the urbanized portions. Their estimate that well under half of all driving is in the urbanized areas does not seem credible considering the non-urbanzed portions are, by definition, rural and house few people and businesses. By comparison, the data I used are based on state highway bureau estimates of driving and lane miles within urbanized areas.
If it were true, as Mann claims, that capacity generates its own demand, then freeways would be equally congested all over the country. Yet this is far from true. While Los Angeles freeways support more than 22,000 daily miles of driving per lane mile, Pittsburgh freeways host less than 9,000 miles per lane mile. Nor are the numbers consistent over time within an urban area, as Duranton & Turner’s elasticities would predict. Instead, many urban areas, including Miami, Las Vegas, and Sacramento, saw miles of driving per lane mile more than double between 1983 and 2003; the average growth was 50 percent, and some grew less than 20 percent, which again suggests that both elasticities and standard errors are much different than found by Duranton & Turner.
So Duranton & Turner’s numbers appear to be wrong, and Wired overstated those numbers anyway. But let’s say it were true that there is a perfect one-to-one relationship between driving and highway capacity, and further stipulate that increasing capacity leads to increased driving (rather than the other way around, which is equally credible if highway engineers are trying to keep up with demand). Is that a bad thing?
We know that every car on the road has someone in it who is going somewhere that is important to them. Increasing the number of cars on the road means more people are getting to do things that are important to them. Provided we aren’t subsidizing that travel (and, as I’ve shown before, subsidies per passenger mile are small and probably zero for freeways), then increasing highway capacity leads to net economic benefits because it generates travel that wouldn’t have taken place otherwise.
By comparison, building expensive transit systems aimed at getting people out of their less-expensive cars generates zero economic benefits if it generates no new travel. Only new travel generates economic benefits, so people who argue that new roads induce new travel are actually arguing that new roads create economic benefits.
If congestion is the issue, then–as Mann briefly mentions–the solution is congestion pricing. But Mann doesn’t understand the difference between true congestion pricing and New York City’s proposal for cordon pricing. Cordon pricing is more a way of raising revenue to fund urban boondoggles than a way of relieving congestion.
Even UC Berkeley planning professor Robert Cervero believes that the induced demand argument is “wrong headed.” “Road investments by themselves do not increase volumes,” he writes. “Only by conferring a benefit, like faster speeds, will traffic increase.” Provided that benefit is greater than the cost–something that could be assured, Cervero says, through proper pricing of roads–then it is a good thing.
That’s why I support, not new road construction, but better road pricing. If congested freeways are congestion-priced and revenues exceed costs, including the costs of maintenance, the extra revenues should be spent building new highway capacity. This will help restore America’s transportation system to be, as it once was, the best in the world.
KILIS, TURKEY—Syria’s civil war has washed over Turkey’s border, flooding the latter with hundreds of thousands of refugees. Washington’s efforts to solve the crisis so far have yielded few positive results. George W. Bush’s grandest foreign policy “success,” the ouster of Saddam Hussein, is turning into an even more dramatic debacle.
The region is aflame and U.S. policy bears much of the blame. Washington’s relentless attempt to reorder and reshape complex peoples, distant places, and volatile disputes has backfired spectacularly.
The blame is not limited to Barack Obama. However ineffective his policies, they largely follow those of his predecessors. Moreover, his most vociferous critics were most wrong in the past. Those who crafted the Iraq disaster now claim that keeping U.S. troops in Iraq would have prevented that nation’s current implosion ignores both history and experience.
Rather than acknowledge their own responsibility for that nation’s implosion, they prefer to blame President Obama, who merely followed the withdrawal schedule established by President George W. Bush, who failed to win Baghdad’s agreement for a continuing U.S. force presence before leaving office. Exactly how President Obama could have forced sovereign Iraq to accept a permanent U.S. garrison never has been explained.
Even less clear is how American troops could have created a liberal, democratic, and stable Iraq. Intervening today would be a cure worse than the disease. Air strikes, no less than ground forces, would simultaneously entangle the United States and increase its stakes in another predictably lengthy conflict.
In Iraq, the Sunni radicals are unlikely to conquer the Shia-majority country. Their success already has mobilized Shiites, and predominantly Shia Iran will ensure Baghdad’s control over majority-Shiite areas, at least. Ultimately de facto partition may be the most practical solution.
Further American intervention in Syria would be no less foolish. America has no reason to fight over who rules Damascus.
The civil war is destabilizing the region, but American involvement would not impose order. Moreover, Assad’s ouster likely would trigger a second round of killing directed against regime supporters, such as Alawites and other religious minorities. With multiple parties engaged in the killing, there is no humanitarian option.
Nor does anyone know who would end up controlling what. The assumption that Washington could get just the right arms to just the right opposition forces to ensure emergence of just the right liberal, democratic, pro-Western government of a united Syria is charmingly naive.
If there is a bright spot for the administration, it unexpectedly is Iran, where a negotiated nuclear settlement remains possible. However, the underlying problem is almost entirely of America’s creation. In 1953, the United States overthrew the democratically elected prime minister, transferring power to the Shah, who brutalized his people. In 1978, the angry Iranian people overthrew him and radical Islamists took control. Fear of Iranian domination of the Persian Gulf led Washington to back Iraq’s Saddam Hussein in his bloody aggressive war against Iran.
After an emboldened Iraq sought to swallow Kuwait, the United States attacked the former and deployed troops to Saudi Arabia, which became one of Osama bin Laden’s chief grievances. President Bush later invaded Iraq, which empowered Islamist Iran—then feared to be developing nuclear weapons. Now Tehran is sending a rescue mission to save the Iraqi government installed by Washington.
American intervention has broken pottery all over the Middle East. Washington should stop trying to micromanage the affairs of other nations and start practicing humility. This would not be isolationism. America, and especially Americans, should be engaged in the world.
However, as I point out in my new Forbes online article: “the U.S. government’s expectations should be realistic and ambitions should be bounded. American officials should abandon their persistent fantasy of reordering the world.”
President Obama’s foreign policy may be feckless, but that’s not its principal failing. As long as Washington attempts to dominate and micromanage the world, its policies will end up harming American interests.
Over at Politico, former Bush administration drug czar and Hudson Institute official, John Walters, has an article titled, “Why Libertarians Are Wrong About Drugs.” The thrust of the article is that (1) drug policy is one of the political divides between libertarians and social conservatives and that the social conservatives have the better case; and (2) libertarians can support the drug war without surrendering essential tenets of their political philosophy. In this post, I want to briefly scrutinize some of Walters’ arguments and observations.
Walters tries to set up his article by framing the debate between social conservatives and libertarians fairly, but right away he falters. “Social conservatives,” he writes, “are troubled by drug abuse, especially among the young.” The implication seems to be that libertarians are not troubled by drug abuse–even if it involves minors. That’s unfair to Milton Friedman, who is quoted in that paragraph, and libertarians generally. I don’t think Walters is intentionally trying to mislead readers here, but that statement does expose one of his faulty understandings of libertarianism. The question has never been whether drug abuse is a problem. It is. The question is how best to address that problem.
Next, Walters tries to demonstrate that a basic tenet of libertarianism is inconsistent with reality–at least in the area of narcotics. Here is Walters: “[L]ibertarians argue that the state should have no power over adult citizens and their decision to ingest addictive substances–so long as they do no harm to anyone but themselves…But this harmless world is not the real world of drug use. There is ample experience that a drug user harms not only himself, but also many others.” Walters then cites instances of domestic violence and other criminal acts that were committed by persons under the influence of narcotics. More faulty reasoning.
The libertarian critique of drug prohibition does not depend on the existence of a “harmless world.” I should not have to point out (but, alas, I guess I do for some) that libertarians have heard of domestic violence and drugged driving. We are also aware that criminal acts are sometimes committed by persons under the influence of narcotics. Now, let’s return to the tenet that Walters fairly stated, but misapplied: The state should have power over adults who harm others. A batterer, for example, should be arrested and prosecuted (whether he was stoned, drunk, or sober.)
The reality recognized by libertarians, but ignored by Walters, is that millions and millions of people use drugs peacefully and do not harm anyone. Our government treats these people like criminals and that is wrong. This is the real divide between neoconservatives like Walters (conservatives such as William F. Buckley and Thomas Sowell oppose drug prohibition) and libertarians. As drug czar, Walters approved television ads that said casual drug users were ipso facto guilty of serious crimes, such as supporting terrorists! Even before 9/11, First Lady Nancy Reagan said casual drug users were guilty of aiding and abetting murder. Libertarians vehemently reject such claims.
Walters does not address the unintended consequences of drug prohibition, such as the enrichment of gangster organizations, the billions wasted on futile interdiction operations, and the curtailment of our civil and constitutional rights by militarized police units and the use of civil asset forfeiture laws. Without any evidence, he expresses fears about the future of our political order because voters are starting to approve drug reform initiatives in Colorado and Washington and elect reform-minded candidates. And yet no mention of the corruption and carnage in Mexico that can be traced to neoconservative drug prohibition policies. Also no mention of Portugal and its successful move to decriminalize drugs there in 2001.
The libertarian case against drug prohibition is gaining traction both here at home and around the world. Like alcohol prohibition, drug prohibition will eventually come to an end. We should welcome, not fear, that development.
Daniel J. Mitchell
I wrote the other day that Americans, regardless of all the bad policy we get from Washington, should be thankful we’re not stuck in an economic graveyard like Venezuela.
But we also should be happy we’re not Europeans. This is a point I’ve made before, usually accompanied by data showing that Americans have significantly higher living standards than their cousins on the other side of the Atlantic.
It’s now time to re-emphasize that message. The European Commission has issued its annual report on “Taxation Trends” and it is–at least for wonks and others who care about fiscal policy–a fascinating and compelling document.
If you believe in limited government, you’ll read the report in the same way you might look at a deadly traffic accident, filled with morbid curiosity and fear that you may eventually suffer the same fate.
But if you’re a statist, you’ll read the report like a 14-year old boy with his first copy of a girlie magazine, filled with fantasies about eventually getting to experience what your eyes are seeing.
Let’s start by giving the bureaucrats some credit for self-awareness. They openly admit that the tax burden is very onerous in the European Union.
The EU remains a high tax area. In 2012, the overall tax ratio, i.e. the sum of taxes and compulsory actual social contributions in the 28 Member States (EU-28) amounted to 39.4 % in the GDP-weighted average, nearly 15 percentage points of GDP over the level recorded for the USA and around 10 percentage points above the level recorded by Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members for which recent detailed tax data is available, Russia (35.6 % of GDP in 2011) and New Zealand (31.8 % of GDP in 2011) have tax ratios exceeding 30 % of GDP, while tax-to-GDP ratios for Canada, Australia and South Korea (2011 data) remained well below 30 %.
Here’s a chart from the report showing that taxes consume about 40 percent of economic output in EU nations. And while Americans correctly view the internal revenue code as very burdensome, taxes “only” consume about 25 percent of GDP in the United States.
Other nations with comparatively modest tax burdens include Canada (CA), Australia (AU), South Korea (KR), and Switzerland (CH).
But it’s important to understand that not all nations in the European Union are identical.
…the ratio of 2012 tax revenue to GDP was highest in Denmark, Belgium and France (48.1 %, 45.4 % and 45.0 % respectively); the lowest shares were recorded in Lithuania (27.2 % of GDP), Bulgaria (27.9 % of GDP) and Latvia (27.9 % of GDP).
I’m surprised, by the way, that Sweden isn’t among the highest-taxed nations. I guess they’ve made even more progress than I thought.
Now let’s drill down into the report and look at some of the specific data. You may want to stop reading now if you get easily depressed, because it’s time to look at a chart showing what’s happened to income tax rates. Specifically, this chart shows the average top tax rate on personal income, both for Eurozone (nations using the euro currency) and European Union nations.
As you can see, the average top tax rate has jumped by almost four percentage points for euro nations and by about two percentage points for all EU nations.
This is very unfortunate. Tax rates were heading in the right direction when there was vigorous tax competition inside Europe. But now that high-tax nations have been somewhat successful in forcing low-tax jurisdictions to become deputy tax enforcers, that positive trend has halted and policy is moving in the wrong direction.
But not in all regards.
Tax competition also has been compelling governments to lower corporate tax rates. And while that trend has abated, you can see in this chart that politicians haven’t felt they have leeway to push rates higher.
Though I am very concerned about the OECD’s campaign to undermine corporate tax competition. If they’re successful, there’s no doubt we’ll see higher corporate tax rates.
Let’s now look at some more depressing data. This chart shows that a continuation in the trend toward higher rates for value-added taxes (VATs).
I’ve warned repeatedly that the VAT is a money machine for big government and the EU data certainly support my position. But if you want evidence from other parts of the world, there’s some IMF data that clearly shows how politicians use the VAT to expand the burden of government.
Last but not least, let’s now draw some conclusions from all this information. At the beginning of the post, I mentioned that Americans should not copy Europe because bigger government translates into lower living standards. Simply stated, there’s a negative relationship between the size of government and economic performance. So let’s look at another piece of data to emphasize that point. The bureaucrats at the OECD just did a report on the U.S. economy and they produced a chart showing that the current recovery is very anemic. We haven’t recaptured lost economic output, which normally happens after a downturn. Indeed, we haven’t even returned to normal growth levels.
But that’s not news to regular readers. I’ve shared powerful data from the Minneapolis Federal Reserve showing the failure of Obamanomics.
What is noteworthy, though, is comparing Europe to the United States. As you can see from these two charts, euro nations have flatlined. And if you look at the vertical scale, you can see that they were growing a lot slower than the United States to begin with.
In other words, we’re not doing very well in the United States. But compared to Europe, we’re Hong Kong.
Two final caveats: First, I always like to stress that economic performance is impacted by a wide range of policies. So while I think that rising tax burdens and higher tax rates are hurting growth in Europe, there are other factors that also matter.
Second, any analysis of fiscal policy should also include data on the burden of government spending. After all, a nation with a low tax burden will still suffer economic problems if there’s a large public sector financed by red ink.
And one big warning: Obama wants to make America more like Europe. If he succeeds, we can expect European-style stagnation.
A new Wall Street Journal/NBC News poll finds that after being presented with a description of the Common Core, 59 percent of Americans “strongly” or “somewhat” support “adoption and implementation,” while 31 percent oppose it. Of course, as we’ve seen before, the description is key. The WSJ/NBC pollsters used the following:
The Common Core standards are a new set of education standards for English and math that have been set to internationally competitive levels and would be used in every state for students in grades K through 12.
This is first biased in favor of the Core in what it says. It is, in fact, highly debatable that the Core is set to top international levels, while the use of “competitive” might suggest that the standards aren’t just benchmarked to top countries, but will help us to compete with them, an empirically hollow suggestion.
More important, though, is what’s not included: any mention of the massive federal role in pushing state adoption. The WSJ notes this omission deep in its online coverage of the question, after stating that “the Obama administration’s disbursal of federal education grants to states that adopted Common Core set off alarms among conservative activists wary of federal incursion into local schools.”
The poll question, in other words, is like failing to tell people pufferfish are poisonous, saying, “pufferfish are delicious and nutritious,” then asking, “would you like to eat some pufferfish?”
Leaving out the “poisonous” part – and presenting deliciousness and nutritiousness as fact – would probably make a difference. Don’t you think?
Ted Galen Carpenter
It’s hard to imagine that U.S. policy in the Middle East, which has helped make a shambles of the region over the past six decades, could get much worse. But developments during the past week demonstrate that it has the potential to do so. Hawks in both parties are shocked (shocked!) that Iraq shows unmistakable signs of coming apart along ethno-religious lines. But critics of the hawkish lobbying for U.S. military intervention in the period leading up to the invasion and occupation in 2003 warned that the move had major destabilizing implications, and that a fractured Iraq was a likely outcome. Early this year, I renewed those warnings, arguing that multiple developments indicated that Iraq was heading toward fragmentation.
As in the earlier case of Yugoslavia, the wonder is not that an artificial country like Iraq (cobbled together by British colonial officials from three disparate provinces of the old Ottoman Empire) is coming apart. The wonder is that it held together for so long.
Rather than accept an outcome contrary to the unrealistic wishes of U.S. policymakers, there is a surge of calls for Washington to “do something” to prevent Sunni militant insurgents from continuing their string of military victories over Prime Minister Nouri al-Maliki’s Shiite-controlled government. Although the Obama administration has wisely ruled-out putting large numbers of U.S. boots on the ground, air strikes and a limited deplyment of troops apparently remain an option. That would be an ill-advised move, since it would risk again entangling the United States in Iraq’s bitter, convoluted political and religious rivalries.
But the strangest suggestion is that Washington should open talks with Tehran about coordinating efforts to stem the advance of the Islamic State of Iraq and Syria (ISIS). That truly is a case of compulsive meddlers grasping at any possibility to try to save a bankrupt policy. After all, the U.S. government officially brands Iran as a leading state sponsor of terrorism, and a high priority of Washington’s policy over the past two decades has been to prevent Iran from acquiring a nuclear capability.
Yet the Obama administration seems receptive to exploring military cooperation with Iran to stop ISIS, and at least a few hawkish types, most notably Senator Lindsey Graham, have embraced the idea. Graham noted that the United States backed Stalin against Hitler in World War II because we feared the former less than the latter.
But Graham failed to note that Washington had not actively aided Hitler before making common cause with Stalin against him. The United States has aided the Sunni-dominated Syrian rebels against the government of Bashar al-Assad, Iran’s principal ally in the region. And Republican hawks advocated stepping-up support for the anti-Assad insurgency, including imposing a no-fly zone and launching cruise missile strikes against government targets. Graham’s ideological compatriot, Senator John McCain, even participated in an ill-conceived photo op with insurgent leaders during a visit to rebel-controlled territory, including one leader who turned out to be a notorious Islamic terrorist. Some of those Syrian rebels now help fill the ranks of ISIS.
Washington’s closest Middle East allies, including Saudi Arabia and its junior Gulf partners, have been bankrolling Sunni militants in both Syria and Iraq for years. Yet frustrated hawks, including two guests on Neil Cavuto’s June 16 Fox News show, now urge the United States to (somehow) induce those allies to take the lead in pursuing military action against ISIS.
To sum up: After overthrowing anti-Iranian Sunni dictator Saddam Hussein and enabling a corrupt, pro-Iranian Shiite political leader (Maliki) to take power in Iraq, the United States proceeded to back a Sunni-dominated rebel movement in neighboring Syria that has now become part of an broader Islamist insurgency determined to oust the government we helped install in Baghdad. That insurgency is backed by a key U.S. ally, Saudi Arabia, and its junior partners, which are also supposedly U.S. allies. Meanwhile, Washington is considering creating a common front against the Sunni insurgency with Iran, the country that U.S. leaders of both political parties have condemned repeatedly as a state sponsor of terrorism and a would-be nuclear rogue state.
That contradictory mess would seem to constitute the perfect operational definition of an incoherent foreign policy. It lacks even the most basic internal logic and consistency.
On Friday, I waded into the heated debate regarding the D.C. Council’s tax reform package. I noted that the proposal is far from perfect, but it is a good first step towards reforming D.C.’s burdensome tax structure.
Shortly after I released my post, councilmember and mayoral candidate David Catania proposed a compromise: He would maintain the current sales tax exemption for the fitness industry. In exchange, he would change the way the corporate income tax rate is cut.
The original D.C. Council proposal would cut corporate income tax rates from the current 9.975 percent to 8.25 percent in 2019. Catania’s plan would also cut the corporate income tax rate to 8.25 percent, but it wouldn’t reach that level until 2020.
The chart below shows the two competing proposals.
In addition to taking a year longer to reach 8.25 percent, Catania’s plan includes higher tax rates in each and every year. Under this proposal, all corporate businesses would pay higher taxes in order to maintain the sales tax exemption for the fitness industry.
When I made this point a few days ago, supporters of Catania’s amendment said that my characterization wasn’t accurate. But Catania’s own press release on the issue acknowledges that businesses will pay more under this proposal. It says “the difference in the average annual tax savings for small businesses between the current version of the FY15 budget and the Catania Amendment amounts to just $15 or $1.25 per month. When factoring in all businesses—including the very largest—the difference in the total average business tax savings is only $346 annually or just $28.83 per month.”
I don’t have a strong view as to whether these increased taxes are a good swap for maintaining the current sales tax exemption. But I do know that even a D.C. corporate tax rate of 8.25 percent is still far above the U.S. state average of 4 percent.
The Advisory Council on Wildlife Trafficking met last week as the administration prepares to turn millions of Americans into criminals and destroy billions of dollars in property. The policy is driven by ideology and actually would kill more elephants.
Most ivory in America is legal and its sale does not endanger wildlife today. Before the international ban of 1989, millions of objects made of ivory or accented by small amounts of ivory entered the United States.
To fight poaching the government could fight poaching. That is, target those illegally killing elephants and selling illicit ivory.
Instead, the government has decided to penalize those trading in legal older ivory. Alas, doing so won’t protect any elephants.
In February, the Fish and Wildlife Service took what it described as “our first step to implement a nearly complete ban on commercial elephant ivory trade.” The agency plans to prohibit the sale of even antique ivory if the owner cannot “demonstrate” the age with “documented evidence.” Since 17th century carvers did not provide certificates of authenticity, virtually no ivory owner has such documentation, which Washington never before required.
The argument for the rule is that it would make life easier for FWS. But it wouldn’t help stop poaching.
First, until politics changed the policy this year, FWS successfully targeted real criminals. For instance, Convention on International Trade in Endangered Species reported a high level of effective enforcement in America. In a 2008 study, elephant researcher Daniel Stiles and conservationist Esmond Martin concluded: “The USA has a good record for [ivory] seizures.”
Second, the fact the law may be difficult to enforce is no excuse for treating those who followed the law and played by the rules as criminals. Dealers and collectors learn the difference between newer and older ivories.
Third, illicit ivory accounts for just a few percent of ivories sold in America. Multiplying the number of illegal objects subject to seizure would make it far harder to stop the limited trade in new ivories that endangers elephants.
Merging the illegal and legal markets would encourage illicit sales. In a new study for the Ivory Education Institute, economist Brendan Moyle argued that legal ivories help restrain prices for illegal items. Moreover, desperate collectors would be tempted to turn to those on the other side of the law. FWS would have to shift resources away from poachers.
Fourth, Americans are not driving the demand for poached ivory. In September 2012 FWS admitted: “we do not believe that there is a significant illegal ivory trade into this country.” Stiles, an African elephant specialist, concluded in March: “Most of the ivory sold in the U.S. is legal recycled ivory or genuine antiques.” Moyle similarly noted: “The size of the U.S. ivory market is a reflection of its historical size and not current poaching levels.”
China is by far the largest market for illegal ivory. Some prohibitionists contend that punishing Americans would lead China to act against poaching. However, Beijing won’t harm its own people because the U.S. government treats U.S. antique collectors and dealers like criminals.
The real agenda of some activists is not to save elephants. They believe anyone possessing ivory deserves to lose the item’s value.
Yet an 18th century ivory cane is an object, neither moral nor immoral. There is nothing wrong with buying it, whatever its nature centuries ago. Moreover, some ivory was obtained from elephants which died naturally or were culled—killed because the habitat would not support them.
As I point out in Forbes online, “the administration’s assault on the rule of law should scare even those who do not own any ivory.” FWS would essentially steal people’s property at the behest of activist ideologues by changing a few words in the Federal Register.
Americans should work together to save elephants with policies that actually address the problem and which respect people’s basic constitutional rights and liberties. The proposed ivory ban fails on all these counts.
To execute any search or seizure, a police officer must reasonably suspect that a crime has been or is being committed based on the facts available to him at the time he executes the search or seizure. Under this standard, searches can be lawful even if the officer is mistaken in his understanding of the facts before him, as long as his understanding led him to reasonably suspect criminal activity. But what if the officer is mistaken about whether a particular activity is actually criminal?
Nicholas Heien was driving with a broken taillight in North Carolina when he was pulled over by police who mistakenly believed that state law required two working taillights. Upon receiving consent to search the car—note: you don’t have to agree to such requests!—police found cocaine and charged Heien with drug trafficking. At his trial, Heien sought to suppress the evidence arising out of the search by arguing that the officer never had the reasonable suspicion necessary to pull his vehicle over because having one broken taillight is not illegal. The trial court ruled against him, but the appellate court found a Fourth Amendment violation and reversed. The North Carolina Supreme Court reversed in turn, by a 4-3 vote, holding that an officer’s understanding of the state’s taillight requirements could form the basis for reasonable suspicion because that understanding, while incorrect, was reasonable.
There is considerable disagreement among state and federal courts, so the U.S. Supreme Court took the case to resolve the issue. In a brief filed jointly with the National Association of Criminal Defense Lawyers, the ACLU, and the ACLU of North Carolina, Cato argues that the approach taken by the North Carolina Supreme is inconsistent with the logic that applies to factual mistakes committed by law enforcement and erodes civil liberties, all while undermining police authority and safety. The allowance for mistakes of fact in police evaluation of suspicious conduct is justified because facts can be ambiguous and unique to each circumstance, and officers must make quick evaluations based on their own observation and expertise. In contrast, the law is the same regardless of the particular circumstance to which it is applied, and can be ascertained long before the officer needs to enforce it. Officers have no specialized expertise in evaluating law, while ambiguities in the criminal code are typically resolved (by courts) in favor of criminal defendants, or struck down for vagueness. The burden placed on citizens by our accommodation of officers’ mistakes of fact is justified as a means of avoiding the social cost of unlawful conduct. Lawful conduct imposes no such cost, however, so excusing mistakes of law serves no social purpose.
The North Carolina ruling opens citizens up to searches based on all kinds of lawful conduct, as long as law enforcement can have a “reasonable” misapprehension of the law in a given area. To avoid the intrusion of police searches, people will need not only to avoid appearing to participate in criminal activity, but also to avoid appearing to participate in innocent activity which police could construe as criminal. The result is a system in which “ignorance of the law is no excuse” for citizens facing conviction, but police can use their own ignorance about the law to their advantage. Officers are therefore disincentivized from knowing the law, which undermines public confidence in their authority and encourages citizens to dispute it during police encounters—putting both parties in greater danger. The U.S. Supreme Court should make clear that law enforcement mistakes of law preclude lawful searches and seizures under the Fourth Amendment.
The Supreme Court will hear the case of Heien v. North Carolina this fall
Daniel J. Mitchell
Why are some nations rich and other nations poor? What has enabled some nations to escape poverty while others continue to languish?
And if we want to help poor nations prosper, what’s the right recipe?
But even that doesn’t really tell us what causes growth.
In the past, I’ve highlighted the importance of capital formation and shared a remarkable chart showing how workers earn more when the capital stock is larger (which is why we should avoid punitive double taxation of income that is saved and invested).
But that also doesn’t really answer the question. After all, if a larger capital stock was all that mattered, doesn’t that imply that we could get prosperity if government simply mandated more saving and investing?
There’s something else that’s necessary. Something perhaps intangible, but critically important.
Deirdre McCloskey, in a video for Learn Liberty, says that ideas and innovation drive growth.
This is a great video for many reasons, but two points strike me as very important.
First, Deirdre is saying that economic liberty matters, but that modern prosperity also was enabled by a change in the culture. People began to appreciate and respect entrepreneurs. You could call this a form of social capital (and I think such cultural norms are critically important for a thriving society).
And entrepreneurs are the innovators who figure out ways of mixing capital and labor in ways that generate ever-larger amounts of economic output, so they play a critical role in boosting prosperity.
Second, she reminds us that poverty is the normal human condition and that the modern era truly is an amazing change. Indeed, I was so shocked by her numbers that I had to investigate to see if she was exaggerating.
She wasn’t. Using the Angus Maddison data set, I looked to see if Deirdre was right about world prosperity resembling a hockey stick.
Sure enough, there was an amazing increase in prosperity beginning about 1800, just as she explained. Indeed, she could have said that people lived on less than $2 per day for much of recorded history.
Here’s the data for world per-capita economic output over the past two thousand years.
Wow. Unlike the make-believe hockey stick used by global warming alarmists, this one is real. And it shows that the economy definitely isn’t a fixed pie if the right policies – and the right attitudes – prevail.
So what’s the moral of the story?
Perhaps the most obvious lesson is that we should respect and appreciate entrepreneurs and other wealth creators.
Unfortunately, we live in an era where politicians would like us to believe that the economic pie is fixed and that it’s the job of government to re-slice the pie with class-warfare tax policy and lots of redistribution.
But when they re-slice the pie, they also change the size of the pie. And not in a good way.
It is a truism that laws tend to be arranged for the benefit of the political class. Still, I was surprised how blatantly this truism plays out in the case of a Connecticut law by the name of Conn. Gen. Stat. 31-51l, which I learned of through a post earlier this year by Daniel Schwartz at his Connecticut Employment Law Blog. He writes:
Here’s the scenario: Suppose you are a salesperson for a mid-size employer in the state and you decide to run for a full-time local or state office. You then win (congrats). And maybe you win a second term. But then - after eight years in office - you decide to leave office.
Can you get your job back with your prior employer? Well, under state law, the answer is remarkably (with a caveat or two) yes.
And better still: you can get credit for your time in office.
The provision covers private Connecticut employers with 25 or more persons on their payroll, and has a couple of exceptions, as when an employer manages to plead hardship or changed circumstances. Still, imagine being able to demand that your job at United Technologies, Yale-New Haven Hospital, or ESPN be held open for eight years:
Upon reapplication to the employer, the employer must then reinstate that employee to his or her original position or a similar position with equivalent pay and accumulated seniority, retirement, fringe benefits and other service credits.
Because Connecticut’s own legislature is part-time rather than full-time, the lawmakers who maintain this statute on the books can’t take advantage of it themselves (unless they happen to run for another public office, which is hardly unheard of). But members of the political class tend to hang out with each other, and can readily identify with each other’s situations.
More, it sometimes seems, than with the situation of those they govern.
Steve H. Hanke
“Governments constantly choose between telling lies and fighting wars, with the end result always being the same. One will always lead to the other.”
- Thomas Jefferson
Nobel Laureate George Akerlof uses this edifying quote from Thomas Jefferson to good effect in his foreword of Hossein Askari’s excellent read, Conflicts and Wars: Their Fallout and Prevention (Palgrave MacMillan, New York, 2012). Indeed, Prof. Akerlof has this to say about Askari’s work:
“Professor Askari begins by surveying the burden of military expenditures and of conflicts and wars. Their dollar expenditures, which are close to 15 percent of global GNP, exceed the cost of our financial crisis, of global warming, and what would be required for worldwide poverty reduction.
He bases his approach on three interrelated propositions: aggressors do not pay the full price of their aggression; governments will do nothing to change this state of affairs on their own; and, as a result, the process of reducing conflicts must originate in the private sector.”
The U.S. shouldered a heavy load in the Iraq War, to the tune of $2.4 trillion from 2003-2011. As depicted in the chart below, the $2.4 trillion U.S. tab accounted for over 75% of global expenditures in the Iraq War.
If we dissect the $2.4 trillion in U.S. expenditures (see chart below), the picture becomes even clearer and, well, drearier. Iraq was a costly war for everyone involved, including U.S. taxpayers. The annual expenditure rate of the Iraq war comes out to $2991 per U.S. taxpayer from 2003-2011 (based on the level of income tax returns), far higher than the annual tab per US taxpayer for the Afghan fiasco.
President Obama announced to Congress yesterday that he is deploying 275 military personnel to Iraq to secure the American embassy in Baghdad. Here we go, again.
Over the last few weeks, the media has been abuzz with stories of unaccompanied minors coming across the border and being apprehended by Customs and Border Protections (CBP). Many of the facts on the ground are fuzzy because we do not have a complete picture of all of the relevant data. In this post I will lay out several of the relevant facts as they exist. I will present information that focuses on how the detention facilities are overwhelmed but that it is less likely that border patrol agents on the border are actually overwhelmed.
The unlawful immigration of minors is not a new phenomenon, although it has increased recently. CBP released this table showing the large increase in the number of unaccompanied minors that have been encountered (different from “apprehended”):Country Fiscal Year 2009 Fiscal Year 2010 Fiscal Year 2011 Fiscal Year 2012 Fiscal Year 2013 Fiscal Year 2014 El Salvador 1,221 1,910 1,394 3,314 5,990 9,850 Guatemala 1,115 1,517 1,565 3,835 8,068 11,479 Honduras 968 1,017 974 2,997 6,747 13,282 Mexico 16,114 13,724 11,768 13,974 17,240 11,577 Total: 19,418 18,168 15,701 24,120 38,045 46,188
The government has not released data for the total number of unauthorized immigrants encountered or apprehended so far in 2014. As a result, I have to use 2013 data to see how big of an addition unaccompanied minors made to apprehensions of unlawful immigrants in that year. Encounters and apprehensions are not synonymous in Border Patrol statistics but they are close enough for a back of the envelope calculation.
In 2013, Central American children encounters as percent of total apprehensions on the southwest border were relatively small:
Source: http://www.cbp.gov/sites/default/files/documents/U.S.%20Border%20Patrol%20Fiscal%20Year%20Apprehension%20Statistics%201960-2013.pdf and http://www.cbp.gov/newsroom/stats/southwest-border-unaccompanied-children
That is in contrast to the usual graph you see of the increase in unaccompanied minors (below). The blue on the following graph, except for 2014, is the blue in the above graph.
In 2013, only 6 percent of all apprehensions on the southwest border were unaccompanied minors:
Source: http://www.cbp.gov/newsroom/stats/southwest-border-unaccompanied-children and http://www.cbp.gov/sites/default/files/documents/U.S.%20Border%20Patrol%20Fiscal%20Year%20Apprehension%20Statistics%201960-2013.pdf
CBP divides the border in sectors. Many of the unaccompanied minors crossing into the United States are concentrated in specific sectors – like the Rio Grande sector. The 2014 data on the total number of apprehensions per border sector are not available although the government has released the data on the number of unaccompanied minors apprehended per border sector. Here are the numbers from 2013 and so far in 2014:Sector Fiscal Year 2013 Fiscal Year 2014 % Change Big Bend Sector 99 148 49% Del Rio Sector 1,396 2,401 72% El Centro Sector 304 411 35% El Paso Sector 534 682 28% Laredo Sector 2,496 2,745 10% Rio Grande Sector 12,484 33,470 168% San Diego Sector 414 642 55% Tucson Sector 6,569 6,254 -5% Yuma Sector 197 264 34% Southwest Border Total 24,493 47,017 92%
The Rio Grande sector has seen the greatest number of unaccompanied minors trying to cross. In 2013, 12,484 unaccompanied minors were apprehended in that sector. So far in 2014, the number has risen to 33,470 – a 168 percent increase over last year, and fiscal year 2014 isn’t over yet.
By the end of the year the numbers should increase even further. But compared to historical crossings in the Rio Grande Valley, the total numbers in 2013 are not unprecedented. We have to wait for the 2014 numbers for all apprehensions per border sector to understand how the recent surge in unauthorized immigrants compares to past increases. Historically, border patrol in the Rio Grande Valley has apprehended more unauthorized immigrants in the past with far fewer border patrol agents.
Border Patrol Overwhelmed? Yes and no.
Consistent statements from CBP assert that they are overwhelmed by the recent influx of unaccompanied minors. Detention facilities are certainly overflowing – partly because of the government’s increased border enforcement over the last 10 years. However, the number of Border Patrol agents on the southwest border has never been greater:
The number of Border Patrol apprehensions on the southwest border has also decreased over time, mainly because of a decrease in the number of unlawful immigrants attempting to enter.
In 2013, each border patrol agent apprehended 22.3 unlawful immigrants, on average. This is compared to 1993, when each border patrol agent on average apprehended 352.2 unlawful immigrants. Many government apprehension facilities are overwhelmed but it is a stretch to state that the largest border patrol in U.S. history, with fewer apprehensions per agent in 2013 than almost any previous year, is suddenly overwhelmed.
The real bottleneck is in detention facilities, not the numbers of border patrol agents on the ground. As the New York Times reported:
“While the Obama administration has moved aggressively to deport adults, it has in fact expelled far fewer children than in the past. Largely because of a 2008 federal law aimed at protecting trafficked children, the administration in 2013 deported one-fifth the number of Central American children as were expelled in 2008, according to federal government statistics.”
The 2008 act, the William Wilberforce Trafficking Victims Protection Reauthorization Act (TVPRA) of 2008, forced U.S. official to inquire into the vulnerability of unaccompanied minors to trafficking and other forms of abuse. U.S. officials were then only allowed to deport the children quickly if they make a voluntary decision to return. Longer processing times created by the 2008 act mean longer wait times for the minors in immigration detention facilities. As a result, crowding has occurred and the overflow has been moved to military bases. The short-term solution is not to further deprive these children of their rights by deporting them without due process but to release them quickly into the care of their resident American families or American non-profits charged with their care. In the long term, cheaper and more streamlined family reunification policies should be implemented to move otherwise peaceful and healthy children out of detention as fast as possible.
Few unaccompanied minors have been incentivized to come because of the legal change because, as Dara Lind at Vox noted, few unaccompanied minors even knew about it. The TVPRA caused a bureaucratic backlog, thus making the immigration enforcement system less capable of handling a sudden increase in unaccompanied minors. The agents on the ground are not overwhelmed, bureaucratic ossification has created a bottleneck in the processing and detention apparatus. In a future post, I will analyze the various theories explaining why there has been a sudden increase in the immigration of unaccompanied minors.
The largest sporting event on Earth is taking place this summer in Brazil. Yet, despite having known since 2007 that Brazil would be hosting the 2014 FIFA World Cup Brazilian authorities failed to adequately prepare for the event, which is estimated to cost more than $11 billion. Not only has the construction of the stadiums and the relevant infrastructure been far from ideal, Brazil also has a hotel room shortage.
In light of the shortage of hotel rooms Brazilian authorities have welcomed Airbnb, the San Francisco-based company that connects those looking for a place to stay with property owners willing to provide short-term accommodation. Patrick Hoge of the San Francisco Business Times explains:
While Airbnb has been controversial in many cities around the world, Brazilian officials, facing shortages of hotel rooms, have been more welcoming to the San Francisco company, seeing it as a resource for housing the massive influx of tourists expected.
Hoge also reported that, according to Airbnb Brazil general director Christian Gessner, the number of Airbnb listings in Brazil increased from around 3,000 to more than 35,000 in the two year period ahead of the start of the World Cup.
Considering their state of preparation for the World Cup it is not hard to see why Brazilian officials have welcomed a company that makes it easier for private individuals to do what they have been doing for thousands of years: letting strangers stay in their property for a short time in exchange for money.
However, as Hoge noted, there are cities around the world less welcoming to those who wish to temporarily rent out their properties or rooms. According toThe Telegraph, during the London 2012 Olympics those who failed to apply for planning permission before renting their property for less than three months (as required by 40-year-old legislation) faced heavy fines.
Thankfully, British Communities Secretary Eric Pickles has said that, “The internet is changing the way we work and live, and the law needs to catch up,” and, “It’s time to change the outdated, impractical and restrictive laws from the 1970s, open up London’s homes to visitors and allow Londoners to make some extra cash.” Changes in the legislation related to renting private property are set to be included in the Deregulation Bill currently working its way through Parliament.
In the U.S. Airbnb faces numerous challenges. Last month Airbnb handed over “anonymized” information on hosts in New York after a six-month legal battle with New York Attorney General Eric Schneiderman, who claims some of the hosts may be in violation of local laws such as the one prohibiting New York residents from renting out a property for fewer than 30 days if they are not living there.
Over at SFGate.com Carolyn Said notes that Airbnb violates ordinances not only in New York, but also in San Francisco, where “Anecdotal reports” suggest that some hosts are taking down listings over fears of being punished for lease violations and ignoring city bans on short-term rentals.
Perhaps lawmakers in San Francisco and New York should consider welcoming Airbnb, like Brazilian officials have, and attempt to reform outdated laws, as is happening in the U.K. Airbnb is not going anywhere. In April it was valued at $10 billion, and it is available in over 34,000 cities in 190 countries. Lawmakers should be finding a way to accommodate Airbnb, not trying to fit it into an outdated legal and regulatory framework.
A new Pew poll finds that three out of four “consistent liberals” would rather live in a community “where the houses are smaller and closer to each other” but within walking distance of schools, stores, and restaurants. Conversely, three out of four “consistent conservatives” would rather live in a larger home on a large lot even if it means driving to schools, stores, and restaurants.
Pew says this shows that “differences between right and left go beyond politics,” which Pew claims is one of the seven most important things to know about polarization in America. Yet the left has turned the choice between a traditional suburb and a so-called walkable community into a political issue, so it is no wonder that people’s views on this choice are polarized.
Disappointingly, Pew’s report on polarization defines everything in terms of liberal vs. conservative. Pew’s big news is that the share of Americans who are consistently conservative or consistently liberal has more than doubled since 1994–yet you have to read deep into the report to learn that these groups make up just 21 percent of the country. The report says little about the other 79 percent of Americans, yet you’d think they would be important since they outnumber the consistent ones by almost four to one.
Pew does say that 39 percent of Americans “take a roughly equal number of liberal and conservative positions,” while the information that 22 percent are “mostly liberal” and 18 percent are “mostly conservative” is buried in an appendix. Most of the the body of the report seems to focus on the “consistent” extremists.
It seems likely that most of the mixed group, and many of the “mostlies,” are libertarians who are fiscally conservative and socially liberal. Yet the term “libertarian” isn’t once mentioned in the Pew report. Probably fewer are socially conservative and fiscally liberal, a group so small that it has no agreed-upon name, though some call them “liberal conservatives.”
Libertarians should have been discussed because issues of personal freedom help explain much of the polarization that the report documents. For conservatives, the decision to live in a drivable vs. a walkable community is a mere lifestyle choice. For liberals, it is matter of life and death, making them eager to impose their preferences on others.
This attitude is the source of the increasing polarization which, Pew believes, began growing in the 1970s. Consistent liberals and consistent conservatives both frighten their opponents for the same reason: they are both quite willing to sacrifice your freedom in order to attain their goals.
Social conservatives believe, for example, that an embryo is human, and they are willing to sacrifice a woman’s freedom to terminate her embryo or fetus in order to achieve their idea of a moral society. Of course, the key Supreme Court decision on abortion was made in 1973.
Liberals believe that all life on earth depends on us reducing greenhouse gas emissions, and they are willing to sacrifice other peoples’ freedom to drive or live in a big house in order to save the planet. Of course, the whole climate change issue grew out of environmental issues that first hit public awareness in about 1970.
Abortion and climate change aren’t specifically mentioned in the ten questions used in the Pew poll, but they include proxies for those issues. The questions are listed in full on page 79 of the report, but briefly they are:
- Is government wasteful or efficient?
- Is government regulation harmful or helpful?
- Do government benefits help or hurt the poor?
- Should government do more or less to help the poor?
- Is the failure of more blacks to get ahead the result of racism or self-inflicted?
- Do immigrants burden or strengthen society?
- Is peace achieved through military strength or diplomacy?
- Do corporations make too much profit?
- Are stricter environmental laws worth the cost?
- Should society accept or discourage homosexuality
A libertarian would say that at least seven of these questions are really about freedom. Questions 2, 6, 8, 9, and 10 specifically deal with freedom. Questions 3 and 4 have to do with freedom in the sense that confiscating money from you to give to someone else infringes on your freedom (and besides can give the recipients the wrong incentives). Similarly, libertarians might say question 5 should have asked, “Is the failure of more blacks to get ahead the result of racism or bad incentives created by the welfare state?”
Libertarians would respond to question 1 by arguing that government is both wasteful and infringes on people’s freedom, and even if government were efficient they would object to it because of its tendency to reduce freedom. And another way of asking question 7 would be, “Is it appropriate to use our military to impose our will on other nations, taking away their freedom?”
Almost all of these issues go back to the 1960s and 1970s, a period that started encouraging sexual freedom, minority rights, environmental protection, and a federal “war on poverty,” while questioning foreign policy. Only the immigration and corporate profit issues date to another time.
Since so many issues trace back to the 1960s and 1970s, it is no wonder that America has become more polarized since then. Some argue that polarization has resulted from a perceived decline in income equality, but I think this is less important, partly because many of the liberals who make the most of the inequality issue tend to have higher incomes than many of the conservatives who just want government to leave them alone.
Instead, the real source of polarization is this: do I have the right to curtail your freedom to achieve a goal I believe is important even if you don’t share that goal? Those who want to end polarization need to to find ways for people to achieve their goals without reducing other peoples’ freedom.
Daniel J. Mitchell
This past April, I augmented that list with some commentary about whether Walgreen’s might become a Swiss-based company.
And in May, I pontificated about Pfizer’s effort to re-domicile in the United Kingdom.
Well, to paraphrase what Ronald Reagan said to Jimmy Carter in the 1980 presidential debate, here we go again.
Here’s the opening few sentences from a report in the Wall Street Journal.
Medtronic Inc.’s agreement on Sunday to buy rival medical-device maker Covidien COV PLC for $42.9 billion is the latest in a wave of recent moves designed—at least in part—to sidestep U.S. corporate taxes. Covidien’s U.S. headquarters are in Mansfield, Mass., where many of its executives are based. But officially it is domiciled in Ireland, which is known for having a relatively low tax rate: The main corporate rate in Ireland is 12.5%. In the U.S., home to Medtronic, the 35% tax rate is among the world’s highest. Such so-called “tax inversion” deals have become increasingly popular, especially among health-care companies, many of which have ample cash abroad that would be taxed should they bring it back to the U.S.
It’s not just Medtronic. Here are some passages from a story by Tax Analysts.
Teva Pharmaceuticals Inc. agreed to buy U.S. pharmaceutical company Labrys Biologics Inc. Teva, an Israeli-headquartered company, had an effective tax rate of 4 percent in 2013. In yet another pharma deal, Swiss company Roche has agreed to acquire U.S. company Genia Technologies Inc. Corporations are also taking other steps to shift valuable assets and businesses out of the U.S. On Tuesday the U.K. company Vodafone announced plans to move its center for product innovation and development from Silicon Valley to the U.K. The move likely means that revenue from intangibles developed in the future by the research and development center would be taxable primarily in the U.K., and not the U.S.
So how should we interpret these moves?
From a logical and ethical perspective, we should applaud companies for protecting shareholders, workers and consumers. If a government is imposing destructive tax laws (and the United States arguably has the world’s worst corporate tax system), then firms have a moral obligation to minimize the damage.
Writing in the Wall Street Journal, an accounting professor from MIT has some wise words on the issue.
Even worse, legislators have responded with proposals that seek to prevent companies from escaping the U.S. tax system. The U.S. corporate statutory tax rate is one of the highest in the world at 35%. In addition, the U.S. has a world-wide tax system under which profits earned abroad face U.S. taxation when brought back to America. The other G-7 countries, however, all have some form of a territorial tax system that imposes little or no tax on repatriated earnings. To compete with foreign-based companies that have lower tax burdens, U.S. corporations have developed do-it-yourself territorial tax strategies. …Some firms have taken the next logical step to stay competitive with foreign-based companies: reincorporating as foreign companies through cross-border mergers.
Unsurprisingly, some politicians are responding with punitive policies. Instead of fixing the flaws in the internal revenue code, they want various forms of financial protectionism in order the stop companies from inversions.
Professor Hanlon is unimpressed.
Threatening corporations with stricter rules and retroactive tax punishments will not attract business and investment to the U.S. The responses by the federal government and U.S. corporations are creating what in managerial accounting we call a death spiral. The government is trying to generate revenue through high corporate taxes, but corporations cannot compete when they have such high tax costs. …The real solution is a tax system that attracts businesses to our shores, and keeps them here. …The U.K. may be a good example: In 2010, after realizing that too many companies were leaving for the greener tax pastures of Ireland, the government’s economic and finance ministry wrote in a report that it wanted to “send out the signal loud and clear, Britain is open for business.” The country made substantive tax-policy changes such as reducing the corporate tax rate and implementing a territorial tax system. Congress and President Obama should make tax reform a priority.
Here’s some info, by the way, about the United Kingdom’s smart moves on corporate taxation.
For more information on territorial taxation, here’s a video I narrated for the Center for Freedom and Prosperity.
And here’s my futile effort to educate the New York Times on the issue.
And if you want some info on the importance of lower corporate taxation, here’s another CF&P video.
P.S. You may be asking yourself whether it would have been better to say that America’s corporate tax is “sadistic” rather than “masochistic.”
From the perspective of companies (and their shareholders, workers, and consumers), the answer is yes.
But I chose “masochistic” because politicians presumably want to extract the maximum amount of revenue from companies, yet that’s not happening because they’ve set the rate so high and made the system so unfriendly. In other words, they’re hurting themselves. I guess they hate the Laffer Curve even more than they like having more money with which to buy votes.
Juan Carlos Hidalgo
Today, the U.S. Supreme Court inflicted a major blow to Argentina in its decade-long legal struggle with some of its creditors since it defaulted on its debt in 2001—the largest sovereign default in history.
While in 2005 and 2010 most of Argentina’s creditors settled to swap their old bonds with heavily discounted new bonds, a group of holdout creditors challenged Buenos Aires in the courts. In October 2012, the U.S. Court of Appeals for the Second Circuit sided with plaintiffs to rule that Argentina must treat all its creditors equally and pay owners of defaulted bonds that were issued under New York law. Today, SCOTUS rejected Argentina’s appeal to that ruling. Buenos Aires now faces three options:
- Comply with the ruling and pay the holdout creditors the $1.33 billion it owes them. Argentina can afford this. According to the most recent estimates (June 6), the country has $28.6 billions in Central Bank reserves. Paying the holdouts would send a strong signal that Argentina is willing to play by the rules and honor its debts. However, the government of Cristina Fernández de Kirchner has made a political crusade out of its struggle against the holdouts (whom she calls “vultures”). Unfortunately, most voices in the opposition share her distaste for paying the holdouts.
- Ignore the ruling. If it does so, Argentina will be legally prevented from paying the other 93% of creditors that agreed to the previous bond swaps of 2005 and 2010 because the ruling requires Argentina to pay holdouts along with those who accepted the swaps. If this happens, Argentina would enter into a technical default. The economic consequences are uncertain. The central government is already mostly shunned out of international markets. But Argentine provinces and businesses could face a more difficult time servicing their debts.
- In an effort to avoid a technical default, Argentina could offer the bondholders who agreed to the 2005 and 2010 debt swaps new bonds issued under Argentina’s jurisdiction. Thus, the bondholders would face a terrible choice: either they stick to their U.S.-issued bonds and risk an almost certain default, or accept Argentina’s offer of new bonds issued under the “protection” of its shaky legal and political institutions. The chants of “Argentina, Argentina!” in the chambers of Congress in 2001 when the country opted for defaulting should be in the bondholders’ minds when considering this option.
Clearly, the best option for Argentina’s long-term economic prosperity is the first one. But it requires the country’s political class to swallow its pride and agree to play by the rules. That would be a first in a very long time.
If a state’s truth ministry has threatened to prosecute you for something you said during an election campaign, can you sue? Of course, said the unanimous Supreme Court, with what would undoubtedly have been a guffaw if one could be conveyed in a legal opinion. While the Court left it to its lesser brethren to deal further with a law that criminalizes making “false statements” – whatever that means: too many Pinocchios? – about political candidates, the satirical graffiti is clearly on the wall for that Buckeye bunkum.
As Cato’s brief alongside P.J. O’Rourke made clear, allegations, insinuations, “truthiness,” smears, and all that other rigamarole have been part and parcel of American political discourse since time immemorial. Indeed political speech – including lies, so long as they’re not defamatory (for which there are clear legal standards) – resides firmly in the throbbing heart of the First Amendment. It’s farcical to think that a legislature could charge a panel of bureaucrats (like the state election commission here) with enforcing some sort of Marquis of Queensbury debate rules.
While standing is often hard to come by, even the most curmudgeonly jurisprudential sticklers can see that political advocates have to be able to challenge a law that restricts political advocacy – one that’s already been used against them, no less! At the end of the day and in the fullness of time, today was a banner morning for free speech and judicial engagement.
The U.S. government is driving some of its most productive citizens abroad. The only beneficiaries are countries such as Singapore and Switzerland, which offer sanctuary to Americans fleeing avaricious Uncle Sam.
Three years ago Eduardo Saverin, one of Facebook’s founders, joined 1780 other Americans in renouncing their citizenship. Heading overseas allowed him to reduce the federal government’s take when his company went public.
Just 231 people gave up their citizenship in 2008. Last year the number was 2999. The first three months of 2014 was 1001, up from 679 for the first quarter of last year.
Tax flight is not an option for most people. However, the rich have more choices internationally. And they increasingly are telling Uncle Sam goodbye.
So are big corporations, such as Pfizer, which is seeking to buy the British pharmaceutical company AstraZeneca. The acquisition would allow Pfizer to move its headquarters to the United Kingdom, which employs a “territorial” tax system, with taxes collected only where the income is earned, in contrast to Washington’s worldwide levy.
About 50 firms have moved their headquarters over the last three decades, half of them since 2008. Last month the Obama administration decried the practice and proposed to increase the share of foreign ownership required for inversions.
Traditionally the entrepreneurial and productive wanted to come to America. Many still do. But the choice is no longer so clear-cut.
Some lawyers admit that they counsel foreign businessmen to consider carefully before seeking American citizenship. Washington’s increasingly greedy and petty behavior appears to be having an impact. Hong Kong tax attorney Timothy Burns argued: “Fifteen or 20 years ago there was a big rush to make sure your kids became U.S. citizens, for access to U.S. schools for example. Now we’re seeing just the opposite.”
There are high, progressive rates at home on top of a comically complicated tax code. The U.S. alone among major industrialized states taxes Americans living overseas. America also is one of the few countries to use worldwide corporate taxation—claiming a cut of money earned everywhere, no matter how little a connection to the U.S.
Moreover, as I point out in my article on fee.org: “U.S. citizens overseas must file foreign bank account reports, backed by big civil and criminal penalties. In 2010 Congress passed the Foreign Accounts Tax Compliance Act, which attempts to turn every foreign financial institution into an IRS agent. The results are significant compliance costs and fearsome legal risks.”
Increasingly banks and other companies are telling Americans to go elsewhere. Complained tax attorney Brad Westerfield, the rules have “become so complicated—the increased filing obligations over the years. You see more people giving up their citizenship or relinquishing their Green Cards.”
Not that it’s easy to escape. Washington hits up departing wealthy citizens for a tax on unrealized capital gains. Yet Senators Chuck Schumer and Bob Casey have introduced legislation to double the levy to 30 percent for those leaving America.
Of course, most people are likely to think about more than money before giving up their citizenship. But current policy creates powerful pressure for some. Increasing tax flight should serve as a wake-up call for Washington politicians. Unfortunately, they insist on blaming everyone but themselves. Heading overseas to save money is “immoral,” asserted Sen. Charles Grassley (R-Iowa).
But what is moral about the looting and pillaging that goes on every day in Washington? Politicians are among the greediest people in America, acting at the behest of the envious who are determined to use government to live at everyone else’s expense. Today’s political overseers promise much, take more, and deliver little.
America once was a land of opportunity. As it loses that distinction more people are tempted to go elsewhere. Instead of seeking to punish those who desire to move, policymakers who are real patriots would change the punitive policies which are pushing people abroad.