Tag Archives: political economy

Competition

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The German Marshall Fund of the United States had a worried piece about net neutrality up shortly before Thanksgiving.  Ignoring the author’s opening paragraph, wherein she laid out the Left’s nonsense about how getting government out of the business of regulating the Internet as though it were an early- mid-20th century telephone utility, the main point is concern that the US won’t look like Europe if net neutrality isn’t enforced.

While the decision will not significantly impact European policies or consumers directly, it will exacerbate the gap between Washington, DC, and Brussels on law, values, and interests when it comes to the role technology plays in our society.

Of course, it’s differences that create competition, and it’s competition that stimulates innovation—even among nations.  Were we to imitate Europe—or Europe us—there could be no invention, no creativity.  It’s not just economic or technology competition, after all, that stimulates invention.  Policy differences—like net neutrality there, non-centrally controlled Internet here—also stimulate invention.  Policy differences give empirical evidence of what works and what does not, and in what environments economic and technology thises or thats work better or less well.

It never ceases to amaze me how so many so desperately seek to avoid the cacophony of difference, try to anxiously to snuggle into the false comfort of group think.

Soros Puts His Money in a Tax Shelter

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And Stephen Moore’s knickers are in a twist.

Congress is still scrambling to find ways to pay for its tax cut, so perhaps it should pay closer attention to last month’s news that George Soros had transferred $18 billion of his fortune to a private charity that he controls. There it will be sheltered from the Internal Revenue Service forever. This may be the single biggest tax dodge in US history, yet no one on the right or left seems to have raised an eyebrow.

How is it a tax dodge, exactly, to take legal steps to protect one’s assets from the taxman?  Why would anyone “on the right” object to a man moving to hang on to more of his money?

I don’t question these billionaires’ right to do with their money as they wish. I’m simply arguing that Congress shouldn’t let the rich and politically powerful use private foundations to escape taxation.

This is disingenuous. Private foundations are a completely legal way in which to shelter funds and to escape taxation.  I applaud Soros’ effort to keep his money, even as I decry his politics.  Had I billions of dollars—or even thousands—I’d try to protect it from the Revenooers, too.  Government doesn’t need as much of my money as it tries to claim; as long as it’s legal, there’s nothing wrong with keeping out of the Feds’ paws.

What Congress should be doing is finding ways to allow those of us with less money than Soros, or even less than the 20% or 30% or 50%, shelter more of our money, too.  One way to do that would be via a single low, flat income tax rate applied to all income regardless of source by a tax code devoid of carve-outs, deductions, credits, froo-froo.  Failing that, the tax reform plan on offer from the House and possibly (subject to the whims of three or four Republican Senators’ egos) on offer from the Senate would be a good start.

Obeying the Law

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In a piece about President Donald Trump’s domestic business policies—specifically, his administration’s lawsuit to block the merger of AT&T with Time Warner Inc and his parallel move to facilitate other kinds of close relationships between companies like AT&T and Time Warner, The Wall Street Journal described a rationale for these apparently conflicting moves: follow existing law, rather than piling on regulation after regulation to govern (new) behaviors.

[T]he actions reveal one consistency, and what might be viewed as an emerging Trump administration regulatory philosophy: instead of new bright-line rules, such as those put in place under the Obama administration, it is stressing the enforcement of longstanding laws and regulations.

Indeed.  A properly free, capitalist market will do its own regulation just fine, with customers voting—and enforcing—with their dollars.

And

The moves are a shift in emphasis from the approach taken by the Obama administration, which in 2015 adopted highly specific rules governing [for instance] internet providers….

Which were simply insulting to adult Americans.  We don’t need to be told, down to the veriest jot or tiddle, how to perform in the market.  We can operate just fine without Government’s micromanagement.  Better, even.

And there’s the illogic of new regulations: if current law or regulations are being disregarded (hence the push for new regulations), how is it possible to expect any new regulations to be followed?

Missing the Point

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In a Letter to the Editor last Thursday, one letter writer had this to say about a Wall Street Journal op-ed, The Great Progressive Tax Escape:

[T]he problem of interstate tax competition, like the continuing bids to draw Amazon to pick a favorable second headquarters, isn’t strictly speaking a problem of high progressive taxes, as your editorial asserts. Better to view it the other way, as a problem of low-tax jurisdictions using these devices to compete in a way that erodes the tax bases of other states. That is exactly what is happening globally as well, when Ireland, Panama, Malta, etc. make rock-bottom offers to global companies to do business there. Developed states and countries cannot run governments at the discounted prices offered by these tax havens….

And yet these States and countries—developed all—do run their governments at “discounted” prices.  The resulting economic activity is how they can afford these additional “discounts.”

The plain fact is high-tax governments do not need the tax rates they have—as demonstrated by the fact that the “winning” States already have low rates and high enough revenue to pay for what those governments have been hired to do.  And they do so despite the plethora of special interest give-backs that so heavily populate even these States’ tax codes.  The high-tax States and the high-tax countries would do well to learn from these examples, and instead of whining about losing an entirely fair competition, reformed their tax codes.  Ireland—and Luxembourg, which the letter writer omitted to mention—have some of the lowest tax rates in the world, and their people are prospering.

A related and equally plain fact is that with low, flat tax rates there’d be no need to compete on who can offer the biggest tax breaks.  Such breaks have considerably less value coming on a base rate of, say, 10%, than they have at usurious rates like 35%.  Further, the base rates, applicable to all and already low, would allow businesses to locate themselves on the basis of sound business and not at all on who’s offering the most goodies.

More on Tax Reform

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The House passed yesterday, 227-205, its version of tax reform, and the next milestone is in the Senate.  The Wall Street Journal is referencing some special interests who are expressing misgivings about it.

Both the House and Senate bills would cut the corporate tax rate to 20% from 35%. If that overall tax rate decreases, tax credits and deductions become less valuable.

Well, of course.  Credits and deductions get their value from how much they reduce taxes for the government-favored groups of Americans for whom those credits and deductions are targeted.  With lower overall tax rates, those credits and deductions have less tax value—as any graduate of 3rd grade arithmetic can see.

That alone would mean that nearly 300,000 fewer low-income units will be produced over 10 years, according to an analysis by Novogradac & Co, an accounting firm specializing in real estate.

That’s the claim of a special interest group. It’s also not entirely true. With the elimination of real estate-related credits and deductions, housing—and rental—prices would no longer be elevated to absorb for the realtor’s benefit those bennies.

The same logic applies to other bennies on the chopping block: preferential tax treatment for bonds used by developers to build “affordable” housing and private activity bonds, which fund hospitals, roads, nursing homes, and charter schools—and sports stadiums and other froo-froo.  These things, too, would no longer have their prices elevated to absorb for the developer’s benefit the monetary value of the bennies.

On top of that, the reduced value of deductions and credits under the plan just passed in one house and on offer in the other is a non sequitur.  Our tax code should not be used for social engineering, least of all in accordance with the personal imperatives of 535+1 politicians in DC.  The—our—tax code should be limited to funding our government; social engineering should be left to We the People in our local communities.