MINISTER OF HEALTH CARE? YIKES!

My latest at the Spectator.

posted by David 9:24 AM

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SOME PEOPLE JUST NEVER GET IT

Robert Kuttner has a column today calling for tougher enforcement from the IRS on tax cheats. The first tip off that Kuttner is flaking the tired, old liberal line comes when you realize that what he calls cheating isn’t necessarily a violation of the law:

Much of it is in the form of very complex tax shelters, deliberately designed to make the tax evasion techniques so complicated that auditors have trouble figuring out what's legal and what isn't. Much of the rest happens overseas, where affiliates of US corporations arrange to book their profits in tax havens with which the United States has no enforcement treaty.

And then he shows he really doesn’t get it:

Last fall, Citizens for Tax Justice examined federal taxes paid by 275 of America's largest corporations. On average, they paid a rate of 17.3 percent -- lower than the rate paid by nearly everyone who is reading this column.

The statutory corporate rate is 35 percent. The fact that the taxes actually paid were less than half that amount reflects a blend of special-interest laws, shelters, and outright tax-cheating. As McIntyre observes, in the 1950s, US corporations paid 4.8 percent of the gross domestic product in taxes. By 2004 that had fallen to 1.6 percent.

It never occurs to Kuttner that the reason corporations look for ways around paying the 35% rate is that it is too darn high. (In fact, it is one of the highest corporate income tax rates in the world.) It’s a simple fact: the higher the rate, the more people will look for ways to avoid paying it. But instead of looking at it in economic terms, Kuttner gets on his moral high horse and looks at it from the perspective of a prosecutor:

But this sort of international enforcement is strenuously resisted by America's blue chip trade associations, corporate lobbyists, and their political allies. ''This is a crime wave," says McIntyre, ''facilitated by the most prestigious accounting firms and law firms, with ordinary taxpayers footing the bill."

Yes, that’s the ticket! Let’s treat corporations looking for ways to pay less in taxes as criminals. That’s sure to do wonders for the economy.

Kuttner’s solution is little more than the continuation of a vicious circle:

In recent years, the likelihood of a high-income individual, corporation, or partnership being audited has drastically declined. The IRS enforcement budget is down almost one-third since the mid-1990s. Even as Congress has larded up the tax code with new, complex shelters and special-interest provisions that invite abuse, it has limited the IRS budget to the point where taxpayer assistance offices are closing and the hands of the IRS are tied when it comes to in policing tax cheats.

Recently The New York Times reported on a Bush administration plan that would give the government access to hundreds of millions of international banking transactions in an effort to track money-laundering by terrorists. Ironically, the same administration, in its first weeks in office, sidetracked an agreement negotiated by the Clinton administration that would have produced greater tax collaboration among nations. The agreement would have required the reporting of financial transactions with nations used as tax havens.

In other words, let’s use more of the taxpayers’ money to enable to IRS to crack down harder on corporations. That will in turn result in corporations spending more money on lobbyists to get Congress to open up new loopholes, and spend more on lawyers and accountants to find ever more creative ways to pay even less in taxes. Then Citizens for Tax Justice can do another study, Kuttner can write another myopic op-ed calling for more enforcement…Wash, Rinse, Repeat!

How about if we were to just lower the corporate tax rate to the vicinity of the effective rate (that 17.3% Kuttner mentions) and also eliminate a lot of the loopholes. That might have the nice effect of businesses throwing less money down the sinkholes that are lobbyists, accountants and attorneys, and spending it on something that actually helps the economy—say production, R&D, sales, etc.

But then, what would Kuttner have to write about?

posted by David 10:58 AM

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HOW TO TURN A TURD INTO A ROSE

I’ve been thinking some more about Paul Krugman’s recent column in which he compares Republicans to Stalinists. In particular, about this passage:

…studies that find registered Republicans in the minority at elite universities show that Republicans are almost as rare in hard sciences like physics and in engineering departments as in softer fields. Why?

One answer is self-selection - the same sort of self-selection that leads Republicans to outnumber Democrats four to one in the military. The sort of person who prefers an academic career to the private sector is likely to be somewhat more liberal than average, even in engineering.

Krugman is right about self-selection, but not in the way that he portrays it here.

First, let’s start with the premise that conservatives in academia are often discriminated against during the tenure process. Maybe you don’t buy that premise. Then here’s something to wrap your mind around: As you well know, president of Harvard Larry Summers got into hot water for suggesting that men and women’s different career choices might have a genetic basis. For this grievous sin the faculty senate voted to censure him. The faculty engaged this exercise in ideological conformity in an open forum, knowing that it was certain to b e covered by the media. If that is what the faculty is willing to do in public, what do you suppose occurs during tenure-decision meetings, meetings that are generally private?

Now that’s settled, let’s move on to what happens when a faculty members is denies tenure because he is a conservative. Academic departments tend to be very gossipy places, so word gets around. When conservative graduate students hear it, they begin to consider their career choices. Many of them likely decide to forego a career in academia. ‘If I’m going to be drummed out because of my politics instead of the quality of my work,” the thinking probably goes, “why bother spending a couple of years doing this?” Thus, they decide to pursue career opportunities elsewhere.

And then Paul Krugman can point to that and say, “See? They’re self selecting!”

posted by David 10:37 AM

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SOCIAL SECURITY OSTRICH: REPRESENTATIVE CHARLES RANGEL

Representative Charles Rangel is our latest Social Security Ostrich, thanks to the following press release he put out last week:

Today, President Bush toured the Bureau of Public Debt in West Virginia and implied that the government might default on obligations made to Social Security because he claims, "there is no trust 'fund' -- just IOUs that I saw firsthand."

The bonds that are held by the Social Security trust fund are backed by the full faith and credit of the United States - the same as the bonds held by citizens, companies and foreign governments. Americans who paid into Social Security are legally entitled to have that money fund Social Security until 2052 (as estimated by the Congressional Budget Office) just as all other investors in U.S. bonds are entitled to their return on their investments. Surely, the President is not saying we might default on obligations to Social Security while planning to pay back the Chinese or European government bond holders.

If the "full faith and credit" of the United States means "just IOUs" then our entire financial system will come tumbling down. By the President's logic, every dollar in your wallet is just fancy paper backed by the "full faith and credit" of the United States. If President Bush thinks we might default on obligations to Social Security recipients, then is any commitment the U.S. Treasury makes truly secure?

It is absolutely irresponsible for a President to make light of financial obligations of the U.S. government. Already, the dollar has fallen dramatically in part because people around the world do not believe the current Administration takes its increasing deficits seriously enough.
It is true that this President and the Republican Congress have borrowed money belonging to Social Security and used it to fund tax cuts primarily for wealthy Americans, the war in Iraq, and other programs they like. They promised they would not but then used September 11th as an excuse to break that promise. Now, we have a responsibility to pay back every penny of that money and Democrats will insist we do.

Rangel misses the entire point of Bush’s visit. The bonds in the trust fund are owed by the government to itself. Owing debt to yourself is not an asset. Indeed, the bonds re nothing more than claims on future tax revenue. What Rangel needs to tell the American is (1) where the money will come from to redeem those bonds and (2) why we should continue to use the Spcial Security surplus pile up those bonds in the trust fund (instead of using it for personal accounts) and thereby creating a huge burden for future taxpayers.

Instead, Rangel ducks those issues and instead sticks his head in the “full faith and credit” sand. For doing that, he receives a Social Security Ostrich award. Congratulations Representative Rangel!

posted by David 9:45 AM

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