Greece has signed the Convention on Mutual Administrative Assistance in Tax Matters, a multilateral agreement that was developed jointly by the Council of Europe and the OECD and that is open for signature to all countries.
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By Chris Edwards

President Obama released a document on business tax reform today. I’m glad the administration is taking an interest in this important topic, but his plan has more negatives than positives. The administration’s tax reform approach is also self-contradictory in numerous ways. Here’s a quick take:

• The proposal would lower the federal corporate tax rate from 35 percent to 28 percent. That’s a small step in the right direction, but with state-level taxes included the U.S. rate would still be about 33 percent. By contrast, the average rate among OECD countries is just 25 percent.
• Studies by Jack Mintz show substantially different marginal effective tax rates than does the new administration study. For 2010, Mintz found that the U.S. rate was 34.6 percent, which was much higher than the average OECD rate of just 18.6 percent.
• The administration rails against tax loopholes, but it proposes a whole slew of new ones in its recent budget.
• Most of the “loopholes” the administration does go after are not real loopholes at all, such as accelerated depreciation.
• The administration’s proposals would further penalize the foreign operations of U.S. companies. Most high-income nations have gone in the reverse direction and adopted territorial corporate tax systems. See Global Tax Revolution.
• The administration’s study describes the problems caused by double taxing corporate equity, but its own proposal to hike the top individual dividend tax rate to 40 percent would make the problem much worse.
• The administration’s plan would be a revenue raiser. As such, it won’t go anywhere on Capitol Hill. Indeed, I doubt whether a revenue-neutral corporate tax plan (if scored statically) would pass Congress. Instead, policymakers should focus on either a pure rate cut or matching a rate cut with cuts to business subsidies and other wasterful spending.

Obama’s Corporate Tax Reform is a post from Cato @ Liberty – Cato Institute Blog

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By Daniel J. Mitchell

American companies are hindered by what is arguably the world’s most punitive corporate tax system. The federal corporate rate is 35 percent, which climbs to more than 39 percent when you add state corporate taxes. Among developed nations, only Japan is in the same ballpark, and that country is hardly a role model of economic dynamism.

But the tax rate is just one piece of the puzzle. It’s also critically important to look at the government’s definition of taxable income. If there are lots of corrupt loopholes — such as ethanol — that enable some income to escape taxation, then the “effective” tax rate might be rather modest.

On the other hand, if the government forces companies to overstate their income with policies such as worldwide taxation and depreciation, then the statutory tax rate understates the actual tax burden.

The U.S. tax system, as the chart suggests, is riddled with both types of provisions.

This information is important because there are good and not-so-good ways of lowering tax rates as part of corporate tax reform. If politicians decide to “pay for” lower rates by eliminating loopholes, that creates a win-win situation for the economy since the penalty on productive behavior is reduced and a tax preference that distorts economic choices is removed.

But if politicians “pay for” the lower rates by expanding the second layer of tax on U.S. companies competing in foreign markets or by changing depreciation rules to make firms pretend that investment expenditures are actually net income, then the reform is nothing but a re-shuffling of the deck chairs on the Titanic.

Now let’s look at President Obama’s plan for corporate tax reform.

• The good news is that he reduces the tax rate on companies from 35 percent to 28 percent (still more than 32 percent when state corporate taxes are added to the mix).
• The bad news is that he exacerbates the tax burden on new investment and increases the second layer of taxation imposed on American companies competing for market share overseas.

In other words, to paraphrase the Bible, the President giveth and the President taketh away.

This doesn’t mean the proposal would be a step in the wrong direction. There are some loopholes, properly understood, that are scaled back.

But when you add up all the pieces, it is largely a kiss-your-sister package. Some companies would come out ahead and others would lose.

Unfortunately, that’s not enough to measurably improve incomes for American workers. In a competitive global economy, where even Europe’s welfare states recognize reality and have lowered their corporate tax rates, on average, to 23 percent, the President’s proposal at best is a tiny step in the right direction.

President Obama’s Corporate Tax Reform Rearranges the Deck Chairs on the Titanic is a post from Cato @ Liberty – Cato Institute Blog

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With seemingly every day bringing more bad news from Europe, many are beginning to ask how much longer the United States has before our welfare state follows the European model into bankruptcy. The bad news is: It may already have.

This year, the fourth straight year that we borrowed more than $1 trillion to support the U.S. government, our budget deficit will top $1.3 trillion, 8.7 percent of our GDP. If you think that sounds bad, it’s because it is. In fact, only two European countries, Greece and Ireland, have larger budget deficits as a percentage of GDP. Things are only slightly better when you look at the size of our national debt, which now exceeds $15.3 trillion, 102 percent of GDP. Just four European countries have larger national debts than we do — Greece and Ireland again, plus Portugal and Italy. That means the U.S. government is actually less fiscally responsible than countries like France, Belgium, or Spain.

And as bad as things are right now, we are on an even worse course for the future. If one adds the unfunded liabilities of Social Security and Medicare to our official national debt, we really owe $72 trillion, by the Obama administration’s projections for future Medicare savings under Obamacare, and as much as $137 trillion if you use more realistic projections. Under the best-case scenario, then, this amounts to more than 480 percent of GDP. And, under more realistic projections, we owe an astounding 911 percent of GDP.

Meanwhile, counting both official debt and unfunded pension and health-care liabilities, the most indebted nation in Europe is Greece, which owes 875 percent of GDP. That’s right, the United States potentially owes more than Greece. France, the second most insolvent nation in Europe, owes just 549 percent of GDP. Even under the most optimistic scenario, we owe more than such fiscal basket cases as Ireland, Italy, Portugal, and Spain.

So far we have been able to avoid the consequences of our profligate ways because the very public turmoil in Europe has helped prop us up as the world’s safe haven for foreign investment. Compared to the euro’s problems, the dollar looks pretty safe. This means that others are still willing to lend us money at absurdly low rates. But that won’t last forever. In fact, already seven European countries, including Germany and Sweden, have better credit ratings than the U.S.

Perhaps we can take some solace in the fact that our welfare state is not yet as big as Europe’s. But the key word here is “yet.” Today, our federal government spends more than 24 percent of GDP. Throw in state and local spending, and government at all levels consumes over 43 percent of everything produced in this country over the course of a year. As bad as that is, it’s still less than Europe, where the average of government spending at all levels is slightly more than 50 percent of GDP. But the Congressional Budget Office projects that federal-government spending in this country is currently on a path to exceed 42 percent of GDP by 2050. Government spending at all levels will exceed 59 percent of GDP. And CBO assumes state and local spending will decline in the future, which seems unlikely.

By way of comparison, today, Ireland is the only country in Europe with a bigger government than the U.S.’s will be in 2050. That’s right, one can look at countries like France and Greece, or even Denmark and Sweden, and realize that we will eventually have bigger governments than those quintessential welfare states have today.

At that point does the United States cease being the United States as we have known it? At the very least, can our economy survive such a crushing burden of government spending, and its attendant level of taxes and debt?

Given this looming disaster, President Obama has just submitted a budget that explicitly rejects “austerity,” avoids any reform of Medicare or Social Security, and adds some $7 trillion to the national debt over the next ten years. And Republicans? They are busy debating the pros and cons of birth control.

What is wrong with this picture?

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By Tad DeHaven

The U.S. Postal Service has released a new five-year plan for congressional consideration that it says would get the beleaguered government mail monopoly on sounder financial footing and thus avoid a taxpayer bailout. The plan repeats previous suggestions (i.e., workforce reductions, postal network consolidations, elimination of Saturday delivery, elimination of the retiree healthcare benefit funding requirement) and proposes an increase in the price of a first-class stamp from forty-five to fifty cents.

Whether or not it would achieve what the USPS hopes, it probably doesn’t matter given that asking Congress for greater operational flexibility is like asking a two year old to stop playing with their food. That’s why the focus should be on completely transitioning the USPS from a government-run business to a privately-run business (or perhaps businesses).

Over at the Courier Express and Postal Observer blog, Alan Robinson says that “just like all plans that came before, [the new USPS plan] started with the assumption that the Postal Service remains a quasi-governmental entity.” As a result, Robinson notes that the plan is missing two key ingredients for success that foreign posts have utilized: private capital and an expanded range of products and services.

In an essay on the U.S. Postal Service, I discuss how liberalization in other countries has enabled foreign mailers to diversify into non-postal activities:

Consultants at Accenture have found that diversification not only has a measurable impact on the performance of international posts, but that it is what ultimately distinguishes high performers from low performers. America’s relatively dynamic economy is particularly suited for the diversification opportunities that would arise under postal liberalization.

Germany’s former postal monopoly, Deutsche Post, illustrates the type of transformation possible by liberalization. Today, the private Deutsche Post World Net has changed its compensation structure, imported managers from other industries, modernized the mail and parcels network within Germany, and developed new products such as hybrid mail and e-commerce. The company now has interests in not only the traditional mail and parcels business but also express mail logistics, banking, and more.

Given that the USPS’s plan is going to be unpopular with various postal stakeholders (i.e., special interests), Alan says that they should consider the advantages of privatization:

It is clear that the business plan that the Postal Service has chosen is not the one that has worked in other countries. The plan avoids talking about either private capital or expanding the breadth of service offerings as neither is on the legislative table.    Introducing thinking about how private capital could be introduced and the product offerings could be expanded forces stakeholders to think about privatization, an idea that is nearly as unpopular as the changes that the proposed business model introduced.   However, as this brief post notes, privatization offers significant financial advantages that could reduce the operating and price changes envisions by the Postal Service’s business plan. Therefore, those who see the greatest harm from this plan need to see if the advantages of privatization could benefit their interests sufficiently to overcome long-held objections to the idea.

I think Robinson is right, but I suspect that the “stakeholders” believe there’s a good chance that Congress will ultimately come to their aid with some sort of taxpayer bailout. Therefore, it’s possible that they believe that it is in their best interest to continue fighting for the status quo. Unfortunately, the recent bipartisan federal bailouts of the financial industry and the automakers suggest that they could be correct.

USPS: Stuck With the Government Business Model is a post from Cato @ Liberty – Cato Institute Blog

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By Chris Edwards

As part of the payroll tax bill on Friday, Congress voted to tweak federal worker benefits. New federal hires will be required to make an additional contribution to their pension plans. While just a small change, federal worker unions railed against the bill as if were armageddon.

The American Federation of Government Employees called the pension change an “outrageous injustice that deserves the vociferous opposition of every Member of Congress with a conscience.” The AFGE was “outraged” by the bill because ”no group has sacrificed like federal employees” in recent years. Union press releases can be good for a chuckle.

Anyway, not all federal workers agree with their union heads. One member of the AFGE found a Cato essay on government unions online, and she was so ticked off with her union that she sent me these comments on Friday:  

As a member of AFGE, I often receive emails from my union leaders urging me to action … I am being urged to contact my congress members, asking them to oppose the payroll/unemployment insurance extension bill. Personally, I have not paid much attention to this particular bill or the consequences to passing such a bill. However, I am deeply offended by the constant calls from my union to oppose any limits put on the pay and pension of federal employees.

As a federal employee, I enjoy a generous salary, health benefits, vacation, and a comfortable pension. AFGE repeatedly states that reductions in federal employee pay ‘cost’ federal employees money. I understand that a freeze in my pay is not a reduction in my salary, but a reduction in deficit spending. My salary comes at the expense of taxpayers and future generations of Americans who will be required to pay down the debt.

It saddens me that the dues I pay via automatic payroll deduction are sent FIRST to my national union, then leftover change is sent to my local union. I have a voice in how my local union functions. I have virtually no say in what my national union does. I do not vote for my national union president. I do not get to decide how much of my dues go to support my national union. I do not have a voice about what issues my national union spends money on.

In the years that I have been writing about government union and compensation issues, I have received many emails from government employees. Most have opposed my views on curbing pay and union power.  When I say “opposed” I mean that foul language is not uncommon. But I have also received numerous thoughtful emails from government workers who are proud of their jobs and appreciate their compensation, but are concerned by the dysfunction of their agencies and by the retention of deadweight workers who receive generous pay but provide little return to taxpayers.

Thus, one suggestion I have for news organizations is to dig a little bit for their stories about government workers and government agencies. Talk to some actual workers in the trenches, rather than just quoting or parroting what the union heads are saying.  

Government Workers vs. Their Unions is a post from Cato @ Liberty – Cato Institute Blog

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Here’s what I love about President Obama’s Framework for Business Tax Reform: His diagnosis of the problem is spot on. In just a few pages, the Treasury Department does a marvelous job describing what’s wrong with the way the U.S. taxes business. Anybody interested in understanding why the tax code is such a mess should read this.

Here’s what I don’t like: After doing a great job explaining the problem, Obama often flops when it comes to a cure. Sure, he proposes cutting the corporate rate. These days, who doesn’t?  But when it comes to which tax preferences he’d dump, Obama often ducks the tough choices. More troubling, some of his proposed cures may make the disease worse.

Here are a couple of examples. The joint White House and Treasury Department paper explains what’s wrong with business subsidies and high tax rates. One big flaw: this toxic brew distorts business decisions. It encourages firms to finance with debt instead of equity, it drives firms to organize as pass-throughs such as partnerships to avoid paying taxes twice on corporate profits, and it drives investment to low-tax industries and away from high-tax industries.

So far so good. But now, Obama’s cure: He proposes to cut rates for all non-manufacturing corporations from today’s top rate of 35 percent to a flat 28 percent. Manufacturers would enjoy a more generous 25 percent rate, and “advanced manufacturing”, whatever that is, would receive an even lower rate. But wait a minute, didn’t the president just tell us that it is bad thing to use the tax code to distort investment decisions?

Similarly, he decries income shifting by U.S. based multinationals. But his solution, an alternative minimum tax on overseas profits, seems entirely wrongheaded. He says this would prevent companies from moving profits overseas. Maybe it would. But more likely it would encourage companies to move themselves overseas. Companies domiciled on sunny Caribbean islands would not be subject to this new AMT, only U.S. firms would.

On the other side of the ledger, Obama does what all of his GOP rivals have done. He parades his lower rate, but never quite says which tax breaks he’d eliminate.

Obama does pluck a few low hanging fruit, at least for his base. As he’s promised in the past, he’d tax carried interest at ordinary income rates, eliminate oil and gas preferences, raise taxes on buyers of corporate jets, and boost taxes on insurance companies. But this is the equivalent of promising to balance the budget by eliminating waste, fraud, and abuse and foreign aid. It won’t come close to paying for a 7 percentage point and more cut in rates.

When it comes to the really tough stuff such as broad changes in depreciation rules or interest deductions, Obama is silent. In fairness, given the challenges of making these reforms, his 28 percent rate is probably more realistic than the GOP alternatives.

Newt Gingrich, for instance, says he’d cut the corporate rate to an impossibly low 12.5 percent without ever saying how he’d pay for it. Rick Santorum says he’d cut the rate on manufacturing to zero with saying how he’d pay for that.

In all, Obama’s plan is a modest but useful step in the direction of reform. We now have all the major presidential candidates on record supporting lower rates and a broader base. House Ways & Means Committee Dave Camp (R-MI) will have his own proposal very soon. By recent Washington standards, that is progress.

Of course, there are big disagreements on how low to take rates and mostly black boxes when it comes to which tax preferences to eliminate. And there is a yawning chasm between Obama, who would collect at least as much in business taxes after reform as government does today, and most Republicans, who would deeply cut business taxes. But at least they all are, in their way, talking.

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The other day, I criticized the unwillingness of Congress to finance the latest extension of the payroll tax cut. Since that blog, the Congressional Budget Office released its estimates of the cost of the entire mini-stimulus, including the so-called “doc fix” and changes in unemployment compensation. And the games were even worse than I feared.

Congress made no pretense of paying for the payroll tax cut itself. But it did claim it would pay for the rest of the package. Hint: It didn’t.

There are two bits of legerdemain happening here. Both are functions of the 10-year budget window the Congressional Budget Office and the Joint Committee on Taxation use to score legislation.

The first gimmick allows Congress to pretend tax cuts or new spending are temporary, when it is obvious to all they are not.  The second is a sort of congressional lay-away plan. Lawmakers get to buy politically popular policies today but avoid paying for them until years from now.

There is nothing new in all this. Congress has been playing games with the 10-year budget window (or its cousin the 5-year window) for decades. But the mini-stimulus showed business as usual is alive and well on Capitol Hill, despite the best efforts of the tea party caucus.  

The doc fix is a perfect example of Gimmick #1. Even though Congress has been temporarily protecting physicians from scheduled Medicare cuts for a decade, CBO must score only what Congress proposes.

So when lawmakers protect docs for only a year (or in this case 10 months) at a time, CBO has no choice but to score only the one-year cost. Thus, the limited fix appears to add only about $18 billion to the deficit over the 10-year budget window when the true 10-year expense of keeping the doc fix going would far exceed $200 billion.

Perhaps the payroll tax cut, which is supposed to be a stimulus measure, really will be allowed to expire at year’s end (though I doubt it). But the doc fix is not countercyclical economic policy. Like old man river, it just keeps rolling along. A year at a time.  Since 2002, if you can believe it. 

Here’s Gimmick #2. Most of the cost of the doc fix comes in fiscal years 2012 and 2013, as you’d expect with a “temporary” extension. But the measures to pay for them—a reduction in Medicare payments for hospitals’ bad debts and a cut in a preventive care program, don’t kick in until 2014 and beyond. One provision–a hike in federal employee retirement contributions for new workers–won’t start raising real money until 2016.

Will any of these pay-fors actually happen? Don’t bet on it. Already, Senate Democratic Leader Harry Reid (D-NV) has promised to restore the preventive care money. That took, what, four days?

In theory, this kind of budgeting makes sense. After all, while the economy seems to be recovering, it remains sluggish. Why not inject additional fiscal stimulus now and arrange to pay for those initiatives in a couple of years when the economy presumably is stronger?

The problem: Many of these pay-fors never quite seem to happen. Instead, Congress just creates more “doc fixes.”   Remember, the first fix was aimed at blocking cuts in Medicare physician payments that were included in the Balanced Budget Act of 1997.

Yes, Virginia, Congress promised that cutting reimbursements to docs would help eliminate the deficit. And, as Sarah Palin, might ask, “How’s that workin’ out for ya?”

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The Guardian

Romney clawing his way back in Republican race Reuters By Steve Holland | MESA, Arizona (Reuters) – Mitt Romney is fighting his way back into the driving seat in the Republican presidential race, putting in a strong debate performance in Arizona and gaining in polls against conservative rival Rick Santorum … Arizona debate features clash of Republican front-runnersLos Angeles Times Santorum Targeted for Attacks on His Record in Republican DebateBusinessWeek Rick Santorum on the defensive in Arizona debatePolitico Boston.com -Chicago Sun-Times -New York Times all 3,586 news articles »

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Globe and Mail

Republicans voice support for arming Syria opposition Jerusalem Post By REUTERS 02/23/2012 08:30 At Arizona debate of US presidential candidates, Romney says support for anti-Assad forces is needed to turn Syria away from Iran; Gingrich: US allies already covertly helping to destroy Assad regime. By REUTERS MESA, Ariz. American war reporter Marie Colvin killed in SyriaWall Street Journal Syrian gunners pound stronghold where Marie Colvin released last dispatchTelegraph.co.uk Journalists among dozens killed as bombing continues in Syrian city of HomsWashington Post The Guardian -Haaretz -Toronto Star all 3,706 news articles »

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