Sunday, February 06, 2005

Today is Ronald Reagan's birthday. There is a fitting tribute to him here


Ireland leads the way: "European nations have been lowering corporate-tax rates as they compete for foreign investment, pressuring the U.S. for similar cuts, the Wall Street Journal said, citing John Breaux, a former Democratic senator from Louisiana on a White House-backed tax-reform panel. Ireland cut its rate to 12.5 percent from 24 percent between 2000 and 2003, prompting European countries to make similar changes, the newspaper said. This month, the Netherlands lowered its corporate-tax rate by three percentage points to 31.5 percent, the newspaper said".

Are tax rates a factor in job growth and economic development? "Nevada, which does not levy a state corporate or individual income tax, has recorded the highest percentage employment growth in the U.S. for the second consecutive year. Coincidence? Total Nevada nonfarm payroll employment expanded 4.8 percent in 2004, according to data recently released by the U.S. Bureau of Labor Statistics. And the expansion is heating up in Nevada. Last year's blistering employment growth was actually higher than in 2003 when Nevada's labor market led the nation at 3.9 percent. Capital investment isn't fleeing to Nevada because of all that water in the desert. The Golden State's labor market expanded at a much lower rate of 1.1 percent in 2004. Tax rates in Arkansas on capital investment are among the highest in the South. That state's job-creation rate barely budged last year while the U.S. economy created 2.2 million jobs."

A good tax reform idea: "A tax scheme that would address these problems is the savings-exempt income tax (SEI tax), an idea associated with British Nobel prize-winning economist, the late Professor James E. Meade. A savings-exempt income tax, as the name suggests, is a form of income tax where the tax is levied only on that part of income that is spent, exempting the part that is saved. Instead of paying 20 or 40 per cent on whatever you earned, you would pay a progressive rate of tax on whatever you spent".

Laffer must be laughing: "When the capital gains tax rate was at its maximum in the late 1970s, capital-gains tax receipts averaged slightly under $8 billion annually. From 1998 to 2002, the maximum capital-gains tax rate was approximately half the rate of the late 1970s, yet capital-gains tax revenues averaged 11 times higher ($88.6 billion per year), though the economy (nominally) was only 4 times larger."

There is a big research paper here (PDF) comparing many countries which shows that governments which offer most security to private property preside over the greatest economic growth and the highest income levels: "The institutional approach to growth is based on the idea that both the availability and productivity of resources will be influenced by the institutional and policy environment. While there is some debate about the exact characteristics of the institutions that are most appropriate for economic growth and prosperity, there is considerable agreement that secure property rights are crucial, and that the impediments to exchange must be minimal. Institutions and policies are reflective of government actions. To promote economic growth, governments must not only follow actions that are supportive of secure property rights and freedom of exchange, they must also make a convincing and credible commitment that the policies will be maintained in the future."


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