The weekend's interesting reads - 6/15/08

"America's Berlin Wall" in The Economist:

"Because of pending legislation on President Bush's desk that is expected to become law by June 16th, any American who wants to surrender his passport has only a few days to do so before facing an enormous penalty.

That penalty is buried in an innocuous piece of legislation with the veto-proof name, Heroes Earnings Assistance and Relief Tax (HEART) act. The new law means active American soldiers will benefit from tax relief. To pay for that, Congress has turned on expats, especially those who, since new tax laws in 2006, have become increasingly eager to give up their citizenship to escape the taxman.

Under the proposed legislation, expatriates surrendering their citizenship with a net worth of $2m or more, or a high income, will have to act as if they have sold all their worldwide assets at a fair market price. If the unrealised gains on these assets exceed $600,000, capital-gains tax will apply. A study by the Congressional Budget Office guesses that the new law will progressively net the government up to $286m over five years. It is unclear, however, why people would suffer the consequences if they did not expect to save money in the long run by escaping American taxes.

That expats want to leave at all is evidence of America's odd tax system. Along with citizens of North Korea and a few other countries, Americans are taxed based on their citizenship, rather than where they live. So they usually pay twice—to their host country and the Internal Revenue Service. As this makes citizenship less palatable, Congress has erected large barriers to stop them jumping ship. In 1996 it forced people who renounced citizenship to continue paying income taxes for an extra ten years. Theoretically, the new law allows for a cleaner break."

This is why I support tax competition. People should have the right to opt-out of taxes paid to a country by renouncing citizenship and moving to another. Laws that penalize you for wanting to pay less in taxes are ridiculous.

"The Funny Thing About Freedom" Barron's editorial by Thomas Donlan (I don't have a link because my free subscription didn't come with online access):

"The current Democratic majority has been trying to put Davis-Bacon [a 1931 law created under Hoover that says federal construction projects must pay local 'prevailing wages', which has become synonymous with 'union wages, and then some'] provisions into more and more spending measures. For example, the farm-bill provisions that mandate using corn to make ethanol also mandate Davis-Bacon wages for construction of ethanol plants, as well as for other alternative-energy facilities.

This is contemporary political economics in a nutshell: Take something everybody would like to have, such as wind energy, solar power and gasohol, make it less affordable, then mandate it anyway."

"Meeting America's Energy Needs" letter to WSJ editorial board by Charles Schumer:

"Perhaps the Journal would prefer to power up a time machine and relive the 1920s when there were no guards whatsoever in place to mitigate risks to the U.S. economy. But just as the Great Depression exposed the need for better regulation of stocks, the volatility in energy futures trading shows the need for similarly reasonable and thoughtful checks."

I submitted the following letter in response:

"Senator Charles Schumer, in his June 15th letter (“Meeting America's Energy Needs”), commits a common mistake of big-government proponents by essentially asking of the editorial board (and by extension readers like myself), “Surely you wouldn’t want to go back to the low-regulation days of the 1920’s, would you?”. He then perpetuates the all-too-common misconception that the stock market crash of 1929, brought on by the scary loosely-regulated 1920’s, was the sole cause of the Great Depression (rather than, say, government meddling by Hoover and Roosevelt combined with a contractionary monetary policy at the Federal Reserve).

I personally have many reasons why I wouldn’t want to go back to the 1920’s, but a smaller regulatory environment that “mitigate[s] risks to the U.S. economy” is not one of them. Senator Schumer assumes that all of us have as much faith in the government (read: him and his colleagues from either side of the aisle) as he does when it comes to regulating the economy and energy markets. Given the record of Washington over the years, I’d prefer they didn’t try to do us any more favors by interfering with well-functioning markets, no matter how much Senator Schumer feels they need to get involved."

"Economics: How to Teach it and How Not To" by Arnold Kling:

"It's hard to imagine the invisible hand. After all, it's invisible. Leaving things alone, leaving people to their own desires and dreams would seem like the last way to make the world a better place. So most people have a natural disposition for using the government to make things better. It would seem that managing something is always better than leaving something unmanaged. But it's not true. I think the world would be a better place if more people understood the virtues of unmanaged, uncoordinated, unorganized, undesigned action."

This is a quote from Russell Roberts' new book The Price of Everything.