Cabinet Crisis

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Tom Daschle and Nancy Killefer will not be joining Obama’s bipartisan cabinet crew due to their failure to comply with American tax code. Is the American tax code too complex that not even two successful and presumably intelligent politicians can figure out on what items they need to pay taxes?

Daschle is a former US senator and Killefer is an MIT graduate, they seem pretty capable to me. Or maybe it is too easy to cheat on them, it surely took the IRS a long enough time to catch these high profile figures. In Daschle’s case, it is difficult to believe his initial response of naivety to the tax dilemma. His combined failure to pay taxes on a car service, income on consulting work, in addition to an overstatement of tax breaks from charitable contributions trap him in a run of peculiar “oversights."

But maybe the tax code really is too difficult to follow, especially for citizens with above average expenditures. Nancy Killefer failed to pay unemployment taxes on domestic help in 2005, which added up to about $1000. For a top-level executive like Killefer, it is hard to believe that she would risk the future of her career to intentionally evade one thousand dollars in taxes.

A simplification of the US tax code could make life easier on both sides. Politicians will be able to properly account for all aspects of their extravagant lifestyles, and the IRS will have an easier time tracking them down when they do decide to cheat Uncle Sam. It’s a Win Win!
 

Brussels Dispatch: Human Action in action in the European Parliament

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I mentioned in last week’s blog that one of my main duties at work is to draft the amendments to the reports and opinions that pass through the Development and Foreign Affairs committees. These are the two committees that the Viceroy sits on – commonly known here by their respective abbreviations DEVE and AFET. The Viceroy is an old nickname coined for Nirj by Fr. Michael Seed some 25 years ago.

An amendment works like this; the text on the left is the actual proposed text as drafted by the rapporteur. Members of that committee then mark in bold italics that part which they want deleting, and consequently, in the text on the right, they mark in bold italics that text which they propose to add. Both are then bundled together and taken as one vote in the relevant committee. In this way, we table amendments to delete the socialism and insert the laissez-faire. Sometimes, we even win.

Here is a good example from the past week – this amendment is to an opinion written by Mrs. Kinnock.

I would be very interested to see how Dispatch readers would have rendered this amendment.

Draft opinion

Paragraph 6

Draft opinion

Amendment

Stresses that, as the financial crisis develops into a deepening recession, developing countries could be set back by decades as a result of falling commodity prices, lower investment flows, financial instability, and a decline in remittances; further notes that the value of existing EU aid commitments will fall by nearly USD 12 billion a year, because they are expressed as a percentage of Member State GDP

Stresses that, as the financial crisis develops into a deepening recession, developing countries now have a historic opportunity to take advantage of the decline in Foreign Direct Investment flows by exploiting their competitive advantage of low labour costs – this is especially true at the present time when the existing EU donors are increasingly burdening themselves with such costs (minimum wage, employer social security contributions, union ‘rights’, over-regulation etc.) which can only serve to accelerate investment flight to the developing world

Blog Review 862

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It seems that no one wants to use Burke's small battalions any more: to our increasing poverty.

Yes, it is true, Adam Smith really did predict Gordon Brown.

The bad bank proposal is even worse than you thought it could be.

Perhaps resolution (that's bankruptcy by another name) might now be better?

One more economist opposed to the fiscal stimulus.

Staggering: sales fall by 32% and market share rises?

And finally, well, and finally.

Savers and the interest rate cut

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The general wisdom is that when economic conditions are this dire, you need to slash interest rates to get things to pick up again. To make borrowing cheaper, so we might all borrow and spend a bit more, and so that entrepreneurs will find it cheaper to finance new plant and equipment, and so boost production.

But interest rates this low can do more harm than good. Where does all the cash come from that these entrepreneurs and their customers are going to borrow? From savers, of course. But who in their right mind would save right now, when the interest you get is almost non-existent?

Well, say the economists, that will just encourage people to spend rather than save, which is what we want anyway. But they're wrong. Many savers, like pensioners, are actually living off their interest. They don't want to run down their savings, because they depend on the future interest. But they're getting less interest right now. So they are spending less, not more, which is just adding to the economic depression (sorry, slip of the tongue - recession).

Also, low interest rates push down the value of the pound. When interest rates are high, people abroad buy pounds to put into accounts that will capture the high rates. When rates are low, they figure they can get more interest elsewhere, and sell their pounds to buy other things.

Again, the economists say that's just fine, because a low pound makes our exports cheaper and soon we'll be selling a lot more and getting in some much-needed cash. But again, there's a downside. The government aims to pay for its vast bail-outs through borrowing. Well, I don't know about you, but like most of the country, I'm skint. They're not going to borrow it from me. No, they will be borrowing a lot of it from overseas. But who wants to lend to a decrepit country that promises to repay you in a decrepit currency? The government will have to offer much higher interest rates to attract the lenders it needs.

And there will be a lot of people looking at the UK and figuring that interest rates now have nowhere to go. The government's used up every weapon it has – apart from printing money and risking inflation. It's hardly a situation that would give anyone any incentive to back Britain. We should start composing our begging letters to the IMF now.

Sympathy for the consumer

As you can see, the taxman has his hand in all our pockets...

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After some research last week, I was able to calculate the average percentage of tax paid on some of the “sinful" goods purchased regularly here in the United Kingdom. Keep in mind that these percentages are estimates and only include direct taxes on the products, the VAT and Excise Taxes. I am currently calculating the average tax rates on the same goods in the state of California (to represent the United States’ mid-range for tax rates). I started off with a few popular pub drinks and continued with tobacco and fuel. The findings were quite alarming…

Click 'read more' to fnd out how much tax you're paying on wine, cigarettes, petrol, and more...

Environmentalism, population and carrying capacity

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Scratch an environmentalist, and you will often find they believe that there are just too many of our species. This comes through overtly in organisations such as the Optimum Population Trust, which thinks that the population of the UK should be managed down to no more than 30 million. It also lies behind much of the current fuss over climate change: fewer people, less energy, less carbon.

Of course, many of us would probably find it more comfortable if there were fewer people around, but that's different from saying that there is some "optimum" population. The concept is underpinned and justified by measures such as the carrying capacity of the Earth. The Global Footprint Network tells us that we are currently using the resources provided by 1.3 planets. Like any measure, this figure will depend on the assumptions made, but the message is that we either cannot sustain the current world population or must consume fewer natural resources each year.

This is the latest incarnation of Malthusian thinking, and to me suggests a narrow view of life and a lack of confidence in the adaptability and flexibility of the human race. The whole philosophy of sustainability relies on us continuing to progress along the same path as we have in recent decades. It's really a first shot at global planning and, like all attempts at central planning, is deeply flawed.

The reality is that, when there are pressures for change – rising oil prices, reduced food security, etc – we find ways round them. The green revolution of the second half of the twentieth century made nonsense of Ehrlich's predictions of famine and disaster. Private sector development of new and efficient alternatives to the internal combustion engine (in parallel with continued efficiency gains for conventional engines) will lead to a new generation of personal transport. The free market isn't perfect, but it's a much better way of channelling creativity than is government planning.

Guest author Martin Livermore is the Director of The Scientific Alliance

The Rotten State of Britain

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Some readers might remember Will Hutton's 1995 book The State We're In. It beat up the Thatcher/Major government for how bad things were: overcentralized government, a politicized civil service, huge private and public borrowing, Britain isolated in Europe and the world...

Well, nice try, Will, but Britain's in an even worse state today. It's even more centralized and politicized, even more despised by other countries, and a whole lot more bust. We're nannied, spied on, and bossed about even more. And we've spent trillions of extra cash on our public services – to what result?

The trouble is that, as these political outrages unfold one by one in the newspapers, it's impossible to see the full, shocking picture of what's really happened – and is still happening – to this once-proud country. Like an impressionist painting, you need to stand back to see the reality.

So I've written a new book – The Rotten State of Britain – in which I do just that. I've woven twelve years' worth of facts into a damning indictment of our rotten government, politicians, economy, welfare, healthcare, education, society, values, and the rest. And I've explained how we can stop the rot.

You'll see a link to the book on the right-hand column. It comes out 26 February, but you can pre-order it, at a discount, right now by clicking the link. And every book you buy from the right-hand column brings the Adam Smith Institute a few pennies from Amazon – so get clicking!

The Next Generation with David Davis MP

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On Tuesday night we held our first Next Generation reception of 2009, with David Davis MP there as speaker and guest of honour. Despite the freezing weather and the transport chaos it sparked, the event was as packed as I can remember a TNG being. Mr Davis' 10-minute speech was a wide-ranging and robust defence of liberty in the economic and civil spheres, and plainly hit home with the young audience.  And although he had to rush to the House of Commons to vote, Mr Davis came straight back to spend the rest of the evening talking informally to our guests. Next Generation events are open to those aged 16-33, and usually take place in Westminster on the first Tuesday of every month. If you would like to join the TNG, sign up here via our website or, better still, become a member of our Facebook group.

Blog Review 861

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It isn't actually clear that migrant labour damages either British jobs or wages.

Proof though that trusting markets does indeed work in the medium to long term.

I think we can say that there probably is a credit crunch, yes. Or at least a credit contraction.

That your city has pockets of loyal natives all over the country isn't in fact good news.

Are multiple births a status symbol? A Veblen Good?

While it's glorious to see the biter bit, shouldn't those teeth be gnawing a little more vehemently?

And finally, old jews telling jokes.

Green cars

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Part of Lord Mandelson's bail-out (oops, we're not supposed to call it that) of the car industry is yet more subsidy to promote the production of 'green' cars.

If the government really wanted to produce green cars, it would quadruple the price of fuel. You could then be pretty sure that customers would demand cars that did four times the mileage, and that the carmakers of the world would rush to produce them.

But of course they don't dare, because they would be swept to oblivion at the polls. (They might well be anyway.) So just like the National Socialists, they tell industry what to produce, and tell it to produce cuddly products that will show how 'concerned' the politicians are for the environment. But it's a sure way to mess up our rotten economy even further.

When politicians spend on something that makes them look good, the money has to come from somewhere. And it comes from our pockets. Quite frankly, most people right now – reeling under high taxes and falling order books – can find far better things to do with their money than spend it on building greener cars. Sure, in the future, greener cars might be in high demand, either as a result of people's genuine concern about the environment, or politicians forcing people to buy greener cars and no others. But again, the lure of profit would supply that demand. Why have politicians got to spend our money trying to do it?