Quotulatiousness

July 19, 2011

Tax-wary millionaires flee to . . . Canada?

Filed under: Cancon, Economics, Liberty — Tags: , , , — Nicholas @ 12:56

Jason Kirby is either smoking some really premium weed, or the world is changing even faster than we thought it was, in an article titled “The Great White tax haven”:

For decades, Canadians have been told this country is a high-tax, unwelcoming place for business people and the wealthy. It’s a reputation we came by honestly. But a shift has taken place both here and abroad, say experts. While Canada is reforming and lowering its taxes, politicians in other developed countries — those faced with crushing debt loads and economic stagnation — are turning a hungry eye to the bank accounts of their richest citizens. At the same time, instability in the Middle East and Asia means wealthy individuals are looking for a safe place to move their families. Where they might have flocked to the U.S. in the past, many now see Canada as the better option. Tax specialists even use terms like “the Great White tax haven” and “Switzerland of the North” when talking about Canada.

The world’s rich are restless, says Lesperance, whose clients are worth between $30 million and $1 billion. Most work in financial services, but in every sector and every country wealthy individuals are on the move. Lesperance calls these ultra-rich the Golden Geese, arguing that wherever they go, they generate economic benefits—they start companies, buy real estate, keep restaurants busy and spend money on big-ticket items. Along with Ian Angell, a professor at the London School of Economics, he’s writing a book entitled Flight of the Golden Geese, which argues that as countries squeeze wealthy taxpayers, they will pull up stakes and flee. “Canada has an unprecedented, once-in-several-generations opportunity to put up its hand and offer itself as an alternative,” he says.

The migration is well under way. Last year, nearly 12,000 people moved here under the federal government’s Immigrant Investor Program, up from 4,950 a decade ago, according to Citizenship and Immigration Canada. (The figure includes spouses and dependents.) To qualify, immigrants must have a minimum net worth of at least $1.6 million, and are required to “invest” $800,000 with the government, which is returned after five years. (Ottawa says the money is used to fund economic development programs, though critics call it a cash grab.)

US business is “frightened to death of the weird political philosophy of the President”

Filed under: Economics, Politics, USA — Tags: , , , — Nicholas @ 11:08

You don’t normally find stem-winders like this in quarterly business updates, especially from self-described Democrats:

You bet and until we change the tempo and the conversation from Washington, it’s not going to change. And those of us who have business opportunities and the capital to do it are going to sit in fear of the President. And a lot of people don’t want to say that. They’ll say, God, don’t be attacking Obama. Well, this is Obama’s deal and it’s Obama that’s responsible for this fear in America.

The guy keeps making speeches about redistribution and maybe we ought to do something to businesses that don’t invest, their holding too much money. We haven’t heard that kind of talk except from pure socialists. Everybody’s afraid of the government and there’s no need soft peddling it, it’s the truth. It is the truth. And that’s true of Democratic businessman and Republican businessman, and I am a Democratic businessman and I support Harry Reid. I support Democrats and Republicans. And I’m telling you that the business community in this company is frightened to death of the weird political philosophy of the President of the United States. And until he’s gone, everybody’s going to be sitting on their thumbs.

Walsh: This is what the debt-ceiling fight is really all about

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 09:20

Michael A. Walsh puts the real issue into focus:

Forget all the numbers being tossed around in Washington — the millions and billions and trillions of dollars being taxed, borrowed, printed and spent as the country approaches the Aug. 2 debt-ceiling deadline.

Forget the political jockeying for position between a president desperately seeking re-election in 16 months and a Congress equally desperately seeking not to be blamed for spending even more money that we don’t have.

Forget the fact that such “entitlements” as Social Security and Medicare — social-insurance programs that the public long thought to be actuarially sound — have been exposed as little more than legal Ponzi schemes, paying today’s benefits out of tomorrow’s borrowed receipts.

Instead, just ask yourself this simple question: When did it become the primary function of the federal government to send millions of Americans checks?

For this, in essence, is what the debt-ceiling fight is all about — the inexorable and ultimately fatal growth of the welfare state. If you don’t believe it, just look at President Obama’s veiled threat to withhold Grandma’s Social Security benefits if Congress doesn’t let him borrow another $2 trillion or so to get himself safely past the 2012 election.

July 18, 2011

It won’t hurt just the “rich”

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 11:00

Michael Boskin illustrates just what the current levels of US government spending will mean when translated into personal tax rates:

Many Democrats demand no changes to Social Security and Medicare spending. But these programs are projected to run ever-growing deficits totaling tens of trillions of dollars in coming decades, primarily from rising real benefits per beneficiary. To cover these projected deficits would require continually higher income and payroll taxes for Social Security and Medicare on all taxpayers that would drive the combined marginal tax rate on labor income to more than 70% by 2035 and 80% by 2050. And that’s before accounting for the Laffer effect, likely future interest costs, state deficits and the rising ratio of voters receiving government payments to those paying income taxes.

It would be a huge mistake to imagine that the cumulative, cascading burden of many tax rates on the same income will leave the middle class untouched. Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO’s projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages. At the margin, virtually everyone would be working primarily for the government, reduced to a minority partner in their own labor.

Nobody — rich, middle-income or poor — can afford to have the economy so burdened. Higher tax rates are the major reason why European per-capita income, according to the Organization for Economic Cooperation and Development, is about 30% lower than in the United States — a permanent difference many times the temporary decline in the recent recession and anemic recovery.

While policy makers may shrug off the impact of higher tax rates, it has a significant effect on individual choices when it comes to part-time jobs, overtime, and even raises. Even if in reality working a few hours of overtime won’t make a difference, psychologically, the higher tax burden can act as a deterrent: “why put in the effort if the government gets more out of my effort than I do?”

July 17, 2011

James Delingpole anticipates his heroic progress through Australia

Filed under: Australia, Economics, Environment, Politics — Tags: , , — Nicholas @ 12:45

No, really:

Gosh I’m looking forward to visiting Australia later this year. And the reason I’m so excited — apart from the fact that I’ve never been before to the Land of the Taipan, the Sydney Funnel Web, the Box Jellyfish, the Saltwater Crocodile, and the Great White Shark — is that I know I’m going to be given a hero’s welcome.

After all, by the time I arrive in Oz sometime in November to promote the Aussie edition of Watermelons (Connor Court), the Australians will have had a good three months to reflect on the disasters which have been inflicted on their economy in the name of “combating climate change.” They’ll have noticed the $25 billion shaved off the share markets in a spectacular vote of investor confidence in Prime Minister Julia Gillard’s new carbon tax; they’ll have started to feel the effects of the blackouts caused by the needless (and uncosted) closure of 2000 mega watts worth of “dirty” brown coal power stations; and above all, they’ll have done their calculations — as the mighty Andrew Bolt has done — and come to a robust Aussie conclusion:

$24.5 billion is too bloody much, too bloody much by far, for Australia to pay for the privilege of reducing the world’s temperature, by 2020, by 1/4000th of a degree.

Yep, you read that aright. Australian Prime Minister Julia “Toast” Gillard has hit on the ingenious idea of clobbering one of the world’s most thriving — and also one of the most carbon-intensive — economies with a tax on one of its main industrial by-products, CO2, which will punish business, hamstring economic growth, boost unemployment and make life for everyone outside the enviro-rent-seeking professions more difficult and expensive. And all in order to achieve the wonderful goal of ensuring that by 2020 the world’s temperature will be altered with such refinement and subtlety that not even the most sophisticated measuring equipment yet devised is likely to notice the difference.

Federal government to unveil new retirement scheme

Filed under: Cancon, Economics, Government — Tags: , — Nicholas @ 12:09

Jonathan Chevreau looks at the federal government’s plan to introduce Pooled Registered Pension Plans (PRPPs):

This is a giant potential opportunity for the nation’s banks, mutual fund companies, insurance firms and a growing number of manufacturers of exchange-traded funds. Pension consultants, actuaries, financial planners and investment advisors will also see various business opportunities created as PRPPs catch on — primarily with small- and medium-sized businesses that never before offered its workers a pension plan. Mr. Menzies, the cabinet minister responsible for PRPPs, says he’s travelled the country consulting with the provinces.

“When the concept of the pooled RPP was shared with the provinces and territories they all came together to agree this makes sense.”

[. . .]

PRPPs will be (hopefully) low-cost defined contribution schemes run by the private sector where ultimate benefits will depend on how financial markets perform. The PRPPs would resemble the United States’ 401(k)s or Australia’s superannuation scheme.

They will be administered by financial institutions rather than employers, which is why Bay Street views them as a potential bonanza. As the “pooled” part of their name suggests, assets are co-mingled for investment purposes to keep down costs.

The original idea was that PRPPs would be mandatory for employers that don’t offer their own registered pension plan but Mr. Menzies says that decision would be up to the provinces. “We’re putting it out there that there is an option for the employer and for the employee. I’ve spoken to many small businesses that said ‘finally here’s a low-cost affordable plan I can enroll my employees in.’ It will be a retention and enticement tool.”

Employers won’t be forced to make contributions, but may choose to do so. Employees will be automatically enrolled at a base contribution rate, but they can opt out.

There will be two types of members: Employed and individuals. The latter include the self-employed and employees of organizations that do not offer PRPPs. Benefits are portable. Employers offering PRPPs can move to a new plan if they wish. There are fewer portability restrictions for individual members, making them convenient if they later change jobs and want to take their pension with them.

That portability is key: I’ve wondered for years why unions have not been hammering on that aspect in their negotiations with big employers (although unions generally pay most attention to the needs of current union members at the expense of both retired and future members). By the time you’ve worked at a company long enough to qualify for their pension scheme, you’re often locked in due to the lack of portability of your pension. If you leave the firm, voluntarily or not, you lose much of the potential return on the pension contributions you’ve already made (if you don’t lose them altogether).

This proposal may well solve much of that problem.

July 16, 2011

Reason.tv: The debt ceiling debate is full of malarkey

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 10:47

July 15, 2011

The US government’s plight, as a poker technique

Filed under: Economics, Government, Politics, USA — Tags: , , , , — Nicholas @ 11:05

Jagadeesh Gokhale points out that President Obama is not only bluffing, but that it’s transparently obvious what this tactic is intended to achieve:

The president’s Wednesday night warning to House Majority Leader Cantor to not “call his bluff” suggests that… well, he’s bluffing. But the president has already been playing some transparently thin cards in this game of poker, including his melodramatic — but highly questionable — hint that Social Security checks would be interrupted on August 2.

The go-to strategy in a literal train wreck is to jump off a nanosecond just before the collision. The debt-limit debate is more complicated, however, because no one really knows what the effect would be if the deadlock on budget negotiations continues through August 2nd.

Debt-rating agencies may soon downgrade U.S. debt. But does the debt of a country on a fiscal path to borrow and spend 45 percent more than its revenues — at a time when its debt already equals its annual output — really warrant a AAA rating? Won’t House Republicans really be doing investors a service by revealing a more honest debt rating?

[. . .]

Regarding a potential “bluff” by the president and high officials of the Treasury and the Federal Reserve: It’s only natural that they would sound the most dire of alarms. There is no guarantee that the government would default on its existing contractual debt and that financial markets would tank even if such a temporary technical default were to occur. But the risk of such events is not zero and no high government officials would wish to risk it on their watch.

A hint about whether and how much President Obama might be “bluffing” is his unwarranted warning that Social Security payments could not be guaranteed if the debt limit is not increased. There is every reason to believe that those payments could and would be made in full in August — and for many more months — no matter whether the budget deadlock is resolved by August 2nd.

Why a budget deal won’t work

Filed under: Economics, Government, USA — Tags: , , , — Nicholas @ 08:11

Sheldon Richman provides a few reasons to doubt that any deal worked out between congress and the President will actually solve anything:

Whether President Obama and congressional Republicans can work out a deal to let the government to borrow even more (!) money seems to hang on whether the latter will go for increased in tax revenues.

Following the zigzagging negotiations isn’t easy. First the aim was a short-term deal. Then both sides decided to go for a big package: $4 trillion in deficit reduction over ten years. That broke down when Obama said a quarter or a third of that amount should come from new revenues.

When I hear about ten-year budget deals, I first divide the aggregate number by ten so I see how little is at stake each year. I also want to know if the spending reduction is real or phony. Chris Edwards of the Cato Institute says most cuts are likely to be accounting tricks. For example, Edwards shows how the rulers could easily “reduce” the Afghanistan/Iraq war budget by $1 trillion without really cutting a penny. (Hint: pretend the wars will go on forever.)

I also remind myself that no Congress can bind a future Congress. Would you bet a substantial sum on a congressional promise to reduce the deficit over ten years? I didn’t think so. Even if Obama is reelected, he wouldn’t be in office for the last four years of the period.

Skepticism is justified. In the 1980s another deal was struck that supposedly would deliver $3 in spending cuts for every $1 in new revenue. Know what happened? That’s right.

Oh, and the various polls showing that either a majority or a significant minority of voters are willing to see increased taxes in order to get a budget deal? Remember that nearly 50% of Americans do not pay income tax — it’d literally be no skin off their noses if the other half have their taxes raised.

July 14, 2011

The Eurozone crises

Filed under: Economics, Europe, Greece, Italy — Tags: , , , , — Nicholas @ 17:30

That’s right, crises, not crisis. There are three interlinked crises, not just one:

The crisis in the Eurozone has been lurching from one country to another over the past year or so. After bailouts for Greece, Ireland and Portugal, and with a second bailout for Greece in the offing, the financial markets this week turned their attention to Italy, a far larger economy than those previously affected. Spain, another country struggling to pay its way, has also been hit by austerity measures and political turmoil. But while it is easy to get caught up in the specifics of each new stage of the crisis, it is worth taking a step back to understand what is going on and the possibilities for the future.

The Euro crisis, like just about every other economic story these days, has a three-fold character. It is not, in fact, a single crisis; it has three inter-related elements: financial, economic and political.

Of the three, the financial crisis is, paradoxically, the least significant, even though it is the most prominent of the three and the one which threatens to spin out of control with serious broader consequences. Alongside the financial, the economic aspect is the most entrenched and material of the three, while the political crisis — that is, the failure of the political elites to get on top of the other two challenges — is the most critical, as it is, or should have been, the key to the resolution of the other two. The shift in focus to Italy, the Eurozone’s third largest economy, indicates that time may have run out for effective containment. The Euro genie is probably out of the bottle.

July 13, 2011

Expanding government-provided flood insurance?

Filed under: Economics, Environment, Government, USA — Tags: , , , , , — Nicholas @ 12:42

It has always amazed me that the US government is the primary insurer for flood damage, but the idea of putting the few remaining private insurace companies out of business is insane:

The House of Representatives is scheduled this week, as early as today, to consider an extension and “reform” of the National Flood Insurance Program (NFIP), administered by FEMA. Since Hurricane Katrina in 2005, the NFIP has been about $18 billion in the hole. And this is from a program that only collects around $2 billion a year in premiums, which barely covers losses and expenses in a normal year. So make no mistake, the NFIP is still on course to cost the taxpayer billions more in the future.

Even before Katrina, the Congressional Budget Office estimated that the NFIP was receiving a subsidy of close to a billion dollars a year. Under CBO’s optimistic projections, the House’s reform bill would increase NFIP revenues by about $4 billion over the next ten years, making only a small dent in the program’s current deficit.

If private insurers aren’t willing to offer insurance to people and businesses located on flood plains, isn’t that a strong indication that building a house or a plant on that location is a bad idea? Why should people who chose not to locate in risky locations be forced to subsidize the risk-taking of those who do?

July 12, 2011

Have the markets already “priced in” the risk of a US government default?

Filed under: Economics, Government, USA — Tags: , , , , — Nicholas @ 11:48

Along with everyone else, I’ve been watching the US government’s fiscal game of “chicken” with some alarm. What is puzzling is that the opposition in congress doesn’t seem to be all that scared by the risk of default:

The facts, in fact, are plain enough. In the unlikely event that the U.S. government would hit the real ceiling on August 2 as advertised, the federal government would still be on track to collect about $2.2 trillion in the fiscal year. That wouldn’t change. And net interest for the year would still be about $205 billion, or less than a tenth of incoming revenues. And in light of the consequences, there is no doubt that President Obama and his Treasury Secretary would ensure that the interest payments are made on time and in full.

Thus it should not be surprising, as Fox Business News senior correspondent Charlie Gasparino wrote in a New York Post piece some days ago that “just about every private-sector economist I speak to says that Treasury could simply use its ample cash on hand to pay off our creditors first—then begin to prioritize payments for the military and various social programs.”

This view appears to be shared in spades by the credit markets, which so far have reacted to the Obama-media scare tactics with a big yawn. When the markets fear real default, they respond by jacking up interest rates, as we’ve seen in Greece, Italy, Portugal, etc. It’s happening right now in those countries.

In sharp contrast, U.S. long-term rates are actually falling. The 10-year Treasury bond rate, which only a few days ago was around 3.15 percent, has dropped 20 basis points to 2.95 percent. Maybe the markets just aren’t paying attention. Or maybe they know Obama and Company are blowing smoke. Whether the debt ceiling is raised on time or not, markets are confident that the interest will be paid.

July 11, 2011

The Euro: who’ll be the first to leave?

Filed under: Economics, Europe, Government, Greece, Italy — Tags: , , — Nicholas @ 11:15

With all eyes on Greece recently, the troubles of Italy come as a sudden shock to many:

Greece, Ireland, Portugal, (maybe) Spain…and now Italy? Contagion. The hope on the part of the EU and ECB was to contain the contagion by throwing money at it, but every time they fill one sink-hole with Euros another one opens up. It’s been obvious for a long time that the Eurozone was simply a bad idea, and this crisis has exposed the rotten underpinnings for all to see. Europe wanted to have a currency union just like the United States, but they are finding out the hard way that a monetary union without a fiscal-policy union just won’t work. European countries are not like US states — they have different langauges, different work rules, different governing philosophies…different cultures. The big question in everyone’s mind is…now what? Some countries must default, and a default will probably require leaving the Euro and going back to the sovereign currency. But no one knows exactly how this will work, or what the consequences will be.

Some people are floating the idea of a Euro-Bond, but I find that a little nonsensical absent any fiscal-policy union backing it. But of course this may be the point to the enterprise: to “force” Europeans into a closer union without having to go through the messy (and time-consuming) processes of holding a vote. The EU project has never really been a democratic enterprise from the very first — the Eurozone was implemented without the say-so (even over the protests of) its citizens. If I Eurobond is floated, I expect it to be another example of droit de Seigneur on the part of the Eurozone elite. (And it probably won’t work, and will piss away a lot more good money after bad, but none of that has stopped them so far.)

US economic slowdown and the impact on Canadian exports

Filed under: Cancon, Economics, USA — Tags: — Nicholas @ 10:04

Over at the Globe and Mail, Stephen Gordon debunks the old saw “When the U.S. sneezes, Canada catches cold”:

About 30 per cent of Canadian output is exported, and roughly 75 per cent of exports go to the U.S., which means that some 20-25 per cent of Canadian GDP is exported to the United States. If U.S. demand for Canadian exports were proportional to U.S. income, a 1 per cent decline in U.S. GDP would show up as a 0.2-0.25 per cent decline in Canadian output. (See also here, where I estimate that everything else held constant, a 1 per cent decline in U.S. GDP produces a 0.3 per cent decline in Canadian GDP).

But of course, everything else isn’t held constant when the U.S. goes into recession. For reasons that are not immediately obvious to me, the forex market’s response to a U.S. recession is to produce an appreciation in the U.S. dollar against ours. The resulting depreciation in the Canadian dollar has the effect of increasing net exports. In each of the last three recessions, net exports have provided a positive contribution to Canadian GDP growth.

July 7, 2011

QotD: The United Nations has a master plan

Filed under: Economics, Environment, Government, Liberty, Quotations — Tags: , , , — Nicholas @ 13:13

What’s amazing about this stuff — and believe me, there’s plenty more where this came from — is the unblushing shamelessness with which it advocates this economic insanity. Here is the world’s most powerful intergovernmental institution essentially arguing for the destruction of the global economy, enforced rationing, Marxist wealth redistribution, greater regulation, the erosion of property rights and global governance by a new world order of technocrats and bureacrats. And being so upfront about it they actually issue press releases, telling us what they’re planning to do and encouraging us to write about it.

[. . .]

As economies grow richer, so they have more money to set aside for cleaner rivers, fresher air, as well as to invest in R & D projects for ever more eco-friendly forms of energy. It’s no coincidence that quite the worst environmental damage in the last century was done in those countries behind the Iron Curtain. Free market economies tend naturally to be cleaner and healthier because clean and healthy is what people choose anyway if they can afford it. They don’t need government to step in and take their money in order to spend it inefficiently trying to achieve something which would have happened quite naturally anyway.

What this ludicrous UN report is advocating is the exact opposite of what the world needs if it is to become genuinely greener. All those people in the developing world, if they’re to live healthier, less environmentally damaging lives the very last thing they need is hand-outs from richer economies. What they need is property rights and free trade and the chance to grow their economy to the point where — cf the Kuznets Curve — they can afford the luxury of having to breed fewer children and to heat and light their homes without having to chop down the nearest trees. What they also need for us in the rich West to have thriving economies in order that we can import more of their produce.

Rationing and limits to growth are not the answer. The UN is a menace and we listen to its eco-fascist ravings at our peril.

James Delingpole, “UN reveals its master plan for destruction of global economy”, The Telegraph, 2011-07-07

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