Monday, March 19, 2007

Migration and Freedom 2: Taxing residents abroad

Another interesting news below -- that some Americans living abroad are giving up their US passports and their citizenship because while they pay taxes in countries where they are currently based andworking, they also have to pay taxes to the US government! Mr. Bush is really desperate in finding revenues to pursue his war in Iraq andAfghanistan (and possibly preparing for a future war in Iran and N.Korea?), finance local welfare at home, as well as paying its severa ltrillion dollars of public debt.

The number of Americans renouncing their citizenship while basedabroad may be small compared to total population of US expants aroundthe world, but the acts are more symbolic and could be on anincreasing trend. Over-taxation, no matter how "noble and lofty" the stated purposes as promised by the politicians in power, is always reprehensible.

More Americans abroad giving up citizenship for lower taxes
More expats say taxes make it too costly

By Doreen Carvajal
Published: 2006-12-17

PARIS: She is a former U.S. Marine, a native Californian and, now, a former American who prefers to remain discreet about abandoning her citizenship. After 10 years of warily considering options, she turned in her U.S. passport last month without ceremony, becoming an alien in the view of her homeland. "It's a really hard thing to do," said the woman, a 16-year residentof Geneva who had tired of the cost and time of filing yearly U.S. tax returns on top of her Swiss taxes. "I just kept putting this off. But it's my kids and the estate tax. I don't care if I die with only one Swiss franc to my name, but the U.S. shouldn't get money I earned here when I die."

Historically, small numbers of Americans have turned in theirpassports every year for political and economic reasons, with the numbers reaching a high of about 2,000 during a Vietnam War-era boom in the 1970s. But with new tax pressures facing American expatriates due to legislation enacted in Washington this year, some international tax lawyers say they detect rising demand from citizens to renounce ties with the United States — the only developed country that taxes its citizens while they are overseas. Americans abroad are also taxed in foreign countries where they reside...

A related short article I wrote last week,

Can globalization be managed?

NO. No one can "manage" globalization, whether nationally or internationally. If you want to manage something, then you need "managers" to do it. And who can be the "managers" of globalization? The US president? WB president? the IMF managing director (MD)? the WTO president? the UN Sec-Gen? the ADB president? the Chinese PM? Mr. Bill Gates? The founder of WEF? Bono?

All the names above and other names others can supply, only attempt that they can "manage" globalization. At most, I think we can call them as "trying-hard managers" of globalization. The most they can do is to put various restrictions on the movement of people, of goods and services, of capital and technology, into a certain "pace" that they want to control.

Globalization is a phenomenon naturally invented by the people around the world themselves, largely as private citizens, not as bureaucrats and politicians. Maybe they don't like their neighbors or relatives, that's why people move to another place or country. Or they hate their politicians and government, so they move to another country. Or they are paid well in their current company, but someone is willing to pay them 2x, 10x for the same work, so they migrate abroad to another company. The reasons for the mobility of people, their skills and knowledge, across the globe are as numerous as the stars at least in the Milky Way galaxy.

The internet and the web is the quickest and easiest way to bridge communication across billions of people around the globe. There are losers and winners in globalization and people mobility. The same way that there are losers and winners in isolationism and chaining people to their places.

(See also, Migration and Freedom 1: World Cup, brain gain and OFWs, February 02, 2006)

Tax Cut 4: Tax Competition Among US States, the Laffer Curve

There is a very interesting news below -- a movement towards abolition of income tax, retention of consumption taxes to finance a smaller government, among a number of US states. If this trend will continue, Washington DC, the capital of the federal government, will be seen by many US states as a parasite: while many states are engaged in tax competition like abolition of income tax, the White House and its coterie of legislators are busy enacting new taxes (like taxing US citizens even if they are working and living abroad!) because they are busy making wars elsewhere, or promising endless foreign aid, or government to government transfer of taxpayers' money.

The free market movement in the world will become stronger if the free marketers in the US and Europe will succeed in shrinking their governments, in reducing the taxes and interventionist powers of their governments. A bloated US (and European) government is among the most convenient excuse given by politicians, bureaucrats and consultants in poorer countries, why taxes and government presence in many facets of the citizens' lives, should remain high. For instance, big foreign aid will require big local counterpart funding.
Rich States, Poor States
January 25, 2007

If you're searching for the next big thing in American politics, it's wise to keep an eye on the states. Here's one possibility: the abolition of state income taxes.

In Georgia, Missouri and South Carolina, Governors and state legislatures are drafting serious proposals to repeal their income taxes to promote economic development. St. Louis, one of America's most distressed cities, may overturn its wage/income tax as a way to spur urban revival.

And in Michigan, the legislature is in the last stages of phasing out its hated business income tax -- the most onerous in the land. "States are now in a ferocious competition to attract jobs and businesses," says economist Arthur Laffer, who is advising several Governors and legislators on the issue, "and one of the best ways to win this race is to abolish the state income tax."

...But the biggest target is the income tax. Newly re-elected South Carolina Governor Mark Sanford is talking of reviving his plan to phase out the income tax over 18 years. Mr. Sanford ran into opposition from the legislature in his first term, but he tells us that "I still consider this one of my top priorities and if the legislature wants to do it, I would be ecstatic."

Georgia may beat Mr. Sanford to the punch. House Republicans in Atlanta have announced that one of their top priorities is to use the half-billion-dollar budget surplus as a downpayment to "dismantle the current tax code."

House Republican Majority Leader Jerry Keen tells us the debate in Atlanta is between a flat-rate income tax and a plan that would "do away with the personal income tax but broaden the sales tax by eliminating 107 exemptions. We're committed to a pro-growth tax plan that announces to the country that Georgia is open for business."

...The idea of financing state services without an income tax is hardly radical. Nine states today -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming -- manage well Without one. With a few exceptions, the non-income tax states are America's Most prosperous. Meanwhile, the high income tax states, which tend to be congregated in the Northeast, keep surrendering jobs, people, and voters to the South and West...

On the Laffer Curve and Optimal Tax Rate

The Laffer curve is a graph showing an optimal level of tax rate where government revenues reach maximum level. If the tax rate further increases, say from 30% to 40%, revenues go down as people would rather reduce work and have more sleep and leisure since more income means more taxes to be surrendered to the government. Or people would rather misdeclare their income to evade paying more taxes, or bribe tax collectors, resulting in lower revenues than projected.

The concept was developed by an American economist, Prof. ArthurLaffer. He further argued that lower taxes result in lower prices, higher demand, leading to higher production and hence, bigger economic pie and higher taxable base. We can add that lower taxes or tax cuts are tantamount to pay hike to everyone whose monthly and yearly income are automatically deducted with government withholding taxes. Thus, pay hike means more pockets for the people, more spending power, more demand and consumption, and so on.

Taxes are always distortionary. You remove 1/3 to ½ of a productive person's monthly income and savings, purportedly for whatever welfarist and missionary functions by the state, you immediately alterthe working, spending and savings attitude of that person. For instance, instead of bringing his family to dream vacations in thePhilippines (Boracay, Coron-Palawan, Puerto Galera, Baguio, etc.) twice a year – that creates jobs to many people living and working there – they only go there once every 2 years. Because the equivalentvalue of his expenses for such holiday was confiscated by the government. And government, once it holds the money, can decide whether to improve the justice system that will benefit everyone, or improve the chances for re-election of the incumbent politicians through endless pork barrel or charter-change campaigns.

So, since taxes are distortionary because they are forced collections, taxes should be few and small. That is, the distortions should be few and small.

In a way, you can have 2 (or more) Laffer curves, depending on yourpurpose. For instance:

Laffer curve 1 – a level of tax rate that will finance the current and projected levelof government expenditures. For statist and interventionist politicians, plus their coterie of equally statist consultants, staff and bureaucrats, retain the current government expenditures of 50-60%of GDP (the current level in many western & northern European countries), then devise a tax rate that will somehow give you a tax & "non-tax" (but still compulsory payment to government, like driver's license fee, passport fee…) revenues of 50-60% of GDP.

Laffer curve 2 – a level of tax rate to really unburden taxpayers and finance a government that is just focused on a few, limited, andimportant function – protect lives, properties, and individual liberties of the citizens. Because the more functions and welfarism that a government intends to do, the more taxes, fees and penalties itwill collect and confiscate from the citizens.

The Laffer curve concept is a beautiful guide to remind governments when they should stop confiscating a big portion of the income and savings of their citizens. It is also a good reminder to socialists, welfarists, and other advocates of wanton confiscation of income andsavings of productive people, that there is a limit to such philosophy based on forced equality, if not envy.

Monday, March 12, 2007

Business Bureaucracy 1: Avoiding government: Egyptian experience

A report from the International Herald Tribune last Feb. 28, 2007, "Egyptians look to God, not government, for help" (by Michael Slackman), said:

"...Cairo is home to 15 million and often described as the center of the Arab world, an incubator of culture and ideas... The fisherman on the Nile, the shepherd in the road and residents ofso- called informal communities say their experiences navigating city life have taught them the same lessons: the government is not there to better their lives; advancement is based on connections and bribes; the central authority is at best a benign force to be avoided. "Everything is from God," said Mezar, the fisherman, who was speaking practically, not theologically. "There is no such thing as government. The government is one thing and we are something else. What am I going to get from the government?"

...One brick in the foundation of single-party rule has been public resignation. There is no widespread expectation that the authorities will give the common man a voice, and so there is rarely any outrage when they do not. The fisherman, the shepherd and Fathy all said that the most they could hope for from the government was that it stay out of their lives. "We hope God keeps the municipality away from us," Sayed said as hesat in a wooden chair, surveying his fetid flock of goats and sheepwith headlights streaming by.

Such a feeling of separation is one reason that the leadership has been able to clamp down on opposition political activities without incurring widespread public wrath, political analysts say." People see the government as something quite foreign or removed from their lives," said Diane Singerman, a professor in government at the American University in Washington who has written extensively aboutCairo. "Commuters to the city, or poor peddlers and working people, do not see the government as particularly interested in their lives, andthey also see politics as quite elite and risky and something to stayaway from."

Officials say part of the disillusionment comes from unrealistic expectations, a holdover from the heady days of Gamal Abdel Nasser, the Egyptian leader from 1954 to 1970, when government jobs were deemed a right and cradle-to- grave care a promise...

Rest of article at

This feeling by the poor in Cairo could be the feeling of most Egyptian taxpayers, where the costs of government -- the myriads of taxes, fees, regulations, inspections, accreditations -- are very clear but the benefits are minimal, if any.

Once a government bureaucracy has reached a certain level of"bigness", it acquires a life of its own and its main purpose is to perpetuate itself, if not expand further. In that case, government service becomes "self service" and those in the private sector, thosewho toil a lot to feed an ever-expanding bureaucracy, are engaged in real "public service" based on voluntary exchange.

The Philippine bureaucracy as a whole I think, has not reached that level yet. Many local government bureaucracies though, have bad attitude problem, that those wanting to become entrepreneurs and job creators are seen as potential labor exploiters, potential environmental pests, andpotential perpetuators of social inequality. Hence, they must be strictly regulated even before they can start opening up their business.

Oil Politics 1: Bush vs. Chavez?

As Bush tours a number of Latin American countries mainly to projectthe US government as not-as-evil-as-pictured by Hugo Chavez, theVenezuelan President, the usual anti-US government sentiments in the continent (and elsewhere actually) are fired up.

In most news analysis and stories, Mr. Bush is pictured as the leaderof "open capitalism" while Mr. Chavez is the leader of "modern socialism" in Latin America. The former is backed up by trillions of $ of American taxpayers' money, while the latter is backed up by millions of barrels of petroleum production and deposits. But are they really ideological nemesis?

Mr. Bush's government confiscates a big portion of American people's monthly and annual incomes, whether they work in the US or abroad. His government further collects taxes from the savings and consumption (the after-income-tax take home pay) of the citizens, a substantial portion of which goes to Iraq war (about $8 billion/month direct costsalone), in Afghanistan war, and anti-terror war elsewhere around the globe.

Mr. Chavez's government "nationalized" foreign petroleum companies (mainly American, British and French companies) and sold oil to manyLatin American countries at low prices. I dont know how much taxes from Venezuelan people Mr. Chavez also confiscates from their monthly and annualy income.

At the end of the day, both Mr. Bush and Mr. Chavez are not exactly "ideological enemies". Both believe in the coercive power of the state in taking away a big portion of the private citizens' income and savings, and both are practicing it. What distinguish one from the other, however, is the degree of coercion that they practice. While Mr. Chavez attempts a socialist, really-big-state model, Mr. Bush attempts a welfarist and militarist, still big-state model.

Meanwhile, I posted this last June 30, 2006:

World Oil Prices 

World oil prices, in US$/barrel

2006: New York, Dubai
May: 70.96, 65.25
April: 70.25, 64.31
March: 62.97, 58.37
February: 61.93, 57.70
January: 66.15, 58.65(?)

December: 60.04, 53.04
October: 62.22, 53.86

World oil prices, 1970-2005
West Texas Intermediate (WTI) prices, $/barrel

Nominal price, Equiv. in current $
Feb. 1970: 2, 7
'73 1st oil crisis
Dec. 73: 5, 17
Feb. 74: 11.5, 39

'79-80 2nd oil crisis
Feb. 79: 22, 51
May 79: 30, 70
Nov. 79: 40, 87

'85-86 OPEC production hike
Feb. 86: 16, 26
July 86: 10, 15.5

'90-91 1st Iraq war
July 90: 17, 23
Oct. 90: 35, 47

'98 Asian crisis + OPEC production hike
Dec. 98: 10, 12

'99-00 OPEC production cut
Sept. 00: 32, 36

'02-03 Venezuela gen. strike + US invasion of Iraq
Jan. 03: 33, 35
June 03: 30.5, 32

OPEC production cut
May 04: 40, 41

2005 Hurricanes, Gulf of Mexico
Sept. 05: 66