Tag Archives: Taxes

The Truth about the Resource Curse

Natural resources are traditionally considered a boon to any country. They’re pools of “free” value that can be dug up and sold, often under the promise of helping the entire population.

Yet we know that resources are not a golden ticket to prosperity: some of the world’s poorest, most miserable nations have been blessed with valuable stocks of recoverable minerals and fossil fuels.

Of the 19 nations that produced more than 1 million barrels of oil per day in 2013, only 3 could be considered to enjoy particularly “good” governance: the United States, Canada, and Norway.

The remainder, including Saudi Arabia, Venezuela, and Mexico, have endured decades of one-party or autocratic rule, weak development in other sectors of the economy, and general dependence on oil revenues for a major share of state spending.

The “Resource Curse” theory has long held that countries with natural resource endowments, such as oil or minerals, tend to have worse development outcomes than those without them. There are many reasons for this, from currency exchange rates (the so-called Dutch disease) to the fact that resource revenues are highly dependent on volatile world market prices.

While the issues of currency or volatility are very real, I would argue that there’s something more insidious that goes on in resource-dependent states.

Money for Nothing?

It comes back to the idea of treating resources as inherently “national” endowments. When resources are treated as though they should benefit everyone in a nation, government’s are encouraged to use them as a means to provide handouts to the population at large, and claim credit for the services provided.

By building a culture around the “rents” that the resource endowment provides, otherwise bad governments can look like they are succeeding by delivering public goods and services that they could never provide without the “free” money from mining or pumping oil.

Read the rest at the PanAm Post…

America Strives to Exceed French Capital Gains Tax Rates

A new report by the non-partisan Tax Foundation shows that America has higher capital gains tax rates than other industrialized countries. Nevertheless, President Obama is pushing Congress to raise taxes on capital gains still further. America’s tax treatment of capital gains already raises the cost of capital and reduces investment, and raising rates would create more disincentives to business investment and growth.

America’s 29 percent average combined capital gains top tax rate is more than 5 percentage points higher than the Organisation for Economic Co-operation and Development’s weighted average of 23 percent. This makes America’s top rate the sixth highest among the 34 OECD countries. Nine OECD countries do not tax capital gains income.

The data show that, at 33 percent, California has the highest combined state and federal tax rate on capital gains. Only two OECD nations have a higher top marginal rate than California—Denmark (42 percent) and France (34.4 percent).

Nine states do not tax capital gains income, but their residents are still subject to the federal 20 percent top tax rate on capital gains. An additional 3.8 percent tax on unearned income for households with over $200,000 in annual income (single filing) or $250,000 (joint filing) helps fund the Affordable Care Act, bringing the total federal capital gains tax rate close to 24 percent.

When capital gains taxes are applied to income already subject to America’s 39 percent top corporate tax rate, the combined tax burden on U.S. gains can reach 56 percent. High taxes are one reason that some U.S. corporations are moving more of their operations and staff overseas.

Read the rest at The Manhattan Institute’s E21…

Three Tough Questions for (Possible) President Ted Cruz

Sen. Ted Cruz, R-Texas, formally announced his presidential candidacy Monday, giving a laundry list of conservative positions on everything from gay marriage to abolition of the Internal Revenue Service. Although Cruz may have hit all the popular talking points of the campaign trail, President Ted Cruz would need to be ready to answer detailed questions about the consequences of his policies. Here are a few examples:

Tax Simplicity

In his announcement, Cruz said, “Instead of a tax code that crushes innovation, that imposes burdens on families struggling to make ends met, imagine a simple flat tax that lets every American fill out his or her taxes on a postcard.”

Question for Cruz: Are you prepared to eliminate popular tax credits in exchange for a simpler tax code?

Simplifying the tax code is a popular talking point, but when actually applied it means taking away popular tax credits and deductions, such as the charitable deduction, the mortgage interest deduction, and the child tax credit. According to the Treasury Department, $1.1 trillion in tax breaks are claimed by individuals, $212 billion of which is a tax break for employer-provided health insurance. Cruz might want to cut tax rates by an equal amount to create revenue-neutral reform, but the change wouldn’t affect everyone equally if the tax code suddenly stopped conferring special favor upon certain popular activities.

A dramatic simplification of the tax code might very well be worth it, but President Ted Cruz would have to admit it would require eliminating popular tax breaks, and make the case to taxpayers that the trade-offs are worth it.

Education

“Instead of a federal government that seeks to dictate school curriculum through Common Core, imagine repealing every word of Common Core. Imagine embracing school choice as the civil rights issue of the next generation that every single child, regardless of race, regardless of ethnicity, regardless of wealth or ZIP Code, every child in America has the right to a quality education. And that’s true from all of the above, whether it is public schools, or charter schools, or private schools, or Christian schools, or parochial schools, or home schools, every child.”

Question: How big should the federal role in education be? Should the federal government require all states to repeal Common Core standards? Should the federal government run its own school choice programs?

Read the rest at the Washington Examiner…