WASHINGTON, May 31 (UPI) -- The UPI think tank wrap-up is a daily digest covering brief opinion pieces, reactions to recent news events and position statements released by various think tanks.
Pacific Research Institute
(PRI promotes individual freedom and personal responsibility as the cornerstones of a civil society, best achieved through a free-market economy, limited government, and private initiative. PRI researches and analyzes critical issues facing California and the nation, and crafts strategies for policy reform.)
SACRAMENTO, Calif. -- Lessons in Grow-tesque Government
by K. Lloyd Billingsley
Not much grows during a freeze, except for government, even one that is more than $23 billion in the red. Consider the recent experience of the Golden State.
Last October 23, the governor of California announced a hiring freeze to deal with the growing budget shortfall. But from the time the freeze began through the end of March 2002, the state of California hired nearly 10,000 new employees, 9,311 to be exact, in some cases at a more rapid pace than before.
The California Department of Corrections, for example, which should be called the Bureau of Prisons because it doesn't correct anybody, hired 2,005 new workers during the five-month span. By contrast, from October 31, 2000 to March 31, 2001, when no freeze was in effect, the department hired 1,579 new employees.
The California Employment Development Department, which should be called the Department of Unemployment since it doesn't develop new jobs, hired 545 under the freeze but only 408 in the same period before the freeze. Likewise the state's Compensation Insurance Fund took on 885 new employees during the freeze, compared to 516 before.
In other departments, such as the Department of Mental Health, the freeze brought little change. But hiring nearly 10,000 new state employees during a proclaimed freeze and under a $23.6 billion budget shortfall can hardly be called business as usual. But on one level, these developments are understandable.
The prison guards' union is a staunch supporter of the governor, to the tune of $661,000 if one includes, besides direct contributions of $305,000, the $356,000 in "Governor's Cup" golf fundraisers at Pebble Beach. In January, Governor Davis granted the guards a whopping raise of 33.76 percent by 2006, a hike of $1 billion overall.
Davis also will shut down five of the state's nine privately operated prisons, another item on the union's wish list. This fits Davis's antipathy toward privatization. Cleaning government buildings now costs twice as much as it used to when those services were contracted out, a practice Davis ended.
As Daniel Weintraub of the Sacramento Bee noted, while city-run prisons are a fiscal mess, the private prisons the governor has targeted are all but trouble-free.
"With the cost of incarceration rising," Weintraub wrote, "it makes sense for the state to keep using private operators to watch low-risk inmates."
But what makes sense seldom prevails in Sacramento. Davis is even opposed to private companies building prisons. Perhaps the inmates will lend a hand. Clearly, this administration is willing to sacrifice efficiency for politics, though it holds no monopoly on that practice.
The rush to kill privatization, coupled with nearly 10,000 new hires during a purported hiring freeze, is no way to resolve a budget shortfall greater than the GNP of many nations. Once hired, state employees tend to be permanent, whether or not they are good workers. Every state employee has a stake in the continued expansion of government. Likewise, government departments are easy to start but practically impossible to end, however useless or counterproductive they may be.
The larger lesson is that governments tend to grow, and that even during an economic downturn it is difficult to restrain that growth. Whether that unchecked growth is good for consumers and taxpayers does not require much explanation.
(K. Lloyd Billingsley is the editorial director of the Pacific Research Foundation.)
Competitive Enterprise Institute
WASHINGTON -- C:\Spin: One Small Two-Step for Political Man: Joe Lieberman on Broadband
As a rule of thumb, one should be wary of anyone in Washington invoking President Kennedy's call to land a man on the moon. For the past 40 years, every rhetorician worth his salt has called for a Kennedyesque national program to meet their favored goal.
Senator Joe Lieberman did that with gusto this week, invoking not just Kennedy, but Eisenhower and Lincoln too, in favor of a broadband industrial policy.
Lieberman, who is expected to introduce legislation on the topic next week, is but the latest player in an increasingly crowded Senate broadband debate. Sens. John Breaux (D -- La.) and Don Nickles (R -- Okla.) introduced a "regulatory parity" bill last month, followed by a subsidy plan by Sen. Ernest "Fritz" Hollings (D-S.C.). John McCain is also expected to join the fray soon.
Lieberman's 54-page report is certainly comprehensive. The major theme: government should adopt a national policy for making broadband a priority. In so doing, Lieberman -- a 2004 presidential hopeful -- implicitly scores the Administration for not presenting its views on broadband, proposing to require it to do so within six months. Fair enough -- the White House has been conspicuous by its silence on broadband regulation.
Going further, the report argues for a policy declaring broadband to be a key technology of the future. At every turn, it exudes certainty over the future of this technology. It declares broadband to be a "necessary condition" for improvement in the IT industry. It says the technology "will" transform commerce. Its growth "will" be demand-driven. The benefits "will" be greater than we expect. Based on this, Lieberman proposes a series of steps to subsidize the technology, ranging from tax credits, loans and grants to spending on research.
There's certainly reason to be bullish on broadband -- I am too. It does have terrific potential. But a little humility is called for. Can anyone, especially government, flatly say this or that technology definitely will be successful and in what way?
Government-proclaimed technologies of the future that flopped are numerous. Does anyone remember video dial tone telephone service? Can you say HDTV? The fact is that consumer technologies are notoriously unpredictable. To pretend otherwise is to indulge in Hayak's fatal conceit.
Making broadband an officially favored technology has its practical drawbacks as well. Even if we aren't concerned about distorting investments away from other promising technologies, subsidies will likely end up favoring one type of broadband technology over another regardless of how many times neutrality is pledged. (Slower-speed satellite broadband systems, for example, are unlikely to receive equal favor).
Forswearing industrial policy, however, doesn't mean government can't do anything to help broadband. The choice isn't between subsidizing and ignoring this potentially critical service. Why not look toward removing government barriers to its development?
On this score, the Lieberman report does make some worthwhile suggestions -- such as limiting local right-of-way fees and providing more spectrum for wireless providers. But, on most issues, Lieberman performs an awe-inspiring politician's dance, discussing the topic, grimly intoning how important it is, then moving on without stating a position. (Kids, don't try this at home: only professionals should attempt that kind of two-step).
A glaring case in point: in one section, the key issues of competition and the history of FCC regulation are discussed extensively and the various pending proposals outlined.
"We cannot avoid debate over competition," the report reminds us. It then goes on to avoid the debate over competition, not even hinting at a position.
That's a shame. In a report focused on the need for leadership on broadband policy, Senator Lieberman shuns it in the areas where it is most needed.
(James Gattuso is a research fellow in regulatory policy at the Heritage Foundation.)
The Hoover Institution
STANFORD, Calif. -- Where the flat tax goes from here
by Alvin Rabushka
In 1981 Robert Hall and I proposed a comprehensive 19 percent flat tax to replace the United States personal and corporate income taxes. The idea resulted in numerous congressional bills during the 1980s. It underpinned President Reagan's Tax Reform Act of 1986, which resulted in two rates, 15 and 28 percent, down from a top rate of 70 percent when Reagan took office in 1981.
In 1992 presidential candidate Jerry Brown, followed by Steve Forbes in 1996, reinvigorated the flat tax. Congressional Republican leaders chimed in with their support. Nonetheless, since 1991, the U.S. tax code has regressed; three new higher rates were added, with the top rate increased from 28.0 to 39.6 percent.
Despite regression in the United States, the flat tax has been successful in several new countries that emerged from the breakup of the Soviet Union. Estonia enacted a 26 percent flat tax beginning in 1994. Latvia followed suit with a 25 percent flat tax in 1995.
The biggest flat tax success story comes from Russia. In 2001 a 13 percent flat tax took effect, replacing three brackets with a top rate of 30 percent. The new code improved incentives and compliance. In 2001 revenue increased 28 percent in real, inflation-adjusted terms.
Effective January 1, 2002, the government reduced the corporate rate from 35 to 24 percent and recently proposed a major reform for small business enterprises, or SBEs. SBEs with no more than 20 employees and turnover below $320,000 will be able to pay the lesser of a flat 20 percent tax on profits or a flat 8 percent tax on revenues. SBEs will be exempt from value-added tax, sales tax, property tax, and social insurance tax. Other former Soviet bloc countries may follow in Russia's footsteps.
In April 2002 Singapore proposed a major restructuring of its tax system. The centerpiece is a reduction in corporate and personal income tax rates. In the next three years, corporate rates will fall from 24.5 to 20.0 percent, and the top personal income tax rate, from 26 to 20 percent. With this measure, Singapore extends a process of marginal tax-rate reductions that cut the top personal rate from a high of 55 percent in 1961 to 40 percent in 1978, 34 percent in 1980, 30 percent in 1982, and 26 percent in 1985. During this period, the threshold at which the top rate bites increased from S$90,000 to S$750,000 (US$1=S$1.80).
To fill out the story, Hong Kong maintains a flat tax of 15 percent on personal income. The Channel Islands of Jersey and Guernsey impose a 20 percent flat tax. The Freedom Party in Austria proposed a flat tax during the 1999 national election and became part of Austria's governing coalition for the first time in modern history. Other European parties are considering the flat tax in their economic platforms.
All in all, the flat tax is alive and well overseas. Now if only in the United States!
(Alvin Rabushka is the David and Joan Traitel senior fellow at the Hoover Institution. He works in the public policy areas of taxation in the United States and abroad.)
