Think tanks wrap-up

WASHINGTON, Oct. 31 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks.

The National Center for Public Policy Research

(NCPPR is a communications and research foundation dedicated to providing free market solutions to today's public policy problems, based on the principles of a free market, individual liberty and personal responsibility. NCPPR was founded to provide the conservative movement with a versatile and energetic organization capable of responding quickly and decisively to late-breaking issues, based on thorough research.)

CHICAGO -- League of Conservation Voters makes traditional misleading attack on Republicans; promotes Democratic Party candidates

by Tom Randall

Background: The League of Conservation Voters has once again issued its environmental scorecard and list of "dirty dozen" candidates targeted for defeat in the Nov. 5 election. As usual, the scorecard's selection of issues and phraseology seems designed to promote Democrats and denigrate Republicans.

Ten-Second Response: The LCV's interest appears to be political power.

Thirty-Second Response: Candidates should be proud to score low on LCV's environmental scorecard. The LCV's extreme agenda is harmful to the American people, particularly working Americans, children, families, minorities and the disadvantaged, and seniors on low fixed incomes. The LCV's positions cost American jobs, deny affordable housing -- particularly to minorities and the poor -- and make America more dependent on foreign energy.

Discussion: "The 2002 national environmental scorecard is a great tool for voters to gauge which candidates are on their side when it comes to clean air, safe water and open spaces, and which are not," LCV president, Deb Callahan told the Environment News Service. To get a high LCV rating, a candidate would have had to vote:

-- Against liability insurance for the nation's nuclear power plants, reducing our already overburdened energy supply and dramatically raising electricity prices nationwide.

-- Against opening the Yucca Mountain repository for spent nuclear fuel, leaving it more vulnerable near communities at over 90 locations around the country.

-- In favor of arbitrary automobile fuel economy standards that the National Highway Transportation Safety Administration has proven would cost hundreds of thousands of lives by requiring lighter-weight vehicles, without reducing fuel consumption.

-- Against making the country more energy independent and creating jobs through environmentally-safe oil exploration in the Arctic National Wildlife Refuge.

-- In favor of allowing release, under the Freedom of Information Act, of critical infrastructure information voluntarily submitted to the proposed Department of Homeland Security. This information can include data on where dangerous chemicals are stored, the quantities, how to release them into the environment and how many people would be killed and injured as a result: a virtual roadmap for future terrorist attacks on our country.

-- Against allowing our military the training it needs to adequately protect our country because of perceived harm to various species of animals.

-- In favor of restricting the right of many farmers to use their land, forcing them out of business and making them "willing sellers" to the federal government and environmental groups.

A sure sign of LCV's bias is that while one Senate candidate, New Hampshire Republican John Sununu, made the so-called "dirty dozen" list with a rating of 36 on the environmental scorecard, nine Democrat House candidates with as low or lower score – Robert Cramer of Alabama, Calvin Dooley of California, Christopher John of Louisiana, Ronnie Shows of Mississippi, Brad Carson of Oklahoma, John Tanner of Tennessee, and well as Max Sandlin, Jim Turner and Ralph Hall of Texas -- were not on the list.

(Tom Randall is the director of the John P. McGovern, M.D. Center for Environmental and Regulatory Affairs at the National Center for Public Policy Research.)

The National Center for Policy Analysis

(The NCPA is a nonprofit, nonpartisan public policy research institute that seeks innovative private sector solutions to public policy problems.)

DALLAS, Tex.-- Cigarette Smuggling

by Bruce Bartlett

Diverse state tobacco taxes are a key reason for cigarette smuggling, in which organized crime and terrorist groups increasingly are involved. A July 21 article in the Detroit News quoted John D'Angelo of the Bureau of Alcohol, Tobacco and Firearms as saying, "There is no doubt that there's a direct relationship between the increase in a state's tax and an increase in illegal trafficking."

According to the Federation of Tax Administrators, so far this year 17 states have raised their cigarette taxes in an effort to cover their budget deficits. The magnitude of the increases is remarkable.

On January 1, 2002, the median state cigarette tax rate was 34 cents per pack and the average was 45 cents. In six months, the median rose to 41 cents and the average to 54 cents. By contrast, 10 years ago both the median and average were 25 cents.

New York and New Jersey have the highest state tax rates, $1.50 per pack. New York City imposes an additional tax of $1.50, for a total tax of $3.00 per pack. At the other end of the spectrum, North Carolina's tax is just 5 cents per pack, Kentucky's is 3 cents and Virginia's is 2.5 cents.

It is easy to buy a truckload of cigarettes in North Carolina and sell them in New York City for a profit of almost $30 per carton. Thus a few hours' "work" can yield several thousand dollars' profit.

Every day, residents of Maryland ($1 tax) and the District of Columbia (65 cents tax) technically engage in smuggling by buying cigarettes in Virginia. Although interstate cigarette smuggling is a crime, prosecutions are rare.

On June 1, the Washington Post reported that Maryland's cigarette tax increase from 66 cents to $1 led to an immediate jump in smuggling. It said that "a vast and burgeoning underworld of criminals" is now engaged in the business: "Criminals who once dealt exclusively in illegal drugs are now smuggling cigarettes because it is so lucrative and punishments generally are much less severe."

For years, police have warned of organized crime's move into cigarette smuggling. The criminal gangs have brought experience from the drug trade, economies of scale and other efficiencies to cigarette smuggling. For example, they can counterfeit tax stamps, something small-time smugglers cannot do.

Terrorists, too, are smuggling cigarettes to finance their operations -- not surprising since they are tightly organized, highly disciplined and experienced in smuggling weapons and explosives. A March 10 San Francisco Chronicle story entitled "Terrorists Mimic Crime Syndicates to Fund Attacks" detailed the involvement of many groups in smuggling. "More and more, terrorists are acting like traditional organized crime groups, engaging in rackets like cigarette and fuel smuggling," the Chronicle reported. Indeed, it said terrorists are working alongside organized crime.

The Irish Republican Army has long been implicated in cigarette smuggling in Europe. Recently, a member of Hezbollah was convicted of running a multimillion-dollar smuggling operation out of North Carolina. The Washington Post quoted Maryland State Comptroller William Donald Schaefer as saying, "We know that some of the money used by smugglers is directly passed on to terrorist organizations."

On Sept. 28, the Los Angeles Times reported that federal authorities have been probing western New York for evidence of cigarette smuggling as a source of al Qaida funding. One smuggling scheme involving several local Arab Americans was broken up in 1999, said the Times.

The Internet simplifies smuggling. Cigarettes from Indian reservations, where state cigarette taxes are not collected, are often available online. The purchaser pays by credit card, and the cigarettes are delivered to his or her home.

The Jenkins Act requires vendors to report to the buyer's state tobacco tax administrator when cigarettes are sold across state lines. However, many Internet vendors do not report the sales. An Aug. 9 General Accounting Office report concluded that transferring primary investigative jurisdiction from the FBI to the ATF would give the ATF comprehensive authority to enforce the Jenkins Act and should result in better enforcement.

Adding Jenkins Act enforcement responsibility to its authority under the Contraband Cigarette Trafficking Act may increase the likelihood that the ATF will detect and investigate violators and that U.S. attorneys will prosecute them. Yet so long as tobacco products are legal and state cigarette taxes are divergent, the ATF can do only so much. The authorities cannot even keep cigarettes from being smuggled into prisons.

The growth of cigarette smuggling is a key reason why cigarette tax revenues are not keeping pace with tax increases. Between 1992 and 2000, the average state cigarette tax rate increased 64 percent while gross state tax revenues rose only 35 percent. The apparent fall in smoking rates over this period was not nearly enough to account for the revenue shortfall. This suggests that states expecting higher revenues from recent cigarette tax increases may never see them.

Even liberal groups like the Center for Budget and Policy Priorities now warn states against expecting too much revenue from higher cigarette taxes. The CBPP also is concerned that the poor, who smoke in higher numbers, may be unduly burdened. It suggests a tax rebate to low-income smokers. Of course that would only make it easier for them to afford cigarettes.

Another problem is that as cigarette distribution moves out of normal outlets and into criminal channels, controls on cigarette purchases by minors erode. Not only does this potentially increase smoking by teen-teenagers, but it brings more of them into contact with dealers pushing stronger drugs.

As much as politicians and anti-smoking zealots hate to admit it, there are limits to how much states can tax tobacco. At some point, they may have to admit that high cigarette taxes are even more harmful than smoking.

(Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.)

WASHINGTON -- Why The VAT Is A Bad Idea

by Bruce Bartlett

On Oct. 26 the Washington Post reported that the Treasury Department is studying plans to impose a value-added tax, or VAT, to replace the corporate income tax and finance other tax reforms. This is a dangerous road for the Bush Administration to travel, both politically and economically.

The idea of replacing the corporate income tax with a VAT is not a new one. On a technical economic level, it has much to recommend it. The corporate tax is a bad tax because it is a double tax on corporate profits since dividends are also taxed. The result is a higher cost of capital that lowers investment, productivity and wages. Most economists think it should be abolished.

The problem is that the corporate tax raises a significant amount of revenue. This year it will bring in about $150 billion to the Treasury, about 1.5 percent of GDP. It is simply unrealistic, in a time of budget deficits, for the government to give up this much revenue without replacing it somehow.

A VAT, sometimes called a business transfer tax, could easily make up the revenue from abolishing the corporate income tax. On a broad base, it might raise perhaps $50 billion per year for each percentage point. Thus a 3 percent VAT could replace the corporate tax.

The VAT works like a sales tax. The difference is that it is not imposed directly on consumers at the checkout, as state and local sales taxes are, but rather on producers. The tax is built in to the prices of goods and services.

One big advantage of the VAT is that it is rebatable at the border on exports, according to world trade law. U.S. exporters have complained for years that they are at a competitive disadvantage relative to countries with VATs for this reason.

Another advantage of the VAT is that it does not fall on saving or investment. Therefore, a switch from a corporate income tax to a VAT would lead to a sharp drop in the cost of capital, which would raise investment and productivity.

Against these advantages, however, are some very powerful disadvantages with a VAT. To begin, it really wouldn't make much sense to impose a VAT at just a 3 percent rate. The startup and compliance costs would eat up a high percentage of the revenue. Therefore, the rate would probably have to be at least 5 percent just to justify the cost of imposing it.

A second problem is that a comprehensive VAT would be very regressive. That is, it would take proportionally more out of the pockets of the poor than the rich. Although over one's lifetime the tax would be proportional to income, there is no question that the poor would pay more taxes than they do now under a VAT.

In most countries, efforts to relieve the poor have involved exemptions in the VAT. Usually, food and medical services are exempted, but in different places there can be a large number of other goods and services exempted as well. The problem is that this erodes the tax base, requiring higher rates to achieve the needed revenue, and it greatly increases the complexity of the tax, thereby increasing the compliance cost.

Now we are up to probably a 10 percent rate on the VAT to compensate for the compliance cost and exemptions for the poor. So we already see the biggest problem with a VAT -- its tendency to ratchet up. When European countries first imposed VATs in the 1960s, they mostly had rates around 10 percent. Today the average rate is about 18 percent, according to the Organization for Economic Development and Cooperation.

It has proven too easy for governments to piggyback on inflation and raise VAT rates as prices were rising anyway. People did not notice the tax increases because they were hidden in the prices of goods and services. Consequently, the VAT proved to be a massive money machine that fueled a vast increase in taxation in every country that has adopted it.

The latest OECD report shows that the overall tax burden in Europe has reached 42 percent of the gross domestic product, compared to 30 percent in the United States. By contrast, before the VAT came along, European and U.S. tax burdens were comparable: 28 percent of GDP in Europe and 25 percent in the United States in 1965. Much of the tax growth came from the VAT, which average 4 percent of GDP in Europe in 1965 and is twice that today.

In 1984, the Treasury Department published a comprehensive study of the VAT that recommended against its adoption. The reasons laid out in that report are still valid today.

Adopting a VAT, however it is termed, would put the United States on a slippery slope toward European levels of taxation and government. The Bush Administration will be making a terrible mistake if it starts down that road.

(Bruce Bartlett is a senior fellow with the National Center for Policy Analysis.)

The Cato Institute

WASHINGTON -- Cato scholar praises Bush plan to end delays in confirmation hearings

Wednesday afternoon, President Bush announced his plan to end the crisis that has paralyzed his nominations to the federal bench. James L. Swanson, editor in chief of the Cato Supreme Court Review and a senior fellow in constitutional studies at the Cato Institute, commented:

"For a year and a half, since May 2001, Democrats on the Senate Judiciary Committee have thwarted President Bush's efforts to fill vacancies on an understaffed federal bench. Democrats controlling that committee have politicized the confirmation process by refusing to hold hearings for many nominees-or once hearings have been held, by refusing to allow the full Senate to vote on many of the nominations. That scheme subverts the Constitution, undermines the rule of law, and impedes the administration of justice."

Commenting on the president's call for the Senate Judiciary Committee to hold a hearing within 90 days of receiving a nomination, Swanson added: "It was high time for the president to object to the Judiciary Committee's tactic of paralyzing nominations through delay. Stalling harms the nominees, the courts and the American people."

Regarding President Bush's proposal that the full Senate vote a nomination up or down no later than 180 days after the nomination is submitted, Swanson said: "The president is right to call for action by the full Senate, and in a timely manner. As James Madison suggested, the vote of 100 senators is preferable to the vote of a small and more radical cabal or committee."