WASHINGTON, April 21 (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. This is the second of two wrap-ups for April 21.
The National Center for Policy Analysis
(The NCPA is a public policy research institute that seeks innovative private sector solutions to public policy problems.)
DALLAS, Texas -- A flat tax for Iraq
by Bruce Bartlett
With the end of war, the United States is now working rapidly to restore civil administration in Iraq and get its economy moving again. A key issue will be the Iraqi tax system, which cannot wait until all the questions about Iraq's form of government are worked out. The interim authorities will need revenue to pay for police, firefighting and other basic services. Hence, some sort of tax system will need to be put in place quickly.
As best anyone can tell, Iraq really had no tax system under Saddam Hussein. Sales from the state-run oil monopoly provided all the revenue that the government needed for what little it did. Hence, in creating a new Iraqi tax system, the new government will be starting from scratch. In essence, it will have a blank slate to write on.
In this respect, the situation in Iraq is not altogether different from what it was in formerly communist states such as Russia. Although the old Soviet Union had a tax system, it existed neither to provide revenue to the government nor to change the distribution of income. Neither function was necessary in a socialist state, because the government owned everything and everyone worked for it as well. Thus, the state could get all the revenue it needed and achieve whatever income distribution it desired just by changing wages and prices as it saw fit.
As best I can tell, the Soviet tax system functioned like a Federal Reserve open market operation. Its main purpose was to soak up excess money circulating in the economy. Needless to say, a tax system designed for this purpose was wholly inappropriate for a post-communist, quasi-free economy.
The Russian government struggled for some years to come up with an appropriate tax system. Under extreme pressure from the International Monetary Fund to raise revenue to get inflation under control -- the central bank was just printing money to cover large deficits -- tax rates were raised, many new taxes imposed, and extreme pressure was brought to bear on those evading taxes.
It all proved to be for naught. Tax revenue fell to just 8.6 percent of the gross domestic product in 1998, from 11.1 percent in 1995. In 1996, the IMF suspended its program in Russia because its tax revenues were too low. In effect, the IMF wanted Russia to raise taxes still more.
Rather than follow the IMF advice, the Russians rethought their tax policy and opted to replace the whole system with something much simpler and less punitive. The key element of the new tax system was a 13 percent flat-rate tax on individual incomes. Tax rates on corporations were also slashed and many taxes abolished. The new system took effect on Jan. 1, 2001.
Contrary to IMF predictions, revenues under the new system shot up. It was no longer worth the risk of cheating to evade a 13 percent tax. In 2001, tax revenues rose to 16.2 percent of GDP -- almost twice what they had been three years earlier when tax rates were much higher. The New York Times even praised the new Russian flat tax, calling the results "stellar."
The results in Iraq could be similar. Like Russia, it is in a position to build an entirely new tax system from nothing. Thus it need not worry about all the political and transition problems that have made adoption of fundamental tax reform here so difficult. It is gratifying, therefore, that leaders of the new Iraq are said to be looking at a flat rate tax system for their country, according to an April 14 report in Tax Notes.
U.S. officials advising the Iraqis are said to be looking at the example of Japan after World War II. There, Gen. Douglas MacArthur, who governed Japan in the immediate postwar period, had some U.S. economists, led by Carl Shoup of Columbia University, design an entirely new tax system. This led to the adoption of a tax system in Japan that had much lower tax rates than in the United States until the 1980s, with saving and capital formation also taxed much more lightly. By all accounts, Japan's excellent tax system in the 1950s and 1960s was a key to its astonishing growth.
Some say that Iraq doesn't need a tax system at all. It can just continue to tax oil and, in effect, shift the burden on to oil purchasers. But since the price of oil can go no higher than the world price, the burden would actually fall on producers, thereby hindering development of Iraqi oil. It makes more sense for the new Iraqi government to get oil revenue by selling leases for production than by taxing oil directly.
Whatever happens with Iraq's tax system will be important for its economy and the political viability of the new government. It's important to get it right.
(Bruce Bartlett is a senior fellow at the National Center for Policy Analysis.)
The Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
WASHINGTON -- U.S. bases: Interviews available
-- Joseph Gerson, director of the Peace and Economic Security Program at the
American Friends Service Committee and editor of "The Sun Never Sets," a book about U.S. military bases worldwide.
"Behind the rhetoric of 'liberation' and not staying 'a day' longer than needed, the Bush administration is clearly working to create a client government which will allow the United States to maintain military bases for the long term, as it has recently done in Central Asia. The U.S. government, in effect, will be transforming Iraq into an 'unsinkable aircraft carrier for the United States.' The U.S. government has massive bases in Japan over 50 years after the end of World War II; in South Korea nearly 50 years after the end of the Korean War. Bases in Iraq can serve as an alternative to bases in Saudi
Arabia and will serve to threaten Syria, Iran and other nations in the region. The unprecedented network of U.S. bases is the basis of a global empire, there's no way to avoid that term. The bases are one of the reasons for resentment against the United States throughout Arab and Islamic nations. Imagine how we would feel if we had Saudi military bases or Chinese or German troops in or near our major cities. Actually, the Declaration of Independence cites the presence and actions of King George's troops here as 'abuses and usurpations' that necessitated the War of Independence against Britain."
-- Zoltan Grossman, assistant professor of geography at the University of Wisconsin-Eau Claire, Grossman wrote the recent article "New U.S. Military Bases: Side Effects Or
Causes Of War?"
"After every recent U.S. military intervention ... the Pentagon has left behind clusters of new bases in areas where it never before had a foothold. The new string of bases stretch
from Bosnia, Kosovo and adjacent Balkan states, to Iraq and other Persian Gulf states, into Afghanistan and other Central Asian states. Together, they appear to form a new U.S. sphere of influence in the strategic 'middle ground' between the European Union and East Asia, and may well be intended to counteract the emergence of these global economic competitors. The administration is using every crisis as a convenient opportunity to establish a permanent military presence in the strategic belt from Hungary to Pakistan. The only two obstacles left to a geographically contiguous U.S. sphere of influence are Syria and Iran. The U.S. military is also returning to countries where it previously had lost basing rights, such as Somalia, Yemen, and the Philippines. This over-extension of U.S. military power risks increasing regional resentments (already being seen in the 'Iraq for Iraqis' demonstrations) and Sept. 11, 2001-type 'blowback' attacks. The Romans similarly used their ability to project military might as a substitute for their inability to develop respectful economic relationships, only to see their empire fall at the hands of humiliated civilians."
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 -- ten-second response: Another Earth Day is celebrated, yet environmentalists continue supporting failed programs
by Christopher Burger
-- Background: Since 1970, April 22 has been recognized as Earth Day. The environmental left will mark the date with press releases, rallies and other activities calling for additional government regulations and more private and public expenditures to "save the planet."
"Loggers losing their jobs because of spotted owl legislation is, in my eyes, no different than people being out of work after the furnaces of Dachau shut down."
This quote from the late David Brower, founder of Friends of the Earth and the first Sierra Club executive director, is one of many statements made over the years by environmentalists who support radical legislation to protect certain species of plants and animals.
Since 1973, the flawed Endangered Species Act, or ESA, has been cited by environmental groups across the country as the only way to save species on the brink of extinction.
-- Ten-second response: ESA regulations have not been a successful tool for saving species threatened with extinction, but it does place a large burden on American property owners, the economy and residents of many states.
-- Thirty-second response: Environmentalists tout the necessity of protecting plants and animals through vigorous enforcement of the ESA. Preserving species is a noble goal, but the ESA isn't doing the job. Of the 1,254 species listed as endangered since the ESA enacted in 1973, only 33 have been taken off the endangered list. Twelve of the 33 were removed due to erroneous population counts or data entry errors. That means less than 1 percent of listed species were recovered over the last 30 years. Meanwhile, ESA enforcement costs consumers and taxpayers more than $1 billion a year in litigation, lost profits, lost jobs and rising business and governmental operational costs.
-- Discussion: David Brower's comparison of loggers to Nazi death camp workers may sound extreme, but Brower was one of the environmental movement's leading figures until his death in 2000. The environmental left has a rich legacy of extreme claims and wild predictions of environmental devastation. These environmentalists typically agree that reforms to the ESA that seem commonsense are unacceptable. Examples include proposals to base ESA regulations on more rigorous, peer-reviewed scientific analysis and proposals to compensate landowners who lose the use of their land because of ESA regulations.
We do our environment a disservice if we observe Earth Day with the belief that all claims peddled by the environmental left are true. Similarly, we need not support every program and law backed by environmental advocacy groups. These programs aren't always the best way to meet environmental challenges, and sometimes even cause more harm than good.
by Christopher Burger, program coordinator, John P. McGovern, Md., Center for Environmental and Regulatory Affairs, The National Center for Public Policy Research
The Brookings Institution
WASHINGTON -- Brookings Iraq report: With the war over, the U.S. faces hard challenges
by Kenneth M. Pollack
The United States has won an important victory in Iraq. Removing Saddam Hussein's regime from power has eliminated a terrible threat to the people of Iraq, the Middle East, and the entire world. Casualties from the war, both for coalition military personnel and Iraqi civilians, have been gratefully low -- the images on al-Jazeera notwithstanding.
There were very few terrorist attacks, either inside or outside Iraq. Although, as expected, the Iraqi people have mixed feelings about the United States, most of them feel a sense of relief that Saddam's tyranny is gone. Certainly, this war could have gone much worse than it did.
Americans should not lose sight of these significant accomplishments, but neither should they ignore the very real risks that still lie ahead. Washington's handling of both the pre-war diplomacy and the immediate aftermath have hardly been faultless. In general, the Bush administration did a fine job of nailing down the political, military, and even economic tasks required to ensure the success of the war itself, but neglected other issues that could determine the ramifications from the campaign over the longer term.
The force the United States employed in Iraq was adequate to handle the most important military tasks (albeit while taking some risks with the long supply lines back to Kuwait), but desperately requires reinforcement to handle the all-important political tasks that have now taken center stage. The looting and lawlessness that continue to prevail in large parts of Iraq were entirely predictable, and almost certainly preventable by the presence of coalition troops charged with keeping the peace.
While this may seem like a minor problem, it is one that could have very severe consequences if not quickly resolved. As we have seen in places like Yugoslavia, a power vacuum can quickly tear apart the internal fissures in a country that might otherwise have remained whole.
What's more, the coalition's failure to quickly restore order and security in Baghdad and other major cities could affect the critical issue of the legitimacy of the reconstruction effort. This is where the looting of antiquities from the Iraq Museum could have an immediate impact. Many Iraqis worry that Washington intends to colonize their country and steal their oil, and they point out that the United States deployed enough troops to ensure the safety of the Iraqi oil ministry in Baghdad.
The priority shown to the oil ministry over the Iraq Museum strikes exactly the wrong chord with many Iraqis. So too does American action on behalf of the Iraqi National Congress and other exile groups. Few Iraqis are familiar with these exiles. Airlifting INC members into Iraq and allowing them to claim that one of their own has been "elected" the new senior official in Baghdad simply reinforces the fears of many Iraqis that Washington intends to install a puppet government beholden to U.S. oil companies.
There was never any question that the political reconstruction of Iraq was going to be a difficult and painful process but, as with the inadequate initial security presence, the United States' inability to immediately articulate its plans for a transitional political authority created an opening that is allowing Chalabi and others to assert themselves in a way that diminishes the legitimacy of the U.S. effort.
This legitimacy is critical to the success of the reconstruction effort. If reconstruction is going to succeed at all, it is going to take a long time -- five, 10, 15 years or more. What's more, international assistance will be required for most or all of that time. However, American and other international personnel will be welcome in Iraq only as long as the Iraqis see the endeavor as legitimate. Thus Washington's miscues could have serious consequences if they prompt Iraqis to turn against the international presence altogether.
Which is also why bringing the reconstruction under the rubric of the United Nations remains the best course of action available to the United States. Unfortunately, the choice is often presented as binary: either the United States handles the reconstruction or the United Nations does. This is nonsense.
There is no reason on earth that the United States and the United Nations cannot handle the operation jointly. In Kosovo, Bosnia, East Timor, Haiti and elsewhere, the United Nations has developed hybrid systems for handling specific problems. In the case of Iraq, successful reconstruction will require a very strong U.S. component -- to provide key resources and direction -- but it will also require a U.N. umbrella to provide the legitimacy that is necessary to allow a long-term international presence.
The Bush administration has smartly recognized the need for the United States to commit itself to a full-scale rebuilding effort. Now it has to be smart enough to ask for the help needed to make it a success.
(Kenneth M. Pollack is director of research at the Saban Center for Middle East Policy at the Brookings Institution.)
