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The Lighthouse®

The Lighthouse® is the weekly email newsletter of the Independent Institute.
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Volume 19, Issue 44: October 24, 2017

  1. Tax Reform Is Long Overdue
  2. Economic Freedom Is Lowering Global Poverty
  3. California Golden Fleece® Award Rebukes State Water Agency
  4. President Macron: To Lead Europe, First Succeed in France
  5. Independent Updates

1) Tax Reform Is Long Overdue

Tax reform, which was last enacted in 1986, is long overdue. Nearly three-fourths of Americans polled believe a comprehensive overhaul should be a top priority, according to one recent survey. The reason why is no secret. The complexities of the individual tax code can induce madness, and those of the corporate tax code can spur capital flight and domestic job losses. Unlike their foreign counterparts, U.S. corporations must pay taxes both on profits from abroad (levied by their foreign hosts) and on total global earnings (levied by the IRS); the governments of most foreign rivals are smart enough to employ a territorial tax code that avoids such double taxation.

In a world where average corporate tax rates have fallen significantly, combined U.S. rates (federal plus state) haven’t budged. They’re still as high as 39 percent. The proposed GOP reforms would correct much of the damage. “As it now stands, the tax reform framework would lower the corporate tax rate to a competitive 20 percent, which is more in line with the worldwide average and would spur investment in new plants and equipment, as well as the new jobs that would go along with it,” writes Independent Institute Senior Fellow William F. Shughart II, in an op-ed for Investor’s Business Daily.

The tax code should be simpler and less costly. It should also be more fair. It shouldn’t be the place where policymakers favor or penalize some industries rather than others. This means lifting punitive taxation on the energy sector, among others. “If Congress does only one thing on the business tax front, it must get U.S. corporate income tax rates down, in the process treating every sector of the economy the same way,” Shughart concludes.

One Step Closer to Making Tax Reform a Reality, by William F. Shughart II (Investor’s Business Daily, 10/21/17)

Taxing Choice: The Predatory Politics of Fiscal Discrimination, edited by William F. Shughart II

Liquidating Federal Assets: A Promising Tool for Ending the U.S. Debt Crisis, by William F. Shughart II and Carl P. Close


2) Economic Freedom Is Lowering Global Poverty

The world is in turmoil—that’s the bad news everyone knows. The good news that few truly comprehend is that global poverty rates are lower than ever. The countries where poverty retreated the most are the two most populous: China (1.4 billion) and India (1.3 billion). Many other countries have also beaten down poverty. Independent Institute Senior Fellow Benjamin Powell explains why in an op-ed to commemorate UN World Development Information Day—October 24.

China’s growth is famous but hard for many to fathom. Since 1990, “the total number living in extreme poverty declined more than one billion, while the population grew by more than 200 million,” Powell writes in The Hill. The loosening of economic controls deserves much of the credit. Since 1990, China’s climate for business and entrepreneurship has improved 56.5 percent, according to the Economic Freedom of the World Annual Report. China’s Great Migration, as documented in Bradley Gardner’s book of the same name, is also a major contributor.

India, which also began to enact economic reforms in the early ‘90s, has improved 38 percent in economic freedom, according to the previously mentioned report. Poverty in parts of sub-Saharan Africa has also seen notable declines. “On World Development Information Day, we should appreciate the major successes the world has witnessed in global poverty reduction in recent years, and recognize that these improvements have been largely driven by spontaneous market cooperation rather than intergovernmental aid programs,” Powell concludes.

Happy World Development Information Day!, by Benjamin Powell (The Hill, 10/22/17)

Making Poor Nations Rich: Entrepreneurship and the Process of Economic Development, edited by Benjamin Powell

China’s Great Migration: How the Poor Built a Prosperous Nation, by Bradley N. Gardner


3) California Golden Fleece® Award Rebukes State Water Agency

For its reckless mismanagement of Northern California’s Oroville Dam—which includes concealing safety hazards that put lives at risk last February when rising water levels at Lake Oroville overwhelmed the dam’s two spillways—the California Department of Water Resources (DWR) has been named “winner” of the California Golden Fleece® Award, bestowed quarterly to a state agency or program that swindles taxpayers or violates the public trust.

In his new report for the award, Independent Institute Senior Fellow Lawrence J. McQuillan argues that the DWR’s mistakes could have caused a total collapse of the Oroville Dam, resulting in severe property damage, mass injuries, and fatalities. Moreover, the errors could have been avoided. Not until after nearly 200,000 people in downstream communities were evacuated in February 2017, did the disturbing revelations emerge: DWR had failed to act on specific warnings about spillway integrity, provided insufficient inspection and repair processes, and made poor design and construction choices. Worse, the agency concealed safety problems from the public.

The DWR is unfit to operate California’s state-owned dams. To remedy this problem, McQuillan makes three basic recommendations: (1) Transfer ownership of the state’s 44 dams to private water companies or private irrigation districts. (2) Give more weight to local concerns, especially public safety. (3) Require that dam inspections be carried out by objective third-party experts and be made available to the public. “These recommendations should be part of a broader plan to modernize California’s entire, outdated, legacy water system,” says McQuillan, who is currently writing a book about California water policies.

The California Department of Water Resources Wins Dishonor of California Golden Fleece Award for Its “Patch and Pray” Approach to Dam Safety, by Lawrence J. McQuillan (10/17/17)

California Golden Fleece® Award

Aquanomics: Water Markets and the Environment, edited by B. Delworth Gardner and Randy T Simmons


4) President Macron: To Lead Europe, First Succeed in France

President Emmanuel Macron of France, who assumed office on May 14, has a lot to offer his compatriots—new ideas, youthful vitality, and the belief that more economic freedom is key to moving the economy past the post-recession doldrums. Macron would like France to take over Germany’s de facto leadership of Europe and thereby help spark economic reforms across the continent. But before he can do so, he must first gain momentum in reforming his own country. If he tries to steer the two ships at once, he risks crashing them both.

“If he does not (begin to) reverse France’s mammoth government intervention, Macron, enamored of his oversized international role, will end up pushing for an even more bureaucratic Europe,” writes Alvaro Vargas Llosa, a Senior Fellow at the Independent Institute, in an op-ed for The Hill. The example of what not to do comes from former Brazilian president Lula da Silva, who tried to lead emerging countries before succeeding in his own country.

Macron’s ambitious proposals are reminiscent of those Margaret Thatcher first campaigned on—cutting government spending, reforming pensions, privatizing various state-owned enterprises, and lowering regulatory barriers. To succeed, Macron must overcome threats from collectivists on both the left and the right, as well as the growing ambivalence of the public at large. Fortunately, Thatcher’s victory shows that economic liberalization must never be viewed as a lost cause. Her success, moreover, is what won her credibility and influence on the world stage—Macron’s ultimate goal. “Macron should look to that experience as an example to lead him today,” Vargas Llosa concludes.

Macron’s Reforms Are Key to France’s Leadership in Europe, by Alvaro Vargas Llosa (The Hill, 10/18/17)

Global Crossings: Immigration, Civilization, and America, by Alvaro Vargas Llosa

Lessons from the Poor: Triumph of the Entrepreneurial Spirit, by Alvaro Vargas Llosa


5) Independent Updates
The Beacon: New Blog Posts MyGovCost: New Blog Posts


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