There’s been considerable attention to the news that the IRS only managed to grab 2.4 percent of Google’s overseas income. As this Bloomberg article indicates, many statists act as if this is a scandal (including a morally bankrupt quote from a Baruch College professor who thinks a company’s lawful efforts to lower its tax liability is “evil” and akin to robbing citizens).

Google Inc. cut its taxes by $3.1 billion in the last three years using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. Google’s income shifting — involving strategies known to lawyers as the “Double Irish” and the “Dutch Sandwich” — helped reduce its overseas tax rate to 2.4 percent, the lowest of the top five U.S. technology companies by market capitalization, according to regulatory filings in six countries. …Google, the owner of the world’s most popular search engine, uses a strategy that…takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax. The earnings wind up in island havens that levy no corporate income taxes at all. Companies that use the Double Irish arrangement avoid taxes at home and abroad as the U.S. government struggles to close a projected $1.4 trillion budget gap and European Union countries face a collective projected deficit of 868 billion euros. …U.S. Representative Dave Camp of Michigan, the ranking Republican on the House Ways and Means Committee, and other politicians say the 35 percent U.S. statutory rate is too high relative to foreign countries. …Google is “flying a banner of doing no evil, and then they’re perpetrating evil under our noses,” said Abraham J. Briloff, a professor emeritus of accounting at Baruch College in New York who has examined Google’s tax disclosures. “Who is it that paid for the underlying concept on which they built these billions of dollars of revenues?” Briloff said. “It was paid for by the United States citizenry.”

Congressman Dave Camp, the ranking Republican (and presumably soon-to-be Chairman) of the House tax-writing committee sort of understands the problem. The article mentions that he wants to investigate whether America’s corportate tax rate is too high. The answer is yes, of course, as explained in this video, but the bigger issue is that the IRS should not be taxing economic activity that occurs outside U.S. borders. This is a matter of sovereignty and good tax policy. From a sovereignty persepective, if income is earned in Ireland, the Irish government should decide how and when that income is taxed. The same is true for income in Bermuda and the Netherlands.

From a tax policy perspective, the right approach is “territorial” taxation, which is the common-sense notion of only taxing activity inside national borders. It’s no coincidence that all pro-growth tax reform plans, such as the flat tax and national sales tax, use this approach. Unfortunately, America is one of the world’s few nations to utilize the opposite approach of “worldwide” taxation, which means that U.S. companies face the competitive disadvantage of having two nations tax the same income. Fortunately, the damaging impact of worldwide taxation is mitigated by a policy known as deferral, which allows multinationals to postpone the second layer of tax.

Perversely, the Obama Administration wants to undermine deferral, thus putting American multinationals at an even greater disadvantage when competing in global markets. As this video explains, that would be a major step in the wrong direction. Instead, policy makers should junk America’s misguided worldwide system and replace it with territorial taxation.

The French youth are rioting over retirement ages, and I’ve seen it claimed that they’re failing to act in their own interests. More generous retirements have to be paid for by someone, and that “someone” will have to be the young workers. Why on earth are they shooting themselves in the foot like this? Why aren’t they acting in their class (err, age cohort) interests?

One of my favorite authors, Theodore Dalrymple, writes:

The lycéens’ demonstrations against the increase in the retirement age seemed to me something of a failure of the Cartesian critical spirit on which the French pride themselves… Whose labor, after all, do these lycéens imagine will pay for all of the unfunded pension obligations of the French state, as pensioners live longer and longer? Where do they imagine the money will come from?

He has a point here, but his explanation falls a bit short:

What probably accounts for the strikes is a mixture of combativeness—the prejudice that being against something is inherently superior, morally speaking, to being for it—and a desire for a day off from school.

Combativeness, sure. Nothing ever happens in France without someone going on strike. And nothing really important happens without a general strike. Now, the leaders do tend to be students, so I can’t dismiss the day off school hypothesis out of hand. But let’s at least look at the students’ own professed motives. Here’s what one of them had to say:

“If the reform passes, we’ll have even fewer chances to find work, we young people, because the jobs will be freed up more slowly.”

The impulse is both subtler and more ridiculous than Dalrymple realizes. It’s our old friend, the lump of labor fallacy: Force the oldsters into retirement, and it’s like a jobs program for everyone else. There is only so much labor to go around — not like jobs are ever created, you know — so we’d better be sure we get our fair share of it. Or so the theory goes. The protest signs, insofar as they communicate anything worth repeating, have often read “Place aux jeunes!” — Make room for the young! — or similar.

Not that this approach to economics makes any sense, either theoretically or practically. Putting someone out of work faster means he’s not producing anymore, which makes the economy worse off on the whole. And “his” job won’t necessarily stick around, because retirement is often the least painful time at which to eliminate a position entirely. Today’s workers aren’t likely to be trained for the same types of work as their parents and grandparents, and they shouldn’t necessarily want to be. The lump of labor fallacy imagines a world frozen in time, not one of dynamism and growth.

Gallup just released a poll showing that 46 percent of Americans view the federal government as an immediate threat to the rights and freedoms of ordinary Americans. My first reaction was to wonder why the number was so low. After all, we have a political elite that wants to do everything from control our health care to monitor our financial transactions.

But a secondary set of numbers is even more remarkable. As seen in this chart, both Republicans and Democrats tend to view the federal government as a threat mostly when the White House is controlled by the other party.

This complacency is very unfortunate. Republicans presumably want to limit government control over the economy, yet it was the Bush Administration that put in place policies such as Sarbanes-Oxley, the banana-republic TARP bailout, the corrupt farm bills, and the pork-filled transportation bills. Democrats, meanwhile, presumably want to protect our civil liberties, yet the Obama Administration has left in place virtually all of the Bush policies that the left was upset about just two years ago. There has been no effort to undo the more troublesome provisions of the PATRIOT Act. And shouldn’t honest liberals be upset that the Obama Administration is going to such lengths to defend the military’s don’t-ask-don’t-tell policy?

The lesson to be learned is that there is an unfortunate tendency for politicians to misbehave when they get control of the machinery of government. Lord Acton warned that “Power corrupts and absolute power corrupts absolutely.” It’s almost as if Republicans and Democrats do their best every day to confirm this statement.

Yesterday, Prime Minister David Cameron announced Britain’s biggest defense cuts since World War II. The cuts affect the British military across the board.

The Army will shed 7,000 troops; the Royal Navy and Royal Air Force will each lose 5,000 personnel; the total workforce in the Ministry of Defence, including civilians, will contract by 42,000. The Navy’s destroyer fleet will shrink from 23 to 19. Two aircraft carriers — already under construction — will be completed, but one of the two will be either mothballed or sold within a few years. Whether the one remaining flattop in the British fleet will actually deploy with an operational fixed-wing aircraft is an open question. They’ve decided to jettison their Harriers; a technological marvel when it was first introduced, it has a limited range and a poor safety record. In its place, the Brits still intend to purchase Joint Strike Fighters, but not the short take-off and vertical landing (STOVL) version.

And right on cue, Max Boot argues in today’s Wall Street Journal, following the Heritage Foundation’s James Carafano’s example, that fiscal conservatives should not use these cuts as an example of how to reign in deficits. According to Boot and Carafano, military spending is off-limits. Period.

But as I note at The Skeptics, most Americans do not buy into this argument:

In Boot’s telling, Cameron’s decision inevitably places a heavier burden on the shoulders of American taxpayers and American troops.

But why should Americans perform a function for other governments that they are obligated by tradition, law and reason to perform for themselves? Defense is, as Boot notes, “one of the core responsibilities of government.” I would go one better: defense is one of the only legitimate responsibilities for government. So why does Max Boot think that Americans should simply resign themselves to take on this burden, doing for others what they should do for themselves?

I suspect that he fears that most Americans are not comfortable with the role that he and his neoconservative allies have preached for nearly two decades, hence his preemptive shot across the bow of the incoming congressional class that will have been elected on a platform of reducing the burden of government. True, the public is easily swayed, and not inclined to vote on foreign policy matters, in general, but as I noted here on Monday, it seems unlikely that the same Tea Partiers who want the U.S. government to do less in the United States are anxious to do more everywhere else. And, indeed, such sentiments are not confined to conservatives and constitutionalists who are keenly aware of government’s inherent limitations. Recent surveys by the Chicago Council of on Global Affairs (.pdf) and the Pew Research Center (here) definitively demonstrate that the public writ large is anxious to shed the role of global policeman.

Click here to read the entire post.

In July, I blogged about the case of Minnesota farmers who were facing criminal sanctions for engaging in interstate trade. Now I am happy to report that the city of Lake Elmo has torn down its onerous and unconstitutional trade barriers:

The change was made in response to a federal judge’s opinion in August that Lake Elmo’s protectionist law likely violated the U.S. Constitution because it discriminated against interstate commerce. Magistrate Judge Franklin L. Noel stated that the law “squelche[d] competition … altogether, leaving no room for investment from outside,” and would likely have “obliterate[ed] … the Lake Elmo markets in pumpkins and Christmas trees.… In fact, Plaintiffs have shown that the markets will be wiped out.”

Congrats to our friends at the Institute for Justice who spearheaded this case! You can read more here. And you can find Judge Noel’s opinion here.

Hat tip to Baylen Linnekin at Crispy on the Outside.

Foreign aid, as many (including myself) have argued, is a very bad idea. Aside from encouraging corruption and helping to keep nasty dictators in power, it is a major disincentive to necessary political and economic reforms.

Considering how little evidence the advocates of further foreign aid have to support their case and spending cuts across the Atlantic, you would have thought that aid budgets in rich countries would be among the first to be cut. Not so in Great Britain.

The Conservative-Liberal coalition’s spending cuts have been hailed as the most dramatic since WWII. For example, the island nation will lose its aircraft carrier, its famous Harrier jump jet fleet and thousands of jobs in the military. The defense budget will shrink by 7.5 percent, while other departments will be cut by 19 percent on average.

The only two departments that will not see any cuts are the socialist National Health Service (a bottomless money pit) and, you have guessed it, foreign aid, which will see an actual increase by an astonishing 37 percent.

Many will remember the Blair/​Brown era for getting the UK involved in the Iraq War and bringing the country to the brink of bankruptcy. They should also remember it as an era that made support for foreign aid a badge of good citizenry — irrespective of common sense and all evidence to the contrary.

A poll released this week by the Washington Post found that 52 percent of Americans think federal workers are overpaid and 49 percent said they thought federal workers work “less hard” than private sector workers. Also, 75 percent said that federal workers receive better pay and benefits than similar private sector employees.

Post columnist Joe Davidson says the last result in particular left Office of Personnel Management director John Berry “steaming”:

He said he was frustrated that “the Heritage and Cato misinformation campaign has obviously gained traction.” The two Washington, D.C., think tanks have produced widely discussed reports indicating that federal workers are paid too much. A “pretty prolonged misinformation campaign over the last six month leading up to this,” he said, “has worked.”

It’s not surprising that Berry – an individual who has spent his entire career working in government – doesn’t appreciate the fact that regular Americans aren’t enthusiastic about funding generous pay and benefits for federal workers.

While federal workers have received raises in recent years, millions of private sector employees have lost their jobs or have had to take pay and benefit cuts. Joe and Jane Lunchbucket might have less money for their family, but they still have to cough up money to pay for federal raises. If Berry is steamed, many of the nation’s taxpayers are getting burnt to a crisp, as the poll suggests.

An article at Gov​ern​mentEx​ec​u​tive​.com underscores why Americans think the federal workforce is privileged. Berry’s OPM is “butting heads” with federal worker unions over the ridiculously bureaucratic process of firing employees. Although the article should be read in its entirety to appreciate the eye-glazing details, the fight boils down to OPM’s ability to remove workers who provide false information on official federal documents.

See this Cato essay for more on federal employee pay.