The Heartland Institute’s Matthew Glans has a good piece out on how our screwy tax code contributed to the financial meltdown. Glans summarizes the work of a Heartland colleague, Sam Eddins, whose Tax Arbitrage Feedback Theory (TAFT) seeks to explain how differential tax rates affect economic decisions and the business cycle.
Credit-default swaps, for example, appear to be in part a way to game the tax system:
Credit-default swaps are revealed to be a massive tax arbitrage that shifted government tax receipts to Wall Street bonus pools and necessitated the creation of massive quantities of low credit quality debt,” Eddins continues. “The structure of this trade ‘insulated’ Wall Street agents from the credit risk while allowing them to arbitrage the tax savings of their clients as long as counterparties remained solvent.”
For more interesting tax-policy reads from the nation’s leading think tanks, check out these recent releases:
• The Heritage Foundation’s J.D. Foster writes about a rare case where the Obama administration is advocating a useful fiscal policy — applying pay-as-you-go budget rules properly to tax issues.
• A recent book from the American Enterprise Institute, Tax Policy Lessons from the 2000s, offers a series of interesting discussions of, well, tax policy lessons from the 2000s.
• Cato Institute Senior Fellow Jim Powell has some recommendations for how outraged Tea Party protestors can continue to fight back against fiscal recklessness. The key is to focus attention on government misspending closer to home, over which citizen activists can have more immediate control. Powell cites the work of the Yankee Institute for Public Policy in Connecticut, which has pioneered the use of citizen audit committees to go after high property taxes.