Friday, December 30, 2011

Mitchell's law strikes again

Last year, Dan Mitchell "came up with a saying that 'Bad Government Policy Begets More Bad Government Policy' and labeled it 'Mitchell’s Law' during a bout of narcissism." His examples are legion, but obvious ones are (1) paying people to be unemployed, which increases the length of unemployment, thereby requiring the unemployed to be paid for longer periods; (2) subsidize homeownership for those who can't afford it, which leads to record mortgage defaults, thereby requiring policies to keep people in the homes they can't afford; (3) impose rent controls, which reduces the amount of affordable housing, thereby requiring publicly owned housing.  You get the idea.  But whether or not these are good or bad policies, the point is that any policy has unintended consequences and the solution always seems to be additional policies with their own unintended consequences to fix the problems with the original ones.

Mitchell has uncovered another example, this time involving the taxation of individuals and firms overseas. 
The latest example of this process involves the Foreign Account Tax Compliance Act, a piece of legislation that was imposed in 2010 because politicians assumed they could collect lots of tax revenue every single year by getting money from so-called tax havens.
This FATCA law basically imposes a huge regulatory burden on all companies that have international transactions involving the United States, and all foreign financial institutions that want to invest in the United States. It is such a disaster that even the New York Times has taken notice.
FACTA has the bonus effect of annoying our allies and trading partners:
Indeed, what’s remarkable about Obama’s FATCA policy is that the world in now united. But it’s not united for something big and noble, such as peace, commerce, prosperity, or human rights. Instead, it’s united in opposition to intrusive, misguided, and foolish American tax law.