The Bush/Obama Years

The new Fraser/Cato Economic Freedom Index is out, and the US continues to slide lower:

Global economic freedom increased modestly in this year’s report, though it remains below its peak level of 6.92 in 2007. After a global average drop between 2007 and 2009, the average score rose to 6.87 in 2011, the most recent year for which data is available. In this year’s index, Hong Kong retains the highest rating for economic freedom, 8.97 out of 10. The rest of this year’s top scores are Singapore, 8.73; New Zealand, 8.49; Switzerland, 8.30; United Arab Emirates, 8.07; Mauritius, 8.01; Finland, 7.98; Bahrain, 7.93; Canada, 7.93; and Australia, 7.88.

The United States, long considered the standard bearer for economic freedom among large industrial nations, has experienced a substantial decline in economic freedom during the past decade. From 1980 to 2000, the United States was generally rated the third freest economy in the world, ranking behind only Hong Kong and Singapore. After increasing steadily during the period from 1980 to 2000, the chain linked EFW rating of the United States fell from 8.65 in 2000 to 8.21 in 2005 and 7.74 in 2011. The chain-linked ranking of the United States has fallen precipitously from second in 2000 to eighth in 2005 to 19th in 2011 (unadjusted rating of 17th).

The rankings (and scores) of other large economies in this year’s index are the United Kingdom, 12th (7.85); Germany, 19th (7.68); Japan, 33rd (7.50); France, 40th (7.38); Italy, 83rd (6.85); Mexico, 94th (6.64); Russia, 101st (6.55); Brazil, 102nd (6.51); India, 111th (6.34); and China, 123rd (6.22).

I’m getting nostalgic for the Reagan/Clinton years.

On another topic, the radical Republicans have taken over North Carolina.  With almost complete control of the state government, they have enacted an agenda that is the worst nightmare of liberals:

The big hope: The new economic activity will compensate for the estimated $2.4 billion revenue loss over the next five years as a result of the reforms.

But the overhaul — which represents a scaled back version of earlier proposals — has been heavily criticized by many, mostly liberals. They contend its tax cuts will disproportionately benefit the rich and the revenue loss will cut into government services.

Starting in 2014, the individual income tax rate will be 5.8%, and then it will fall to 5.75% in 2015. Those rates are down from the 6%, 7% and 7.75% rates currently in effect.

The standard deduction, meanwhile, will more than double — to $7,500 for singles, from $3,000; and to $15,000 for married couples filing jointly, from $6,000.

That’s right, an income tax almost identical to that of Massachusetts, except more progressive.  That’s what passes for “far right” these days. Why not even lower income tax rates?  Because they were unable to do meaningful sales tax reform:

The state’s biggest opportunity for more revenue would be to apply its sales tax to services, Groseclose said. But the new reforms still leave most of them exempt.

Indeed, he noted, only about 25 or 30 services are subject to tax — such as dry cleaning. But another 165 to 175 could be — such as CPA services.

Let me guess, CPAs in North Carolina vote Republican.

PS.  I notice that both the Fraser/Cato and Heritage surveys have Denmark scoring higher than the US in “economic freedom.”  How do you think Jim DeMint and the gang at Heritage would react if the House GOP suggested replacing the US economic model with the Danish model?  It’s kind of comical that the Heritage keeps putting out a survey developed in the days when they were still a reasonable right wing organization, not the loony Tea Party outfit they have become.  Maybe this blog post will cause them to shut it down.  That would be too bad, as it’s slightly less inaccurate than the Cato survey, which has Spain nearly tied with the Netherlands.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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