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World

USS-Curtis-Wilbur-Reuters

File: USS Curtis Wilbur, a U.S. Navy guided missile destroyer, sails in the Pacific. (Photo: Reuters)

Only days after Secretary of State John Kerry visited Beijing hoping to settle long standing territorial dispute, a U.S. naval vessel sailed within 12 nautical miles of an island in the South China Sea. The move further angered Chinese officials frustrated over Washington’s decision to allow Taiwan’s defense minister to visit the U.S.

The guided missile destroyer USS Curtis Wilbur (DDG-54) conducted a freedom of navigation operation Saturday near Triton Island, part of the Paracel Island chain in the South China Sea, which is also claimed by Vietnam and Taiwan. There were no Chinese warships in the area at the time and the move was characterized by Pentagon officials as “innocent.”

“This operation was about challenging excessive maritime claims that restrict the rights and freedoms of the United States and others, not about territorial claims to land features,” said Pentagon spokesman Capt. Jeff Davis.

Davis, who refused to single out China, said none of the three claimants to the island were notified before the US Navy warship transited the area as part of a “normal process” supported by international law.

The incident, whether innocent or not, is the latest in a string of occurrences that have increased tensions over the past several months.

In October, the USS Lassen, another U.S. Navy destroyer, conducted a patrol within 12 nautical miles of yet another Chinese island, a disputed man-made island in the South China Sea part of the Spratly chain of islands. It was met with a strong public and private rebuke from Beijing.

In November, U.S. Air Force B-52 bombers flew near other contested Chinese islands. Then, in December, the U.S. military deployed a U.S. Navy P-8 Poseidon reconnaissance plane to Singapore. In early January, two Chinese civilian airliners tested a newly constructed airstrip by landing onto Fiery Cross reef, which the Chinese have converted into an artificial island in the South China Sea. However, Pentagon officials say Beijing is gearing up to militarize the area and expect military jets to be arriving soon.

While Secretary Kerry refused to criticize China publicly over their activities in the South China Sea, particularly regarding the build-up of artificial islands in the face of objections by neighbors in the region, his counterpart was not so courteous.

“I pointed out to Secretary Kerry that the South China Sea Islands have historically been China’s territory. China has a right to protect its own territorial sovereignty,” said Chinese Foreign Minister Wang Yi.

Kerry said the United States “does not take sides on the sovereignty questions underlying the territorial disputes.”

The Defense Department shows a clear split with their diplomatic counterparts in the administration. Secretary of Defense Ash Carter said in Asia last summer he was “deeply concerned” about China’s build up on its man-made islands, and promised more military operations in the South China Sea.

“Make no mistake: The United States will fly, sail and operate wherever international law allows, as we do around the world, and the South China Sea is not and will not be an exemption,” said Carter in Boston in October standing alongside Secretary Kerry and their respective Australian counterparts.

The guided missile destroyer USS Curtis Wilbur

Politics

hillary-clinton-united-nations-march-10-2015

Hillary Rodham Clinton speaks to the reporters at United Nations headquarters, Tuesday, March 10, 2015. Clinton conceded that she should have used a government email to conduct business as secretary of state, saying her decision was simply a matter of “convenience.” (Photo: AP/Seth Wenig)

The State Department said Friday it withheld 22 of Hillary Clinton’s emails from it’s latest dump for containing “top secret” material too damaging to national security for public consumption. Further, another 18 of the former secretary of state’s messages with President Obama were withheld for being protected communications.

According to sources, at least one of Mrs. Clinton’s emails contained information identified as “HCS-O,” which is code relating material to intelligence collected from human spying. This information adds to and backs up a previous report by Fox News earlier this week, which claimed some of the emails contain material from “special access programs,” or SAP, which is considered beyond “top secret” classification.

Department spokesman John Kirby said the intelligence community said the emails contained that high level of sensitivity and the State Department now agrees with that, and upgraded the classification to prevent their release. Worth noting, as Mrs. Clinton has previously claimed, the State Department had challenged the intelligence community’s internal review conclusions that characterized certain emails classified “at birth,” but never had authority to do so since the intelligence did not originate from their agency.

“In consultation with the intelligence community, we are making this upgrade and we believe it’s the prudent or responsible thing to do,” Mr. Kirby said.

While he said none of the emails had information marked classified at the time Mrs. Clinton sent or received them, but said the State Department is still looking into whether they should have been at the time.

Mrs. Clinton’s presidential campaign immediately responded to the news, disagreeing with the State Department’s decision.

“We firmly oppose the complete blocking of the release of these emails,” Clinton spokesman Brian Fallon said in a statement. “Since first providing her emails to the State Department more than one year ago, Hillary Clinton has urged that they be made available to the public. We feel no differently today.”

He then slammed the agencies in charge of reviewing Mrs. Clinton’s emails for sensitive information.

“After a process that has been dominated by bureaucratic infighting that has too often played out in public view, the loudest and leakiest participants in this interagency dispute have now prevailed in blocking any release of these emails,” Mr. Fallon said, calling the decision to withhold the emails “over-classification run amok.”

He said the information was on the unclassified system at the time she sent them, and still remains there. However, for investigators at the Federal Bureau of Investigation (FBI) this is a political, not a criminal defense. At least one email shows Mrs. Clinton directing subordinates to work around the rules. In an email dated June 2011 to Jake Sullivan, she told him to take what were classified talking points and “turn into nonpaper w no identifying heading and send nonsecure.”

The agencies that owned and originated the intelligence–the CIA and National Geospatial-Intelligence Agency, or NGA–reviewed the emails in December to determine how they should be properly stored. The sources, who were not authorized to speak on the record, said that not only were the emails marked “top secret” when they hit Clinton’s server, one of them remains “top secret” even to this day.

Meanwhile, Mr. Kirby said he wouldn’t talk about what was in the 18 emails between President Obama and Mrs. Clinton, and said the administration is not yet asserting executive privilege over them. However, the administration is withholding them for such time as the president can feel he can receive “unvarnished” advice from his circle of advisors.

He also brushed aside questions about whether it was strange that Mrs. Clinton only exchanged 18 messages with Mr. Obama during her four years in office.

“We have found these 18, and I do not expect that there will be more,” Mr. Kirby said.

The FBI has expanded their investigation into Clinton’s email practices to include “public corruption” with the Clinton Foundation. While the agency had been previously investigating potential “gross negligence” relating to her use of a private server to conduct official State Department business, they have begun to scrutinize whether she inappropriately used her role to benefit the foundation and, according to sources, these two investigations are now “inseparable.”

At least one of the Clinton emails

Entertainment

Fox-News-debate-moderator

From left to right: Fox News debate moderators Chris Wallace, Megyn Kelly, and Bret Baier. (Photo: AP)

Ratings for the Fox debate in Iowa on Thursday fell dramatically without the frontrunner to 12.5 million viewers, down from 24 million viewers in August. In fact, it was the second least watched debate of the entire primary season and received a million short of the 13.5 million viewers who tuned in to their sister Fox Business Network debate in November.

Trump boycotted the debate after the network released what could at least be characterized as an unprofessional press release taking a jab at the GOP frontrunner, which followed what many believed to be an all-out attempt during the first debate to take him out of contention. Now, of course, the network is trying to spin the number as a success.

Thursday night’s Republican presidential debate on FOX News Channel scored 12.5 million viewers, making it the second-highest rated telecast in the network’s history.

Despite the spin, these numbers are a far cry from the previous numbers for both the prior Fox News and CNN GOP primary debates, and certainly a far cry from what advertisers expected.

Moderated by Megyn Kelly, Bret Baier and Chris Wallace, the Fox News debate was the Republican candidates’ last debate before Monday’s Iowa Caucus.

Ratings for the Fox debate in Iowa

Policy

irs-building-dc

Internal Revenue Service (IRS) headquarters building in Washington D.C. (Photo: AP)

There is some very good news to share. The income tax will disappear in April. But there’s also some bad news. The income tax is only being abolished in the Caribbean nation of Antigua and Barbuda, and there’s little reason to think that America’s awful internal revenue code will disappear anytime soon.

Nonetheless, we should celebrate this development because it shows that fiscal mistakes can be reversed.

A report from Caribbean News Now has some of the highlights.

The people of Antigua and Barbuda will from April receive tax relief when the government plans to abolish personal income tax (PIT).  PIT, introduced by the now opposition United Progressive Party upon coming into office in 2004, imposes a tax of 8% on residents earning an income above $3,500 and 15% on those earning an income above $25,000. …Prime Minister Gaston Browne…noted that previous Antigua and Barbuda Labour Party administrations governed Antigua and Barbuda successfully for 27 years without personal income tax. He said that the cost of collecting PIT, the difficulty of enforcement, and its unfairness, make it sensible to remove the PIT from the books.

Wow, the Antigua and Barbuda version of the Labour Party obviously is much better than the crazed British version.

But let’s not get sidetracked. Here are some additional details from a story in theJamaica Observer.

Prime Minister Gaston Browne yesterday announced that, effective April, personal income tax will be abolished in its entirety. …”Abolishing personal income tax is an important reform. Not only will it put more money in the pockets of the people, so that they can save or spend more for the benefit of the economy as whole, it will help to re-establish our country as one of the most competitive in the Caribbean and beyond.” …He noted that with this move, Antigua and Barbuda will be a location that is competitive and also the choice of retirees.  “Antigua and Barbuda will become a competitive location to attract the headquarters of companies and for professionals to relocate, thereby creating more jobs. Retirees will choose Antigua and Barbuda as their retirement home; Citizenship by Investment Programme (CIP) investors will invest and choose Antigua and Barbuda over our competitors,” said the prime minister. …”taxing income is destructive to investment, savings and consumption. Also, it penalises entrepreneurship.”

For a politician, Mr. Browne has a good understanding of economics. I don’t like the “money in the pockets” rhetoric because it implies a bit of Keynesianism, but everything else he said is based on solid, microeconomic observations about incentives. Very reminiscent of JFK.

And I also like his point about wanting to be a “competitive location.” Yet another example of why tax competition is such a wonderful force for good policy. It encourages governments to do the right thing even when they don’t want to.

I bet, for instance, that the good reform in Antigua and Barbuda will put an end to the suicidal talk of an income tax in the Cayman Islands.

But what about the United States? Is there any chance that good policy in the Caribbean will encourage tax reform in the United States?

Unfortunately, most politicians couldn’t find Antigua and Barbuda on a map, much less care about that nation’s fiscal policy. So I’m not holding my breath that we’ll reverse the horrid mistake that was made in 1913.

But maybe, just maybe, we can at least figure out a less corrupt and less destructive way for the politicians to grab our money.

P.S. Antigua and Barbuda is a beautiful place, but I’ve noted before that government always has the ability to turn Heaven into Hell.

P.P.S. By the way, because of our awful worldwide tax system, American citizens can’t move to Antigua and Barbuda and benefit from that nation’s good tax policy. But there is a Caribbean island where you can legally slash your tax burden.

P.P.P.S. For those who follow Caribbean tax policy, we also enjoyed a fiscal victory a few years ago when a value-added tax was rejected in the Turks and Caicos Islands.

P.P.P.P.S. On an unrelated topic, I want to augment my observations on the water crisis in Flint, Michigan, by citing some very important analysis by Reason‘s Shikha Dalmia. While a wasteful and incompetent local government caused the mess, she explains that state officials deserve some blame because they wanted to “create jobs” with an infrastructure project instead of accepting a good water deal from Detroit.

…the debacle is the result of Snyder’s efforts to stimulate the local economy—the exact opposite of the liberal line. …the then DWSD Director Susan McCormick presented two alternatives to Emergency Manager Ed Kurtz that slashed rates for Flint by nearly 50 percent, something that made Detroit far more competitive compared to the KWA deal. …Genesee County and Flint authorities saw the new water treatment as a public infrastructure project to create jobs… And neither Snyder nor his Emergency Manager Ed Kurtz nor the state treasurer Andy Dillon had the heart to say “no,” especially since to hand Flint to DWSD would have made the whole project less viable. …the Flint water crisis is the result of a Keynesian stimulus project gone wrong.

Hmmm…, statists make silly claims about terrorism being caused by climate change or inequality. Maybe I can be equally silly and now argue that stimulus schemes cause poisonous water!

[mybooktable book=”global-tax-revolution-the-rise-of-tax-competition-and-the-battle-to-defend-it” display=”summary” buybutton_shadowbox=”true”]

Good news: The income tax will disappear

Economy, Markets

Gap-consumer-sentiment-reuters

(A shopper leaves the Gap with a bag in New York City. (Photo: REUTERS)

The University of Michigan consumer sentiment index, a closely-watched monthly survey, fell to 92 in January from a preliminary reading of 93.3 earlier in the month.

“Consumer confidence has remained largely unchanged, as the January reading was just 0.6% below last month’s level,” Surveys of Consumers chief economist, Richard Curtin said. “The small downward revisions were due to stock market declines that were reflected in the erosion of household wealth, as well as weakened prospects for the national economy.”

The median forecast called for a higher reading of 93.

Final Consumer Sentiment Results for January 2016

Jan Dec Jan M-M Y-Y
2016 2015 2015 Change Change
Index of Consumer Sentiment 92.0 92.6 98.1 -0.6% -6.2%
Current Economic Conditions 106.4 108.1 109.3 -1.6% -2.7%
Index of Consumer Expectations 82.7 82.7 91.0 +0.0% -9.1%
Next data release: February 12, 2016 for Preliminary February data at 10am ET

The University of Michigan consumer sentiment index,

Economy

midwest-manufacturing-goods

Surveys gauging growth or contraction in Midwest manufacturing. (REUTERS)

The Chicago Business Barometer, the Institute for Supply Management’s gauge of Midwest manufacturing activity, jumped to 55.6 in January. While that’s up from 42.9 the month prior, the survey’s chief economist is cautioning against overly optimistic reactions to the month’s gains in light of the larger trend in the prior quarter.

“While the surge in activity in January marks a positive start to the year, it follows significant weakness in the previous two months, with the latest rise not sufficient to offset the previous falls in output and orders,” Chief Economist of MNI Indicators Philip Uglow said. “Previously, surges of such magnitude have not been maintained so we would expect to see some easing in February.

The gain in the Chicago Business Barometer followed what the report characterized as “extreme weakness in the fourth quarter,” with the index averaging 47.7, the weakest quarterly growth since the third quarter of 2009. The three month trend remained in contraction at 48.7, up only slightly from 47.7 in December.

Wall Street expected a much shallower gain to 45.9. Readings above 50 point to expansion, while those below indicate contraction.

“Still, even if activity does moderate somewhat next month, the latest increase supports the view that GDP will bounce back in Q1 following the expected slowdown in Q4,” Uglow added.

The Chicago Business Barometer, the Institute for

Economy

Gross-Domestic-Product-GDP-Reuters

File photo: Shipping cranes and containers at a U.S. port representing exports and imports factored in overall gross domestic product, or GDP. (Photo: REUTERS)

The Commerce Department’s first reading on fourth-quarter gross domestic product (GDP) showed the U.S. economy grew at an abysmal annualized pace of 0.7%. The sharply declining number is down from an already underwhelming third-quarter final reading of 2%.

Economists previously polled by Reuters had forecast the U.S. economy to post a 0.8% growth rate in the fourth quarter.

Whatever slight gains seen came from contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from private inventory investment, exports, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

Businesses accumulated $68.6 billion worth of inventory, according to initial estimates and, while that is down from $85.5 billion in the third quarter, it was slightly more than economists had forecast. The data indicate inventories are likely to remain a net negative on growth in the first quarter. Inventory sliced off 0.45% from the first estimate of fourth-quarter GDP growth.

A bit surprisingly, spending on equipment by businesses contracted by 2.5% in the fourth quarter after increasing 9.9% in the third quarter. Investment in residential construction remained in a strong position, rising at a 8.1 percent rate.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased by 2.2%, down from from the 3.0% pace in the third quarter. With consumer spending weakening, inflation appears to have backed off in the fourth quarter from the modest gains made in the prior quarter. A price index in the Commerce Department report, which excludes food and energy costs, increased 1.2%, down from a 1.4% pace in the third quarter.

Investment in mining exploration, wells and shaft–an industry that has lagged far behind in job creation–fell 35% in 2015, the largest drop since 1986.

The Commerce Department's first reading on fourth-quarter

Politics

Fox-News-GOP-Debate-740x400

The top polling Republican presidential hopefuls, minus frontrunner Donald Trump, take the stage for the final debate before the Iowa caucus hosted by Fox News on Jan. 28, 2016.

With frontrunner Donald Trump absent from the Fox News/Google GOP debate in Iowa, Texas Sen. Ted Cruz took center stage and the heat that comes with it.

“This is the lie that Ted’s campaign is built on, and Rand touched upon it, that he’s the most conservative guy and everyone else is a RINO (Republican in Name Only),” Florida Sen. Marco Rubio said. “The truth is Ted, throughout this campaign, you’ve been willing to say and do anything in order to get votes.”

Rubio went on to point out that Cruz helped design former President George W. Bush’s immigration policy, which provided a path to legal status for those who entered the country illegally. That bill, which was opposed by the conservative wing of the party in Congress, was ultimately sabotaged by then-Sen. Barack Obama who introduced a last-minute poison pill amendment.

“Now, you want to trump Trump on immigration,” Rubio added.

Rubio’s attack was followed up immediately by another from Kentucky Sen. Rand Paul, who called Trump’s closest rival the “king” of accusing others of not really being against amnesty.

“That’s a falseness,” Paul said. “That’s an authenticity problem, that everybody he knows is not as perfect as him because we are all for amnesty. I was for legalization. So was Ted, but now he says it wasn’t so. That’s not true.”

The harsh exchanges came after Fox News’ debate moderators ran clips of both Rubio and Cruz, the latter of whom was seen in a series of clips from the 2013 immigration negotiations in the Senate making contradictory statements to the position he holds now. The clips showed Cruz backing an amendment to the Senate “Gang of Eight” immigration reform bill that provided a path to legal status.

In the footage, Cruz said that the bill would pass if his amendments were passed and, in fact, he hoped to find a middle ground to “allow for those 11 million people here illegally a legal status with citizenship off the table.”

Pointing to supporters like Sen. Jeff Sessions, R-Ala., and Iowa’s own Rep. Steve King, R-Iowa, both strong opponents of amnesty, Cruz said Rubio campaigned in Florida on the promise to fight against amnesty and then reversed course for political expediency.

“When that battle was waged, my friend Sen. Rubio chose to stand with Barack Obama, Harry Reid, and Chuck Schumer to support amnesty,” he said of the Democrats.

“I stood alongside Jeff Sessions and Steve King and we led the fight against amnesty,” he added.

But some of Cruz’s worst moments of the debate came not from the other candidates, but from himself. At one point early in the debate, he attempted to deliver a joke mocking the absence of Trump, which fell flat when the audience first took it as whining to the moderators. It was met with booing from the crowd who only mildly chuckled after the punchline became clear.

At another point, he argued over time with moderator Chris Wallace when he tried to move on to another topic and in clear violation of the rules. But when he got his chance to respond to Wallace’s question that could’ve blunted an oft-heard attack from Rubio over his record on supporting defense initiatives, he didn’t answer the charge directly. That left him open again to a rather dishonest attack from the Florida senator.

“The only budget that Ted has ever voted for was a budget that Rand Paul sponsored that brags about cutting defense spending,” Rubio said.

In fairness, Rubio has not been honest with this line of attack. While Cruz did oppose authorizing the use of force in Syria to enforce the president’s self-imposed “red line” following the chemical attacks, it was because the military operation on the table was symbolic, not strategic. Further, in the end, Cruz and Paul were right and Rubio was wrong. Had the Congress authorized President Obama take action in Syria against President Bashar al-Assad, then ISIS would more than like be ruling from Damascus, not Raqqa.

Nevertheless, how Trump’s absence from the debate plays with Iowa caucus-goers is yet to be seen. While they have been notoriously difficult to poll, as PPD outlined yesterday, more recent polls show the billionaire real estate mogul pulling away from Cruz in the closing days. Trump currently leads Cruz by 6% on the PPD aggregate average of Iowa caucus polls. Further, he has held a lead longer than other previous candidates. Turnout will tell the tale.

With frontrunner Donald Trump absent from the

Video

“If You Guys Ask One More Mean Queston, I May Have To Leave”

[brid video=”26316″ player=”2077″ title=”GOP Debate Ted Cruz &#39If You Guys Ask One More Mean Question…&#39″]

Ted Cruz attempted to deliver a joke mocking the absence of Donald Trump, which fell flat when the audience first took it as whining to the moderators.

“The last four questions have been: Rand, please attack Ted. Marco, please attack Ted. Chris, please attack Ted. Jeb, please attack Ted. Let me just say this… If you guys ask one more mean question, I may have to leave the debate.

Ted Cruz attempted to deliver a joke

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