Saturday, February 25, 2012

A level playing field for corporations

Dave Nicklaus has another excellent column in the St. Louis Post-Dispatch: Manufacturers deserve applause, but not special tax breaks:
Our corporate tax code is a big problem for American competitiveness, so it's good to see reform proposals coming from both political parties. The solution, though, is to reduce rates and make them fair to all companies, not just the ones that happen to be in a politically popular industry.
In stark contrast with the editorial board, which is willfully ignorant about how the economy works, Nicklaus and his fellow business reporters at the P-D are consistently thoughtful and sensible.

Nice volunteers you have there...

..It'd be a shame if anything happened to them.  Volunteers save cities billions, but unions cry foul

Who's out of work?

Via Greg Mankiw:  Abbott and Costello explain the unemployment rate

Who's laffing now?

The Laffer curve is alive and well: U.K.'s 25% Tax Hike on the 'Rich' Produces Less Revenue

Friday, February 24, 2012

Fracking=growth

Don Surber has a great chart showing that the source of what little growth we have seen is in energy-producing states, including those that have been the heaviest users of hydraulic fracturing. The chart is also alarming in that it shows how the most booming area of the country is the nation's capital.  That fact alone is proof that our economic policies are way out of whack.

Nobody's buying what he's selling

President Obama's plan to reform corporate income taxes is so wrongheaded that almost no one supports it.  Economists are nearly unanimous that the tax rates should be lowered to internationally competitive levels and that the tax base should be broadened by reducing industry-specific favors.  The President's plan does lower rates somewhat, but it continues to tax on a worldwide rather than a national basis and merely swaps favorable treatment from some industries to others.  Even the Associated Press isn't falling for it:
President Barack Obama wants to close dozens of loopholes that let some companies pay little or nothing in taxes. But he also wants to open new ones for manufacturers and companies that invest in clean energy.
To some analysts, the new loopholes risk upending the level playing field Obama says he wants to create.
Some also fear that companies could game the system to grab the new tax breaks.
"The administration is not making sense," says Martin Sullivan, contributing editor at publisher Tax Analysts. "The whole idea of corporate tax reform is to get rid of loopholes, and this plan is adding loopholes back in."
Economists across the political spectrum support a kind of grand bargain: cut corporate tax rates while deleting tax breaks that benefit a favored few.
When the AP, NPR, the Wall Street Journal, and Reason magazine are in general agreement, you might have a credibility problem.

Treasury Secretary Tim Geithner was quoted as saying "We want to restore a system in which American businesses succeed or fail based on the products they make and the services they provide, not on the creativity of their tax engineers or the lobbyists they hire."

This is a load of bunk. What he really meant was that "We want to restore a system in which businesses succeed or fail based on the tax engineers and lobbyists that we like, not those who Republicans like."

Wednesday, February 22, 2012

"Fake but accurate," once again

Dan Rather wasn't involved this time, but the 'fake but accurate' standard is alive and well among "journalists." The New York Times took lead of the "All the News That's Fit to Invent" crowd.

Rand Simberg has a rundown on the faked documents from the Heartland Institute that sent phony journalists into phony outrage. The editors of my hometown paper, the once-proud St. Louis Post-Dispatch, really outdid themselves this time.

More is available at Instapundit.

Tuesday, February 21, 2012

The Bennett hypothesis 2.0

Why They Seem to Rise Together: Federal Aid and College Tuition:
It's called "the Bennett Hypothesis," and it explains--or tries to explain--why the cost of college lies so tantalizingly out of reach for so many. In 1987, then Secretary of Education William J. Bennett launched a quarter century of debate by saying, in effect, "Federal aid doesn't help; colleges and universities just cream off the extra money by raising tuition." Now Andrew Gillen, research director of CCAP--the Center for College Affordability and Productivity--has tweaked the data and produced a sophisticated "2.0" version of the hypothesis.

What he should be saying

President Obama:  "The hijacking of funds from the fiscally unsound Social Security System will partially offset the costs of my misguided energy policies."

What he really said:  The payroll tax cut "means $40 extra in their paycheck, and that $40 helps to pay the rent, the groceries, the rising cost of gas."

Presidential polls

I've been wondering about the accuracy of polls this far ahead of a presidential election, but have been too lazy to look into it.  Luckily, Don Surber is more industrious:  Poll: Carter 63%, Reagan 32%

Monday, February 20, 2012

Fracking: A regulatory success story

The cover story of the most recent National Review is a terrific article by Kevin Williamson that counters the uninformed hysteria about hydraulic fracturing, the technique that has lead to a gas and oil boom in the United States.  That article is not available online without a subscription, but he has a shorter version of it: Facing Frack hysteria: Pa. drilling is cleaner than ever. 

He hits the nail on the head when he discusses the real motivation behind the opposition to fracking.

Presidents' Day special

As this is Presidents' Day, perhaps this is a good time to compare recent presidents. The chart below shows the average annual growth of real per capita GDP for recent presidential terms.

The notion that a president causes growth is not particularly sound, but if there is anything to it then we need to account for the long lags between presidential policies and economic outcomes. To do this, I attribute to a presidential term the four-year period beginning a year after taking office and a year after leaving office. Thus, all of 2009 is attributed to George W. Bush rather than Barack Obama, and all of 2001 is attributed to Bill Clinton rather than to George W. Bush. It's not exact, but it makes more sense than attributing the first year of a term to the new president.


Bill Clinton's first term scores highest, but Ronald Reagan's combined performance beats Clinton's. Back in 2004, Paul Krugman poo-poohed the notion that the Reagan boom had much to do with Reagan's policies. For Krugman, what really mattered was the depth of the recession prior to the boom:
The secret of the long climb after 1982 was the economic plunge that preceded it. By the end of 1982 the U.S. economy was deeply depressed, with the worst unemployment rate since the Great Depression. So there was plenty of room to grow before the economy returned to anything like full employment.

The depressed economy in 1982 also explains "Morning in America," the economic boom of 1983 and 1984. You see, rapid growth is normal when an economy is bouncing back from a deep slump.
This notion that the bounce-back is stronger after deep recessions is not uncommon, and is often part of forecasting models. So, perhaps there's something to what Krugman said. On the other hand, this notion is pretty weak in explaining how Reagan's second term was stronger than his first.

Funny, but now that I think about it, I haven't seen or heard anything from Krugman about the bounce-back effect since 2004, despite the fact that the slump that Barack Obama inherited was deeper than any since since the Great Depression. If anything, Krugman should be joining the chorus saying that President Obama's policies have been preventing the roaring recovery we should be experiencing.

Not the truly unemployed

John Hayward has a good explanation of why the official unemployment rate undercounts the true level of unemployment, but his replacement is seriously flawed. He says that the true unemployment rate is 36.3 percent, which is simply 100 minus the labor-force participation rate.  For one, he is subtracting the wrong thing.  What matters is the rate of employment (the employment-to-population ratio).  By subtracting the labor-force participation rate he is leaving in millions of people who are not employed but are looking for work (i.e., the officially unemployed).

Also, as a matter of semantics, what he's looking for should probably be called the nonemployment rate. To be unemployed suggests that you were employed and no longer are.  But then why not just use the employment-to-population ratio?

Friday, February 17, 2012

The party of change?

The next time you hear that the problem in Washington is that the GOP is putting party above country, recall the fate of Ron Wyden.  The Democratic Senator from Oregon worked with Rep. Paul Ryan (R, WI) on a bipartisan plan to save Medicare.  For his efforts, Wyden faced the wrath of fellow Democrats:
"Ron Wyden, Useful Idiot," railed New York Times columnist Paul Krugman. "Is Ron Wyden trying to get Mitt Romney elected?" fumed the Nation magazine. Ron Zerban, a Democrat running for Mr. Ryan's seat, accused Mr. Wyden of giving the GOP cover and proclaimed him no longer a "Democrat."
The White House went defcon, insisting that the plan would cause Medicare to "wither on the vine." House Democrats hissed the plan would end "Medicare as we know it." Most informative was the gripe of a former Senate staffer: Mr. Wyden was taking away "a key argument for Democrats that are trying to retake the House." The nerve!

Solyndra was just the tip of the iceberg

Is it corruption or incompetence?  You decide.  Personally, I think it's huge dollops of both, which is exactly what one should expect when a government entity becomes a venture capitalist and effectively relies on the firms themselves to decide how to spend other people's money.

Remember, it's all about the children

Chicago teachers asking for 30% raises over next 2 years:
The Chicago Teachers Union is asking for raises amounting to 30 percent over the next two years, the opening salvo in heated contract negotiations with school officials who are implementing a longer school day across Chicago Public Schools next school year.

Thursday, February 16, 2012

The President's budget

The President's "blueprint for an economy that is built to last": To infinity and beyond!

Remember that the only reason he hasn't halved the deficit as promised is because he didn't know what was going on in 2009

Well, at least Turbo-Tax Tim is being honest

When your own Treasury Secretary calls your budget unsustainable, you might have a problem. But the President has called it “a blueprint for an economy that is built to last.”

Where are the jobs?

The Republican Study Committee issued a press release today that included a graph of the labor-force participation rate:

Wednesday, February 15, 2012

More on a global minimum tax

I have no idea what he's talking about, and I get the feeling that he doesn't either. President Obama declared today that:
no American company should be able to avoid paying its fair share of taxes by moving jobs and profits overseas. From now on, every multinational company should have to pay a basic minimum tax. And every penny should go towards lowering taxes for companies that choose to stay and hire in the United States of America.
This appeared in his state of the union address, but it still doesn't make any sense. How does the United States tax every multinational with a basic minimum tax?  What the heck does that even mean?  They're multinational.  How can you tax them?  I fully suspect that this is as nonsensical as it seems, but John Hayward is under the impression that it's some sort of tax that other countries agree to employ.  Either way, it's par for the course, I'm afraid.

Tuesday, February 14, 2012

He's barely even pretending to present an honest budget

I don't know which is worse, that the Senate has refused to present a budget despite being required to by law, or the President presents a budget that is grossly irresponsible largely smoke and mirrors.

Obama’s Deceptive, DOA Budget

Obama’s ‘rosy’ budget scenario doubles down on class warfare

Sessions To Obama Budget Chief: Will You Resign If Your Statement Is Proven False?:

Monday, February 13, 2012

Now they want to globalize our fiscal disaster

White House Economic Adviser: 'We Need a Global Minimum Tax':  It pretty much goes without saying that much of this proposal would be a complete disaster for the US and world economies.

Credit where credit is due

I don't agree with the underlying reasons for this comment from Rep. Emanuel Cleaver, but he deserves credit for a clever metaphor: "Dem Lawmaker: Obama Budget is a 'Nervous Breakdown on Paper'."

Smart diplomacy

"A Swiss Response to American Fiscal Imperialism"
Switzerland is in the unfortunate position of being bullied and harassed by the U.S. government. The crux of the problem is that the United States arguably has the world's worst tax system for international activity, and this creates conflict with other nations, particularly ones that have good tax laws that attract investment.
This has resulted in a number of different attacks against Swiss sovereignty. On the multilateral front, the Obama Administration is actively supporting the anti-tax competition project of the Organization for Economic Cooperation and Development...
What makes this situation particularly frustrating is that it is entirely the result of bad American policy.

Cronyism

John Hindraker has a good outline of cronyism during the Obama Administration.  Although cronyism certainly is not exclusive to Obama or Democrats, Hindraker argues that the current situation in the U.S. is different:
What we have seen more recently, especially in the Obama administration, is something much more sinister — private sector, or corporate, cronyism — where the government uses its power to tax and spend, and its power to regulate, to help some companies and industries, making them artificially more profitable or keeping them in business, while using the same powers to disadvantage and potentially destroy other companies and industries that are not allied with the White House or with Congress.
Does being an Obama crony pay off? This graphic from Peter Schweizer’s book sums it up as well as anything: the members of Obama’s national finance committee have already recouped an average of around $25,000 in federal dollars for their companies, for every dollar they raised for Obama’s campaign. Is that a good investment, or what?

Sunday, February 12, 2012

We're in the best of hands

WH Chief of Staff Errs on Senate Budget Rules:
As President Obama prepares to unveil his FY2013 budget Monday, White House chief of staff Jack Lew this morning was asked by CNN to defend the Senate’s refusal to pass a budget in more than 1,000 days.
“You can’t pass a budget in the Senate of the United States without 60 votes and you can’t get 60 votes without bipartisan support,” Lew said. “So unless… unless Republicans are willing to work with Democrats in the Senate, [Majority Leader] Harry Reid is not going to be able to get a budget passed.”
That’s not accurate. Budgets only require 51 Senate votes for passage, as Lew — former director of the Office of Management and Budget — surely must know.
The real reason why the Senate under Reid hasn't passed a budget (as required by law) in years:
In this case, political observers believe Reid is reluctant to have Democrats vote on a large budget full of deficits and tax increases that Republicans can use to run against them.
Update: The Washington Post gives Lew its highest rating, Four Pinocchios:
That said, Lew is completely wrong when he claims that 60 votes are needed to “pass a budget in the Senate.” As he well knows, a budget resolution is one of the few things that are not subject to a filibuster.

Leeches and thieves

Congress has its eyes on your IRA:
A surprise proposal in Congress to drum up tax revenue from inherited IRAs is raising eyebrows—and making some financial advisers nervous.
A Senate Finance Committee proposal floated this past week as part of a highway-funding bill would give heirs five years to empty inherited individual retirement accounts or 401(k)s, which would typically trigger income-tax payments. The rule change could raise some $4.6 billion in income taxes over the next decade, according to a statement by Sen. Max Baucus (D., Mont.), chairman of the Senate Finance Committee.
Remember that they will try to take your money however, whenever, and wherever they can, and it doesn't matter much which party is in power.

 

Saturday, February 11, 2012

Rex Sinquefield at ISEE, Lindenwood University

This past Thursday, my institute at Lindenwood University hosted Rex Sinquefield, who talked about his push to replace Missouri's income tax with a sales tax. The St. Louis Beacon has a fairly good summary of the proposal, the politics of it, and the event. Here's the proposal in a nutshell:
Although some details vary, all of the proposals call for eliminating or phasing out the state's 6 percent income tax. The state's current sales tax of 4 or 4.225 percent would be increased to no more than 7 percent. Several petition proposals would cap the combined state and local sales taxes at 10 percent.
There was a lively and fruitful discussion about the proposal, as well as other initiatives that Sinquefield supports. I'd like to thank Rex Sinquefield and all who attended the event (including the protesters!) for making it a success. Here's a video of the event:

The truth about taxes and inequality

To the many willfully innumerate journalists who have written about the subject, Warren Buffet's mistaken claim that he pays a higher tax rate is enough to prove that we have to raise taxes on millionaires, where millionaires are those who earn over $250,000.  Here's a collection of useful links that present some inconvenient truths about taxes and inequality:

Clive Crook: U.S. Taxes Really Are Unusually Progressive

Greg Mankiw: Five Observations About Progressivity and Tax Rates for the Rich and Poor

James Pethokoukis: The Chart That Closes the Case on the Inequality Myth

Friday, February 10, 2012

The economics behind the birth-control mandate

John Cochrane goes to the economic root of the ongoing hubbub over the Obama Administration's requirement that Catholic institutions provide free contraception and abortifacients to their employees.  In short, health "insurance" is not really insurance at all:
Insurance is supposed to mean a contract, by which a company pays for large, unanticipated expenses in return for a premium: expenses like your house burning down, your car getting
stolen or a big medical bill.
Insurance is a bad idea for small, regular and predictable expenses. There are good reasons that your car insurance company doesn't add $100 per year to your premium and then cover oil changes, and that your health insurance doesn't charge $50 more per year and cover toothpaste.
You'd have to fill out mountains of paperwork, the oil-change and toothpaste markets would become much less competitive, and you'd end up spending more.
How did we get to this point? It all leads back to the elephant in the room: the tax deductibility of employerprovided group insurance.

$25 billion shakedown

The government is looking more and more like The Sopranos. The $25 billion settlement with banks is nothing short of bald-faced extortion by politicians who will use all sorts of threats to take money.  It does nothing to improve the housing market and is intended first and moremost as a pocket-lining measure with attached election-year payouts to buy votes.

Wednesday, February 8, 2012

Presidential insider trading

JFK waited until he was sure that his aide had bought up as many Cuban cigars as possible before enacting the Cuban trade embargo.

Window dressing for Congressional insider trading

The recently passed STOCK Act will allegedly curb insider trading by members of Congress.  As documented in research (here and here) by my Lindenwood colleague Jim Boyd and his co-authors, members of Congress are able to profit substantially from the information they obtain while doing the people's business.  Peter Schweitzer doesn't think much of the STOCK Act and prefers the RESTRICT Act because it might actually work.  The fact that the STOCK Act passed the Senate 96-3 is enough to suggest that it would be pretty useless in curbing the practice.

Monday, February 6, 2012

Takers vs. makers

Glenn Reynolds has a column about how the United States is becoming a nation of moochers.
If you tried to hold a series of potluck dinners where a majority brought nothing to the table, but felt entitled to eat their fill, it would probably work out badly. Yet that’s essentially what we’re doing.

In today’s America, government benefits flow to large numbers of people who are encouraged to vote for politicians who’ll keep them coming.  The benefits are paid for by other people who, being less numerous, can’t muster enough votes to put this to a stop.

Over time, this causes the economy to do worse, pushing more people into the moocher class and further strengthening the politicians whose position depends on robbing Peter to pay Paul. Because, as they say, if you rob Peter to pay Paul, you can be pretty sure of getting Paul’s vote.

We're your local government and we're here to help

Logic dictates it

Coming soon: Individual mandate to buy Chevy Volts:  (a) we can be forced to buy products that our lords and masters in Washington have decided are good for us, (b) Government Motors must be saved at whatever cost to taxpayers, and (c) Gaia must be served.

Wednesday, February 1, 2012

News from the left coast

"Electric Cars: Doubling Down on Dumb." California is again falling for the fantasy that it can mandate a green utopia.  Robert Bryce, who spoke at my institute last fall, had a great quote about the electric car: "It's the next great technology, and always will be."