Capital Commerce
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The Bush Tax Cuts, Revisited
Continue reading… 2 CommentsThe folks at the Tax Foundation point to new research that shows the 2001 and 2003 cuts in marginal tax rates significantly affected taxpayer behavior. Now that's just common sense to everyone but balanced-budget hawks and economists at the Congressional Budget Office. Here's a key bit (bold is mine):
Recent research on President Bush's tax relief in 2001 and 2003 has found that the lower tax rates induced taxpayers to report more taxable income. In particular, the reduction in the top two tax rates induced taxpayers to report more taxable income—an increase in the size of the tax base—to such an extent that this positive behavioral response likely offset roughly 25 percent to 40 percent of the static revenue loss of lowering the top two tax rates. This research illustrates that, while the lower tax rates have not paid for themselves, they do provide important economic benefits and can expand the tax base to such an extent that they cost the federal government substantially less revenue than the casual observer might think. Moreover, this research may provide valuable insights into the harmful effects of high tax rates as the Presidential candidates' tax plans are evaluated.
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McCain’s Lack of Big Ideas
Continue reading… 1 CommentLiberal bloggers are all over Bobby Jindal for his inability on Meet the Press yesterday to name a few "big ideas" that John McCain has proposed. (Of course, these are the same folks who sniffed at McCain's idea for an innovation prize to create a new super battery, and said nothing about his idea to provide wage insurance for displaced older workers.) A few thoughts on the topic:
1) McCain should never have endorsed extending the Bush tax cuts. It made him look disingenuous, because he voted against them. Instead, he should have strongly proposed an entirely different tax code. Period. Instead, his vague and underdeveloped idea for an optional tax code looks like a total gimmick.
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Obama vs. the Bond Market Vigilantes
Continue reading… 3 CommentsTeam Obama has made it clear that a President Obama would place greater priority on America's "investment deficit" (spending on energy, infrastructure, and education) in his first term than the budget deficit. So Obama would not be under any self-imposed pressure to dramatically cut the deficit or balance the budget. But I think that could change.
The White House is predicting about a $500 billion budget deficit next year. Many budget experts think that number could be more like $600 billion. Add in a Fannie and Freddie bailout/second stimulus package and a slightly worse-than-expected economy, and you are quickly talking about a $700 billion shortfall. Even worse, a mega-bailout for the banking industry could tack o n another $500 billion or more. (Plus, the $700 billion number would be more like $1 trillion if Social Security surpluses weren ' t being used to mask its true size. ) Now , $700 billion is a big number— about 5 percent of GDP. We're talking about the level of budget shortfall that was last seen during the 1980s, when Democrats attacked President Reagan for being fiscally irresponsible.
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20 Reasons to Kill Corporate Taxes
Continue reading… 23 CommentsWhat to do about corporate tax rates represents a key difference between Obamanomics and McCainomics. John McCain wants to cut them. Barack Obama wants to raise them, at least on oil companies, through a windfall profits tax. But maybe they're both wrong. Maybe we should just get rid of these levies altogether. Here are 20 reasons why it's time to sack the corporate income tax:
1) The United States has the second-highest corporate tax rate in the world, just shy of 40 percent when you combine state and federal taxes.
2) The U.S corporate tax rate is 50 percent higher than the average for Organization for Economic Coordination and Development member states.
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The McCain Energy Meme
Continue reading… 2 CommentsOver at The Next Right, Matt Moon notices, as I did yesterday, that energy=economy is a powerful McCain meme:
If McCain's many advisers and media consultants can come up with a strategy that merges the energy and economic messages, along with touting the "Commander-in-Chief" message on issues like Georgia, he can make a lasting impact from the GOP convention and afterwards. Patrick is going in the right direction with branding the GOP as "The Party You Can Afford," but here are a few more ideas for targeted audiences:
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Picturing a Recession
Continue reading… 2 CommentsIt is charts like the ones below (courtesy of JPMorgan) that make me worry more about recession than inflation. The credit crunch is getting crunchier.
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GM, Ford Bailout Push is Coming
Continue reading… 32 CommentsPete Davis from the Capital Gains and Games blog thinks help from Washington may be on the way:
Washington is in a bailout mode following the Fed's bailout of Bear Stearns on March 14 and the Treasury's standby authority to bailout Fannie Mae and Freddie Mac, codified in H.R.3221 enacted on July 30. Is the auto industry next? ...On July 30, Senate Democrats agreed to take up a $6 b. loan guarantee for the auto industry when they return in September. There are several problems with such an action: 1) It won't work; 2) It would be costly to taxpayers; 3) It would bailout one foreign owner and disadvantage others; 4) It would impede the restructuring of the auto industry; and 5) It would only the delay the firing of Big Three auto workers for a short time.... Senator Debbie Stabenow (D-MI) has made it very clear that she see's the $6 b. loan guarantee as the first tranche of $25 b. of loan guarantees sought by Detroit's Big Three auto makers. The $6 b. will be scored by the Congressional Budget Office as costing taxpayers $900m.
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The 'New York Times' Votes Big for Obama Economics
Continue reading… 18 CommentsAs economist Arthur Laffer told me a while back, Obamanomics "should be a fascinating economic experiment." To see just how fascinating, you should check out the big (nearly 8,000 words) New York Times Magazine story on Obama's economic agenda, though in the end I am not sure if it tells us more about Barack Obama or admirer and reporter David Leonhardt. From the comments of both gentlemen, one could easily draw the conclusion that, in the 21st century, it is up to government to create good-paying jobs and increase our standard of living. It is an amazing distillation of the inside-the-beltway/mainstream-media economic consensus. Let me try to fact-check this magnus opus the best I can:
1) During our conversation, Obama made it clear that he considered the deficit to be only one of the long-term problems requiring immediate attention, and he sounded more worried about the others, like global warming, health care, and the economic hangover that could follow the housing bust. Tellingly, he said that while he admired what Clinton did, he might have been more open to Reich's argument—even in 1993. "I still would have probably made a slightly different choice than Clinton did," Obama said. "I probably wouldn't have been as obsessed with deficit reduction."
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Energy and McCain's Summer Surge
Continue reading… 7 CommentsOK, the new L.A .Times-Bloomberg poll has Obama +2 vs. Obama +12 in June. The Battleground poll has McCain +1 vs. Obama+2 in May. And Zogby-Reuters has McCain +5 vs. Obama +7 in July. I think the internal numbers in the Battleground poll are quite revealing:
1) McCain went from +5 to +15 vs. Obama on the "strong leader" question.
2) McCain went from -24 to -15 on "represents middle-class values."
3) McCain went from -20 to -9 on "fights for people like me."
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How the Rising Dollar Will Affect the Economy
Continue reading… 1 CommentFormer Fed member Lyle Gramley has been running the numbers on how the rising greenback will affect inflation and economic growth. The short version: It means the Fed will stay on hold this year. Here is how Gramley puts it:
What the simulation indicates is that real GDP growth between now and the end of 2009 will be reduced by about one-half percentage point, while the inflation rate will be reduced by a little more than one-quarter percentage point.... Coming at a time when economic growth is expected to be sluggish at best, losing half a percentage point because of the dollar's rise is not welcome. And while the reduction in the inflation rate is small, it is occurring in the context of falling oil prices, moderation in rents—which are one-third of the consumer price index—and increasing slack in labor and product markets.... For Federal Reserve policy, the dollar's rise weakens further the case for raising interest rates to deal with the current inflation problem. The hawks on the Federal Open Market Committee are being increasingly isolated. The chances of any Fed move to increase interest rates before some time next year have, in my view, declined to practically zero.
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Biden and Kaine, Romney and Pawlenty
Continue reading… 2 CommentsJust checked the Intrade numbers on the veepstakes. For Barack Obama, it's Joe Biden 40 percent and Tim Kaine 21 percent. Biden has retraced some of the upward momentum from yesterday (-10 percent), while Kaine has gained ground (+9 percent.). For John McCain, Mitt Romney and Tim Pawlenty are tied at 30 percent, with Tom Ridge hanging around at 20 percent. Joe Lieberman has the momentum today, though. He is +7 to 12 percent.
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Tom Ridge Ruse: CEO Meg Whitman as Veep?
Continue reading… 21 CommentsA conversation with a McCain adviser confirms my belief that the Tom Ridge boomlet is a clever bit of misdirection. I think John McCain is having Ridge "run a pick" for the real pick. First, look at this collection of factoids:
1) My pal Rich Lowry over at The Corner reports that Team McCain has been "calling key state GOP officials around the country the last couple of days and sounding them out about the consequences of a pro-choice VP pick." Ridge is pro-choice.
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Jimmy P. on Bloggingheads.TV
Continue reading… 1 CommentMy pal John Tamny , editor of RealClearMarkets, and I did a Bloggingheads.tv segment. Not only is it fun, but watching it earns you college credits. (OK, I'm not 100 percent sure about that last part.). Check it out.
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McCain’s (Almost) August Surprise
Continue reading… 6 CommentsCall it The Game Changing Moment That Wasn't. For just a wee bit, it seemed like John McCain was going to blow away Barack Obama's piddly (by comparison) $1,000 tax cut for dual-income families. Here is McCain at the Saddleback forum on Saturday: "Let's have—keep taxes low. Let's give every family in America a $7,000 tax credit for every child they have."
Well, that's one way to deal with the "tax cuts for the rich" slam against McCainomics. Previously, McCain had proposed doubling the dependent exemption to $7,000. (About an $800 tax cut for a family of four.) But considering that the current kiddie credit is $1,000, the new plan—particularly if it was a refundable tax credit—would be quite an upgrade, and just what many social conservatives have been pushing for. (But supply-siders? Not so much. In today's WSJ, Peter Ferrara calls such refundable tax credits "tax welfare.")
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Taxes: You Pay More Than You Know
Continue reading… 3 CommentsThe U.S. corporate tax, the second highest on the planet, is a hidden tax where workers end up paying 70 percent of it. It's also a tax with no economic justification on efficiency grounds. So, why are some left-of-center folks so enamored with it? Simple: It's a nearly $400 billion a year tax that most folks are unaware of. So, what if we killed the corporate tax for competitiveness reasons and just raised income and investment taxes, essentially getting rid of the double taxation issue? (Profits are taxed at the corporate level and again as dividends.) Look at this bit of static analysis (it assumes no impact of taxes on economic growth) from the folks at the Tax Policy Center:
It turns out that if you want to finance complete repeal of the corporate tax, you'd need to boost the top three individual rates to an eye-popping 50.1 percent, 59.1 percent, and 62.7 percent, and raise the tax on capital gains and dividends to about 27 percent. If you leave the rates on gains and dividends untouched, taxes on ordinary income would have to double to 56 percent, 66 percent and 70 percent.
But in a way, taxes are already at those confiscatory levels because of the way the tax is passed along to workers and shareholders. We just don't quite perceive it as such.
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Pelosi Democrats and Political Peak Oil
Continue reading… 3 CommentsToday's New York Times story on the oil industry is full of juicy factoids and observations:
1) Western corporations now control just 13 percent of the world's oil production.
2) In the latest quarter, the five biggest publicly traded oil companies said their oil output had declined by a total of 614,000 barrels a day, the steepest of five consecutive quarters of declines.
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Obama’s Curious Capital Gains Tax Epiphany
Continue reading… 21 CommentsHere's the question: Why did Barack Obama finally go with a smaller-than-expected suggested increase in the capital gains tax rate? Let me present what is, I think, a plausible answer in 10 easy steps (see "Did Obama Blink on Capital Gains Taxes?" for more details):
1) In September 2007, Obama (the primary election version) suggests a possible near doubling of the maximum capital gains tax to 28 percent on the grounds of fairness (big with Dem primary voters) and a need to raise revenue. (Why 28 percent? Because that was the top Bill Clinton cap gains rate inherited from Ronald Reagan.) But Obama leaves himself plenty of wiggle room, providing a range of between 28 percent and 20 percent, the latter being the rate that resulted from the 1997 Clinton-Gingrich reduction and was followed by an economic and stock market boom.
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Why Inflation Is Headed Lower
Continue reading… 0 CommentsGovernment inflation numbers are backward-looking. This summer's big jump in inflation between May and July was the result of an oil spike that has already reversed. So, what if we assume energy prices had held firm instead of surging? Jim Hamilton over at Econbrowser does the math so I don't have to:
...if energy prices had held constant between May and July but all other price increases had been the same, the year-over-year CPI number would have been more like 4-1/2% rather than 5-1/2%. But does it make any sense to ask, What if energy prices hadn't gone up between May and July? There are certainly good reasons why the Fed should not be taking as much comfort in "core inflation" as it has in recent years. But in this case, there is a clear need to net out the May-to-July energy price increase—it's already been reversed. The US national average gas price is back to $3.78/gallon, right where it was in mid-May. Thus, even without any further drop in the price of gasoline—and personally, I do expect further drops—the 4-1/2% number is a better summary of where we stand right at the moment than 5-1/2%. So no, I don't think that yesterday's CPI numbers will cause the Fed to panic. Because yesterday's news is already way of out of date.
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The Return of the Misery Index
Continue reading… 1 CommentThe Wonk Room blog from the liberal Center for American Progress happily tosses out this little factoid:
By one measure—the "Misery Index" made famous by Jimmy Carter—the economy is in its worst shape since mid-1991. The Misery Index is simply the combination of the unemployment rate and the inflation rate. It reached 11.3 percent in July. While still well below its heights in the 1970s and early 1980s, the Misery Index is now at its highest level since the first George Bush was president according to data from www.miseryindex.us.
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Did Obama Blink on Capital Gains Taxes?
Continue reading… 6 CommentsTeam Obama gave me some pushback—or at least a firm-but-friendly nudge—regarding my post from last week, "With Polls Close, Obama Blinks on Taxes." I was personally sent an E-mail from a top Barack Obama adviser containing a transcript of Senator Obama's interview last March with CNBC's Maria Bartiromo. This portion was highlighted:
BARTIROMO: "How do you plan to change the tax code when it comes to capital gains? How high will that 15 percent rate go?"
Sen. OBAMA: "Well, you know, I haven't given a firm number. Here's my belief, that we can't go back to some of the, you know, confiscatory rates that existed in the past that distorted sound economics. And I certainly would not go above what existed under Bill Clinton, which was the 28 percent. I would—and my guess would be it would be significantly lower than that.
