Tag: Economic policy

At Least He’s Honest About It

Building on Alex’s post on income inequality, I note that Mathew Yglesias published this over at Vox. Yglesis advocates for raising the top marginal rate on salaries above $10 million to 90% and the inheritance tax of estates over $10 million to 90%. His argument is that the Laffer Curve is largely bunk and there is no evidence that raising incomes that high would seriously hurt the economy, at least if it were confined to the upper strata of income.

Let’s put aside a few things. Let’s put aside that France tried to raise the top tax rate to 75% and it was a disaster. Let’s ignore that even when that marginal tax rate was 97%, it didn’t stop rich people from being rich*. Let’s ignore that while many economists dispute where the peak of the Laffer Curve is, no one thinks its near 90% or doesn’t exist. Let’s ignore that when you add in state, local and Medicare taxes, this would mean a marginal rate of over 100%. Let’s ignore that previous efforts to tax the evil stinking rich have often resulted in a game of rich person whack-a-mole where they just get income from different sources. In the 90’s, the Democrats put a cap on the amount of CEO pay that could be categorized as a business expense. The result was that CEO’s started getting paid in stock options, which contributed directly to the tech bubble.

No, we’ll put Yglesias’ economic illiteracy aside. Instead I want to applaud him. Because he admits that a 90% marginal rate will bring in little if any revenue. What he argues is that this would stop corporations from paying such huge salaries and therefore pay more to lower level employees. Or something. And high taxes on estates would stop people from inheriting massive wealth. Or something. His argument is that this would address growing income inequality. No word on whether he also thinks cutting the legs off of tall people would help short people dunk basketballs.

I’ve said before that raising taxes on the wealthy isn’t really about revenue. Increases in the marginal rate would increase revenues, although not as much as tax reform would. But that’s a side effect. A huge amount of the motivation for raising taxes on the rich is redistribution. As Barack Obama himself said, it’s about spreading the wealth around. So at least Yglesias is admitting what we all know.

Of course, this won’t go anywhere. Despite the best efforts of the wealth redistributors, the American people don’t want a 90% marginal rate. There is broad support for the rich to pay more, but not at this level. So, in the end, Vox is running an article that is just about as grounded in reality as the most fantastic libertarian fantasy.

(*It’s a funny thing. Jjust as wealth and income inequality are coming back into vogue thanks to Picketty’s new book, I am growing more and more suspicious of it. I am beginning to suspect that the “equality” of the mid-20th-century was a product of how we measure it, not a real phenomenon. Rich people don’t get rich by letting the government take their money; they find ways to shelter it. The 97% marginal tax rate we enjoyed until the 1960’s came with a lot of shelters so that very few people actually paid it — and often it was someone who’d made a new fortune and was trying to raise themselves up into the ranks of the rich. The 97% rate was mainly a way of beating down rising stars so that the rich would remain pure and blue-blooded.

Liberals understand this to some extent. When conservatives point out that capital gains revenue boomed after the tax rate cut, they correctly reply that the taxes reaped from ordinary income fell by a greater amount. The rich just changed how they were getting paid. I suspect the supposed happy valley of income equality was similar but don’t have the resources to do the research.

I am also growing dubious of using income and wealth as pure measures of inequality. It makes things convenient for economists, but doesn’t necessarily tie to reality. Housing and food, relative to income, are much cheaper now for poor and middle class people than they used to be. Most of the working class can now afford homes; they used to almost all rent. Measures of leisure time show that the poor and middle class have more of it than they used to. Just to take examples from my own family: one set of grandparents were middle class. They had a maid, as almost everyone in their social stratum did. No one has maids anymore because they are paid too much (and, it should be noted, other opportunities have opened up to the working class). On the flip side, my other grandfather worked two jobs and had a working farm just to stay functionally poor.

I suspect we are focusing too much on money measures and not enough one thing in life that really matters: time. This is one of the big reasons that I suspect Picketty’s trendy book — like Das Kapital before it — will eventually be unravelled by better minds.)

A Tale of Two Budgets

Earlier this week, Alex posted on the first Senate budget in four years. I have little to add to his criticism. The Democrats claim it continues the good work of the last two years — you know, the flat spending that they have continually claimed is going to ruin the economy and that their budget undoes. Remember that last point: our economy is supposed to be falling into ruin right now because of the payroll tax hike and the sequester. We have yet to see post-sequester numbers, but February saw solid gains in jobs and consumer spending. If the economy continues to move, it will be solid evidence that “austerity”, such as it is, is not necessarily ruinous.

But even liberals, if they are honest, have to be disappointed with this budget. In contrasting it against Ryan’s budget, which I’ll get to in a moment, Ezra Klein notes:

But even given that difference in objective, Murray’s budget is deeply, even excessively, respectful of existing institutions. If the problem of Ryan’s budget is that it wants to do far too much, the problem with Murray’s budget is that it is almost entirely devoted to saying what it won’t do, and it gets very vague when the topic turns to what it will.

If the budget is vague about what it would change, it is specific and effusive about what it will keep. A tremendous amount of the budget document is, in fact, an appreciation of what the federal government is already doing.

About all we really know of this budget is the top lines: It plans $975 billion in tax increases, though it doesn’t say precisely how it will get there, and it plans $975 billion in spending cuts, though it doesn’t say precisely where they will come from.

So Ryan’s budget is preferable, right? Well, not exactly. It keeps all of the Obamacare tax hikes. It proposes tax reform but, again, is not specific in how it is going to cut rates without getting rid of cherished deductions (probably because it can’t). It relies on the CBO’s very optimistic growth projections to keep revenue up.

Most importantly, it also punts on the most important issues. Medicare reform is put off for ten years. Social Security reform is not mentioned. Making the math work requires heavy reductions in discretionary spending which are not the cause of our budget woes.

It also relies on two things that are simply not going to happen under this President: a repeal of Obamacare and huge reduction in tax rates. Look, I can appreciate that the Republicans are trying to contrast their vision against the Presidents. But a plan that has no chance of passing — and only works if those undoable things are done — is not really a serious plan.

These are steps in the right direction. We seem to be returning to a budget process rather than a self-created series of bullshit crises. So I’m hoping a bargain can be struck. But a real bargain — a Simpson-Bowles style one — has to rely on something that is in neither plan: near term reform of both Social Security and Medicare. Until that’s on the tabls, we’re just chipping away at the problem and hoping an economic boom allows to paste over the deficiencies.

Update: Of course, when it comes to bullshit budget plans, no one does it better than the Congressional Regressive Caucus, whose plan was praised by Paul Krugman today. It calls for an immediate 6% spending hike which they claim will bring us back to full employment within a year.

Yeah, ‘cuz that worked so well last time.

Obama’s 2nd term news – Part Three

It’s time for some more good news about how well things are going, and it comes to no surprise to me that as they see the writing on the wall companies are protecting their corporate assets from being plundered by the greedy tax and spenders. Way too many of the top publicly traded corporate spenders are letting us know that they are going to curtail capital expenditures this year or next. That’s happening as a response to those that want to fleece corporations, because American companies already being the highest taxed just isn’t enough of a handicap. This move is certainly gonna help create jobs and improve the economy. Right? Not to mention that taxes are never paid by companies, but by the customers buying their products.

But why stop at fleecing corporations? Krugababe thinks we should go back and enact some Carteresque tax rates, 91% to be exact on the greedy rich “peopolz”. Cause that used to work out so well back in the day! This moron’s argument is that they had the rate in the fifties and the economy was booming then. That the economy was booming because people, freed from the rationing and saving of the WWII years, sitting on top of an enormous amount of savings, and living in the only modern industrial country not devastated by WWII, had no other way to go. Yes, Krugababe, the economy, fueled by unique circumstances and unlikely to ever happen again, boomed. That was DESPITE that ridiculous tax rate you now advocate. Can you imagine how much more robust the growth would have been without that rate and all that extra money to invest? The problem isn’t that government is sucking too little blood from the wealthy: it’s that government is spending way, way too much money to ever collect enough revenue, regardless of what the tax policy is, and keep a working economy. But why get hung up on reality when you have some twit with a Nobel advocating we stop strangling the goose that laid the golden eggs, and just gut the damned thing already to take all the eggs at once.

Then again, I think Krugman isn’t as crazy as Geithner, yeah he of the unpaid taxes, who thinks that we simply should have no debt limit whatsoever. Why not let these crooks spend whatever they want, regardless if we can afford it, because that’s good for the vote buyers in power. You need a lot more cash available if you plan to steal a lot of cash. This sort of thinking worked so well for Zimbabwe too. And if you want some feedback on how all this taxing and spending works, check out Hollande, whom just destroyed the anemic French economy on a matter of months. The fool thinks that his tax hikes and wealth fleeing the country will somehow make things better 5 years down the line. Or at least, that’s what he wants the rubes to believe. And speaking of France, can you believe the enlightened people of that nation are homophobes? Merde, ce n’est pas possible!

There is some good news, however. The stock market is up, because these people think that our politicians will reach a deal now that Boehner basically said he would cave in on the higher tax issue, while the democrats were enthusiastic about gutting military spending while leaving the entitlement behemoth that buys them votes untouched. Call me stupid for not seeing any real solution that won’t involved the rich getting encouraged to hide their money while the spending will continue everywhere but in defense. If you want a road map for how this plays out I give you California.

Collectivist policies have consequences…

Fiscal policy intended to separate people from their assets/wealth, because we need to spread that wealth around, you know, by stupid government entities thinking they can play Santa Clause with other people’s money, has consequences. Always! Nobody is going to just accept the loss of their wealth that these wealth redistribution schemes assure, and even the LSM is forced to report that’s what’s happening right now:

For many of the wealthy, 2012 is becoming a good year to sell.

They’re worried about the “fiscal cliff,” which is when tax cuts expire and spending cuts are set to go into effect at the end of the year.

Fearing an increase in capital gains and dividend taxes, many of the rich are unloading stocks, businesses and homes before the end of the year.

Wealth advisors say that with capital-gains taxes potentially going to 25 percent from 15 percent, and other possible increases in the dividend tax, estate tax and other taxes, many clients are selling now to save millions in taxes.

“Under almost any scenario, it makes sense to take the gains this year,” said Gregory Curtis, chairman and managing director of Greycourt & Co. “Clients aren’t selling willy nilly. But if they can and they have a huge gain, they’re selling now.”

If the Bush-era tax cuts expire, taxes on capital gains would revert back to its previous rate of 20 percent from its current 15 percent. Another 5 percent may be added from health-care levies and changes in itemized deductions, bringing the rate to 25 percent for many high earners.

Taxes on dividends could go from 15 percent to over 43 percent. And the estate tax could go from 35 percent on estates worth more than $5 million to 55 percent on estates over $1 million. (Read more: CEO Sends Out Raises, Not Pink Slips After Election)

As a result, the wealthy are taking a close look at all of their assets to see what could or should be sold off now to avoid potentially higher taxes next year.

The runoff to sell assets and avoid a higher confiscation rate is just natural instinct. What seems to go unreported is how many hardcore leftists, often the same ones pretending to support and love these wealth redistribution schemes and the fools that propose them, are rushing to sell and secure their cash. For example, George Lucas, a huge leftist squirreled away his nuts. Anyone with large capital gains of any kind and a need to keep their wealth liquid, is also doing the same.

The next time you hear some rich liberal tool say they don’t mind higher taxes, remember that what they are telling you is that they don’t mind higher taxes on you. Their accountants sure as hell will provide ways for them not just to avoid the tax increases, but to make out like a bandit from these business and economy killing collectivist ventures. Yes, collectivist policies have consequences. The problem is that it is rarely the people that support these stupid policies that pay for the unforseen and forseen consequences. But if you are stupid enough to believe fucking idiots that want you to think they are in government to “help” the little guy, and not to just steal as much wealth as they can for themselves, then you deserve the rape, without even the courtesy of a reach around, they have planned for you.

Elections and policies have consequences. Enjoy the ones heading our way…

Paying for Sandy

Back when he was still awesome, Rush Limbaugh use to say that the most dangerous place in America was between Chuck Schumer and a camera. And you just knew he was going to say something stupid about Hurricane Sandy:

Sen. Charles Schumer called the fallout from Hurricane Sandy a “national disaster” and called on a federal government to cover at least 90% of the costs.

“This is one of the biggest disasters to have ever struck this state and even this country,” Schumer said at an afternoon briefing with Gov. Cuomo. “The federal response has to measure that scope and be equal to that that scope.”

“We cannot cut corners. We cannot count nickels and dimes. This isn’t a New York disaster, a Connecticut disaster, a Jersey disaster. It is national disaster. It needs to be treated that way by every member of Congress, by all the members of the executive branch.”

But Mr. Schumer did say that any added money will be tacked onto the deficit, which already is expected to reach about $1 trillion in fiscal 2013. He rejected the suggestion that other programs should be cut in order to pay for any new budget needs, saying Democrats won that fight on previous emergency spending bills, too.

I have a very slight portion of agreement here in that the Feds should bear some of the pain for regional disasters that can overwhelm local and state governments. But the key word there is “some”. We are talking about some of the wealthier regions of the country. I don’t see why New York should not pick up the cost of, say, repairing the subway system or New Jersey should not pick up, say, the cost of fixing the electricity. There is not a part of this country that is not at risk of some natural disaster. Repairs, replacements, relief have to be part of the existing budget for state and local governments: a really rainy day fund. But … the Feds have picked up the tab for everything else and it would seem odd to suddenly change now.

That being said …

The idea that we should not cut other spending or raise taxes or make some kind budget room for disaster relief is ridiculous. This is precisely the kind of thinking that has gotten us $16 trillion in debt: never allowing for the inevitable “unexpected” expenses that find their way into the budget. Be it wars, “stimulus” or disaster relief, we just throw out the fiscal responsibility when the bill comes due. And then we wonder why we’re so far in debt.

Maybe you could do this if our finances were in good shape with the idea that we’d pay it off over the next year or two. But when we’re under a growing mountain of debt, every new expense has to be accommodated. That’s the whole idea behind PAYGO, no?

The research on bankruptcies has shown that most are the result of some catastrophe that hits a family: medical expense, job loss, etc. Bankruptcy is especially likely if the family has not squirreled away some money to anticipate a disaster. My wife and I only got our finances in order when we started to allow some budget room for unexpected expenses: car repairs, doctor bills, travel. I just found out a friend lost his job two months ago. But his family hasn’t suffered because they cut expenses and had a rainy day fund. I’m dubious of translating lessons about family budgets to the federal budget, but in this case I think it’s apt. Everyone has to budget for the unexpected.

Our federal budget does not, for obvious reasons, have a rainy day fund. But the reason we need to get the deficit under control is precisely to deal with unexpected huge expense that might hit us out of the blue (like a hurricane; or a war). And that means that, given the current budget situation, any disaster relief for Sandy has to be balanced by tax hikes or budgets cuts. We simply don’t have the flexibility, when we’re fighting over a few hundred million here and there, to say, “Oh yeah, here’s $50 billion. Don’t worry about it.” And we don’t have the leeway to keep thinking of the government as a bottomless piggy bank.

Economic Patriotism

This is the name of Obama’s supposed economic plan for the next four years. If you’ve swallowed something poisonous and are out of ipecac, you can download the PDF here.

There is literally nothing new in it. It’s simply a distillation of the promises he’s made over the last few weeks. If we’re lucky, most of it won’t happen. If we’re unlucky, some of it will and it will make things worse (one of my favorites, bringing the cost of higher education down by spending more).

Oh, and his budget plans?

The Committee for a Responsible Federal Budget (CRFB) explains: “To reach his $4.3 trillion in savings through 2021, the President’s budget counts $1.6 trillion (excluding interest) of already-enacted savings. In addition, it includes two elements which the Fiscal Commission assumed in its baseline – a drawdown of the wars ($740 billion through 2021) and the expiration of the upper-income tax cuts ($830 billion through 2021).” Overall, the CRFB analysis says, Obama’s budget “falls well short of the $4 trillion in savings claimed by the [Simpson-Bowles] Fiscal Commission.” CRFB estimates that it would save a little less than $2 trillion instead.

….

What about the $2 trillion in deficit reduction the plan can claim to put on the scoreboard? It comes almost entirely tax increases. As James Pethokoukis of the American Enterprise Institute shows, the plan would result in about $1.735 trillion in tax hikes — and just $230 billion in spending cuts, the vast majority of which are cuts to health care provider reimbursements of dubious long-term value.

Honestly, it’s like he’s running for his first term.

Our Shrinking Debt

This is good news:

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

So how can this be with trillion dollar deficits? Well, the private sector and non-federal public sectors are unravelling a tremendous debt bubble that built up in the last decade. Consumer debt is down by $1.3 trillion. Short term corporate debt is down by 55% as well. This isn’t as good as corporations need to borrow to grow. But for that much debt to be unravelled without a complete economic catastrofuck or massive inflation is remarkable.

It’s also helping with the national debt. Because consumer debt is so far down, the treasury has the loan market pretty much to itself. So all our borrowing is coming at low prices, despite the S&P downgrade.

I expect things to change soon. With debt down to much more manageable levels, people will start borrowing again. And if we can get control of federal finances, that will make borrowing even cheaper for private interests. Four years ago, I said that our economy would not move until we’d unravelled the tremendous debt we’d built up. We’re on our way to doing that, thankfully.