Wednesday, April 30, 2008

Obama's Capital Gains

A WALL STREET JOURNAL commentary notes Senator Obama has revised his views concerning increasing the capital gains tax rate:
After Senator Obama let it be known that he'd consider nearly doubling to 28% the current capital gains tax rate of 15%, he had to expect questions. In the Pennsylvania debate, the moderator pointedly asked Mr. Obama why he'd do this, since history has shown that higher rates bring less revenue. Mr. Obama's response was to take a shot at wealthy hedge fund managers.

Since then, he's done some homework on capital gains. In a weekend interview with Chris Wallace of Fox News Sunday, Mr. Obama was asked again about raising capital gains rates. Though still leaving open the chance of a higher rate, he suggested 'we might go back up to 20' (a number Hillary Clinton has proposed), because 'I'm mindful that we've got to keep our capital gains tax to a point where we can actually get more revenue.' Mark this down as economic progress.
Very interesting, eh? I suppose this isn't quite what we should call a "flip-flop." I do think it presents a curious change in his views over a relatively short period of time. I wonder which of the views he has publicly expressed about this tax rate he actually believes? Perhaps the Senator doesn't actually have a view about the capital gains tax rate? Perhaps he chooses his campaign rhetoric in light of his analysis that voters are rationally ignorant?

Tuesday, April 29, 2008

Senator McCain's Economy

Recently SENATOR MCCAIN gave a speech on the economy. Let's take a look at what he had to say.

I kind of like the way Senator McCain opens his discussion of the economy:
In our free society, it is left to each one of us to make our own way in the world -- and our jobs, businesses, savings, pensions, farms, and homes are the work of years . . . .
But, in almost no time, it seems to me he backs away:
Economic policy is not just some academic exercise, and we in Washington are not just passive spectators. We have a responsibility to act -- and if I am elected president I intend to act quickly and decisively. We need reforms that promote growth and opportunity. We need rules that assure fairness and punish wrongdoing in the market. We need tax policies that respect the wage-earners and job creators who make this economy run, and help them to succeed in a global economy. In all of this, it will not be enough to simply dust off the economic policies of four, eight, or twenty-eight years ago. We have our own work to do. We have our own challenges to meet.
He starts with freedom, and then turns to government acting to make reforms. I'm almost afraid to continue on because I suspect those reforms are not going to be for greater freedom.

Senator McCain seems to take a little time getting warmed up, but when he gets to the details about what he would like to do I think I can find quite a bit I can warm up to.
In so many ways, we need to make a clean break from the worst excesses of both political parties. For Republicans, it starts with reclaiming our good name as the party of spending restraint. Somewhere along the way, too many Republicans in Congress became indistinguishable from the big-spending Democrats they used to oppose. The only power of government that could stop them was the power of veto, and it was rarely used.

If that authority is entrusted to me, I will use the veto as needed, and as the Founders intended. I will veto every bill with earmarks, until the Congress stops sending bills with earmarks. I will seek a constitutionally valid line-item veto to end the practice once and for all. I will lead across-the-board reforms in the federal tax code, removing myriad corporate tax loopholes that are costly, unfair, and inconsistent with a free-market economy.
He then discusses a review of, and a different approach to, the government agencies and regulation that reminds me just a bit of the things President Reagan used to talk about. I'm not sure how much was changed in this regard by Reagan's presidency. I think there were some significant reductions in regulations and some improvements in bureaucratic operations, yet after time government in Washington has again become something for which Reagan's themes may now be reused in a McCain bid for the presidency.

Senator McCain has some interesting things to say specifically about tax reform:
The goal of reform, however, is not merely to check waste and keep a tidy budget process -- although these are important enough in themselves. The great goal is to get the American economy running at full strength again, creating the opportunities Americans expect and the jobs Americans need. And one very direct way to achieve that is by taking the savings from earmark, program review, and other budget reforms -- on the order of 100 billion dollars annually -- and use those savings to lower the business income tax for every employer that pays it.

So I will send to Congress a proposal to cut the taxes these employers pay, from a rate of 35 to 25 percent. As it is, we have the second-highest tax on business in the industrialized world. High tax rates are driving many businesses and jobs overseas -- and, of course, our foreign competitors wouldn't mind if we kept it that way. But if I am elected president, we're going to get rid of that drag on growth and job creation, and help American workers compete with any company in the world.

I will also send to the Congress a middle-class tax cut -- a complete phase-out of the Alternative Minimum Tax to save more than 25 million middle-class families more than 2,000 dollars every year.

[ . . . ]

The tax laws of America should also promote and reward innovation, because innovation creates jobs. Tax laws should not smother the ingenuity of our people with needless regulations and disincentives. So I will propose and sign into law a reform agenda to permit the first-year expensing of new equipment and technology... to ban Internet taxes, permanently... to ban new cell phone taxes... and to make the tax credit for R&D permanent, so that we never lose our competitive edge.
One of the more interesting tax proposals to ponder may be his suggestion with respect to a "flat" income tax:
. . . I will propose an alternative tax system. When this reform is enacted, all who wish to file under the current system could still do so. And everyone else could choose a vastly less complicated system with two tax rates and a generous standard deduction. Americans do not resent paying their rightful share of taxes -- what they do resent is being subjected to thousands of pages of needless and often irrational rules and demands from the IRS. We know from experience that no serious reform of the current tax code will come out of Congress, so now it is time to turn the decision over to the people. We are going to create a new and simpler tax system -- and give the American people a choice.
I wonder how taxpayers would respond if given this choice? If many choose the less complicated approach, perhaps this would be the opening of a door to a significant change in the way the federal government raises revenue. After all, the income tax code is so complex and so large essentially because our elected representatives find it impossible to resist supplying the rent seekers by writing special exemptions, exclusions, credits, etc., etc., etc., into the tax code. But, I suspect that even if many taxpayers chose the simple approach today that over time what would emerge is just a little new exemption or exclusion or credit to the simple approach one year, and then another a couple years later, and then several more later in order to fulfill some presidential campaign promise. Still, I wonder, if the Senator's specific suggestion here does catch voter attention, perhaps this would indicate an opening opportunity to significant tax reform that might tax consumption rather than income.

Here is some of what the Senator said specifically about free trade:
There's never been a problem Americans couldn't solve. We are the world's leaders, and leaders don't fear change, pine for the past and dread the future. We make the future better than the past. That is why I object when Senators Obama and Clinton and others preach the false virtues of economic isolationism. Senator Obama recently suggested that Americans are protectionist because they are bitter about being left behind in the global economy. Well, what's his excuse for embracing the false promises of protectionism? Opening new markets for American goods and services is indispensable to our future prosperity. We can compete with anyone. Senators Obama and Clinton think we should hide behind walls, bury our heads and industries in the sand, and hope we have enough left to live on while the world passes us by. But that is not good policy and it is not good leadershi p. And the short-sightedness of these policies can be seen today in Congress' refusal to vote on the Colombian Free Trade Agreement.

When new trading partners can sell in our market, and American companies can sell in theirs, the gains are great and they are lasting. The strength of the American economy offers a better life to every society we trade with, and the good comes back to us in many ways -- in better jobs, higher wages, and lower prices. Free trade can also give once troubled and impoverished nations a stake in the world economy, and in their relations with America. In the case of Colombia, a friend and crucial democratic ally, its stability and economic vitality are more critical now, as others in the region seek to turn Latin America away from democracy and away from our country. Trade serves all of these national interests, and the interests of the American economy as well -- and I call on the Congress once again to put this vital agreement to an up or down vote.

I know that open markets don't automatically translate into a higher quality of life for every single American. Change is hard, and while most of us gain, some industries, companies and workers are left to struggle with very difficult choices. And government should help workers get the education and training they need -- for the new jobs that will be created by new businesses in this new century.
Overall his views on trade seem good, although the last paragraph here suggests he may accept more government involvement than I would. He does promise to "give displaced workers of every age a fresh start with new skills and new opportunities," and with respect to the present mortgage crisis he says his approach would mean that "citizens will keep their homes, lenders will cut their losses, and everyone will move on."

He also proposes a "gas-tax holiday" between Memorial and Labor days this year. By suspending collection of federal excise taxes on gasoline the Senator says there would be an immediate economic stimulus. I'm sure I would welcome paying less in gasoline excise taxes, and I'll bet lots of other people would as well. Of course, this summer McCain cannot be President yet. Perhaps instead of proposing his tax holiday in a campaign speech the Senator could return to his work in the Senate and offer such a bill.

On the whole, the trepidation I expressed above was not well supported by McCain's view of the economy. I find much more in his view to like than I found in SENATOR OBAMA'S VIEW.

Climate Heretics

THEY TOLD ME THAT IF GEORGE W. BUSH WERE RE-ELECTED, famous scientists would be punished for daring to dissent from politico-religious orthodoxy. And they were right!
Here is the article that motivates his comment:
By pioneering the science of seasonal hurricane forecasting and teaching 70 graduate students who now populate the National Hurricane Center and other research outposts, William Gray turned a city far from the stormy seas into a hurricane research mecca.

But now the institution in Fort Collins, Colo., where he has worked for nearly half a century, has told Gray it may end its support of his seasonal forecasting.

As he enters his 25th year of predicting hurricane season activity, Colorado State University officials say handling media inquiries related to Gray's forecasting requires too much time and detracts from efforts to promote other professors' work.

But Gray, a highly visible and sometimes acerbic skeptic of climate change, says that's a "flimsy excuse" for the real motivation — a desire to push him aside because of his global warming criticism.

Among other comments, Gray has said global warming scientists are "brainwashing our children."

Now an emeritus professor, Gray declined to comment on the university's possible termination of promotional support.

But a memo he wrote last year, after CSU officials informed him that media relations would no longer promote his forecasts after 2008, reveals his views:

"This is obviously a flimsy excuse and seems to me to be a cover for the Department's capitulation to the desires of some (in their own interest) who want to reign (sic) in my global warming and global warming-hurricane criticisms," Gray wrote to Dick Johnson, head of CSU's Department of Atmospheric Sciences, and others.
When science meets politics, it seems politics wins out. Bummer.

Monday, April 14, 2008

Desperately Seeking Ludwig, F. A., and Milton

"Right now the economics profession has not had a clear intellectual leader step forward to challenge the emerging statist hegemony in the wake of our current financial situation. We are in a state of desparately seeking the next Ludwig, F. A., and Milton. No disrespect to the great economists amongst us, e.g., Andrei Shleifer, or my colleagues at GMU, e.g., Tyler Cowen and Russ Roberts, but the arguments emerging from these talented men do not have the 'force' of those presented by Mises, Hayek and Friedman. And without that intellectual force, our future in the US is potentially very bleak as statism will crowd out market creativity, and wealth creation. Where is the next intellectual figure that will explain the impossibility of socialism, why the worst get on top, and why government policies are counter-productive?

How do we find these type of economists and how do we cultivate them? And without them can we survive the statist onslaught on our economic freedom?"