Archive for the ‘Taxes’ Category

Beware Of Bond Referendums

November 4, 2016

From Cato’s Chris Edwards:

Today, all state governments operate within statutory and/or state constitutional limits on debt. But voters should be asking their governments why they need to borrow at all. Why can’t they plan ahead for the schools and parks that are needed, and allocate a portion of ongoing tax revenues for construction and renovation?

Debt financing costs more than pay-as-you-go financing because of the interest payments, but also because governments pay fees to the municipal bond industry. Thousands of high-paid underwriters, traders, advisors, bond insurers, and other finance experts are the overhead costs of bond financing. That means billions of dollars a year of taxpayer money going to Wall Street, not to schools and parks.

Obamanomics: Still Flawed

January 19, 2015

Recent posts on this blog have commended the Obama administration for actions related to immigration, Cuba, and asset forfeiture.

President Obama’s pending State of the Union address marks the end of the streak.

Of particular note, he plans to propose raising the capital gains tax as a way of paying for various spending proposals. The justification for raising taxes on “folks like me who don’t need them” is that you create a rising tide lifting all boats.

Allegedly, the tide is lifting, as we’re in an economic “recovery” and unemployment is low. Yet median income has fallen 4% and labor force participation has also tumbled during President Obama’s tenure. This despite the fact that all of the major economic policy initiatives Obama ran on in 2008 became law.

With that track record, can President Obama’s proposal for increasing capital gains taxes really be trusted to deliver the intended effect? Or would the economy be better served if the government cut capital gains taxes?

The good news is that a capital gains tax hike will be DOA with Republicans in charge of Congress.

The Corporate Tax Code Distorts Our Economy

August 25, 2014

“Why do unpatriotic politicians continue to scare American institutions away?”

You’re not likely to hear that question asked during this election cycle. Instead you’ll hear about “Candidate XYZ supports tax breaks for companies that ship jobs overseas.” But those commercials turn the narrative on its head. Thanks to the US corporate tax code, multinational companies based in the United States will face the punitive US corporate tax rate if they attempt to repatriate their international income back into the United States. This prevents capital from coming into the US. This motivates companies to move operations out of the US. It’s the punitive tax code that “ships jobs overseas.”

Or across the border.

Cato’s Dan Ikenson blogs about the latest example: American fast food franchise Burger King, looking to purchase a Canadian franchise and move its corporate headquarters north of the border. Ikenson notes some very discouraging policy trends on top of the very high US corporate tax rate of 35%:

According to several reputable business-perception indices, the United States has slipped considerably over the past decade in a variety of areas that directly impact investment decisions. (See “What Really Drives the Investment Decision” begininng on page 15.) Out of 142 countries assessed in the World Economic Forum’s Global Competitiveness Index, the United States ranks 24th on the quality of total infrastructure; 50th on perceptions that crony capitalism is a problem; 58th on the burden of government regulations; 58th on customs procedures; and 63rd on the extent and effect of taxation. Meanwhile, uncertainty over energy, immigration, trade, tax, and regulatory policies continues to deter investment and even encourages companies to offshore operations that might otherwise be performed in the United States.

Can someone please explain to me how this is good for jobs-jobs-jobs in the United States?

It’s high time policymakers cut the corporate tax rate, thus giving American wage earners a likely raise and giving our country more wealth and more work opportunities. Advocating for a lower corporate tax rate is not the same as advocating crony capitalism and corporate welfare: those activities distort and ultimately harm Americans. Advocating for a lower corporate tax rate means advocating for a stronger US economy.

The Impact of Tax Cuts

August 5, 2013

Cato’s Dan Mitchell discusses academic research on the economic impact of tax cuts for the top 1% : “the cut in top 1% tax rates leads to a statistically significant increase in real GDP of up to 0.34 percent in the third year….There are also spillover effects to incomes outside of the top 1%. Average incomes of the bottom 99% rise by 0.15 percent on impact and by up to 0.35 percent in the third year.”

As Thomas Sowell explains, “The real effect of tax rate reductions is to make the future prospects of profit look more favorable, leading to more current investments that generate more current economic activity and more jobs.”

But leftists aren’t interested in these arguments, since the wealthy also benefit. Instead, we’re stuck with Obamanomics.

The Good & Bad of Reaganomics

April 8, 2013

A former co-worker who blogs on politics from a left-wing perspective wrote a post titled “Slings And Arrows” which had some choice comments for Reaganomics, calling it “a shell game of crony capitalism” where middle- and bottom-income earners were “casualties.”

Reaganomics is what first triggered my interest in public policy years ago. While I’m no longer a Reagan idolator (and likely consider him the most overrated Republican president ever thanks to the collateral damage that trickled down from his drug war policies), the debate over his economic policies still peaks my interest.

Reagan has one of the most eloquent defenses of the free market I’ve read, when he stated:

We who live in free market societies believe that growth, prosperity and ultimately human fulfillment, are created from the bottom up, not the government down. Only when the human spirit is allowed to invent and create, only when individuals are given a personal stake in deciding economic policies and benefiting from their success — only then can societies remain economically alive, dynamic, progressive, and free. Trust the people. This is the one irrefutable lesson of the entire postwar period contradicting the notion that rigid government controls are essential to economic development.

So did his policies live up to the rhetoric?

The heart of his fiscal agenda was the across-the-board cut in income tax rates, with the top marginal rate falling from 70% to 28%. Capital gains taxes and corporate taxes were initially cut, although those were partially rescinded. To handle mounting deficits, instead of seriously tackling spending, a series of tax increases were implemented.

Maybe even more important than the fiscal agenda was the monetary policy of the time, as Reagan gave his support to Paul Volcker’s anti-inflationary measures. Without Reagan’s support, it’s highly unlikely the Fed could have operated as it did.

What impact did these policies have? The economy’s standing at the end of Reagan’s presidency (unless a hyperlink is included, the numbers come from this Cato report):

-17 million new jobs

-Growth in real-median income by $4000.00

-A 3.2% growth rate in GDP

-An unemployment rate of 5.5%. During the peak of Volcker’s anti-inflationary measures, the rate peaked at 9.7%.

-A productivity rate of 1.5%.

-A CPI of 4.1%, compared to 13.5% in 1980.

-Overall government spending as a percent of GDP at 22.1%, compared to 22.9% at the start.

Rising incomes for each income quintile (the smallest gain coming to the lowest income) and, more importantly, income mobility in which the poor and middle class were able to move up the ladder.

Per the late William Niskanen, the rate of deregulation started by the Carter administration continued at a slower rate.

-Assuming he’s not fudging numbers, Paul Krugman notes the tax rates middle-class Americans paid on their income went up slightly due to payroll tax increases.

There’s quite a bit of good from this. The Reagan years show incentives matter. If an entrepreneur can enjoy a greater portion of the fruits his/her labor produces, the end result is more work, more entrepreneurship, and greater prosperity for the economy as a whole. Even in the case of Krugman’s stat about middle America, a case can be made that happened because of Americans moving up the income ladder.

Equally important is the need for sound money. Inflation robs us of our standard of living and worsens our living conditions. Sound monetary policy fosters security in what we possess and encourages capital formation, as there is real value to investments that pay off. Taming inflation is arguably the biggest accomplishment of the Reagan years.

But not everything was peachy. As Milton Friedman stated, government spending is the true burden on the economy, because what is not paid by tax revenue is paid either through inflation or borrowing. Borrowing gets paid back (with interest) in the form of future tax increases. And borrowing is apparently what happened with the 1980s, as debt went from 27% of GDP to 42% by the end of Reagan’s presidency. While spending as a percent of GDP went down ever so slightly, it averaged 22.4% during his term, which is a good bit higher President Clinton’s time in office. If you feel the deficit spending paid for the end of the Cold War, than it’s probably justified. Even so, entitlement reform was kicked down the road, and the massive overhauls needed to really make the Reagan “revolution” a sustaining one never materialized.

While I strongly disagree with Mr. Kroeger’s assessment that lower- and middle-income workers were “casualties,” there may be something to the accusation of “crony capitalism” at play. As Sheldon Richman documented years ago, Reagan was arguably the most protectionist president since Herbert Hoover, supporting a host of tariffs, import quotas, and anti-dumping measures meant to protect domestic industries. These protections came at the expense of the American consumer, which paid the equivalent of a 66% income tax surcharge via higher prices. But even these protectionist policies hurt domestic companies, as the report cites American steel-using firms shed 52,000 jobs thanks to tariffs on specialty steel.

Overall, the good was really good, the bad was fairly bad, but not bad enough to overwhelm the good. It’s unfortunate the country didn’t go further with the Reagan economic “revolution” as maybe the doldrums of the last 5 years could have been avoided.

Capital Gains, Jobs-Jobs-Jobs & The Fiscal Cliff

December 28, 2012

Cato’s Chris Edwards has a good write-up on capital gains taxes, which are set to go up January 1st. Per Edwards, the higher rates will impede investment and entrepreneurship while doing very little to add federal revenue.

Another good write-up comes from The American Consumer Institute, which measures the potential job loss from the rate hikes.

President Obama wants to see these particular taxes rise for those upper-income taxpayers in the interest of “fairness.” My guess is we’ll get to see just how “fair” the impact of a rate hike will be.

The Fiscal Cliff

November 29, 2012

According to Politico, the terms of a fiscal deal between President Obama and Speaker Boehner are coming together.

As Matt Welch writes, don’t expect anything in the way of reduced spending. Nor should we expect any added revenue from tax hikes to go towards deficit reduction, if historical precedent is any indicator.

Austerity In Action

May 30, 2012

Two links that show the results of restrained government spending and lower taxes:

*a study from a UK think tank (via Dan Mitchell’s blog) that compares small government countries to big government countries and their respective economies. Result: countries with bigger gummint experience less economic growth. Also, 10% increases in outlays and tax burden lower economic growth by approximately 1%.

*Canadian austerity reforms in the ’90s led to a major reduction in unemployment.

Government Greed

May 18, 2012

Not that this will be reported as “government greed” but who is showing their greedy side? Facebook co-founder Eduardo Saverin, who would like to hold onto the wealth he has earned by avoiding punitive US tax rates, or Senator Charles Schummer, who wants to get his hands on wealth he had no part in creating??

Schummer calls it a “great American success story gone horribly wrong.” I agree; it’s horrible to see our government chase off successful entrepreneurs who add to the wealth of this country. Schummer needs to look in the mirror.

The Appropriate Tax Rates

April 17, 2012

A highly recommended link to check out anytime you hear politicians spouting off about raising taxes in order to “balance the budget.”

Just how is killing off (approximately) $20.00 of private-sector output in order to raise just $1.00 of taxable revenue a sane solution to balancing the budget? And that’s assuming additional revenue is used to balance the budget, which it isn’t.