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The Bush Tax Cuts, Revisited
Tweet Share on Facebook August 25, 2008 Comment (2)The 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
Tweet Share on Facebook August 25, 2008 Comment (1)Liberal 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
Tweet Share on Facebook August 22, 2008 Comment (3)Team 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
Tweet Share on Facebook August 22, 2008 Comment (23)What 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
Tweet Share on Facebook August 21, 2008 Comment (2)Over 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
Tweet Share on Facebook August 21, 2008 Comment (3)It 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
Tweet Share on Facebook August 21, 2008 Comment (32)Pete 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
Tweet Share on Facebook August 21, 2008 Comment (18)As 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
Tweet Share on Facebook August 20, 2008 Comment (7)OK, 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
Tweet Share on Facebook August 20, 2008 Comment (1)Former 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.
