Join the Fight
« December 2007 | Main | February 2008 »
What's not surprising is that labor unions in America are opposing a new free trade agreement with Columbia on very shaky grounds.
What is surprising is that we lowered our tarrifs on Columbian goods back in the 1990s. All this agreement would do would make it cheaper for us to export.
The House version of this bill wasn't the greatest thing since sliced bread, but at least it had 50% partial expensing.
The Senate last night, though, managed to water that down. It roughly cut the expensing in half, and massively increased spending.
Not looking good for growth.
It's only prospective, and it only affects earmarks present in committee language, but it's a start.
Word came out today that Senate Democrats were seeking to water down the growth package even from its modest parameters previously discussed. According to staff reports, Senate Finance Chairman Baucus wants to cut the business expensing provision in half, from 50% partial expensing to 25% partial expensing the first and second year. It's about to get ugly.
The White House today announced that they would cave on restricting earmarks in the FY 2008 omnibus bill they signed last month.
In somewhat better news, they have also announced that the President will commit tonight in his State of the Union speech to veto any appropriations bill which does not at least cut the number of earmarks in half from last year.
Progess, I suppose...
Reports out today that the Senate will pork up the stimulus package, which was (supposedly) a finalized document.
Somebody forgot to tell the Senate.
Continue reading "Surprise! The Senate Gets to Vote on Stimulus, Too" »
The White House and Congressional leaders have come out today with a "stimulus" plan that's two parts money giveaway, one part business investment incentives. What a wasted opportunity.
The Democrats were going to insist on the wasteful spending and tax rebates no matter what. Stupidly, the White House and the business community squandered political capital by also asking for these same rebates. The Democrats, I am convinced, would have given us much more if only we had insisted on our priorities.
What we got isn't too bad: 50% bonus depreciation and doubled small business expensing--all for one year. Considering how ham-handedly this was managed, it's tragic to think what we could have gotten. Not the world, certainly--but something more than we got.
A couple of good bills in this direction were introduced in the last several days, including:
Useful study out of NCPA this morning. The last twenty years have seen massive changes in tax law, from the Tax Reform Act of 1986 to the capital gains and dividends tax cuts of 2003. Throughout this period, the progressivity of the income tax system has continued to rise and rise.
Good op-ed by Bruce Bartlett today in the WSJ on what a monumentally stupid idea tax rebates are. Here's a snippet:
A new rebate probably won't do much harm. But anyone who thinks it will prevent a recession -- if one is actually in the pipeline, which is not at all certain -- is dreaming. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse.
Many people know about how Charlie Rangel's "Mother of All Tax Hikes" would destroy the economy at the same time that it killed the AMT. His, though, is not the only bad idea around.
The Tax Policy Center's Leonard Burman has endorsed a 4% AGI "surtax" to pay for AMT repeal. As the Heartland Institute points out, this would make the overall situation far worse:
Those levels of taxation haven't been seen in a generation.
Some cure.
There's a ton of good articles on stimulus vs. economic growth over the past 24 hours:
David Gitlitz od NRO presents a strong case that we're not in a recession at all.
Brian Riedl of the Heritage Foundation gives some basics on why lower marginal tax rates are the best way to "stimulate" (actually, to grow) the economy.
As usual, they do a great job with this index.
The United States is listed as the fifth freest country in the world. We currently trail Hong Kong, Singapore, Ireland, and Australia.
It looks like we have some work to do.
Republicans are losing their opportunity on spending. There was no big fight on spending at the end of last year, and the White House largely-capitulated to Democrat levels of spending demands.
Now, Hill Republicans are pressuring the President to enact over 900 earmarks in this spending package.
This is a disgrace, plain and simple.
The best voice of reason against earmarks and spending has been Congressman Jeff Flake of Arizona. With the appointment of Roger Wicker to fill Trent Lott's vacated Senate seat, the House GOP has a chance to appoint Flake to approps and actually guard the chicken coop. Many organizations are looking to ratchet up the pressure on the House GOP to do the right thing and put Flake on the committee:
It unfortunately got buried in the weekend edition of the Wall Street Journal, but there was a good op-ed by Ernie Christian and Gary Robbins on full business expensing. Here's a snippet:
By allowing more of the cost of machinery and equipment to be deducted more quickly, first-year expensing causes new investment to be made sooner. More investment means more productivity -- and 80% of the net benefit from increased productivity goes to labor. Expensing is a no-risk tax cut. It worked four times in the 1960s and 1970s. It worked in 1981-1982 and again in 2002-2004...In terms of the real benefit from capital investment -- induced economic growth and higher living standards -- first-year expensing produces enormous bang for the buck. Experience in 2003-2004 shows that new orders for manufacturing equipment and other business durables begin to be placed within weeks of the enactment date. Small businesses and other producers will not order what they do not need. But when the price goes down (which is the effect of expensing), they can afford to order what they do need more quickly, and in larger volumes.
The Fraser Insitute in Canada has developed a 15% flat tax. Not content with developing nations, the flat tax revolution has seemed to enter our area. It's only a matter of time before the political class here gets it
Rudy Giuliani released a massive, pro-growth tax cut plan today. This multi-trillion dollar plan does the following:
The plan was endorsed early by Americans for Tax Reform and the Club for Growth.
The Giuliani camp needed to shake things up and distinguish themselves from their competitors, and this certainly fits the bill. The Giuliani tax plan certainly puts him at the top of the supply sider mountain.
The White House will reportedly come out for two tax elements in a "stiumulus" package. The first is an awful idea, and could have come from Pete Stark's office: a refundable $500 tax credit, which for the 40% of non-taxpaying American households is nothing more than a direct subsidy from actual taxpayers. A better option would be to call for an immediate cut in the corporate income tax rate from 35% to 25% to come closer to our European competitors.
The second idea is a better one: another round of "bonus depreciation" for business equipment. The last time this was tried (30% in 2002 and 50% in 2003), business investment did go up--but only temporarily. Better for them to call for full expensing, even on a temporary basis, or a shortening of depreciable lives.
Joining the chorus of voices for a corporate tax rate cut is Dick Armey in today's USA Today.
For all the talk of "stimulus" going around in Washington these days, very few people are willing the condemn Keynesian transfers of wealth. Even fewer are proposing realistic and potent permanent improvements to economic growth.
One of those few is Larry Kudlow.
In his column this week, Larry points out that the household sector is doing just fine. It's corporate profits that we need to worry about. What's the best permanent remedy here?
Right now, the single best thing President Bush and Congress can do is slash the corporate tax rate for large and small businesses. Bush must reach out to Charlie Rangel and move the corporate tax to 25% from 35%. Then, instead of taxing successful capitalists as an offset, Congress can entirely abolish corporate-tax subsidy loopholes, special provisions and other corruption-inducing K-Street earmarks. A middle-class tax cut to help families and small businesses would also work wonders. This can be done by collapsing the three middle-income tax brackets of 15% ($15,650), 25% ($63,700) and 28% ($128,500) into one 15% bracket.
Michael Medved today points out on his blog that high-income families--those earning several hundred thousand dollars per year or more--will face a top marginal tax rate of 55% under Obama's tax plan.
This assumes that all income is wages, and that the Social Security wage cap is completely lifted. It also assumes that the Bush tax cuts are allowed to expire. Obama has endorsed all these proposals, and more.
What would a high income earner do in this keep-less-than-half world? You guessed it. He doesn't come into work on Saturday morning. Not worth it. Then we're all worse off.
Some sobering reading this morning.
It's clear now that the slowing economy is having an effect on revenues. Tax revenues are up only 6% year over year, compared to 8% growth in spending. Corporate income tax revenues have declined by 5% since this time last year.
So far, the deficit is up by 25% since this time last year. If that trend continues, the pressure to increase taxes will grow. Now is the time to put the lid on spending growth.
Bulgaria became the latest nation to join the flat tax club, with a low personal rate of only 10%.
There are now 11 former Soviet-bloc nations which have a flat tax rate of 25% or lower, including Russia.
Since 1980, the OECD average personal top income rate has fallen by 24 percentage points, and the average corporate rate has fallen by 20 percentage points, according to Cato's Dan Mitchell.
Interesting op-ed in the WSJ today shows how the health insurance sector is beginning to cater more and more to individual market plans:
Successful insurers are developing a much sharper view of how to sell to individual customers. Many health insurers are in the Dark Ages when it comes to developing and acting on consumer insights. They can take a page from the financial-services industry, which made a similar jump when the retirement market transitioned from business-to-business pension plans to business-to-consumer 401(k)s, IRAs, annuities and other similar products. Fidelity, for example, has become a master at marketing and branding, slicing and dicing data to identify the behavior and needs of customer segments, and then responding with targeted products.
Good article on this today from John Tamny in NRO. Here is a piece:
While various commentators continue to predict economic austerity as though it will arise out of thin air, it is useful to remember that the U.S. economy is comprised of individuals who are eager to make so that they can take. Washington cannot legislate this process, nor can it create prosperity. On the other hand, Washington does have the power to foster an environment of stable money, lower taxes, and free exchange, while promoting certainty in all three areas. If it acts accordingly, and removes the barriers to productivity that are presently in our way, recession predictions will quickly become yesterday’s news.
Good op-ed today in the Wall Street Journal which makes two main points:
Even though Congress passed and President Bush signed the final set of spending bills for 2008, he still has an opportunity to deny about $11 billion of earmarks. Senator Jim DeMint (R-SC) and AFP's Phil Kerpen have good op-eds on this today.
Failure to secure this victory would be a disastrous retreat on spending.
The December employment report came out today, and most press accounts focused on the 5% unemployment rate and the 18,000 jobs created that month.
What hasn't been reported adequately is the year as a whole. Throughout 2007, over 1.3 million jobs were created. Not a banner year, but not the Great Depression the MSM seems to indicate.
According to the White House, 8.3 million jobs have been created since the capital gains and dividends tax cut. There have been 52 straight months of employment growth, a record.
JT Young, a veteran of the Hill and the Bush Administration, has a very useful article today on how the success of health savings accounts (HSAs) can pave the way for eventual personal retirement accounts in Social Security.
In a disappointing move today, George Will was snookered in by the varied charms of House Ways and Means Committee Chairman Charlie Rangel (D-NY). Here's a snippet:
Regarding two matters, Rangel is a Reaganite. Ronald Reagan opposed using the tax code "as a means of achieving changes in our social structure." Rangel -- in his 19th term, a man of House proprieties -- says "I don't think the tax code should be a substitute for the appropriations process in making social change." Social policy should be, he thinks, the province of "the standing committees." The question for tax writers "is not just what is fair and equitable but what is good for the economy."
Great article today by Diana Furchtgott-Roth in the New York Sun on one of the principal challenges facing the U.S. economy in 2008: namely, the dwindling supply of workers.
If Congress cannot pass major legislation that would address all immigration issues, including how to treat the 12 million undocumented foreigners living here now, it could improve the functioning of American labor markets with a much narrower action. It could authorize the Department of Labor to decide on its own the number of work permits and temporary visas to be issued every calendar quarter...Every year, USCIS issues 65,000 H-1b temporary visas for skilled workers certified by the Labor Department out of approximately 630,000 approved applications from employers, with applications showing no sign of abating. Immigrants who hold H-1b visas must return to their home countries when the job ends...A similar backlog exists for permanent residence visas sought by individuals both in America and abroad, with applications often close to ten times the number of "green cards" that may be issued. In 2006, more than 12,000 newly-arrived workers received green cards to work in the United States, and 53,000 temporary workers already in America were granted green cards.
According to Investment News, mutual fund assets grew by $1.8 trillion in 2007, a record. There are now $13 trillion in mutual funds in the United States, and $27 trillion world-wide.
Stock mutual funds grew at a 10% average in 2007, compared to only 5% for bond funds.
According to the Wall Street Journal, the Dow Jones Industrial Average grew by 6.4% in 2007. The S&P 500 index grew by 3.5%, and the NASDAQ grew by a very solid 9.8%.
Compare that to a core inflation level of 2.3%, and an annual 10-year Treasury yield of only 4.5%.
Once again, the pessimists were wrong. With a full year to recover from the housing flu, it seems likely that next year will, again, be a positive one for investors.
John C. Bogle: Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor
Richard Yancey: Confessions of a Tax Collector: One Man's Tour of Duty Inside the IRS
Harvey Mackay: Dig Your Well Before You're Thirsty : The Only Networking Book You'll Ever Need
Grover Norquist: Leave Us Alone: Getting the Government's Hands Off Our Money, Our Guns, Our Lives
Paul Craig Roberts: Supply-Side Revolution: An Insider's Account of Policymaking in Washington
Julian E. Zelizer: Taxing America: Wilbur D. Mills, Congress, and the State, 1945-1975
Recent Comments