Category Archives: jobs

Return of the Excess Profits Tax

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Excess profits taxes are taxes on profits that government decides for itself is too much. They were first tried in the US by individual states during our Civil War. They went national under Progressive governments during WWI and WWII and were not repealed until after WWII. Another Democratic administration revived them for the Korean War, and that one disappeared at the end of 1953—over 60 years ago.

Now another Progressive President, Barack Obama, wants to revive it, and without even war as justification: he just wants the money because he Knows Better the use of that money than do those companies that actually earned it. Under his 2016 Budget Proposal, Obama insists that companies

would be subject to a 14% tax on up to $2 trillion of overseas earnings they have already accumulated[.]

Obama claims he wants “more revenue” from our multinationals in order to help pay for infrastructure—you remember, all those shovel ready jobs he joked about not being so shovel ready after all.

Companies accumulate profits—earnings—for a number of reasons: saving for economic disaster or industry downturn, planned very expensive capital expansion, planned very expensive R&D, planned…whatever. They also simply hold onto funds during economic or regulatory climates that make it infeasible to spend the money.

The reasons, though, are none of the government’s business. Government has no place dictating to a private company what its purpose is in accumulating and retaining earnings. This impropriety plainly includes saying to a business, “You have too much cash on hand. Give it up.”

Here’s an alternative, albeit one inconceivable to Democrats: get more revenue from our multinationals, and get more revenue from our domestic companies and from us citizens, by cutting tax rates, reducing regulation, generally getting government out of our way. The resulting growing economic activity will generate lots more total revenue for government. Especially when tax reform makes it useful for companies to bring home the trillions of dollars they’re holding overseas.

They’re still holding all those trillions, after all, because there are no viable projects there, either, on which to spend the money.

Middle Class

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While we’re on the subject of President Barack Obama’s alleged concern for the middle class of Americans (OK, only Obama makes the allegation with any seriousness, but work with me here), Investor’s Business Daily has another take on the Obama Recovery.

The graph below is a good summary of that take:ObamaEconomicChallenge

The Obama recovery is worse than four years behind Obama’s promised schedule. It hasn’t caught up. It hasn’t caught up with the Reagan Recovery, with his “failed” Reaganomics. It hasn’t even caught up with the average of the recession recoveries we’ve been through since WWII, a period of some 70 years, 3+ generations of Americans.

As IBD put it,

[T]he growth gap between Obama’s economic policies and Reagan’s is now $2.4 trillion in lost GDP and a stunning 14.4 million in lost jobs [the bracket in the lower figure of the graph is a typo].

Finally, as IBD summed up the situation (more or less)

[W]e [need] someone in the White House who understands what it takes to produce real, sustained economic growth, and not just “underlying” suggestions of it.

Here Comes the Extortion

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Nice business you got there. Be too bad if it got shut down for some reason.

The United Steelworkers union told its workers at nine US refineries and chemical plants to strike early Sunday morning….

And they’ve gone ahead and walked out, trying to shut down nine refineries from Houston to LA. For demurring on paying the union vig. USW’s threat to the viability of these refineries ultimately could affect

30,000 workers at 230 refineries, oil terminals, pipelines, and petrochemical plants[.]

USW threatening the viability of a company for not paying up is an overstatement, you think? These refineries still have to make payroll—even of those union workers who no longer are working and earning their paychecks—they still have supplier bills to pay, they still have maintenance bills to pay, they still need to run their R&D programs, they still…. They can’t, though, if they can’t refine petroleum and have a product to sell to earn the revenue needed to pay those bills.

The USW knows that. It’s why they’ve chosen to strike—to attack the viability of their target companies and so to force their surrender.

In the final days of negotiations, the union rejected multiple offers from Shell, which led negotiations on behalf of US refinery operators.

Notwithstanding that, USW International President Leo Gerard claimed in wide-eyed innocence,

Shell refused to provide us with a counteroffer and left the bargaining table. We had no choice but to give notice of a work stoppage.

It’s time unions lost their exemption under the Clayton Antitrust Act, the successor law to the Sherman Antitrust Act which bars companies—and the USW is a company—from abusing their monopoly power. A monopoly power the USW clearly has with its near total control over the labor force of these refineries, and a monopoly power the USW clearly is abusing with its naked threat to the viability of those companies through its refusal to work—its refusal to let those companies earn the revenue they need to pay their bills.

Unemployment and Unemployment “Benefits”

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From the Abstract of the Naitonal Bureau of Economic Research’s just-released paper, The Impact of Unemployment Benefit Extensions on Employment: The 2014 Employment Miracle? by Marcus Hagedorn, Iourii Manovskii, and Kurt Mitman [emphasis added]:

We measure the effect of unemployment benefit duration on employment. We exploit the variation induced by the decision of Congress in December 2013 not to reauthorize the unprecedented benefit extensions introduced during the Great Recession. Federal benefit extensions that ranged from 0 to 47 weeks across US states at the beginning of December 2013 were abruptly cut to zero. To achieve identification we use the fact that this policy change was exogenous to cross-sectional differences across US states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

If you want more of something, you subsidize it. The Democrats, since the Panic of 2008, have demanded ever more unemployment benefits, and it was only over their objections that the repeated extensions were halted and unemployment benefits stopped.

Hmm….

An Implication of the Greek Elections

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Greece is nearly bankrupt, it has defaulted on one round of national debt since the global Panic of 2008, it has received two bailouts from the rest of the European Union and from the IMF in partnership with various EU institutions (one of which included that default), and it’s demanding another round of…debt relief…against which the current troika of the IMF, the European Central Bank, and the European Commission are refusing to certify that Greece is ready and able to handle another loan. This current crisis reached its fullness last fall, and the then Greek government collapsed, necessitating Sunday’s snap elections.

Against that backdrop, the Syriza party won those snap elections resoundingly, coming from being a back bench party of growing influence to winning 149 seats in the 300 seat Greek Parliament—two short of an outright majority and the ability to govern alone. Syriza has been, throughout the post-Panic crisis, very much opposed to any sort of bailout other than outright debt forgiveness (the polite word for default), while the EU has been just as opposed to any alteration of the terms beyond stretching out payments in return for the Greeks submitting to ever higher taxes and ever reduced government spending. The result of acquiescence to the prior rounds of raising taxes and cutting spending has been an economy that’s varied between stagnation and collapse—driven especially by the combination of cutting spending (which, alone, would have been beneficial) and raising taxes. Hence the appeal of Syriza.

Lacking two seats, though, the party had to form a coalition government; if no one would join, the government would collapse again, and new elections would be necessary. The party thought most likely to join was To Potami with its 16 seats, a generally centrist party, but one also generally opposed to yet more taxing and cutting. Instead, Syriza formed the needed coalition with the Independent Greeks Party, which won 13 seats Sunday.

Either coalition party would have given Syriza sufficient cushion over the 151 seats needed to govern, so why the Independent Greeks? Syriza is a far-left party of Marxists, and the Independent Greeks are far-right party formed two years ago explicitly to oppose the EU’s austerity impositions on Greece. They’re also opposed to immigration and…multiculturism…and they want Greece out of the EU altogether. To Potami, not so much on any of those accounts, and although they oppose further “austerity,” they’re not hard over on it; they’re more malleable.

Now, what happens next? The new Greek Prime Minister, who should be Syriza’s Alexis Tsipras, has said he will force renegotiation of Greece’s existing “bailouts,” worth €240 billion ($268 billion), “or else.”

The EU is just as adamant about not renegotiating. German Chancellor Angela Merkel:

We believe Greece has accepted terms that are not off the table after the election day[.]

President of the Eurogroup [of eurozone finance ministers] of the Board of Governors of the European Stability Mechanism [of financial assistance programs for eurozone members in “financial difficulty”] Jeroen Dijsselbloem on the prospect for “leniency” for Greece regarding its debt:

I don’t think there is a lot of support for that in the eurozone[.]

The most likely (the plurality of a plethora of options) “or else” from this potential impasse would be Greece’s departure from the eurozone—to use its own currency—and possibly from the EU altogether. With the Independent Greeks joining Tsipiras’ coalition, he got the political backbone to hold out for exactly that as the only alternative to debt forgiveness.

A Greek departure has been projected to be a disaster for the eurozone, the euro, and the EU. It certainly would shake them, but even in the extremity of those three falling apart, it would hardly be a disaster. And it would be, in the longer run, good for Greece, too.