Japan’s Sovereign Debt

With our just completed tax “deal” adding $4 trillion to our national debt by 2022, I thought it might be interesting to look at the debt load of another country that used to be an economic powerhouse, but whose economy has been stagnant while its population ages: Japan.  In no particular order, we see the following:

  • Japanese administrations have accumulated debt worth $14.6 trillion, roughly 230% of GDP.
  • Since the 1990s, administrations have bailed out failed banks and insurance companies.
  • Tax revenues are less than half of expenditures.
  • Interest on Japanese debt has been held to 0.75% by the Bank of Japan, their central bank.
  • Since 2011, the BoJ has fed emergency programs a total of ¥213 trillion ($1.2 trillion).
  • The BoJ Governor, Masaaki Shirakawa, acknowledges
    • At the moment, the effect of our monetary policy in stimulating economic growth is very limited.
    • Fully one-quarter of the government’s overall budget currently goes toward servicing debt.  Were Tokyo forced to pay higher interest rates, it’s mountain of debt would grow even more rapidly.
  • The new Japanese Prime Minister, Shinzo Abe, wants more of the same: a new ¥14.4 trillion ($120 billion) economic stimulus program, this time for the construction sector.  At the same time, Abe wants Shirakawa to pump unlimited cash into the economy.

This graph illustrates:

Any of that look familiar?

The data and graph are via Spiegel Online International.

Now that the Bill Has Been Passed

…and we can see what is in it, the pork for President Barack Obama’s paymasters that is in it is quite impressive.  Here are some, in no particular order.  Enjoy the sausage.

  • Accelerated tax write-off for owners of NASCAR tracks: $78 million
  • Tax credit for companies operating in American Samoa: $62 million
  • Distillers rum tax rebate: $222 million
  • Film and television producers expense the first $15 million of production costs incurred in the US ($20 million incurred in economically depressed areas in the United States): $430 million
  • Wind production tax credit: $12 billion
  • Cellulosic biofuels tax credit continued and expanded to include producers of “algae-based fuel:” $59 million
  • Biodiesel and “renewable diesel” tax credit: $2.2 billion
  • Plug-in motorcycles tax credit: $7 million
  • Energy-efficient appliances tax credit: $650 million
  • Energy-efficient homes tax credit: $154 million

Most of these seem like chump change, but they, with other inclusions, sum to $40 billion of pork in the tax “deal.”

“Why Conservatives Should Support a Carbon Tax”

Hmm….

The Social Science Research Network is carrying a paper of that title by Shi-Ling Hsu, of Florida State University’s College of Law, and Yoram Bauman, of Sightline Institute.  (The link takes you to the paper’s abstract, but the full paper is easily downloadable.)

The paper’s opening paragraph pretty much says it all:

Why should conservatives support a carbon tax? There are two answers. First, a carbon tax would reform the American economy in a positive way, even if there were no such thing as human-caused climate change. If a carbon tax can be used to reduce other taxes, or if a carbon tax is a new source of revenues for deficit reduction instead of raising other taxes, the net economic benefits of such a swap are likely to be positive even if there are no environmental benefits. Second, the alternative to a carbon tax is less efficient: federal command-and-control regulation of greenhouse gas emissions under the Clean Air Act. The Supreme Court has held that the EPA must regulate greenhouse gas emissions under the Clean Air Act, and this requirement will not be legislatively repealed unless it is replaced by something comprehensive, like a carbon tax.

Where to begin?

“Used to reduce other taxes?”  Fat chance.  “[N]ew source of revenues?”  But that’s a tax increase, and tax increases have not been shown to be beneficial to any economy, much less ours.  “[F]or deficit reduction?” This  works from the false premise that spending currently is at an entirely appropriate level; reductions in spending sufficient to eliminate altogether the deficit  compared with current revenues are unneeded.

It’s certainly plausible that alternatives to a carbon tax might be less efficient, but this idea proceeds from the false premise that Federal intervention in, Federal control over any part of, our national economy is in any way appropriate.  The fact is that taxation (or subsidization) for social engineering purposes simply distorts the market: taxation produces less of the thing taxed—in this case, less energy (and reduced manufacturing of parts made from carbon fiber, but that’s for another post).  Since energy is at the foundation of our economy—and of our lives—that means prices will go up, substantially, and those at the bottom of the totem pole will have their lives damaged, perhaps severely, by not being able to afford such basics as energy for heating their homes, fuel for their transportation to work, even medical costs, as doctors and hospitals will be forced to increase their charges to cover their own increased energy costs.

Moreover, the premise of relative efficiency is itself far from established.  One has only to look at how well it’s working in Europe and how effectively nations whose economies don’t have such a thing compete with nations which do saddle their economies with this sea anchor (not that I’m mixing metaphors, or anything).

The attitude is defeatist, also.  The most efficient position would be to eliminate the Clean Air Act.  As the authors note, this will be hard to do, but hard means possible.  Modifying the CAA to eliminate CO2 from the list of pollutants would eliminate the need for a carbon tax.  This would be less efficient, but it may be politically more doable in the near term.

It’s also important to avoid carbon taxes because, taking the present paper as an example, what carbon is to be taxed is left carefully unspecified.  Hsu and Bauman do hint at it with their references to carbon dioxide, as though this gas ought to be taken seriously.  Aside from the fact that CO2 is a trailing indicator, though, confirming an increase in the health of the planet from increasing life exhaling more CO2, its impact as a greenhouse contributor is not at all established.

Despite this, the reason for the authors’ preference for a carbon (dioxide) tax is made plain here:

A carbon tax represents the lightest, smallest government touch possible in promoting technologies and measures to reduce greenhouse gas emissions.

And [emphasis in the original]

Fundamentally, what an economy facing the 21st century must do is to sort industries, top to bottom, by the marginal value their carbon dioxide emissions provide to society.

Since the need “to reduce greenhouse gas emissions,” generally, and CO2 as pollutant, particularly, are little more than Progressive tropes with no basis in science, there’s no social engineering need to tax carbon.

Nor is there a practical way.  What CO2 should be taxed?  From what industries?  Are the CO2 (and methane—a potentially very powerful greenhouse gas) emissions of cattle ranchers, and dairy and hog farmers, for instance, to be included?  If not, what distinguishes that CO2 from any other CO2?  Not even the isotopes of the carbon and oxygen differ.

How will the battery-operated cars—hybrids and pure battery-powered—be taxed for their CO2 emissions?  Think these “green” cars don’t have a significant carbon footprint?  Think about the source of the energy that (repeatedly) charges their batteries.  Most modern cars (“green” ones included) also have significant carbon fiber in the materials from which they’re constructed.  How will the CO2 emissions from an accident-related fire be assessed?

Finally, note that I’m eliding here any discussion of the authors’ false premise that government should be in the business of structuring a free market at all.

And so on.

In fine, no Conservative case for supporting a carbon tax has yet been offered.

A Few More Musings on Taxes and an Economy

James Pethokoukis, writing for AEIdeas, has a thought.

First, some rough background:

From 2009-2012, revenue as a share of GDP has averaged 15.4% of GDP vs. 13.9% from 1948-1951 and 18.1% overall in the postwar era.

Then,

Imagine if we a) kept all the expiring 2001 and 2003 tax cuts, b) started indexing the Alternative Minimum Tax for inflation so it wouldn’t hit more and more taxpayers.

How would that affect tax revenue? The Congressional Budget Office tells us:

Under that scenario, revenues from 2013 to 2022 would average about 18 percent of GDP, which is equal to their 40-year average.

Indeed, we would be back to the postwar average of 18.1% by 2016.

I would argue that the AMT, which began life as a special assessment against all of 155 particularly hated-by-Progressives successful Americans, should be abolished altogether, but that’s a topic for another post.

Here are a couple of other numbers.  US GDP was $15.1 trillion in 2011, while Federal income tax collections ran to $1.273 trillion, or 8.5% of GDP (my number differs from Pethokoukis’ because I’m only considering individual and business income taxes and leaving out Social Insurance, ad valorem, and other taxes).  In 2007, US GDP was $13.3 trillion, while Federal income tax collections ran to $1.534 trillion, or 11.5% of GDP (yes, that’s a 17% drop in Federal income tax collections in the third year of the failed recovery).

Plainly, if the Feds just got out of the way of our economy, stopped demanding ever more taxes, stopped spending our money on failed “investments,” stopped paying essentially well-meaning individuals for not working, our economic recovery would push income tax revenues up those missing three per centage points—and having returned to 11.5% of GDP, Federal income tax revenues would approximate $1.7 trillion—a rise of nearly $500 billion in the first year.  And that’s just a static analysis.  At that rate of increase every year, the Feds would be getting a whole lot more in income tax revenue by 2016—again a static analysis.  Imagine the increase from a dynamic analysis, which would include all the feedback loops from economic growth—like individual spending, business growth, jobs increases for those currently on the Feds’ dole, etc.

Another thought: from the Tax Foundation, via the TaxProf, comes this:

[W]hat does the academic literature say about the empirical relationship between taxes and economic growth?  …the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.  In this review of the literature, I find twenty-six such studies going back to 1983, and all but three of those studies, and every study in the last fifteen years, find a negative effect of taxes on growth.  Of those studies that distinguish between types of taxes, corporate income taxes are found to be most harmful, followed by personal income taxes, consumption taxes and property taxes.  …

[T]he lesson from the studies conducted is that long-term economic growth is to a significant degree a function of tax policy.  Our current economic doldrums are the result of many factors, but having the highest corporate rate in the industrialized world does not help.  Nor does the prospect of higher taxes on shareholders and workers.  If we intend to spur investment, we should lower taxes on the earnings of capital.  If we intend to increase employment, we should lower taxes on workers and the businesses that hire them.

Why, with all that revenue enriching the Feds coffers, we could look forward to actually paying down/off our national debt, and then across the board reductions in income tax rates.

Except that tax revenues (partly) fund incumbents’ vote pandering “welfare” programs.

Negotiating?

The Progressives in our Federal government insist, with a straight face, that the Republicans have put forward no concrete proposals in the present budget…negotiations.  They carefully ignore the fact that the Republicans already have put forward three concrete proposals: two House-passed budgets (for 2011 and 2012, which contained explicit spending, taxing, and entitlement reform steps), and the proposal on which they campaigned last fall.

Oh, wait—the Progressives studiously ignored those, too—in the Senate, where they refused even to permit debate on the budgets and ever since, with their pretense that the spending, tax, and entitlement reforms of the campaign don’t exist.

The Progressives’ current position?  As The Wall Street Journal reports,

[M]any Democrats have ruled out any changes to Social Security during the current fiscal talks.

And

A senior administration official said the White House would make no new offers until Republicans changed their opposition to raising top tax rates.

Throughout this entire shabby charade, President Barack Obama has been accusing the Republicans of holding middle-class America hostage against their refusal to agree to tax rate hikes on his hated Americans.  Yet the Republicans and Progressives already agree on making permanent current tax rates on 98% of Americans.  It’s Obama who is threatening to blow up our economy on his ego trip of demanding 100% of a tax deal for which he already has 98%.

It’s Obama who’s threatening to blow up our economy by refusing to discuss spending cuts and entitlement reform at all—after agreeing that they should be on the table shortly after the election.

It’s Obama who’s threatening to blow up our economy with his insult of demanding sole debt ceiling authority in utter disregard of the Constitutional role of Congress—and not the President—in setting spending.

Update: Speaker John Boehner (R, OH) and a number fellow members of the Republican leadership made a counterproposal Tuesday that included much of Obama’s precious tax revenue increases–not as rate increases–to the tune of $800 billion, and $1.2 trillion in spending cuts.  Obama blew this off within the hour.  So much for negotiating.

Ex-Senator Rick Santorum, last night on Greta van Susteren’s On the Record,  said that Obama’s fallback–his Plan A–of Sequestration and tax rate increases across the board makes him entirely willing to take our economy over the cliff: Obama gets his tax rate increases, and he gets the Progressives’ decades-long fought-for cut in defense spending, a $500 billion reduction.  Obama sees this as a heads, I win; tails, you lose situation.

I think Santorum is right.