Tag Archives: economics

Carbon Tax?

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Ex-Secretary of Labor, State, and Treasury George Schultz and Economics Professor Gary Becker say we should have one.  They even insist that it be revenue neutral.

The problem is, though, that they’re arguing from two false premises, and it’s unfortunate that two such well-educated men should be so caught up in drama rather than fact.

The first false premise is that any tax change (as the imposition of a carbon tax would be) must be revenue neutral.  This may, in fact, be needful for the politics surrounding imposing a new tax (or cutting old ones), but there’s no rational reason for revenue neutrality.  The economic necessity, given our exploding deficit (though President Barack Obama says his budget shrinks it, and, sure, he is an honorable man) and our even more explosive national debt, demands a reduction in spending with its associated reduction in borrowing.  Taxes need not be increased under any nearby circumstances, nor need the imposition of a new tax be “paid for” with an equal increase in spending or reduction in tax somewhere else.  With spending coming down to eliminate our deficit and further, taxes overall can be cut, too.

The second false premise is that carbon, or carbon dioxide, is a pollutant, the blatherings of the political bureaucrats at the EPA notwithstanding.  The climate facts here are that CO2—the primary product of, say, Schultz’ and Becker’s energy companies—is a lagging, a confirmatory, indicator.  The climate record demonstrates that CO2 increases in Earth’s atmosphere lags climate warming on a global scale by some hundreds of years.  Since CO2 “emissions” are primarily from plant and animal respiration—even adding in the output of those energy plants—that lag following planetary warming comes from increased plant and animal life on the warmer planet.  It’s a confirmation of the increasing health of the planet.  That’s not much of a pollutant.

We don’t need a carbon tax, though.  Come to that, we don’t need any tax at the levels at which they’re charged today.

They’re Missing the Point

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The editorialists of Spiegel International Online are complaining about the evils of international tax havens.  They say, for instance,

no one knows how much money is on deposit in anonymous bank accounts in countries that are euphemistically referred to as tax havens.  Estimates by the non-governmental organization Tax Justice Network put the figure at about €16 to €25 trillion ($21 to $33 trillion).  In this manner, the native countries of these individuals and companies are deprived of hundreds of millions in taxes, sometimes legally but often illegally.

And

The debt-ridden countries of the Western world can no longer afford to be deprived of such massive revenues.  In addition, the public is sharply critical of the fact that some wealthy people can escape their responsibility for their countries through tax flight….

They misunderstand the underlying problem, though.  Those countries don’t actually need the tax revenue that’s heading overseas—their governments are spending far too much of their people’s money, and spending it on things that rightfully belong to those people to spend on, or not, according to their own imperatives.  The governments are deprived of nothing.  The governments should think, instead, of the benefits of those trillions staying at home, in the countries’ private—nongovernmental—economies, because without the present usurious and special interest oriented tax plans, no one would have need to hide his money from the tax man.

As for the public’s disgruntlement over the wealthy being able to hide their money when they cannot, they should be upset.  With properly low taxes, though, there is, again, no need to hide.

The editorialists do raise a legitimate beef, though.

Drugs and other criminal funds are hidden and laundered there [in the tax havens], shady deals are arranged, and hedge funds whose speculative activities could shake the financial system once again use them as a base.

You bet.  All together, now: if the domestic tax policies were more intelligent and honest—that is to say, set to low rates—the tax havens would be hard put to stay in business—and there would be fewer resources for hiding and laundering criminal funds and fewer bases for Evil Hedge Funds.

There’s a pattern here.

March Jobs

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The Bureau of Labor Statistics’ jobs report for March was released last Friday.

On the good news side:

  • 88,000 new jobs were created
  • the unemployment rate fell to 7.6%

On the bad news side:

  • 88,000 new jobs were created against a monthly average of 169,000 new jobs per month over the prior 12 months and against an expectation of 192,000 new jobs for March
    • the unemployment rate fell to 7.6% because the civilian labor force declined by 496,000 Americans
    • that’s 5 times as many Americans giving up and leaving the work force as found new jobs
    • the labor force participation rate decreased by 0.2 percentage point to 63.3%
    • the 63.3% labor force participation rate is the lowest since 1978
    • the long-term unemployed (jobless for 27+ weeks) numbered 4.6 million, 39.6% of the unemployed
    • 11.7 million workers who wanted a job remained out of work in March

This graph illustrates the failed recovery in which we remain mired; it’s an oft-repeated one, but the story it tells just keeps getting worse.  

As the graph shows, the decrease began about the time of the dot-com bubble burst, but the incipient recovery at the end of the Bush the Younger administration has been utterly cancelled, and the rate of decrease in participation has only accelerated since the Panic of 2008 and throughout the present failure.

The Consequences of Unintended Consequences

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It used to be that when Jeroen Dijsselbloem, President of the Euro Group, would talk to reporters, he’d open with

Maybe it’s good, if I say something.

And then recently he did say something.  He said that the Cyprus model of raiding depositor accounts to bail out failing banks—in addition to holding the failing banks’ investors and creditors responsible—should be the model for all of the eurozone.

In future aid packages, one must look into whether bank shareholders, bond holders and large depositors could participate so as to spare taxpayers from having to foot the bill.

Now we get the hue and cry from the left—Spiegel International Online included.  Because, you see, it’s somehow wrong to spare those taxpayers—folks who had no investment, no control, no relationship at all with those failing banks—from their Left-manufactured responsibility to indemnify private investors and creditors from the failures of their investments.  After all, it was Very Important People who were benefitting from having their hands in the taxpayers’ pockets.

The advantages were enjoyed not only by actors on the global financial markets, but also by major banking centers, such as those in Luxembourg and London, which could count on seeing governments prop up teetering financial institutions.

And so we see a consequence of unintended consequences made manifest: the naked greed of politicians and their accomplices.

And another, more favorable, consequence of these unintended consequences is being forced to the front:

A growing number of politicians and experts are demanding an end to this arrangement.  In the future, German Chancellor Angela Merkel said, “banks must save themselves.”  And German central bank board member Andreas Dombret is convinced that the financial sector can only regain health once there are no longer “implicit state guarantees for banks.”

Even the Luxembourg Finance Minister, Luc Frieden, his financial constituency notwithstanding, is figuring out a larger result of raiding depositor accounts to pay for businessmen’s and politicians’ failure to perform.

This will lead to a situation in which investors invest their money outside the euro zone.  In this difficult situation, we need to avoid anything that will lead to instability and destroy the trust of savers.

After all, the political futures of these foxhole-converting politicians depend on it.  Because in yet another consequence of these unintended consequences, the voting public—those taxpayers—are noticing the grubby political fists in their pockets.

And there’s the potential for another consequence of these unintended consequences.  The IMF has released their latest report on the currency reserves held by the various nations of the world.

Third World economies unloaded $45 billion worth of euros in 2012 in an accelerating trend.  Some of that, certainly, is related to the failed global recovery from the Panic of 2008.  However, Europe’s decision to raid Cyprus depositors’ funds to bail out failing banks, together with the Euro Group’s view that such raids are appropriate solutions for other eurozone bank failures, won’t encourage folks from outside the EU to place their money with eurozone—or EU—banks.  Which will contribute to continued dumping of euro holdings.  Which will continue the EU’s de facto dependence on the $US as the reserve currency, rather than elevating the euro in importance and from that, elevating the EU.

Unless Merkel, Frieden, et al., can prove themselves serious.

Progressives, Tax Scoring, and Economic Growth

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In a related post, I wrote about dynamic scoring being preferred to static scoring and about the “wisdom” of revenue neutrality for tax reform.  In the same cited Wall Street Journal op-ed, Senate Budget Committee Chairwoman Patty Murray (D, WA) is quoted as decrying dynamic scoring on the grounds that it

relies on judgment calls.

She’s right, of course.  What she carefully ignores, though, is that static scoring relies on its own judgment call: that humans don’t respond to the taxing, or spending, or borrowing moves of government.

We’ve seen the “accuracy” of the government’s calls based on those static analyses.  Static analyses completely blew those 2006-2007 cap gains predictions.  Static analysis completely blew the cost predictions of Obamacare.  Static analysis is completely blowing the cost predictions of Dodd-Frank.  And that’s just from the present and immediately prior administrations.

It’s time for Murray and her…cronies…to get out of the way.