Tag Archives: political economy

Tax Rates and Tax Credits

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One illustration of the value of the relationship between the two is provided in Laura Kusisto’s piece, Tax Overhaul Threatens Affordable-Housing Deals, in a piece in Tuesday’s Wall Street Journal.

The possibility of a tax-code overhaul is casting a shadow over the $10 billion affordable-housing industry, which receives tax credits so valuable they often determine whether or not projects get off the ground.

Members of Congress and President Donald Trump have proposed reducing the corporate tax rate to 15% to 20% from the current 35%, dimming the allure of a credit investors such as big banks and insurance companies receive to offset income taxes.

Well, of course it would.  With low taxes, there’s little value to tax credits or deductions.  There’s no mystery here.

Of course, there’s much wailing, teeth-gnashing, and bodice ripping that subsidies for builders are losing value.  The horror.

On the other hand, the availability of truly affordable housing would seem to be at risk, at least superficially.

On the third hand, though, it remains a truism that our Federal tax code has no business being used for government-directed (or any other -directed) social engineering.  These projects will work because they’re economically viable; otherwise they shouldn’t be tried at the rates they are.

In a low tax régime, too, there will be more money in the private economy, more employed labor, and commensurately less need for “affordable housing.”  And housing generally will be lower-cost, reducing the number of folks truly needing help finding housing.  That’s a number individual States can easily afford.  At least those that aren’t wasting their citizens’ resources on frivolous toys like bullet trains or engaging in virtue signaling with their sanctuary city/state foolishness.

It’s a Start

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The Trump administration is considering sweeping sanctions aimed at cutting North Korea off from the global financial system as part of a broad review of measures to counter Pyongyang’s nuclear and missile threat, a senior US official said on Monday.

The sanctions supposedly include economic sanctions against People’s Republic of China banks and other businesses having intercourse with northern Korea and northern Korean entities.

Separately, I have to ask in the current environment: how does this sort of thing get leaked?

A Thought on Free Trade

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…which I’ll assume for this post is structured between participant nations as fair trade, since it’s possible to have free and unfair trade, and it’s unfair trade that should be anathema.  Not all free trade is unfair; the parameters of any trade agreement, parameters that make the trade fair or unfair, are matters of mutual agreement (or perhaps not so mutual in the case of unfairness) among those participants.

Don Boudreaux triggered my thought with his piece in US News & World Report.

It’s true that trade destroys some particular jobs. … Being concentrated in a handful of industries, jobs lost to trade are easy to see. But the same trade that destroys jobs also creates jobs elsewhere in the American economy. These job gains, being spread across many industries, are difficult to see. But they are real.

In fact there is a net gain in jobs, albeit it’s a small net.  Being diffuse, that gain doesn’t get noticed any more than do the sets of jobs themselves.

Foreigners who sell to Americans get dollars in return. And like Americans who are paid in dollars, foreigners either spend or invest their dollars. When foreigners spend their dollars, American exports rise. More jobs are created in American industries that export.

And

American jobs are created also when foreigners invest their dollars. For example, when the Canadian company Tim Hortons opens new stores in the United States, not only are American workers employed to build or refurbish these stores, Americans are also employed to staff them. Or when Koreans use dollars to buy stock in Apple or Caterpillar, these companies become better able to expand operations.

About those last two quotes.  Those outcomes also apply from the trade partner’s perspective.  Simply swap in “partner” and “partner currency” and swap out “American” and “dollars” as applicable in those two paragraphs to see the application.

Both (all—there’s no need to suppose only bilateral arrangements) sides to international trade agreements make absolute gains, just as in a domestic free market economy, all citizens participating in a freely agreed exchange make absolute gains.  Even though among those individual participants, one man has a net outflow of his money, and the other man has a net outflow of his goods he’s presenting in trade, both men have gained from their trade.

This is where the demand of some who are pleased to call themselves economists in the Trump administration go so badly wrong.  Their demand for balance in absolute terms—no import/export imbalance, no greater outflow of money than inflow—is impossible to achieve in a truly free and fair international trade environment.  Balance requires trade to be a zero-sum gain.  Free trade isn’t, though; all participants gain from free, fair trade.  Balance not only cannot be achieved, it’s undesirable.

Irony Meter

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Mine is pegged.  I’m not so sure about the protestors’.

Recall that the claimed purpose of the Dakota Pipeline protests by the Standing Rock Sioux and their supporters was their alleged concern that the pipeline or future leaks from it would pollute the Cannonball River and Lake Oahe, the tribe’s water source, and damage the Sioux’ sacred grounds.

Clean-up crews are racing to clear acres of debris at the largest Dakota Access protest camp before the spring thaw turns the snowy, trash-covered plains into an environmental disaster area.

The US Army Corps of Engineers [closed the area] in order to “prevent injuries and significant environmental damage in the likely event of flooding in this area” at the mouth of the Cannonball River in North Dakota.

“Without proper remediation, debris, trash, and untreated waste will wash into the Cannonball River and Lake Oahe,” the Corps said in its statement.

Those involved in the clean-up effort, led by the Standing Rock Sioux, say it could take weeks for private sanitation companies and volunteers to clear the expanse of abandoned tents, teepees, sleeping bags, blankets, canned food, supplies and just plain garbage littering the Oceti Sakowin camp.

It’s not like the protestors actually cared about sacred grounds or pollution—including the Sioux, who only lately are cleaning up—rather than pettily egotistical virtue signaling.

More, it’ll cost us taxpayers $1 million to do the cleanup. It’ll cost the protestors not a single red sou.

No, it’s their hypocrisy meters that are pegged.

Tax Credits in the Obamacare Replacement Proposal

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In the main, I’m opposed to these on a couple of grounds.  One is that it’s just more welfare; we need to find a way to move folks off welfare and into the labor force and jobs rather than keeping them trapped in the welfare cage—like we did when we originally reformed the food stamps program by requiring recipients to get a job or lose the stamps.  That reform not only reduced overall unemployment, it put recipients back into jobs (and off that welfare program).  These weren’t make-work jobs, either; net prosperity for those recipient families increased.  (Then the Obama administration withdrew the work requirement, and we got record numbers of folks back on food stamps).

The (refundable) tax credits are just more of this sort of subsidy, just in the form of a tax credit rather than a direct payment, like most subsidies are.

The other is that the tax credits won’t encourage health coverage providers to lower their rates and deductible requirements.  Quite the opposite, the credits would prop up those costs by allowing the providers to put a commensurate fraction of their charges onto the taxpayer: the credits would be used by the providers to make up the difference between what the coverage purchaser pays and what the provider charges.

On the other hand, the tax credits would approach acceptability under a couple of conditions: if the credits decline year-on-year to a final value of zero over some number of years, say, two or three; or the credits are sunsetted and disappear after some number of years, say two or three.  Or a combination of the two.

With those conditions, and with the understanding that both individual and State budgets need time to adjust, a disappearing tax credit, by providing that adjustment time, could become acceptable.