Tag Archives: taxes

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.

Tax Reform, CBO Scoring, and Revenue Neutrality

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The Senate passed a non-binding (more’s the pity on the “non” part) resolution to have the CBO score tax proposals dynamically in addition to its traditional—and utterly misleading—static scoring methodology.

Static scoring assumes the idiocy of, as The Wall Street Journal put it, that

people work nearly as much at a 60% income tax rate as they do with a 30% rate, and investors don’t care all that much if the tax on capital gains is 15% or 30%.

“This often leads to crazy results.”  You betcha [emphasis in the original].

In January 2003, for example, the modelers predicted that capital gains revenues would be $68 billion in 2006 and $73 billion in 2007.  In May 2003 Congress cut the capital gains tax rate to 15% from 20%, and in its revised budget forecast in August 2003 CBO estimated that the rate cut would reduce revenues to $65 billion in 2006 and $69 billion in 2007.

CBO wasn’t even close.  Actual capital gains revenue rose despite the lower tax rate to $109 billion in 2006 and $126 billion in 2007, thanks to faster economic growth and a greater incentive for investors to cash in their gains at the lower rate.

But here’s a larger problem.  The opinion piece then goes on to say

Tax reform done right should be revenue neutral using standard CBO static analysis, but a dynamic model would predict a large revenue windfall from the overall increase in investment and economic efficiency.  As part of a budget deal, those extra tax dollars that Democrats crave could be earmarked for deficit reduction.

That’s certainly a fine use of the windfall, but why, exactly, must tax reform be revenue neutral—statically or dynamically scored—in order to be “done right?”

The political imperatives involved for neutrality are painfully obvious, so that can’t be what the WSJ was talking about; let’s leave that aside.

Why, indeed, must tax reform be revenue neutral?

The Party of Stupid

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New York Branch.

As the quid pro quo for agreeing to Governor Andrew Cuomo’s demand for his higher minimum wage, the New York Senate Republicans browbeat him into accepting a tax credit for businesses who hire at that new minimum wage.

Leaving aside the anti-hiring outcomes of minimum wage increases, as a result of this foot-shooting everyone in New York now gets to pay a piece of that higher wage, not just the businesses and their customers.

Brilliant, guys.

Competition and Cadillac Insurance

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Under Obamacare, writes Emily Chasan in The Wall Street Journal, employers will be required by 2018 to pay a tax of 40% on health care plans that President Barack Obama and his minion, Health and Human Services Secretary Kathleen Sebelius, decide for themselves are somehow “excessively rich” in the benefits they pay out.

The excuse these two and other Progressives make for this is that these Cadillac plans, with their low deductibles and “generous” medical coverage, will encourage overuse of our health-care system.  Sure.  Everyone needs to be covered.  But only to a government-approved degree.  And never mind that those low deductibles make the policy purchasers ineligible for Health Savings Accounts—Progressives don’t want Americans to have those, anyway.

But these folks also ignore—or don’t understand—another aspect of their interference.  Competition in a free market for health insurance, including an ability for insurers to charge risk-based premiums, and for health services would address that “overuse” concern much more efficiently than a 2000 page law with its tens of thousands of pages of HHS rules ever could.  Such an environment would directly impact the costs born both by suppliers and their customers/patients.

The competition would drive down the prices charged, and risk-based premiums within that environment would enable insurers to bill for the coverage offered in accordance with the actual likelihood of payout.  Yes, some high-risk coverages would get more expensive, but the vast majority of coverages, by not having to be priced so as to subsidize those high risks, would get a lot cheaper.

Also, customers and patients would gravitate to the combination of policy coverage and medical service usage that actually interested them, instead of having to buy a government-approved policy that included things only a bureaucrat could love.  An equilibrium would develop that had customers and patients getting the policies and services they wanted at prices that suited them with insurers and providers offering those services and policies at prices that would let them stay in business.

There’s no need of a tax to manage demand and supply.  Americans are fully capable of doing that for themselves in a free, competitive market.