Quote of the Day
Keep five yards from a carriage, ten yards from a horse, and a hundred yards from an elephant; but the distance one should keep from a wicked man cannot be measured.
Indian Proverb
Posting Delay Issues
I ran into an ISP issue which required rewriting part of my post from scratch and prevented more timely publication.
Free Trade Pacts: Colombia, South Korea, and Panama:
FINALLY: Thumbs UP!
Let's not have unrealistic expectations about what will become of these free trade pacts, finally approved by the Congress today, 5 years after being negotiated by the Bush Administration. Only South Korea is among the top 15 economies, and we have a $15T economy. What I'm less enthusiastic is a passed bill to set aside funding support for workers displaced as a result of affected industries. I strongly opposed that: why? Any jobs lost means those jobs were never viable but a consequence of dysfunctional trade policy, a corrupt bargain between business and government. (Right now this seems to particularly involve textile companies.) I don't think we should set a precedent for special-interest protections of workers in businesses where the business model is no longer sustainable; unemployment should be addressed on a comprehensive basis.
The whole issue involves tariffs, that is, a tax on imported goods. Treaty supporters argued in many cases the said country already enjoyed favorable tariff status in the US, but our goods and services, but our exported goods did not enjoy comparable tariffs. Consequently by the laws of supply and demand, the artificially high price means fewer of our goods are sold. We generally believe that free trade is a win-win proposition: we get cheaper imported goods and our exports become more economically priced.
The 9-9-9 Kerfuffle
As someone who writes a frequent Political Humor feature with original ad libs, I thought the funniest line of the night on Herman Cain's 9-9-9 plan (i.e., 9% individual income taxes, 9% business tax, 9% sales tax) was Huntsman's line about it sounding like a pizza deal (referencing Cain's past CEO experience at Godfather's Pizza). I've heard a lot of feedback of people, e.g., a Megyn Kelly forum, disapproving of the line, thinking it was disrespectful to a serious proposal. I think it was probably a rehearsed line and not an ad lib, but 9.99 is a very believable price for a pizza special.
There are/were a number of salient observations and predictable responses (e.g., there is notoriously no state sales or income tax in New Hampshire, so it was inevitable that Santorum or some other candidate would look to exploit local resistance to sales taxes, part of the plan).
First of all, I've made it clear n this blog that I think our tax system is unbalanced and distorted, in part due to the excessively progressive burden, which I believe causes moral hazard and also in part because it is biased in favor of certain consumption (e.g., home ownership) and against saving and investment (including the taxation of nominal vs. real (inflation-adjusted) gains). I think there is also an appeal to a consumption tax in the sense that there is a WTO ruling that allows the value-added tax, a type of sales tax (e.g., in European countries) to be deducted from exports, but not a US business income tax credit to be deducted from our exports. (Think of a VAT as a flat tax on the margin of the product, more of an explicit cost of goods sold, thus avoiding the problem of tax cascading or multiple taxation of a gross-receipt tax, e.g., widget components are taxed at the time of acquisition and then taxed again as part of the widget. It can also attenuate tax avoidance (e.g., going across state lines to purchase lower-taxed goods) by capturing revenue at earlier stages.)
Second, I thought Cain's criticism of Romney's detailed business plan in favor of the simplicity of his 9-9-9 gimmick was gratuitous in nature and intellectually dishonest. A SLOGAN IS NOT SERIOUS ECONOMIC POLICY. He's knowingly comparing apples to oranges, because Romney's plan is detail-oriented and focusing on a comprehensive economic agenda; Cain has to address the same issues that Romney is addressing, but he's implying Romney's plan is hopelessly arcane way of saying something not as good and simple as his 9-9-9. For all practical purposes, knowing resistance to change, his proposal is dead on arrival. Let us take a simple example of a state like Texas or New York where sales taxes already approach or exceed 10%--a level at which we start seeing tax avoidance behaviors. States with reliance on a sales tax are going to need to find a way to deal with that. What happens to the mortgage interest deduction or charitable deductions? I'm not saying that Cain hasn't discussed these topics, but the issue is whether 9-9-9 is as simple as he implies.
More to the point, who will validate that his scheme will generate the necessary income to sustain government operations, not to mention reducing government debt to a more sustainable level? He's listed only one person to date supporting his plan (and getting him to admit that was like trying to pull teeth. Romney has listed credentialed economists behind his pro-business growth agenda.
Musical Interlude: My Favorite Groups
Moody Blues, "Isn't Life Strange?"
