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Monday, July 21, 2014

Miscellany: 7/21/14

Quote of the Day
To many time we confuse motion with progress.
Cyclops

Pro-Liberty Thought of the Day


Tweet of the Day
Rant of the Day: The Dysfunctional Corporate Tax

As Worstall notes here:
There are excellent reasons for wanting to place the tax on consumption rather than incomes or corporate profits. One of the largest being that all taxes have deadweight costs and consumption taxes have lower ones than income or corporate taxes. A deadweight cost being the amount of economic activity that doesn’t happen because of the tax: lower deadweights mean we can have more economic growth for any level of taxation, or if you prefer, higher taxes for any level of economic growth.
From yesterday's Being Classically Liberal post on FB:
Workers bear the majority of the burden of the corporate tax:
According to a noteworthy study published by the Congressional Budget Office, “domestic labor bears slightly more than 70 percent of the burden of the corporate income tax.” [1] Numerous other studies challenge the belief that the burden of the corporate tax falls solely on the shoulders of the owners of capital:
• A review of the academic literature on the corporate tax conducted by the U.S Department of the Treasury found that, “labor may bear a substantial portion of the burden from the corporate income tax.” [2]
• Economist Arnold C. Harberger has found that labor bears over 80% of the corporate tax. [3]
• Hassett and Mathur of the American Enterprise Institute, a conservative think tank, found that for every 1 percent increase in corporate tax rates, wages decrease by nearly 1 percent. [4]
• Wiji Arulampalam, Michael P. Devereux, and Giorgia Maffini of Oxford University found that $1 in additional corporate tax reduces wages by 92 cents in the long run. [5]
• According to economist Alison Fenix, “I estimate that a one percentage point increase in the marginal corporate tax rate decreases annual wages by 0.7 percent.” [6]
Lefties can call for raising the corporate tax all they want to, but the truth is that doing so hurts the workers they want to help. In fact, economist Laurence Kotlikoff estimates that eliminating the corporate tax and replacing it with higher income taxes (or consumption taxes) would raise worker’s wages by 12-13%. [7]
Citations:
[1] http://www.cbo.gov/ftpdocs/75xx/doc7503/2006-09.pdf
[2] http://www.treas.gov/offices/tax-policy/library/ota101.pdf (
[3] Arnold C. Harberger, “The ABCs of Corporation Tax Incidence: Insights into the Open-Economy Case,”
[4] Kevin A. Hassett and Aparna Mathur, “Taxes and Wages,” American Enterprise Institute Working Paper No. 128, June 2006.
[5] http://users.ox.ac.uk/~mast1732/RePEc/pdf/WP0707.pdf
[6] http://www.kc.frb.org/Publicat/RegionalRWP/RRWP07-01.pdf
[7] http://www.kotlikoff.net/sites/default/files/CorporateTaxPaper_Current.pdf
Image of the Day
Tom Gallagher via IJ on Twitter
Via Tom Gallagher on Twitter
Via FEE
Remy's Back, Crooning about the IRS Country-Style



Choose Life



Freedom From Choice

I have no financial interest in this film. You can order a DVD or rent per view online here.



A Rant On the Fed

I've stewed a little bit since the weekend over Mark Perry's rant on the inflation cranks. I generally avoid getting into the weeds with economists because I'm not familiar enough with their models and data sets. I read a number of sleepy articles explaining why the Fed's expansion didn't trickle down, being part of excess reserves. There's the issue of the Fed paying interest on excess reserves resulting from Fed purchases of various assets. The Fed is basically doing so to put a floor on the federal funds rate, a key interest rate for the economy (think of prime bank lending to each other); otherwise, surplus reserves would drive interest rates to almost zero, which deprives the Fed of a key policy tool. Also, the banks have to pay insurance on their reserves. The way things work now, the Fed earns interest income on its asset holdings; the Fed deducts its expenses--including its payments to banks on reserve deposits--from its income. It pays its "profits" back to the Treasury. The problem occurs if and when interest rates climb--think of it as a zero-sum between the big banks and the federal government, which likes the nice revenue stream it's now getting from the Fed. One can already imagine the bank-bashing economic demagoguery from the likes of Cherokee Lizzie Warren, whom of course has come out in favor of renewing the Export-Import Bank, the poster boy of corporate welfare.

I'm going to avoid identifying my new target, an investment newsletter writer, a former banker, but he decided to rip on a Fed critic, not unlike Mark Perry of Carpe Diem whom dumped on a conservative blogger at National Review as an inflation crank. I'll just discuss the gist of a couple of points he made: first, stop comparing America's debt problem with Greece; Greece's crisis is due to the fact it can't print its own euros but is dependent on the policies of the ECB; on the other hand, the Fed can print itself out of America's debt problem. Second, he bashed the issue of a crowd-out effect of the Federal debt and the rest of the American economy, particularly a well-known CBO warning; again, the point is that the Fed can issue fiat currency on demand.

A few points: first of all, I recall there was serious talk during the Greece crisis of reverting to their old currency and then immediately devaluing the currency. Second, if the Fed could simply monetize the debt, why bother taxing at all?  Third, the Fed has to know the quantity theory of money still holds. Fourth, the dollar serves as the world default currency, i.e., dollars are used as a medium in trade transactions. This artificially creates demand for US currency, over and beyond what's needed to finance American trade. This is more of a privilege, and in fact the BRIC economies are already discussing dollarless transactions among themselves and other trading partners. Fifth, if the Fed could simply print itself out of trouble, why did Bernanke ever feel the need to raise interest rates before the Great Recession? Hint: inflation eclipsed the Fed's 2% target. One of the two inflation measures, CPI vs. the (preferred) CPE, is already closing in on 2%. Let's point out before the 2000's, near-zero interest rates were an anomaly. Moreover, the Fed's bonds assets are a critical tool to take dollars out of an overheated economy, and the Fed could book serious losses on sales at higher interest. Keep in mind that trillions in US debt is held publicly, beyond the control of the government and Fed, and debt transactions reflect market inferences of inflation risk. Finally (not to suggest other arguments can't be made), of course government debt matters; it competes for investment dollars, and the economy is taxed to pay off federal obligations.

Facebook Corner

[This is an offshoot off a Reason thread that argued despite the headline murder spree over the holiday weekend earlier this month, Chicago is making progress on its violence problem overall. Now I don't mind some of the stuff the troll talks about; I support the right of self-defense, and I want to decriminalize victimless crimes. But especially towards the end of the piece it veers into victimization terminology and professes an undue reliance on the State to "solve" problems of poverty, racism and other "progressive" rhetorical claptrap. I think, on the contrary, we need to give judges more flexibility than "get tough" policies that result in unjust sentences like life imprisonment for a third, minor offense; some innocent citizens have been wrongly convicted of rape and other violent crimes, with many an ambitious prosecutor willing to look the other way. I also don't think the State should handle mental health issues anymore than healthcare issues; we have oversubscribed tax revenue, and our first priority is to close the deficit and pay down on the debt, not create a new entitlement benefiting crony psychologists and psychiatrists. "Social justice" is "progressive" talk for legalized plunder. I'm explaining why I think this guy is a "progressive" troll; why did I pick on the Norway reference in particular? Because this is a standard "progressive" talking point. The fact is that heavy welfare spending in the northern European countries takes a tool on economic growth; economic growth rises all boats. I've seen statistics, for instance, that it is 6-8 times more likely for the poor in Ireland or Britain to escape the bottom quintile. And Norway is being signaled out because it is more generous than the rest of Europe in poverty support--but it pays for it in terms of a heavy tax burden, and I've been statistics showing poverty there increasing over the past decade. For anyone interested in reading some research on the subject that goes beyond misleading "progressive" propaganda, check the mises.org wiki. I don't have any issue with poverty being addressed--but by the private sector voluntarily, not a self-serving bureaucracy. Plus, the troll overestimates his "solutions"; for example, the end of prohibition did end organized criminal involvement, but we have nontrivial issues of alcoholism. The idea of throwing good money after bad in failed public schools and other programs accomplishes little more than rewarding the government class.]

One gun law that causes reduction in violent crime is shall issue CCW. Make it nationwide, make it reciprocal.

 People who commit violent crime should serve more time in prison. One reason we do not is that we have over a million folks in jail for non violent drug offenses. 

 Which works well with the biggest single thing we could do to reduce violent crime and murder. Per the FBI, about half of all violent crime is tied to the black market prohibition subsidizes. Same thing happened in prohibition 1. 

 End prohibition, legalize regulate and tax drugs. Gang violence will almost disappear. This will stop about 5000 murders a year.

 Pardon the non violent drug offenders, and put law enforcement to effectively addressing real crime, like this guys domestic violence. Maybe a few years inside thinking about not being such a creep would help.

 Put the funding we gain from ending the war on drugs to work, increase mental health care access.

 Make it so that when a mental health professional sees a real danger, that person can be committed for treatment. Several of the spree killings recently could be stopped by that.

 Investigate SSRI drugs, which also seem tied to spree killings. 

End poverty, as Norway has.

 End racism, in law enforcement, educational activities, and life. A more just society has less violence.

 All of those things work-gun control does NOT.

Stop spouting "progressive" propaganda, troll. The myth of Scandanavian welfare net success is overdone; Norway's economy is also unduly reliant on a maturing oil fortune. The higher tax burden adversely affects economic growth, making migration from the bottom quintile more difficult--definitely something not worth imitating, despite our economically illiterate President in name only's "best attempts" to do exactly the wrong things. China and India have greatly reduced poverty over the past few decades precisely because they have liberalized their economies.

(Catholic Libertarian). Meanwhile in the "land of the free": http://www.aleteia.org/en/politics/article/obama-issues-order-forcing-church-agencies-to-hire-homosexuals-5835268112252928
It's time for the Church to stop being Obama's puppet: Stop accepting money from corrupt political whores!

Via Dollar Vigilante
Because men who cannot control themselves want to control others.


(Dollar Vigilante). actually, a true libertarian would give the little guy a beer and cigarette. Agree or disagree?
No, I'm not Big Government. He'll have to earn his beer and cigarette just like the rest of us.

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Musical Interlude: My Favorite Vocalists

Anne Murray, "Now and Forever (You and Me)". This is the final selection of my Anne Murray series. Tomorrow I'll start my Billy Joel retrospective.
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