February 24, 2017

The "Trump Tariff"

My go-to source for respectable Trump-friendly political news has become Investor's Business Daily. Unlike the WSJ, this business rag is actually hawkish on illegal immigration, at least to a point. But with all of the Trump love I find on its pages I have felt a certain unease with my earlier characterization of the source as "respectable." My blog brother has withheld any ad hominem dismissals thus far, but I have imagined such being drafted and saved for my post that finally broke open the dam of his disapprobation. (Yes, past tense, by way of foreshadowing.)

Fortunately I can now offer proof that IBD's editors are not closet Breitbart hacks, with the opinion piece Will The Border Tax Work? Nobody Knows, Which Is Why It's A Bad Idea.

The tax is part of a wholesale rewrite of the corporate tax code proposed by the House GOP leadership, which they say will vastly simplify taxes, lower rates, increase exports, and help grow the economy.

The plan would swap the current 35% corporate income tax for a 20% consumption tax - or in policy-geek-speak "a destination-based cash flow tax." Because exports are consumed abroad, they'd be exempt from the tax. Imports, however, would face a 20% "border adjustment tax."

The idea has generated lots of attacks, including from this page, as well as claims that it would violate the terms of the WTO, hurt retailers like Best Buy and Target that rely heavily on imported goods, even hurt tourism.

The biggest problem with this tax reform, nobody has any idea what it will do. That's the conclusion of researchers at the Mercatus Center at George Mason University, who point out that because it's an entirely novel idea, "there are no real-world examples of a destination-based cash flow tax."

Its impact "on economies, exchange rates and trade balances is purely theoretical." The authors go on to explain these uncertainties in great detail.

The bottom line is that "the economics of this new tax proposal are poorly understood, and it presents unnecessary risks to the U.S. economy."

So there you go, the boys at IBD are not the protectionist, economic nationalists that anyone who misses a chance to vilify the new president are immediately assumed to be, at least by some. Instead, they pine for some good old fashioned corporate tax reform:

All we need to do is follow the lead of our big trading partners: Sharply lower the corporate income tax rate and eliminate loopholes to broaden the base. The foreign earnings problems can be solved by "territorial" tax - which all but six OECD countries have adopted and which exempts foreign earnings from domestic taxes.

I'm not sure but I think this "territorial" tax amounts to a tax cut on U.S. corporations, to the extent they earn profits abroad. Which means it is revenue negative. Which means the static scorers in the CBO are going to put it in the column that Democratic legislators call "government spending." Which is why the House of Representatives wanted the border adjustment tax in the first place. Sigh.

I'll try to end on a good note. At least we have these tea leaves to read from the White House:

Trump has been hot and cold about the border adjustment tax. On Thursday, he told Reuters that he thought the tax "could lead to a lot more jobs in the United States." On Friday, Trump's top economic advisor reportedly said it was a nonstarter.

The Art of the Deal.

Posted by JohnGalt at 7:00 PM | Comments (2)
But dagny thinks:

Maybe I don't understand but who says its never been tried? I deal with it every day. In Colorado its called a USE TAX and the City of Northglenn I'm sure among others has a nasty one.

Posted by: dagny at February 24, 2017 8:17 PM
But jk thinks:

Au contraire! I am a huge fan of IBD, their Ed Page, and their Facebook live market updates. Enough that I feel a bit a bit guilty for enjoying so much free content without subscribing. But -- Jeeburz -- Rupert is bleeding me so dry for the WSJ these days, I don't have a couple coppers to rub together for any other source. (Kidding but not kidding, the days of inexpensive digital-only subscriptions is long past. Without Taranto's BOTW this might be my last year.)

I'll say that the WSJ Ed Page is too hawkish. I'm still a "Deepak Lal libertarian" preferring a much more muscular foreign policy than my libertarian buddies. But the WSJ has a bomb early, bomb often mentality that disturbs. And they're East Coast elitists on guns. They're squishy on drugs. I am by no means all in.

But they have led the way on free trade and immigration. They called out President Clinton for his failure to denounce the anti-globalization Seattle protesters in 1999, rightly celebrating his trade achievements although they opposed most of his other policies.

We love consistent philosophy and reason 'round here. The exact methods and scale of protectionism is as yet undetermined. But the President's belief that it is ipso facto better to build air conditioners in Indiana than Mexico will ultimately lead to some bad outcomes.

Posted by: jk at February 25, 2017 10:25 AM

March 28, 2016

take a vote on balancing the budget

I will probably post this on FB as well. It's terrific if nothing else than laying out our federal budget on one easy page with decent graphics for a snap-shot view.

Help balance our budget, TS'ers!

Posted by nanobrewer at 9:44 PM | Comments (5)
But jk thinks:


Excuse my language, case, and punctuation, but this is an egregious example of pretending to offer choices but all the bad ideas of government are already built in to the model. This is the movie "Dave" in web form: "if we just take a little from the Army to help the poor, and medicare agrees to not raise rates everybody is happy."

First up is "Health Care. $1.1Trillion." Cool, where do I set that to "zero?" Well, no, that is not how it works. Here's how it works:

Choose one:

-- No additional cost control
-- Moderate cost control
-- Aggresive [sic]cost control

They can't even spell aggressive cost control -- that might be hint #1...

The others are worse. Now, I am sorry to rant on somebody else's post (well, a little sorry) but this is shows how you lose when your opponent sets up the argument. The real question is not how best to "balance" our bloated and un-constitutional Federal largesse.

It is about defining the purpose of government. As it happens, this Jefferson fellow did this pretty well back in July of 1776. This web page accepts every deviation ever since.

Bah! Zero stars!

Posted by: jk at March 29, 2016 12:22 PM
But nanobrewer thinks:

Rebukes fully accepted in the vein offered. ;-)

And you can zero out any category you want... it does take a whole lots of clicking. I should have looked at the who first:
"Founded in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell."

I was thinking it's a good start to understand the budget as is, for instance how #1+2 outweighs the rest, but fully agree with JK's point - that THE debate really should be about what the Gov't should be doing rather than into which we've been stumbled.

Correct me if wrong; THE debate doesn't even have it's first permit application in hand? I don't think Sen. Paul even ever got there... sorry, if that's a broad application of grainy, scratchy sea salt.

For the record, I'd wave my wand and declare the budget to be 15-18% of GDP (based on biz best practices), and they can all fight to the {whatever} to parcel it up. A step towards the right idea would be for these folks to post REVENUE ($3.1T) in bold, right next to SPENDING (instead of "Budget")... hmm, this model says spending is $3.9T which doesn't sound scary enough.
"Spending is 125% of revenue" could be at the top.

I'm thinking of my own version of this that might turn the 'budgeting' debate (if there actually is one, ever again) into a rant against wanton spending and general scope creep. Here's an idea: "$ sent on valid purposes of government" {click to add category}, vs. "all else."

Posted by: nanobrewer at March 29, 2016 1:34 PM
But johngalt thinks:

Liberty, free markets and property rights need better info-graphics. "Interactive" would be a cherry on top.

Posted by: johngalt at March 29, 2016 3:52 PM
But jk thinks:

It would not have bugged me so badly except that it made me think of the movie "Dave."

Posted by: jk at March 29, 2016 4:51 PM
But jk thinks:

No graphics, no interaction -- but a very crisp and concise description of economic fredom from Jeffry Tucker at FEE. You're welcome.

Posted by: jk at March 29, 2016 6:33 PM

July 30, 2013

Romney killed Detroit

...with a little help from all the other taxers and spenders from Washington D.C. to city hall.

We discussed the obvious philosophical causes for Detroit's bankruptcy in the Starnesville post. Today we have the economic causes, as told by my favorite living economist, and some other guy. Investors' - Detroit Is Patient Zero In High-Tax, Sluggish America

Milton Friedman was quick to remind people that government stimulus spending is taxation and a prosperity killer. Governments don't create resources; they redistribute resources.

While tax rates were raised during the Great Recession, they were raised a lot more during the Great Depression, which explains the difference in severity between the Great Depression of the 1930s and the modern Great Recession.

To push this point home, the highest marginal income-tax rate in 1931 was 25% and by 1938 it was 83%. Whoever heard of an economy being taxed into prosperity?


In 1967, under Gov. George Romney's leadership, Michigan initiated a state income tax, initially setting the highest rate at 2.6% using federal adjusted gross income (AGI) as its tax base. The state's income tax rate peaked in 1983 at 6.35% and is now down to 4.25%.

Even though a 4.25% maximum tax rate is a lot better than a 6.35% tax rate, those towering tax rates have surely damaged today's Michigan economy.

The state's corporate tax rate stands at 6%.


Then we come to Detroit itself. In 1962, Motown adopted a 1% net income tax for residents and 0.5% for nonresident income earners. In 1964, the city initiated a 1% corporate tax as well.

Detroit's income tax stands at 2.4% today, and the corporate tax is 2%.

Businesses that can locate outside Detroit do. In 1950, 1.85 million people lived in Detroit.

Today the population of Detroit would be lucky to top 700,000. You can't balance a budget on people who leave or are unemployed.

Imagine a boiler's heat is turned way up, its safety valves are shut off and you tap the boiler every five minutes with a little brass tap hammer.

By turning the boiler's heat way up and shutting off the safety valves, you have guaranteed the boiler will explode.

By tapping the boiler every five minutes with a little brass tap hammer, you're guaranteed you'll be there when the explosion occurs. Such is the case with Detroit.

Is it mere coincidence that, the larger the geographical scope of the taxing authority, the larger the tax rate? After all, it doesn't take as much taxation to drive producers from a city as from a state, or from a state as from a nation.

Posted by JohnGalt at 2:43 PM | Comments (0)

April 19, 2013

Open for Business!

"This is the new New York State."

Welcome to a place with a whole new approach to business development. Home to the fastest-growing tech sector in the U.S., one of the best-educated workforces in America, over $1 billion in incentives and tax breaks, and the lowest middle-class tax rate in over half a century. This is an economy that launched over 50,000 new businesses last year alone. This is New York State.

[No embed available]

Because "everybody knows" that higher tax rates don't discourage business development and job flight.

The linked commercial isn't the one I was looking for, which I saw on live TV last night. That one claimed not one, but two billion dollars of "incentives and tax breaks" plus "tax-free zones" and "the lowest taxes in over 60 years."

Here's an idea. I dunno, maybe I'm crazy. How about making the whole state an "economic development zone?" How about all of America? You know, to end the recession. Create jobs. Stuff like that.

Art Laffer, please call your office.

Posted by JohnGalt at 12:16 PM | Comments (0)