July 29, 2010


1. The main column does not note that some federal taxes will rise in 2011 regardless of what happens with the Bush cuts. President Barack Obama’s health care bill raises Medicare taxes to 3.8 percent from 2.9 percent for many filers, and imposes Medicare taxes on capital gains, dividends and interest income earned by the top three percent or so of households. Thus taxes are on well-to-do are already headed up.

If, as expected, Congress increases the capital gains tax to 20 percent from 15 percent beginning in 2011, tacking on a 3.8 percent Medicare levy means the effective capital gains tax rate will rise to 23.8 percent for individuals earning $200,000 or more, or couples earning $250,000 or more. This higher taxation on the well-off is strictly to pay for new subsidized health care — none of the added revenue will offset the national debt. In effect, it’s an income transfer program, and perhaps justified to increase social equality. Will those who receive the new subsidized health coverage, paid for by others, show gratitude or merely complain that they didn’t get even more?

2. The main column uses simplified numbers for the sake of argument — anytime tax law changes, there can be unintended consequences on economic behavior.


The BP oil spill

Two months ago, at the height of oil-spill hysteria, I took considerable flak for writing that the Gulf of Mexico gusher will cause “less total damage than now expected, while recovery will happen faster than expected.” On Monday, “ABC World News with Diane Sawyer” reported that total damage was less than expected, while recovery was happening faster than expected. On Tuesday, the lead story in The New York Times began, “The oil slick in the Gulf of Mexico appears to be dissolving far more rapidly than anyone expected.” Ahem, than anyone expected? It seems that VIPs flying over what they assumed would be a dying, oil-covered Gulf instead are having difficulty locating any oil to gawk at.

The BP spill was a terrible event whose negative consequences may last for years, particularly in harming the Gulf food chain and disrupting intertidal life. But the fact that the spill impact already appears exaggerated shows how little sense of history (or of ecology) is possessed by U.S. political leaders and pundits. For details, consult my May column, which seems to have appeared two months before anyone realized the alarms were overblown.

Subsidizing the electric car

Recently, yours truly noted that the Tesla electric car, being trumpeted as an instance of entrepreneurial vision, is almost entirely a creature of federal subsidies. Plus, even if it’s successful, it will result in average people being taxed to build luxury transportation for the rich. Tesla’s current model costs $110,000. A “family” car due next year will be priced at about $60,000.

Now Fisker Automotive has jumped into the game — if the government is giving away sacks of money, no surprise there is more than one taker. Fisker’s plug-in luxury sports car will sell for about $90,000. The federal government is funding Fisker with a $529 million no-collateral loan: if the car is a success then private investors keep the profit, if the car is a bust, taxpayers cover the loss.

Fisker has agreed to pay $20 million of its federal gift to Motors Liquidation, the spinoff created to close out General Motors liabilities, for an old G.M. factory in Wilmington, Delaware. Get it? Federal taxpayers rescue G.M. with tens of billions of dollars in subsidies; federal taxpayers shower subsidies onto Fisker Automotive; Fisker then hands a check to General Motors. At some point, White House officials are sure to boast that the Wilmington plant sale was a “free market” triumph, though all funds on both sides came from taxpayers.

Just like Tesla, what Fisker wants to make is an ultra-fast road-rage machine that can be afforded solely by California venture capitalists and New York investment bankers. Why isn’t there populist rage over this swindle against the taxpayer?

Meanwhile the new General Motors said on Tuesday that its Volt electric car will retail for $41,000. That’s still way too much for average people — yet average people are being taxed to subsidize the Volt, whose target market is upper-middle-class buyers.

Early iterations of technology often are affordable only to the well-off, then the price falls and everyone benefits. Surely this could happen with plug-in vehicles. For the moment, the electric car mainly seems a device for digging into taxpayer’s pockets.


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Perhaps Mr. Easterbrook remembers the wringing of hands over Exxon Valdez because cold waters would slow recovery. Two plus two waiting to be summed. I didn’t see it, but Mr. Easterbrook did. Well done.

Posted by igiveup | Report as abusive

people are stupid

Posted by david michel | Report as abusive

hi there hows it going

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