I am attending a Senate Banking hearing on the Obama proposal to create a Consumer Financial Protection Agency. Some folks think new regulations would stifle financial innovation. Sen. Chuck Schumer just dismised “innovation as merely “clever ways to dupe the consumers.”
Politics and policy from inside Washington
Howard Gleckman of the Tax Policy Center throws cold water on Obamacrat attempts to raise income taxes to pay for healthcare reform:
Many of the uber-rich are unlikely to pay much more in taxes than they do now, despite the rate increase. Since we’d be returning to pre-1986 rates, we shouldn’t be surprised when the very wealthy reprise their pre-1986 sheltering behavior. The hoary financial alchemy of turning ordinary income into capital gains, morphing individuals into corporations, and deferring compensation will return. Remember, the targets of these tax hikes are the people who can most easily manipulate their income. The bad old days of bull semen partnerships may not return, but I suspect the financial Merlins are already cooking up new shelters for what promises to be a booming new market. … Raising the top rates to pay for health reform would make President Obama’s fiscal math approximately impossible. We’d have a top rate of nearly 45 percent, a promise never to raise taxes for those making less than $250,000 annually, little or no government revenue from a cap-and-trade system that gives away rather than auctions pollution credits, and trillion dollar deficits as far as the eye can see.
America’s Treasury Secretary speaks in Saudi Arabia: “Given the extent of damage to financial systems, the loss of wealth, the necessary adjustments to a long period of excessive borrowing around the world, it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals.”
My spin: This sounds closer to a W-shaped recovery than a V-shaped recovery to me. Ugh.
Think tanker Peter Ferrara talks up an interesting idea in the WSJ:
But what if Republicans proposed a federal tax reform with a 0% income tax rate for the bottom 60% of income earners? … Trading an explicit 0% tax rate for the bottom 60% in return for eliminating the refundable tax credits would likely be at least revenue neutral, and probably result in a net increase in revenue. … Moreover, we should then be free to adopt sound tax policy for the top 40% of earners who make 75% of total income. Suppose we tax all of the income of those top 40% once with a 15% flat tax? That would be close to revenue neutral on a dynamic basis (i.e. counting work incentive effects). … All flat tax proposals effectively try to do the same through generous personal exemptions that are tax neutral for low- and moderate-income workers. But the explicit 0% rate would make the reform more easily understood. This — rather than adopting still more refundable tax credits as some conservatives are advocating — is also the way to eliminate the distorting tax preference for employer-provided health insurance. … The economic distortions caused by every other tax preference in the code would be minimized or eliminated entirely in this same way.
My spin: I would like to see a comparison on a revenue and tax efficiency basis of this plan vs. creating a de facto consumption tax by eliminating all taxes on savings and investment. But it is fascinating as a political framing device. I assume this would also get rid of education and kiddie tax credits, maybe even the mortgage interest deduction? Those would surely raise political hurdles.
Still wondering about a CIT Group bailout? Maybe the company is not systemically important, but it sure might be politically important for Democrats. This from analyst Jaret Seiberg of Concept Capital (via WSJ):
It seems like official Washington is just coming to grips with what would happen if the largest small-business lender went belly up,” said Jaret Seiberg, a policy analyst at Concept Capital’s Washington Research Group. “It would destroy Democratic hopes of getting unemployment under control before the mid-term election.