James Pethokoukis

Politics and policy from inside Washington

Shock! Climate change expert favors hyping global warming threat

Jul 15, 2009 17:14 UTC

This bit from an  interview with Nobel Prize-winning economist and climate change worrier Thomas Schelling is a stunner (bold is mine):

Well I do think that one of the difficulties is that most of the beneficiaries [of fighting climate change ] aren’t yet born. More than that: Most of the beneficiaries will be born in what we now call the developing world. By 2080 or 2100 five-sixths of the population, at least, will be in places like China, India, Indonesia, Africa and so forth.  …  It’s a tough sell. And probably you have to find ways to exaggerate the threat. And you can in fact find ways to make the threat serious.

COMMENT

“This from those wonderful people who can’t predict the weather three days in advance.”
- Posted by Bob Makin

I think you are confusing Meteorology with Climatology – two very distinct scientific disciplines. Google to find out the differences and/or read this link.
http://www.weather.com/blog/weather/8_78 77.html

Posted by John Haythorn | Report as abusive

Why Obama, Dems are trying to rush through healthcare reform

Jul 15, 2009 15:13 UTC

Falling poll numbers and rising joblessness = time is not on the Dems side for passing healthcare reform — as liberal blogger Matthew Yglesias just realized:

Obama remains quite popular, but his popularity is shrinking and as best one can tell the culprit is the bad economy. I think this underscores the fact that if Democratic legislative leaders are serious about reforming health care they’ll want to get as much as possible of the work done before leaving on their August recess. The unemployment rate is almost certain to be higher in four or five months than it is today and that’s very likely to weaken Obama’s ability to be an effective advocate.  … If there’s an “Obama plan” on the table in August, a lot of Republican members will be hearing mostly good things about it from their constituents. If it takes until October, they may hear different things.

COMMENT

rising joblessness = increase awareness of a safety net.

I have lost my job and I’m wondering if I can find a job with health care benefits to replace it. When my employer was paying my $800.00 a month insurance premium it was easy to be in the “keep government off our backs crowd”. But now as an early stage boomer, I’m worried sick that I a might go bankrupt over a unexpected major medical problem or if I will even find a job with benefits. I’m starting to believe that the US will become more like Japan, where most new hires are “temporary” employees which offer no benefits- but at least in Japan everyone if covered for medical.

Posted by DR | Report as abusive

9 reasons Pelosi’s healthcare surtax is disastrous

Jul 15, 2009 10:17 UTC

So what explains the crazy, cockeyed optimism of House Democrats? Maybe they still believe Team Obama’s rosy-scenario forecast that shows the stimulus package a) keeping unemployment under 8 percent this year and b) launching an economic boom next year and beyond. For some reason, though, they think the battered U.S. economy is so strong that politicians can pile tax upon tax on it with no fear of further harm. Less than three weeks after passing a costly cap-and-trade carbon emission plan, Pelosi & Co. have giddily unveiled a $1.2 trillion healthcare plan partially funded by a $544 billion surtax on the work and investment income of wealthier Americans, including small business owners.

[See why Obama's economic gamble is failing.]

The ten-year proposal calls for a 1 percent surtax on adjusted gross income — including capital gains — between $350,000 and $500,000; a 1.5% surtax on income between $500,000 and $1 million; and a 5.4% surtax on income exceeding $1 million. (Interestingly, the House fact sheet on the surtax forgets to mention the highest tax rate. Hey, they were in a rush.) How bad an idea is this? Let me count the ways:

It’s not the first Obama tax hike. This tax would be in addition to the $1 trillion in new taxes that Obama called for in his budget released earlier this year. (And then there’s cap and trade, remember.) And if healthcare reform costs more than expected — what are the odds of that, you think? — the surtax would go up.

[See 5 economic stimulus plans better than the one we've got.]

It pushes income tax rates above a key threshhold. Once you take into account state income taxes, the top tax rate would sneak above 50 percent. Research by former White House economist Lawrence Lindsey has found that rates above 40 percent really start to hit economic growth especially hard.

It’s risky in a weak economy. Democrats love the “consensus view” when it comes to climate change, so how about the economy? The consensus view is for unemployment to hit double digits this year and stay high throughout 2010 and beyond as the economy staggers to its feet. Even Treasury Secretary Tim Geithner said “it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporary reversals.” In a “long recession” environment, do we really want a policy that, according to research that current White House economic adviser Christina Romer conducted at Stanford University, is “highly contractionary.”

It actually makes America’s healthcare problem worse. Entitlements, including Medicare, will eventually bankrupt the economy unless action is taken. Agreed. But lowering the potential U.S. growth rate will only make those problems worse by generating lower tax revenue and making the overall pie smaller than it would be otherwise. Yet many economists think government interventions in finance, housing, autos, energy and now healthcare will do just that. And adding layers of additional new taxes helps how?

It makes the tax code more lopsided and inefficient. As it is, the top 1 percent of Americans in terms of income pay 40 percent of taxes. Not only would this plan exacerbate this imbalance, it adds further complexity to the tax code. Most tax reformers favor a simpler system with fewer brackets and deductions matched by a lower rate. Indeed, Howard Gleckman of the Tax Policy Center points out the following:

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.

It hurts U.S. competitiveness. America already has the second highest corporate tax rate in the world. Under the House plan, the top U.S. income tax rate would be higher than the OECD (advanced economies) average of 42 percent. France and Germany, by contrast, are looking to keep rates stable or lower them. Pro-growth China doesn’t even tax investment income.

It ignores the lessons of Clinton. Democrats love to point out how the Clinton tax increases didn’t tank the economy back in the 1990s. Oh, you mean the economy that was expanding for more than two years before he signed his tax increases? The economy is far weaker today and may be anemic for some time given the history of economies that suffered a banking crisis.

It ignores the lessons of 1937. The slowly recovering 1930s economy weakened again in 1937 and 1938. Again, Christina Romer tells all:

In this fragile environment, fiscal policy turned sharply contractionary. The one-time veterans’ bonus ended, and Social Security taxes were collected for the first time in 1937. … GDP rose by only 5% in 1937 and then fell by 3% in 1938, and unemployment rose dramatically, reaching 19% in 1938. The 1937 episode is an important cautionary tale for modern policymakers. At some point, recovery will take on a life of its own, as rising output generates rising investment and inventory demand through accelerator effects, and confidence and optimism replace caution and pessimism. But, we will need to monitor the economy closely to be sure that the private sector is back in the saddle before government takes away its crucial lifeline.

Except in this the case, Uncle Sam is not taking away a lifeline but tightening the noose.

It pays for a wrong-headed healthcare reform plan. Health exchanges, a public option, subsidies, taxes … well, we could go on and on. Or we could try to create a simpler consumer-driven market. Harvard Business economist Regina Herzlinger recommends reforming the tax system by making the money spent by employers on health insurance available as cash, tax-free, to employees. “Insurers would then compete for customers with policies that offer better value for the money,” she wrote in an analysis for consultancy McKinsey. Not even on the Obamacrat radar screen, though.

All in all, it’s another sign from the Obama administration and the Obamacrats in Congress that their top priority is redistributing existing wealth — at least what’s left of it — rather than creating new wealth. That, I guess, explains those ear-to-ear smiles on Capitol Hill.

COMMENT

One difference between publicly and privately run enterprises is that public ones are publicly accountable. They not only have to account for costs, but also account for the way they’re serving their function in the community. It’s not always as simple as calculating shareholder equity. That’s what is at the heart of the injustices in the current insurance system. It’s also the reason people support fire departments as a public enterprise. Even the volunteer ones are supported by the community, in order that they be accountable to the people they serve. It would seem the enterprises protecting the health of people might benefit from the same oversight we give enterprises that protect the buildings they live in.

Posted by jt | Report as abusive

More on the Consumer Financial Protection Agency

Jul 14, 2009 14:34 UTC

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.”

The healthcare surtax and bull semen partnerships

Jul 14, 2009 14:06 UTC

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.

Geithner on economy: Two steps forward and one step back

Jul 14, 2009 13:58 UTC

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.

A zero percent income tax rate

Jul 14, 2009 13:48 UTC

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.

COMMENT

Why not just get rid of income tax altogether and raise consumer taxes? It seems to work for Hong Kong, and that way everyone is taxed the same, they just pay more taxes if they buy more stuff.

Posted by Jordan | Report as abusive

The era of big government is not over (chart)

Jul 14, 2009 13:31 UTC

I think this chart show where the train is heading (via the econ team at Wachovia):

debt-july-14

Could CIT be a big blow for Dems in 2010?

Jul 14, 2009 13:25 UTC

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.

A Chimerica stimulus policy?

Jul 13, 2009 19:02 UTC

David Goldman of the great Inner Workings blog loves the Chimerica concept, a furthering of the economic relationship between China and America. He even thinks it would make a great stimulus and long-term economic recovery program:

We recommended a firm link between the US dollar and the Chinese yuan, in which the yuan would have full convertibility, with a solemn commitment by the two countries to maintain a fixed exchange rate forever. That would instantly link the two countries’ capital markets. The demographic problem that creates a Japan-style deflationary bias in the US would disappear, because the demographics of China would be open to the American capital market. … In effect, the world’s two largest economies would establish a full partnership. … The :trouble is that Americans can’t spend. They have to save. The combination of a catastrophic decline in wealth and a sudden bulge in retirements gives America the profile of Japan during the lost decade of the 1990s.  … If we follow Robert Mundell and throw out the single-country model of the Keynesians, it is obvious that Americans can save in another fashion, that is, by exporting. China’s underdeveloped interior is potentially the world’s biggest export market, flanked by similar markts in Asia and elsewhere in the developing world. The transition would still be painful, and the frictions considerable, but America could reorient itself to th global market. There would be a recovery. As matters stand we face a lost decade.

COMMENT

The Inner Workings piece is completely backwards. It is China that has a much greater economic risk because of it’s demographics. Between 2008 and 2040 China’s old age dependency ratio skyrockets from 16% to 50%. Also, China’s gender skews are out of whack having 107 males for every 100 women. The problem worsens when you look at the skews in the younger age demos — for under 20 yr. olds it’s 116.5 boys for each (1) girl !!! At the least, this ratio will impede China’s ability to correct it’s ageing pop. skew.

By comparison, the US has the most enviable demographics in the entire world. Along with a demographic advantage we have unparalleled agricutural production & technology. Could wave the flag with a number of other important things. That’s not to say that we don’t have issues — aside from the economic meltdown, rocketing deficits, fragile employment outlook — unfunded liabilities like Medicare & Social Security loom large. But some issues are reversing on the ground floor level — the decade long consumption binge is now being unwound — savings are increasing dramatically.

The US partnership with China is already on a good footing. The best thing the US can do for itself & it’s partners is to exercise fiscal restraint & prudence and seek sensible solutions to our issues.

Posted by Siobhan Sack | Report as abusive
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