James Pethokoukis

Politics and policy from inside Washington

How Felix Salmon ruined my lovely Friday

Nov 12, 2010 22:38 UTC

There I was, enjoying a lovely Washington afternoon — and then I read this from colleague Felix Salmon on the draft report from the Obama deficit panel:

One of the best parts of the chairmen’s plan is the way in which it raises the tax rate on capital gains and dividends so that they’re simply treated as ordinary income. The very wealthy, who often live off capital rather than labor, would definitely be hit hard by that move.

1) Of course, such tax reform would actually raise investment taxes above those on labor income because Obamacare slaps an additional 3.9 percentage point levy on investment income. Does the draft report repeal that?  I don’t think so, but if it does I stand corrected.

2) Also, does an annual income of $250,000 qualify as household  as “very wealthy? Really? Actually, the Bowles-Simpson reforms would raise capital gains taxes on all brackets.

3) In any event, we need a code than assesses less of a penalty on investment and savings,  not more.  Instead of scrapping the whole tax code in favor of a consumption tax — which many economists would recommend — why not just eliminate investment taxes? Since all you can do with income is save or spend it, you would get a de facto consumption tax.

COMMENT

Getting rid of the tax deduction for interest on mortgages and the tax deductions for kids too. But tax cuts for corporations. Love how this plan is being put together by rich old guys who won’t be effected by any of these changes. Brilliant.

Posted by David09 | Report as abusive

Why Wall Street should fear Sarah Palin

Nov 12, 2010 15:20 UTC

The only people in Manhattan who are probably eager for a Sarah Palin presidential run are the supposed comedy writers at “Saturday Night Live.” Wall Street bankers, on the other hand, not so much. Big Money has been snarkily dismissive of Palin’s recent opining on monetary policy, the dollar and the dangers of inflation. But guess what? A “free-market populist” campaign in 2012 would likely further highlight that Palin’s not too big a fan of them, either. And her economic musings are yet another sign she’s running

In a speech and a pair of Facebook postings this week, Palin unexpectedly warned her followers about the inflationary dangers of the Federal Reserve’s “pump-priming addiction” — a reference to the latest round of bond-buying by the U.S. central bank, known as quantitative easing. That’s hardly a novel or unreasonable critique. Many conservatives, and even some Fed officials, share Palin’s unease.

It’s the politics and timing rather than the substance that is raising eyebrows. Avid Palin-watchers see her move into economic commentary as further evidence of a run for the White House. Indeed, the campaign team for putative Republican frontrunner and former banker Mitt Romney is assuming she will be in the race. And her upcoming, much-hyped reality television show, “Sarah Palin’s Alaska,” will no doubt play like an extended campaign commercial. And polls certainly hint she would be right in the thick of the fight with Romney and Mike Huckabee, if he runs (via CNN):

In Iowa, it appears Mike Huckabee’s still got a base: the former Arkansas governor is tied with Mitt Romney at 21 percent, with Sarah Palin close behind at 18 percent, and Gingrich nabbing single-digit support. In New Hampshire, former Massachusetts governor Romney displays his home court advantage: he draws more support, at 39 percent, than the rest of his top rivals combined. Palin once again nabs 18 percent.  And in the key early-voting state of South Carolina – where Sarah Palin and Mitt Romney both endorsed Gov.-elect Nikki Haley in the GOP primary this year – Palin, Huckabee and Romney are again neck-and-neck.

If Palin does get in the game, her views leave her — not for the first time — well positioned to exploit the zeitgeist. Voters right now seem dubious of Big Anything, be it Government, Business or Money. In her 2009 book, “Going Rogue,” Palin offered a remix of 1980s-style Reaganomics — low taxes, less government spending, strong dollar. That’s all perfectly sync with her recent Fed-bashing. But she also attacked “corporatism” in which government and business conspire against entrepreneurs and consumers. This view fuels Palin’s critique of Obama’s financial reform plan, which she portrays as a creation of Wall Street designed to perpetuate bank bailouts. As she wrote on Facebook:

Of course, the big players who can afford lobbyists work the regulations in their favor, while their smaller competitors are left out in the cold. The result here are regulations that institutionalize the “too big to fail” mentality. … The president is trying to convince us that he’s taking on the Wall Street “fat cats,” but firms like Goldman Sachs are happy with federal regulation because, as one of their lobbyists recently stated, “We partner with regulators.” …  You’ll find the name Goldman Sachs on many an Obama administration résumé, including Rahm Emanuel’s and Tim Geithner’s chiefs of staff. We need to be on our guard against such crony capitalism.

Palinomics, embryonic as it is, seems to be rooted in “free-market populism,” a version of conservative thinking that is pro-market rather than pro-business. It says the role of government is to help markets function more fairly and efficiently for everyone, encouraging competition and “creative destruction” (which Palin specifically mentioned in her book).  Pro-business policies, by contrast, can end up subsidizing favored companies, raising barriers to entry and otherwise entrenching the status quo.

Palin is also familiar with one of the champions of free-market populism, the University of Chicago’s Luigi Zingales, linking to his writings from her Facebook page. It’s easy to imagine her campaigning against corporate tax breaks, say, or in favor of limiting the size of banks under the belief that as long as they are ginormous, government will find a way to bail them out. That agenda might not attract much campaign cash from Manhattan bankers or Washington lobbyists, but it could be a compelling formula in the new Tea Party-infused Republican party. Then again, bankers who care about cutting government spending and keeping taxes low might want to take a second look.

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