Carbon Tax

We are in favor of a limited carbon tax.  Our preference is that we eliminate all tariffs, the gas tax, and a few other things and replace it with a carbon tax.  There is no need to develop a complicated rebate program because all of the taxes involved are regressive so there is no change in the tax structure.

The WSJ has had a proposal for a more extensive carbon tax.  They are kinda against it and explain why:

A carbon tax would be better than bankrupting industries by regulation and more efficient than a “cap-and-trade” emissions credit scheme. Such a tax might be worth considering if traded for radically lower taxes on capital or income, or is narrowly targeted like a gasoline tax. But in the real world the Shultz-Baker tax is likely to be one more levy on the private economy. Even if a grand tax swap were politically possible, a future Congress might jack up rates or find ways to reinstate regulations.

We support a small carbon tax.  We do not support a large carbon tax with a “dividend” to some folks.  It is inadvisable to make carbon exhorbitantly expensive as it will supply energy for the foreseeable future.  It is advisable to tax all forms of carbon equally rather than just gasoline.  It is advisable to trade a small carbon tax for a reduction in regulations.

We have some, but not much, sympathy for the WSJ’s concerns about actions in the future by Congress.  The Democrats have wanted to increase taxes for the last 50 years.  The Republicans wax and wane.  The fight against higher taxes and onerous regulations will go on forever regardless of what taxes exist.  The Democrats want to increase payroll taxes, increase marginal rates, and create new taxes.  They seem likely to continue with these proposals.

Conservatives need to be bold to find solutions.  We need to consider a carbon tax and a VAT in reaching our economic goals including lower taxes,  less complicated taxes, and fewer regulations.  There is a risk in creating a new tax but there are opportunities including eliminating the gas tax and reducing energy regulations.  It is time to be bold but not foolish.  A step towards a more rational energy policy would be replacing the gas tax with a revenue neutral carbon tax.  Regulation reform might be connected to the switch.  It is one of many possible deals.  Let’s consider them.

 

Speaking Of Bad Ideas

As we were just speaking of bad ideas, here is one from Wisconsin.  The WSJ says:

Wisconsin state regulators seem determined to outdo him [The Donald] by making themselves as unpopular in Ireland by banning state grocery stores from selling one of the Emerald Isle’s most popular (and tasty) products: Kerrygold butter.  [Kerrygold and Irish soda bread is worth the trip]

Tariffs are not the only impediment to trade.  Regulations can be equally effective.  In this case, according to the Daily Mail, it is a lovely piece of regulatory Catch -22:

A state law instituted in 1970 prohibits anything other than Grade A milk products from being distributed in Wisconsin.

Because Kerrygold is made from grass-fed cow’s milk in Ireland, it isn’t graded by the USDA – leaving loyal fans in Wisconsin out in the cold. [NB: the only relevant parts are Ireland and USDA]

It is a neat regulatory trick but one we should eliminate.  In a GOP controlled state we need to have this undone quickly.  Perhaps the lesson will translate to Washington but we, like the WSJ, have our doubts.

Anyone Can Have Good Ideas

Jim Geraghty at NRO’s The Corner and on his Morning Jolt newsletter has this quote from Tom Perez, the new DNC Chairman (what term do the Democrats use?):

I was in the U.K. and Germany and went to Volkswagen and learned about their apprenticeship model—young people become paid apprentices in trades. It’s not a coincidence that youth unemployment is far lower in Germany than the United States because there are paid opportunities for young people to get experience. So, yes we need to and do investigate [internship violations], but I think the broader solution will help more people faster to transform the culture of America around this earn-while-you-learn idea.

Jim rightly takes Tom to task because the DNC uses unpaid interns, including those that work 40 hours per week.   We doubt that Tom is really serious about his support for such a system but it is an idea worth supporting and it has a couple of conservative implications.  Two obvious ones are the minimum wage and government control of K-12.  Raising the minimum wage is inconsistent with taking the [realistic] view that individuals develop skills and earning power over time.  On the job training (OJT) is inconsistent with a government monopoly on K-12 and our current obsession with college.  OJT can work with K-12 and college but it changes both and can be a separate thing on its own.

Sidebar: We are a big fan of college.  It is great for some folks but not for everyone.  We support a variety of ways to learn skills consistent with the variation in those skills and folks.  End Sidebar.

Almost every candidate has good ideas and bad ideas.  We are working on a longer post on voting that recognizes we are buying or rejecting among two portfolios of ideas when voting.  Tom has at least one good idea although we doubt he has thought out the implications of OJT.  As a comparison, The Donald has some bad ideas about trade.  In part to get elected and in part from bad thinking, every candidate has a portfolio of ideas and emphases that attract us and repel us.  There is rarely a perfect vote.  Tom’s positive idea amongst a plethora of bad ones [read all of Jim’s post] shows us that.

Well Said Kevin

[This didn’t publish earlier so here it is out of sequence.]   Kevin Williamson talks about capitalism at NRO.  His conclusion:

Not long ago, the great dream and aspiration of most of the people walking this Earth was to have enough to eat, for themselves and for their children, and to be liberated from worrying about whether they would eat again tomorrow or the next day. Capitalism can be a great deal of work, but it works if you let it work.

It is important to point out the obvious with a bit of gusto from time to time.

Almost

Larry Kudlow at NRO is quoting John Taylor (good choice)

He [Taylor] concludes, “To turn the economy around we need to take the muzzle off, and that means regulatory reform, tax reform, budget reform, and monetary reform.”

Then Larry says:

Well, aren’t those exactly the reforms that President Trump is promoting?

The issue is whether The Donald’s growth expectations, that are higher than current but lower than most recent past president, will be met.  The answer to Larry’s question is: Almost.  He can check off a good start on regulatory reform.  Monetary and budget are pretty far off.  Tax reform is a work is progress with one big caveat.  The Donald wants to tax international trade.  The question is how big of a negative will that be?  We think the uncertainty might be a bigger an impact than the direct effect.  Taxing international trade is just another regulation to hinder business.  Larry is right that growth is the key to many political outcomes.  We think it will improve on The Donald’s watch but it will be hindered by his obsessions with taxing and restricting international trade.

 

Don’t Forget Division!

Ramesh Ponnuru writing at Bloomberg starts by summarizing a recent working paper by Edwards and Ortega.  He doesn’t mention it was funded by the Center For American Progres (CAP), a progressive group.

It’s an eye-opening finding: If the U.S. no longer had any illegal immigrants, its GDP would be $5 trillion smaller over 10 years. That’s the conclusion of a recent study. But while the number is big, it’s not clear it tells us much about what to do about illegal immigration.

Normally, the expectation that a policy would shrink our economy by that much would be a very powerful argument against it. But that’s because normally, we would expect this shrinkage to take the form of lost jobs and lower living standards for Americans.

It is unclear why this data is eye-opening.  If we take a large number of folks out of the economy the size of the economy will go down.  What is interesting is division.  What will happen per capita?  Here is the real money quote from Edwards and Ortega considering the source of their funding:

Our results show that the economic contribution of unauthorized workers to the U.S. economy is substantial, at approximately 3% of private- sector GDP annually, which amounts to close to $5 trillion over a 10-year period. These effects on production are smaller than the share of unauthorized workers in employment, which is close to 5%. The reason is that unauthorized workers are less skilled and appear to be less productive, on average, than natives and legal immigrants with the same observable skills.

Just to be clear, according to the study, unauthorized workers are 5% of the workforce and contribute 3% of private sector GDP.  Later Ramesh cites a CBO study that finds the per capita economy would be 0.2% after two decades [emphasis added].  So we have two studies.  One suggests that eliminating unauthorized workers would improve the economy and the other suggesting a tiny positive change.  Conclusion: no overall economic harm will come from exporting unauthorized workers.  As Ramesh says, it is not the only issue to consider but it could be an important one.  It turns out that it is not important.

What else should be considered: There could be specific areas of the economy that might harmed or improved.  There might be specific groups or areas of the country  to consider as well.  The impact on law enforcement needs to be considered.  Just don’t worry about the overall economy.

Campus Free Speech

We completely agree with Kurtz, Manley, and Butcher (KMB) that campus free speech is a critical issue.  Viewpoints, mostly conservative ones, are being silenced on campus by pressure and regulation.  Even the progressives like Nikki Usher recognize that:

[M]any of my progressive students are using the assignment to tweet deeply emotional, bitingly sarcastic, or sharply critical comments about the Trump administration and the Republican Party more generally.

We do not agree with KMB that additional legislation is necessary.  We are, however, deeply envious of what appear to be a rare set of Chuck Taylor All-Stars (Chuckies) worn by the young man in picture.

Sidebar: We collect Chuckies and have never seen such a pair.  We have leather and wool pairs but nothing like that.  There is no star.  Was it removed?  End Sidebar.

Our opposition to KMB’s proposal is making it a legal solution.  A good analogy is the what was referred to as the Equal Rights Amendment.  Conservatives fought it for a variety of reasons but they mostly boiled down to  (a) it was not necessary and (b) the outcomes were uncertain.  We think those reasons are valid to the KMB proposal.  The First Amendment is still there despite its detractors.  The outcome of passing the KMB proposal is uncertain.  A better solution is more speech rather that legal solution.  The problems are that there is a demand for action and that more speech will take time.  We see the risk but think the principle wins in this case.

We are strongly supportive of FIRE’s efforts to enforce the First Amendment but we see adding more legislation as the wrong solution.  We have seen what happens when the state or the university tries to right every wrong with legal or quasi-legal solutions.  It isn’t pretty.  Nikki and other folks suggest free speech is making progress.  It will be be long and slow but better if we do it this way.

Accounting Versus Arithmetic

At NRO George Will reminds us of the fiscal problems that we face by starting with pensions for states and municipalities:

Some American disasters come as bolts from the blue — the stock-market crash of October 1929, Pearl Harbor, the designated hitter, 9/11. Others are predictable because they arise from arithmetic that is neither hidden nor arcane. Now comes the tsunami of pension problems that will wash over many cities and states.

The WSJ reports on Illinois where the state has a $130 billion in unfunded pension liabilities.  The Democrats are trying to tax their way out.  Illinois is one of the few states with a decreasing population of less than 13 million.  We’d avoid it too.

Then George concludes with the entitlement crisis:

The problems of state and local pensions are cumulatively huge. The problems of Social Security and Medicare are each huge, but in 2016 neither candidate addressed them, and today’s White House chief of staff vows that the administration will not “meddle” with either program. Demography, however, is destiny for entitlements, so arithmetic will do the meddling.

We agree with George on the severity of the problem but we’d like to add a bit of explanation.  Pensions can be accounted for and the extent of the problem is an accounting result.  Pensions are very long term so they are very responsive to compound interest.  George notes that when Illinois went from an expected return of 7.5 percent to 7.0 percent it added $400 to $500 million to the annual bill.  George thinks 7.0 percent is still imprudent but gives no evidence to suggest why.

Entitlements like Social Security and Medicare are not pensions.  Pensions have assets that will grow and, hopefully, meet the obligations.  MWG’s pension from the state of Wisconsin is nicely funded and gives us great comfort.  Entitlements are paid on a cash basis.  MWG Social Security payment comes from the younger readers.  Thanks!  The probability of the coming disaster for Social Security is approaches 1.0 because only a plague among retirees can stop it unless Congress acts.  The extent of the Medicare disaster depends greatly on the rate of increase in medical costs.  Pensions could be fixed but Illinois shows us why it doesn’t happen in many states.

The clock is ticking.  Social Security needs to be means tested yesterday.  Start now with a small changes and get it right by the end of the decade.

The only current good news is that the GOP is trying to fix Medicare while eliminating the ironically named Affordable Care Act.  Let’s hope they get their sums right.

 

 

Spirited Accounting

Why do we need to eliminate corporate taxes?  Here is a good example why (h/t Instapundit):

The Advancing Growth in the Economy through Distilled (AGED) Spirits Act was filed in the U.S. Senate and it would help bourbon producers on their tax returns. Under current law, interest expenses are not deducted until the Bourbon is bottled and sold, which could be anywhere from 2 to 23 years after aging. This situation has been likened to a homeowner not being able to deduct the interest on a home mortgage until the sale of the house.

The proposed act is an example of bad accounting and bad thinking becoming tax policy.  Why is it bad accounting?

Sidebar One: Tax accounting and financial accounting (creating financial statements) are different.  There is no theory in tax because the Congress (for federal taxes), with the signature of the president, can do whatever it wants.  Financial accounting has many arguments over what is theoretically correct but there is a theory to it.  Most tax policy arguments are like this one.  What can Congress do to help a certain group?  End Sidebar One.

It is bad accounting, at least in the financial sense, because expenses should be recognized at the same time revenues are.  The cost of the ingredients used in making spirits becomes an expense when the product is sold.  The same should be true for the interest cost.  It should be attached to the spirits.

Sidebar Two: In financial accounting, interest is not attached to inventory routinely manufactured.  This reflects that trivial costs can be accounted for in the most expedient way.  It does not suggest that it is correct.  End Sidebar Two.

Why is it bad thinking?  The comparison to interest on a home mortgage is bad thinking.  Why can homeowners deduct mortgage interest?  Because the Congress says so.  Taxpayers have lots of other expenses that they cannot deduct.  The Congress wanted to encourage home ownership or help out the Realtors and gave out this tax break.  As homeowners and spirit  drinkers, we are happy to have our vices supported but we recognize that not even we can support these policies.

The solution is to eliminate the corporate income tax.  Then Congress won’t need to spend its time doing silly things like this. Unfortunately, Congress would have to act to eliminate its opportunity to help out its friends.

 

Well Said Kevin

Kevin Williamson talks about capitalism at NRO.  His conclusion:

Not long ago, the great dream and aspiration of most of the people walking this Earth was to have enough to eat, for themselves and for their children, and to be liberated from worrying about whether they would eat again tomorrow or the next day. Capitalism can be a great deal of work, but it works if you let it work.

It is important to point out the obvious with a bit of gusto from time to time.