Warren’s Proposals

We have tried to ignore the silliness on the left with regards to energy with the Green New Deal and all of that.  It seems to us that those were dead ideas and that is a really good thing.  Now we see some of the worst of those ideas coming from a serious contender for the Democrat nomination for president.    We concur with Jay Nordlinger at the NRO Corner:

Early last month, Elizabeth Warren issued a tweet that sent a chill down my spine: “On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking — everywhere.”

Jay goes on to discuss the impact of such ideas on the Saudis and our allies.  We”d like to discuss why seeing Elizabeth’s tweet sent a chill down our spine and it should send one down your spine too.  It makes us glad we are not on Twitter.

We would like to look at the two sentences individually.  In the first she has a method, executive order, and a goal, no NEW leases offshore or on public lands, that seems consistent with the method.  It is a really, really bad idea and it will probably be challenged in court but it might happen.  Mark Perry at Carpe Diem consistently covers the increase in US oil output and here is an example.  Our guess is that most of this output comes from private lands so Elizabeth is being foolish and engaging in some cronyism to help her friends and donors in “alternative energy” but she hasn’t proposed anything catastrophic.

Well, she hadn’t proposed anything catastrophic until the next sentence.  There are three terrifying parts of the second sentence.  First there is “everywhere.”  Perhaps “everywhere” is just a little political overstatement but we hope she doesn’t think she can ban it globally.  Second there is the unspecified process that will allow her to ban fracking.  Some folks have been worried by the authoritarian impulses of The Donald and the 44th president.  This would take the imperial presidency to a whole different level.  And worst of all there is the banning of fracking.  It is a disaster on many levels that it is impossible to create a comprehensive list but here are a few.  There is all the value generated by fracking.  There are all the folks and organizations that support fracking.  There are all the organizations, like manufacturing, that benefit from cheap energy.  There is the environmental impact of reduced CO2 from using cleaner natural gas.  There are the international problems for the US and our allies of being back under the control of Russia and the Middle East.

Sidebar: The Donald is often accused of being an agent of Russia despite his actions.  We think Elizabeth is just a fool but her behavior in banning fracking would support Russia’s most important goal, increasing the price of energy.  End Sidebar.

An executive order to forbid new energy from public lands is ordinary political stupidity like The Donald’s trade war.  Elizabeth has moved to a whole different level when she says she will ban fracking.  It is astonishing that people take her seriously.


Full Employment: Accountants Only

We love accountants.  We spent the majority of our life educating them.  Unfortunately, we cannot support the plan for a massive expansion of the opportunities for accountants.  Veronique De Rugy at the NRO Corner has the details on Elizabeth Warren’s proposed wealth tax.  You should, of course, read the whole thing.  The tax is loosely justified as a response to income inequality but as we have often said the issue is really envy.  Finding the levers to adjust income inequality and agreeing on the right level of inequality are akin to trying to predict climate change.

The one sure thing is the wealth tax will provide lots of opportunities for accountants. Veronique right when she tells us:

That’s why wealth taxes are always so hard to administer and so easy to avoid. It makes them a terrible vehicle for raising money. [and later]

But apparently the senator thinks she can avoid any problems by implementing anti-avoidance measures such as a repressive 40 percent exit tax on any targeted household that attempts to emigrate, minimum audit rates, and increased funding for IRS enforcement.  [Emphasis added]

Because it is off her topic she has left out is all the opportunities for the accountants in the private sector to avoid or reduce the tax.  She mentions that a wealth tax might be unconstitutional.  There is also the issue in bold above.  Can we really tax people that want to leave such a repressive regime?  On both those questions it is wise to reject the proposal rather than count on the courage of the Supreme Court.  Especially when the left wants to pack the court.

One issue we would like to see discussed is the impact of the wealth tax on wealth.  We don’t have a complete model but when wealth produces about eight percent returns and you tax it at two or three percent then the returns on assets are substantially reduced.  That, it seems to us, would reduce the value of assets.  The folks that pay the tax own lots of assets and lots of them are equities.  Equities won’t have two prices.  Will the wealth tax reduce the value of equities?

A wealth tax is at least a really bad idea for everybody but accountants.  It might be absolutely terrible if it has a major negative impact on equity prices.



Bad Evidence Leads To Wrong Conclusion

We have some longer or deeper things we are trying to work on but folks keep writing foolish things that need to be dealt with.  In this case it is Jeff Spross at The Week.  The Week appears to be a serious publication with, one would think, editors. How, then, did Jeff’s “How The Democrats Can Raise Taxes Without Technically Raising Taxes” end up on The Week?  We don’t know.

Jeff sets up the article by discussing that the The Donald’s administration decided not to index capital gains for inflation.  Then he says:

But Democrats — or anyone, really — should take a hint from Trump’s decision. It’s not just that capital gains shouldn’t be indexed to inflation; income taxes shouldn’t be either.

Doing away with that indexing would raise plenty of new revenue for the government. But more fundamentally, it would fix a basic misunderstanding about good macroeconomic policy.  [Emphasis added]

Jeff is serious.  And he is seriously wrong.

Sidebar One: Jeff has no comment on the standard deduction which is also currently adjusted for inflation.  End Sidebar One.

It doesn’t seem to us that “You are paying more taxes but we didn’t really raise your taxes” is much of a rallying cry for any party.  The more serious problem is Jeff’s understanding inflation.  Here is Milton Friedman explaining that inflation is a monetary phenomenon.  In the United States, Milton tells us, inflation is made in Washington DC.

Sidebar Two: If you want you can now discuss the extent to which the Federal Reserve, which controls the money supply and hence inflation is independent within the government.  You can come back to that discussion later as it might take a really long time.  End Sidebar Two.

Jeff doesn’t agree with Milton. Jeff thinks inflation is caused by supply-demand problems.   Jeff says that we need higher taxes as a brake on an overheated economy:

Here’s the problem with that logic: If your economy is experiencing high inflation, like what we went through in 1980, then it needs to slow down. Mainstream macroeconomics assumes that high inflation is evidence of an overheating economy: too much demand chasing too little supply. In which case, to cool inflation off, money needs to be taken out of the economy. And taxes are one tool for doing just that.  [Emphasis added]

There is a big problem with Jeff’s example.  We checked the economic data for 1980 at The Balance.com where they have unemployment at year end, GDP growth, and inflation by year on one page.   It was really easy to find and somebody at The Week should have checked.   At the end of 1980 the unemployment rate was 7.2 percent, GDP growth was negative signaling a recession, and inflation was 12.5 percent.  So Jeff’s example contradicts his theory.  Rather than the economy being overheated it was in recession.  How about Venezuela?  Nope.  Zimbabwe?  Nope and you can even use the same cite for that and more.

Few people have been more exactly wrong than Jeff when he says that indexing income tax brackets is pro-inflation:

By contrast, brackets that are indexed to rise with the price level are essentially pro-inflation. As the inflation rate increases, the rate at which the bracket thresholds rise increases as well. That’s a fiscal stimulus added to the economy right when it’s already running too hot. In fact, Russel Long, a Democratic senator from Louisiana at the time, made this exact point, arguing indexing would “make inflation worse by pumping more money into circulation at a time inflation is at its worst.” [Emphasis added}

Inflation is at best independent of real economic growth.  What makes Jeff so wrong is that the government (see Sidebar Two above) controls inflation.  To have the government benefit from inflation by increasing receipts from bracket creep is a really bad incentive for folks who want to avoid inflation.  Hint: that should be almost everyone.  Indexing brackets is strongly anti-inflation because the folks that control inflation, the government, have fewer incentives to inflate.  It is really important that inflation indexing for brackets and standard deductions stay.  It is also really important to check the data that you rely on.



Sports, Asthma, And Original Work

We are no fan of Joe Biden.  We shouldn’t stand for big smears of Brett Kavanaugh, The Donald, and almost everybody on the right.  We shouldn’t consider them for Joe either.  Part of the problem is referencing an original work.  Jim Geraghty at the NRO Morning Jolt talks about the Brett smear and then ends with:

Of course, Michael Graham wonders how Biden could work as a lifeguard during the summers in college and simultaneously be medically excused from Vietnam for “asthma as a teenager.”

Jim has not smeared Joe but he is moving in that direction from Michael’s work.  Michael was not asking how Joe could be a lifeguard although he did wonder about football.  He is making a comparison between Joe and The Donald.  Michael says:

Just a few months before President Donald Trump received his now-infamous diagnosis of “bone spurs in the heels,” former high school football star Biden got the same 1-Y draft deferment for “asthma as a teenager.” It was one of five deferments Biden received (the same number as notorious GOP “draft dodger” Dick Cheney) and allowed him to avoid being drafted at the height of the war.

Michael’s main complaint is with the Democrat double standard although he seems to wonder if this is how the Democrats will get Joe.  Michael reports:

Does this prove that Biden was dishonest or made a false claim? No. But a similar story from [The Donald] was enough for Sen. Tammy Duckworth (D- Wis.), who was wounded while serving in Iraq,  to label [The Donald] a “coward.”

We have observational experience with asthma in athletes and medical deferments for Viet Nam.  The Princess de Gloves was an athlete including being a competitive swimmer, lifeguard, and swim team coach that had asthma.  We don’t know if it would have got her out of military service but we remember her pulling out her inhaler once when she was pitching in softball.  At the time swimming was thought to be good for asthma but now folks are uncertain.  At any rate, Joe was not the only lifeguard with asthma or football player that received a medical deferment.  Joe is nowhere near being unique.

We are a little younger than Joe so we know a number of folks that received medical deferments from military service during the Viet Nam era.  None of these folks were rich or famous so that is not why they were deferred.  We remember heart murmurs, flat feet, and hypertension as causes for deferments and we are sure there were others.  We would have judged our friends as at least healthy and some were athletes.   We concluded that they won the lottery.  We don’t know if any of our observations faked something but there was lots of information, perhaps not good information, on how to fake stuff.  Unless we see cold, hard evidence that Joe or The Donald faked something we have no reason for additional comment.  In fact, here is where the Brett smear comes back into play.  If Brett did something rude as a college freshmen or Joe or The Donald gamed the system 50 years ago how does this impact fitness of any of them for a position today?  For example, if you cheated on an exam in high school are you disqualified from holding public office?  It seems to us that we have more recent and relevant information to make that determination.  Let’s worry about Joe and Clarance Thomas or Joe and Barack rather than irrelevant stuff.




Jonah’s Bogus Journey

Conservatives, and especially those of us in fly-over country, tend to poke fun at the coastal leftists that try to discover these hidden tribes with odd beliefs that lurk in these strange burgs that the locals often pronounce wrong.  Places like Cairo, Illinois.  Jonah Goldberg, writing at NRO, goes on a similar journey as he tries to understand folks who support The Donald.  As if we didn’t know, Jonah tell us where he stands on The Donald at the end of his journey:

It may be that once [The Donald] is no longer the commander in chief in the war against Blue America, the ardor of his troops will give way to a better understanding of the price the GOP paid on his watch.

It is difficult to write about stuff you don’t understand.  Jonah put the question about The Donald’s approval rating by Republicans this way:

[The Donald] is consistently hitting in the mid- to high 80s with Republicans in polling, which demands a question: Why are his actual numbers so high?

When you write or talk about what you don’t know you sometimes get distracted and forget what you know.  Jonah knows many things but two things he knows for sure are, one, approval of The Donald, or anyone else, is a yes or no question. Two, in any coalition, like The Donald’s, there are lots of different factions.

That means that Jonah’s emphasis on “unwavering support” for The Donald is not related to his approval rating.  There are folks that give unwavering support or unwavering resistance to The Donald.  We are open to evidence but we don’t see these as large the largest groups in either coalition.  There are supporters of The Donald that love his twitter feed but many would lock him out.  Others like his trade wars while we hate them.

Jonah does have a point that hyper-partisanship on one side causes some on the other side.  It is like arguing with your roommate about sports teams and folks say things like no player from Arsenal could start at Tottenham (or vice versa) and things escalate from there.  Some of the Republicans are rabid supporters of The Donald but we think more are like us.  The Donald has done good things on regulations, taxes, the court appointments.  Then there is the alternative.  First, there was the choice in the 2016 election.  We thought The Donald dominated his opponent.  The alternatives have not gotten better since then.  Kevin D. Williamson at NRO puts the choice in his usual acerbic manner:

Eliminating the ability of those who currently align with the Republican party to meaningfully participate in national politics is not only wishful thinking in the pages of the New York Times. It is the progressive program, from Washington to Palo Alto and beyond.

The Editors at NRO tell us about Elizabeth Warren’s (and some other Democrat presidential candidates) plan for eliminating fracking:

Senator Elizabeth Warren of Massachusetts promises that if she is elected president, she will issue an immediate unilateral prohibition — based on some presidential power that she’ll invent as soon as she gets around to it — on the method of natural-gas production known colloquially as “fracking.” Other Democratic contenders, including Vermont socialist Bernie Sanders and Kamala Harris of California, have made similar promises.

It is not just AOC.  People that you might describe as serious senior leaders of the Democrats are making The Donald look good now and in 2020.  Like many other folks on the right, we approve of The Donald.  Our judgment is he is far from perfect but he has done some good things and we don’t approve of the opposition.  We hope Jonah will reverse the Bill and Ted franchise and soon go on an excellent adventure.  Strange things are afoot at the Circle K … and in the whole country.

Carbon Tax Analysis

It depends is the most reliable answer to almost any question other than is socialism a good idea?  It is particularly true as an answer to the following: should the US have a carbon tax?  Our starting points are that first, the left wants a carbon tax so there is space to negotiate with them.  Second, a carbon tax is conceptually a good idea because there is some relationship between carbon and global warming and we would, all other things being equal, like to reduce carbon emissions.  Third, a carbon tax is a good way to do that.

Paul Mirengoff at PowerLine has a discussion of carbon tax that we would like to review. We agree with much of his analysis but not his final decision.   Paul is correct that that the cost would be borne by consumers:

First, the cost of the carbon tax would be passed on to consumers:

While oil, natural gas, and coal companies would be responsible for paying the fee, they would likely pass a significant share of the associated cost on to their customers.

Yup, no doubt.  We are willing to agree that 100% will be passed on to consumers.  The GOP should see that low income folks are not sacrificed.  There are many ways to do this but the most obvious would be to reduce FICA, the biggest tax for most low income folks.  Make the first N thousand dollars of income not subject to FICA where N is the number that eliminates the impact of the carbon tax.

Sidebar: We could make this complicated and decide that only N at the first job applies.  We don’t think so.  If somebody works several different jobs we are OK with them benefitting from reduced FICA several times.  We think it is not exactly “fair” but the costs are not worth the benefits.  End Sidebar.

Like tariffs, sales taxes, and VATs it will fall more heavily on low income individuals:

Second, a carbon tax would have a disproportionate impact on low-income households:

As with the increase in energy costs, the increase in the cost of nonenergy goods and services would disproportionately impact low-income households.

Yup, no doubt.  Again, this can be fixed.  FICA is part of the solution.  Another part is to eliminate the gas tax that is currently 18.4 cents per gallon.

Paul might be right that is is not popular but we think presentation might matter:

Not surprisingly, the carbon tax is unpopular with voters. Indeed, Americans for Tax Reform notes that carbon tax advocates haven’t been able to get a carbon tax passed in a single blue state.

Two items are worth mentioning here.  First, carbon taxes by state are a really bad idea.  Second, in a purple USA, we can get a carbon tax that is modest and allows us to do good things like eliminate subsidies to alternative energy.  As our tweeter-in-chief might say, it all depends on the deal.

Again, in summary, a modest carbon tax, say, $20 per ton, that eliminates the gas tax and alternative energy subsidies while reducing low income FICA is a good idea.  We don’t know if the Democrats are willing to make the deal.  It might even be good politically even if they are not willing.


Carbon Tax Again

There has been some discussion if the CNN Climate Change Town Hall was more boring that the Bears-Packers game that opened the 100th season of the NFL.  The game had 17 punts, 20 penalties, and one touchdown.  Holman W. Jenkins, Jr. at the WSJ watched enough of the Town Hall to weigh in.  He ties it to a Harvard professor and some science stuff that the Town Hall folks allege they worship:

It comes just days after the shocking suicide of Harvard climate economist Martin Weitzman, rightly praised in obituaries for an insight lacking in the CNN town hall: A climate disaster is far from guaranteed. It’s the low but not insignificant chance of a “fat tail” worst-case disaster that we should worry about. (Mr. Weitzman put the odds at 3% to 10%.)

We had not heard mention of it before but it appears that one of MWG favorite topics came up briefly at the Town Hall.  Holman tells us

As the New York Times also noted, “For the first time, Ms. Warren explicitly embraced a carbon tax before quickly pivoting away . . .”
What’s Ms. Warren afraid of? A carbon tax would hardly be prohibitive. Weitzman advocated $40 a ton—the equivalent of 36 cents per gallon of gasoline. Such a tax could be implemented without raising the overall tax burden; it could be used to trim taxes on work, saving and investment, improving the economy overall. It could be embraced and copied by other nations out of self-interest rather than self-abnegation (unlike the absurd Green New Deal). [Emphasis added]

A carbon tax of $40 is twice what we have suggested but it is on the upper end of modest range.

Sidebar: We are really pleased that our back-of-the-envelope computations agreed with Holman and, perhaps, Martin.  We estimated that $20 per ton would be equal to the current federal gas tax of 18.4 cents per gallon.  The part in bold shows that we had the relationship right.  Wheeee!  End Sidebar.

It also matters what else is done.  We like Holman’s suggestions.  The gas tax goes and then there would be some negotiation.  We would like to see alternative energy subsidies go too.  At $40 a ton we might be able to eliminate all tariffs but that would require a new administration.  An alternative could be a permanent reduction in FICA taxes so the tax burden for low income folks does not increase.

Why didn’t all the Democrats embrace a carbon tax?  Why weren’t they asked?  And asked to provide specifics?  The answer, as many suspect including Mario Loyola at NRO, seems to be that attacking capitalism is the real goal.  A carbon tax would be part of a capitalistic solution.  It is an idea that conservatives should seriously consider.