Author Archive
Rev. Huckabee at CPAC
A Feb 8 memo from Mike Huckabee’s campaign chairman and manger, Ed Rollins and Chip Saltsman, explained how the Governor expected to win the Republican nomination. “Governor Huckabee has done best among hardcore Republicans, the activist base. That’s one reason why we are looking forward to Governor Huckabee.s speech to the legendary CPAC, the Conservative Political Action Conference, in DC . . . You’d better believe that the folks gathered at the OmniShoreham hotel are the go-getters who make or break primary elections. Just wait till they get a load of Mike Huckabee! . . . And now, with the endorsement of Dr. James Dobson, who is the ‘gold standard’ of social conservatism, we fully expect that Movement Conservatives — those who fight the good fight on Life, on Marriage, on the Second Amendment — will increasingly rally to our cause.”
Gov. Huckabee, exuding all the charm of a southern preacher, told CPAC that he wasn’t schooled in math (or economics), he was schooled in miracles. But even miracles did not produce good math, even with that crowd. A straw poll of presidential favorites among 1705 attendees showed Mitt Romney first with 21% of the vote, followed by Rudy Giuliani at (17%), Sam Brownback (15%) and New Gingrich (14%). Huckabee was an also-ran among “go-getter conservatives who make or break primary elections,” even though he’s the only one running.
Stirring so much religion into politics seems to make even conservative activist nervous. Let the radical Islamists combine church and state –we prefer ours separate, thanks.
Or perhaps the CPAC activists were not persuaded that government agents trying to collect a 30% sales tax would be any gentler or less intrusive than IRS agents. Abolishing the IRS may sound great until you realize that collecting a huge sales tax at the retail level means the government would have to snoop into everything you buy or sell. And, no, the constitution does not grant feds the police power to force state tax collectors to do such dirty work.
There have been some excellent op eds questioning the Fair Tax in The Wall Street Journal by Bruce Bartlett last August 25 and Jerry Bower on January 8. Bartlett, a top Treasury tax official from 1988 to 1992, also wrote a solid longer paper on the topic. Disagree with them if you can, but don’t just shout them down. Logic and evidence tend to be more reliable than miracles.
I wrote to Bartlett and Bower saying they had courage to even mention the FairTax, since doing so always brings a flood of cultish email lecturing about the fairness of being fair and how unfair it is to say otherwise. Don’t bother sending such complaints to me, by the way – it now goes straight to my spam folder. Chances are, I’ve read a bit more about taxes than you have, and don’t really welcome any amateur lectures on the subject.
My 1991 Critique of Extended Unemployment Benefits
Some things never change. Another President Bush was ambushed with extended unemployment benefits shortly before another presidential campaign. Some data in this oldie are dated (though not wildly different from today), but the arguments seem worth another look:
The Cure for Unemployment
Alan Reynolds
The Wall Street Journal , October 3, 1991Democratic Congressmen hope to make George Bush look like a hard-hearted villain because of his reluctance to spend an extra $6 billion to extend unemployment benefits beyond the usual six months. Yet the current job situation is scarcely an emergency. Unemployment was higher than it is today in all but two of the dozen years from 1975 through 1986. Today, the average spell of unemployment — 14 weeks — is still lower than it was even as recently as 1987. Half of the unemployed find new jobs in fewer than seven weeks.
The congressional push to extend unemployment benefits aims to help a relatively elite minority of the unemployed. Last year, only 39% of the unemployed collected any benefits at all. This was largely because about half of those unemployed did not lose their jobs. They either quit their jobs, were reentering the labor force after a prolonged absence or were young people who had not held jobs before. Another reason many unemployed do not qualify for benefits is that they already have another job lined up, and are just taking some extra time off between employers. Or, they find a new job within three weeks — the waiting period to qualify. And, of course, unemployed illegal immigrants are less than eager to register with government agencies.
Those who are not eligible for unemployment benefits rarely take six months or more to find a job. Conversely, those unemployed for long periods are usually among those who do receive benefits, and often receive supplemental union benefits that can approximate their usual after-tax wages (particularly with some casual labor “off the books”). Moreover, cyclical layoffs account for most of the long-term unemployed, who, because of their seniority, have good reason to wait to be recalled.
Mr. Regnery’s Advice to John McCain
In today’s Wall Street Journal (Feb 7), Alfred S. Regnery opines as follows (with my comments) on “How McCain Can Convince the Right”:
1. “Take a firm no-new-taxes pledge. Mr. McCain . . . needs to promise that he won’t increase Social Security taxes — especially by lifting the earnings cap — or increase hidden taxes in regulatory schemes, and that he will try to eliminate the death tax.”
That seems to be asking too much in some respects and too little in others. Regnery is suggesting that McCain do nothing to improve the tax system (as though it’s perfect as is) other than to try to do something he cannot possibly accomplish with this congress. The best defense is a good offense. That doesn’t mean taxing less, in terms of lost loot, but taxing smarter.
McCain’s top economist told me that McCain favors taxing estates (after a large exemption) at the same rate as long-term capital gains. If so, he should not be shy about that — it’s a great idea. That would be much more effective than tilting at windmills until 2011, when the estate tax comes back in full force.
Lifting the earnings cap is indeed a huge threat, adding about 10 percentage points to marginal rates for everyone earning more than $100,000. Expiration of the 2003 tax rates would add another 5 points to that. That would bring the top tax rate to 50%, not to mention state taxes and surtaxes Congressional Democrats have proposed to pay for more health insurance subsidies and easing the alternative minimum tax.
If Democrats want to raise the Social Security tax rate to pay for rising benefits, let them have the courage to propose that. In terms of potential damage to the economy, that would be better than tapping general revenues — which means switching from a flat-rate payroll tax that exempts income from savings to a progressive income tax that applies higher tax rates to both labor and capital.
Larry Kudlow’s Question: “Is McCain Like Ike?”
Larry Kudlow, on last night’s CNBC show, remarked that I had e-mailed him comparing John McCain to President Eisenhower. One guest, Jerry Bower, realized this was not necessarily a compliment. He noted that Eisenhower Republicans kept tax rates extremely high on both individuals and business, viewing that as the “fiscally responsible” way to finance a big defense budget. The economy was in recession almost as often as not in those days – in 1953-54, 1957-58 and 1960. John F. Kennedy, Bower rightly noted, campaigned on slashing [Republican] tax rates to get the economy moving again. When tax rates were finally cut in 1964, it worked (as always).
The two parties switched sides recently, with Republicans adopting JFK’s approach by cutting the most destructive tax rates in 1981-86, and Democrats sounding and acting more like Ike since 1993. Similarly, FDR ran against Hoover’s protectionism in 1932, but Republicans and Democrats have taken turns being the most protectionist in recent years (the word “populist” in both parties often means advocating tariffs on necessities to further impoverish the poor).
The Eisenhower-Nixon years defined the phrase “fiscal conservative.” If Democrats spent too much, a “fiscal conservative” would regard it as his duty to do the honorable thing and raise tax rates as much and as often as required, if only to protect the military budget.
My quick e-mail to Kudlow is reproduced below, warts and all. It is obviously more opinionated and political than my public writing, yet not really partisan:
Larry,
McCain would be eager and enthusiastic to join with past co-authors — Kennedy, Edwards, Lieberman and Feingold — to raise tax rates on high incomes, capital gains, dividends and estates.
McCain could surely be persuaded to remove the cap on the Social Security tax. That move, added to a state-local marginal rate above 45%, would make the top tax in the U.S. much higher than in any other civilized country, including Sweden (which has the least progressive tax system of them all). Many European countries allow the payroll tax to be deducted from the income tax, but it’s a nasty add-on for us. It’s loosely tied to benefits, but Social Security would become a pure redistribution scheme if they uncapped the tax.
Wall Street Journal v. Romney
Two back-to-back Wall Street Journal editorials comparing “McCain’s Apostasies” (Jan. 31) to “Romney’s Convictions” (Feb. 1) rely on a double standard. Why does McCain’s suspicious flip-flop on the Bush tax cuts make him a mere maverick, while Romney’s tougher line on social issues is said to show a lack of conviction?
In the first, McCain is depicted as an admirably stubborn maverick, someone whose decidedly non-Republican legislative history is at least predictable: “Republicans have a pretty good sense of where he might betray them.”
The second editorial strongly implied that Romney has no convictions, but is simply driven by “expediency” and “pandering.” Romney stands accused of changing his message to suit “the audience to which he is speaking at the moment (Think $20 billion in corporate welfare for Michigan auto makers).” On the basis of that one parenthetical anecdote about Michigan auto makers, we are told this “risks a Presidency that would get rolled.”
The trouble is, Romney never proposed any bailout for automakers, much less just those in one state (relatively little of U.S. auto production is in Michigan). That key accusation was lifted uncritically from a McCain radio ad. As FactCheck.org noted, “Romney actually proposed a $16 billion increase in federal research into ‘energy research, fuel technology, materials science, and automotive technology. . . . Perhaps to McCain’s ears that’s a bail out. But the senator has been a strong proponent of pursuing alternative energies in the past – so strong that he proposed the improbable goal of making the country ‘oil independent’ within five years.”
FactCheck.org offered other examples where “John McCain is attacking Mitt Romney with some out-of-context or misleading statements.” In particular, “McCain is off base in the implications he has been making: Romney never advocated for a particular date for withdrawal or a public date for withdrawal.” Economist Thomas Sowell, among others, has taken McCain to task for such deceptions.
The overall impression from the Journal editorial is that electing Romney “risks a presidency that would get rolled” by Democrats in Congress. That is an ironic conjecture, since McCain has been famously eager to co-sponsor dubious legislation with Democrats – such as McCain-Feingold, McCain-Kennedy, and McCain-Lieberman.
Senator McCain blocked all the 2001-2003 tax cuts because (1) he wanted more revenue for the Iraq War, and because (2) he vehemently objected to granting the slightest tax relief to “the rich.” The editorial says “Republicans have a pretty good sense of where he [McCain] might betray them.” If so, they should realize that a McCain presidency would surely “get rolled” when Bush tax cuts expire in 2010, if not sooner. McCain would surely regard it is as a sign of honor, leadership and fiscal responsibility to trade higher tax rates on the rich for a large military budget and keeping troops in Iraq.
The Wall Street Journal editorial page has allowed itself to be rolled by one candidate’s bogus attacks against his opponent. The result was unfair and unbalanced.
Creating A National Mortgage Scandal
Details are murky, but Senator Dodd appears to want to spend many billions on a new federal agency to buy-up undefined “distressed” mortgages at less than their original value.
Suppose Mr. Jones has a $300,000 mortgage on a house now worth $250,000. The new agency would offer to pay off the loan for $250,000 and then let Jones stay in the house with a new $250,000 mortgage that would then be guaranteed by the Federal Housing Authority (which ultimately means the U.S. taxpayer). FHA would debase its customary lending standards.
If banks and mortgage service companies are willing to write-off a large part of the value of some mortgages, why would we need to put U.S. taxpayers at risk? Why couldn’t each borrower simply negotiate a new contract, as hundreds of thousands have already done (though usually for a lower interest rate rather than forgiveness of principal).
If a home owner or speculator like Mr. Jones could get a smaller mortgage through a government agency by not making payments and threatening to default, that would create a huge moral hazard. His neighbors would resent his special treatment, and threaten to default on their loans too.
Since everyone would rather have a smaller mortgage than a larger mortgage, there would be rationing problem of deciding who is or is not worthy for such special treatment. Such priorities are likely to be based on political considerations rather than sensible economics or risk management.
Since Mr. Jones is already seriously delinquent on the current mortgage, he may well have a history of not paying other bills and therefore a poor (subprime) credit rating. There is no good reason to expect that he will not also default on the new FHA mortgage. Risky loans still remain risky, but because of the FHA guarantee that risk would be shifted to taxpayers.
This scheme would convert a localized mortgage problem into a national mortgage scandal.
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