Bloodthirsty Liberal

While President Obama decides what to do about the economy, I have some free (the word itself is and aphrodisiac to socialists) advice: do nothing, nada, niente, rien, nichts.

Look what happens when you get a bright idea in your head to raise revenue?

Massachusetts shoppers are fleeing the state’s rising sales tax in droves and shopping in New Hampshire. Fueled by necessity - and in some cases anger - customers said they were heading over the border to save money and score deals. Cars with Massachusetts license plates clogged the roads and lots across Salem. And through the early evening yesterday, the Mall at Rockingham Park in Salem and Pheasant Lane Mall in Nashua - both just a few miles over the border - reported spikes in traffic over last year, according to Laurel Sibert, a spokeswoman for Simon Malls, which runs both shopping centers.

“The New Hampshire malls have definitely benefited from the sales tax increase in Massachusetts,’’ Sibert said.

In August, state officials increased the Massachusetts sales tax to 6.25 percent from 5 percent as a way to help fill holes in the state budget.

With what result?

A survey of the 3,100 retail business members of the Retailers Association of Massachusetts (RAM) concluded that 2009 holiday retail sales declined this season 2.6% over the same period in 2008. The decline was significantly less than the 7% decline that occurred in 2008, but more than the 1% decline in 2007. The 2.6% decline marks the 3rd straight year holiday sales have decreased in Massachusetts according to the RAM survey.

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A 25% sales tax increase in Massachusetts passed into law last August may have made a competitive problem even worse for local stores competing with New Hampshire and the Internet. A poll released today by the Boston Globe showed that 36% of the respondents indicated either having shopped out of state or spent less due to the 2009 sales tax increase.

In fact, the Commonwealth’s Department of Revenue sales tax collection reports for August through November have reflected retail sales drops versus prior year each month since the tax took effect in August, with double digits drops in both August and September.

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“Massachusetts continues to be a challenging place for retailers to operate,” said Hurst. “In addition to a sluggish economy, our members are dealing with double digit health insurance premium increases and a very difficult regulatory environment.”

Yeah, but that’s business… you know, commerce. Eww. Who want to get their hands dirty with that?

You think we’re stupid? Who wouldn’t drive to New Hampshire to save a bundle on their purchases? (Well, I wouldn’t, but I’m lazy.) As we reported a few months ago, this guy would:

A Westport lawmaker who voted to hike the state sales and alcohol taxes was spotted brazenly piling booze in his car - adorned with his State House license plate - in the parking lot of a tax-free New Hampshire liquor store, the Herald has learned.

Michael J. Rodrigues’ blue Ford Crown Victoria, emblazoned with his “House 29” Massachusetts license plate, was parked outside a Granite State liquor store on Interstate-95 South over the weekend, according to a witness who provided pictures to the Herald.

The witness, who requested anonymity, claimed he approached Rodrigues, noted his State House plate, and asked if he was on personal or official business. Rodrigues, who was loading booze into his car, snapped “mind your own business,” the witness said.

This guy is Scott Brown’s colleague. and he is much, much, much more typical than Scott of our local fauna.

Do you think taxes only go up if you earn $250,000 per year?

Think again.

Marginal Tax Rates from Health Reform
CBO has just released some new tables that demonstrate the increase in marginal tax rates inherent in the Baucus healthcare reform bill. CBO doesn’t directly show the marginal tax rates, but, if I am interpreting the tables correctly, a little bit of arithmetic gets you from CBO numbers to marginal tax rates pretty fast. These figures apply to workers buying their health insurance on the newly created exchanges with the newly offered subsidies.

According to CBO, a family of four making $54,000 would pay $4,800 for health insurance. The rest of the premium would come from government subsidies. If the family’s income rises to $66,000, the subsidy falls, and the cost of health insurance rises to $7,600. In other words, earning an additional $12,000 requires the family to pay an additional $2,800. The implicit marginal tax rate is $2,800/$12,000, or 23 percent.

Similarly, a single person earning $26,500 would pay $2,300 for health insurance, but if his income rises to $32,400, his premium rises to $3,700. This yields an implicit marginal rate rate of 24 percent.

You get somewhat different numbers at other income levels. Typically, however, the implicit marginal tax rates are around 20 percent. Those figures for marginal tax rates are, of course, added on top of those already imposed by existing income and payroll taxes.

CBO addressed this issue in a policy brief back in July. They wrote:

Subsidies for health insurance coverage can affect people’s decisions about whether and how much to work. A subsidy can be provided through the transfer system (possibly as a voucher) or through the tax system (as an exclusion from income, a tax deduction, or a tax credit). A subsidy represents an increase in income, and some recipients may respond by working fewer hours (and thus offsetting part of the increase in subsidy income with a reduction in wage income).

To limit costs, subsidies are typically phased out as a beneficiary’s income rises. Over the phase-out range, a worker receives less compensation for each additional hour worked, because each dollar earned reduces the subsidy. That effect, known as an “implicit tax,” can lead people to work fewer hours than they otherwise would, in the same way that income and payroll tax rates do. Most empirical studies conclude that increases in marginal tax rates generally reduce the number of hours worked, particularly among secondary earners (typically, the spouse of the main earner in a family). Higher tax rates also reduce people’s incentive to raise their income in other ways,such as working harder in the hope of winning raises; accepting new positions or responsibilities with higher compensation; or investing in their future earning capacity through education, training, or other means….

Read it all. Incidentally, the blogger, Greg Mankiw, is a professor of economics at Harvard University. So he probably knows what he’s talking about. So, next time you hear that Obama care will save us money, please link to Professor Mankiw’s blog.

To sum it up:

I should note that CBO does not fully incorporate the effects of these higher marginal tax rates in their cost estimates. If taxpayers respond to these new incentives by, say, working less, GDP and tax revenue from income and payroll taxes will decline. By the conventions of budget scoring, CBO ignores these macroeconomic changes. By contrast, households facing increases in marginal tax rates of 20 percentage points will not ignore them. This means that the healthcare reform bill will likely have a more adverse budgetary impact than CBO estimates.

- Aggie

I’ll spare you the economic analysis. Especially when the conclusion is so succinct:

The bottom line is this: The available empirical evidence does not support the idea that spending multipliers typically exceed one, and thus spending stimulus programs will likely raise GDP by less than the increase in government spending. Defense-spending multipliers exceeding one likely apply only at very high unemployment rates, and nondefense multipliers are probably smaller. However, there is empirical support for the proposition that tax rate reductions will increase real GDP.

There you go. We could have had a real economic stimulus by cutting taxes, but that didn’t fit President Obama’s politics of “fairness”. So instead, we get this phlegmatic recovery in which everyone suffers equally.

Thank you for wasting trillions, President Milquetoast.

It doesn’t bother me: I just checked and my pantry is full. But while the rest of y’all are freaking out over climate change, I’m going to turn my thermostat up to 78.

Because I love people:

Urged on by environmental activists, many politicians are vowing to make carbon cuts designed to keep expected temperature rises under 3.6 degrees (2.0 Celsius). Yet it is nearly impossible for these promises to be fulfilled.

Japan’s commitment in June to cut greenhouse gas levels 8 percent from its 1990 levels by 2020 was scoffed at for being far too little. Yet for Japan — which has led the world in improving energy efficiency — to have any hope of reaching its target, it needs to build nine new nuclear power plants and increase their use by one-third, construct more than 1 million new wind-turbines, install solar panels on nearly 3 million homes, double the percentage of new homes that meet rigorous insulation standards, and increase sales of “green” vehicles from 4 percent to 50 percent of its auto purchases.

Japan’s new prime minister was roundly lauded this month for promising a much stronger reduction, 25 percent, even though there is no obvious way to deliver on his promise. Expecting Japan, or any other nation, to achieve such far-fetched cuts is simply delusional.

Imagine for a moment that the fantasists win the day and that at the climate conference in Copenhagen in December every nation commits to reductions even larger than Japan’s, designed to keep temperature increases under 2 degrees Celsius. The result will be a global price tag of $46 trillion in 2100, to avoid expected climate damage costing just $1.1 trillion, according to climate economist Richard Tol.

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Yet the real tragedy is that, by exaggerating the threat of global warming, we have awoken the beast of protectionism. There are always forces in society that demand that politicians create more barriers to trade because they cannot compete on an even, fair playing field. Global warming has given them a much stronger voice.

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There is a real and growing prospect of an all-out trade war being waged in the name of climate change.

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Today, coal accounts for almost half of the planet’s electricity supply, including half the power consumed in the United States. It keeps hospitals and core infrastructure running, provides warmth and light in winter, and makes lifesaving air conditioning available in summer. In China and India, where coal accounts for more than 80 percent of power generation, it has helped to lift hundreds of millions of people out of poverty.

There is no doubt that coal is causing environmental damage that we need to stop. But a clumsy, radical halt to our coal use — which is what promises of drastic carbon cuts actually require — would mean depriving billions of people of a path to prosperity.

To put it bluntly: Despite their good intentions, the activists, lobbyists and politicians making a last-ditch push for hugely expensive carbon-cut promises could easily end up doing hundreds of times more damage to the planet than coal ever could.

Party pooper.

I was listening to “Car Talk” on NPR last night (overseas readers will just have to humor me), and a caller asked the Magliozzi brothers to settle a bet: can you still kill yourself by idling your car in your garage, or is the exhaust-cleaning technology too good? They thought you were more likely to die of oxygen deprivation due to sealing the garage than from CO poisoning.

This is by way of making the point that technology and innovation have saved our asses (and made us the wealthiest society in the history of earth) before, and will again. To hobble ourselves economically and return to some sort of pastoral Eden is dangerously immature, foolishly genocidal.

What do all you climate-changers have against the poor and needy? Why can’t we all get along?

If life gives you bread lines, make bread pudding:

[T]he jobless rate popped up to 9.7%, the highest rate in 26 years, from 9.4%, reflecting an increase in the size of the labor force. The main concern we see going forward is the slow pace of new job creation to soak up the 7.4 million workers who have lost jobs since 2007.

There are now 26 million Americans who can’t find a full-time job. Average weekly hours remained at an abysmally low 33.1—which is putting a strain on family budgets. And the jobless rate including so-called discouraged workers, or those who have stopped looking, leapt to 16.8% from 16.3% in July. Meanwhile, the number of Americans working part-time who want full-time work increased by 278,000 to 9.1 million, which as a share of the workforce is larger than at any time since the recession of 1982. These are the workers that employers will tend to hire first as a recovery unfolds, so it is worrisome that this cohort remains so large.

But we already knew this. Give or take a few tenths of a percentage point, this grim news surprises no one.

Here’s something else I bet you already knew:

But a tax-cutting stimulus would have provided much more job and economic growth for the buck, and it could even now too. If the Administration really wants to fire up private job creation, how about taking the remaining $400 billion or more and using it to lower business taxes? The unspent stimulus is enough for a two-year down payment on repealing the U.S. corporate income tax, which studies show is a job and wage-increase killer.

Congress could also reconsider its July minimum-wage increase of 70 cents an hour, which almost certainly contributed to the leap in teenage unemployment to 25.5% in August. The rate was 24% in June and 23.8% in July, before the wage hike started to price low-skilled teens looking for jobs out of the workplace. Congress would be wise to suspend the increase until the overall jobless rate falls below 7%.

Of course neither of our proposals is going to happen given the current policy views in Washington, but someone has to speak up for workers who want a job, as opposed to those lucky enough to still have them.

This is not exactly a secret of the Kabbalah. Even little Timmy Geithner knew it.

But, as I never tire of sharing, let then candidate Obama ’splain himself to you:

MR. GIBSON: …you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, “I certainly would not go above what existed under Bill Clinton, which was 28 percent.”

It’s now 15 percent. That’s almost a doubling if you went to 28 percent. But actually Bill Clinton in 1997 signed legislation that dropped the capital gains tax to 20 percent.

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And George Bush has taken it down to 15 percent.

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And in each instance, when the rate dropped, revenues from the tax increased. The government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

SENATOR OBAMA: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

Who needs a job when the president can give us “fairness” instead? Who needs revenue? Who needs capitalism? Free markets? Private enterprise? Take your juice and crackers from the government and then take your nap. Then we’ll learn our colors and ABCs.

The only “job” you’ll get is one to be of service to Barack Obama.

When the history books are written (if they’re not written by Obama), this guy may be cited as the lone prophetic voice in the wilderness:

Although the recent surge of budget deficits — the annual gaps between outlays and revenue, resulting in more federal debt — reflects the savage recession, the true cause is political. Deficits allow liberals and conservatives to maintain self-serving public positions. Liberals claim we can have more government (more health care, more education, more transportation) without taxing anyone but “the rich.” Conservatives promise that taxes can be cut without depriving anyone (retirees, veterans, cities and states) of existing government benefits.

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Until recently, the borrowings, though usually undesirable, were not alarming. But the recession and an aging population signify that we have crossed a threshold where actual and prospective borrowings are so huge that no one can foresee the consequences. The best measure of debt burden is its relation to the nation’s annual income, or gross domestic product.

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In 1946, after World War II, the ratio of publicly held federal debt to GDP was 108.6 percent. Since then, the economy (our income) has generally grown faster than the debt. In 1974, the debt-to-GDP ratio reached a post-World War II low of 23.9 percent, and even in 2007, it was only 36.9 percent. That was manageable.

By contrast, today’s prospective colossal borrowings dwarf likely economic growth. The Obama administration’s latest projections, released last week, show nearly $11 trillion of borrowing from 2009 to 2019. In 2019, the debt-to-GDP ratio would be 76.5 percent. This could be too optimistic, because it assumes some spending restraint and tax increases. A projection by the Concord Coalition, a watchdog group, adds about $5 trillion in borrowing in that period. In 2019, the debt-to-GDP ratio could be roughly 100 percent.

Because such borrowings would be unprecedented in peacetime, they might go badly.

Uh, ya think?

I’ve been hearing lamentations and jeremiads about deficits and debt all my adult life, but Samuelson amply makes the case that this is far, far worse than anything we’ve seen before.

One justification for deficit spending is that it jump-starts the economy. Obama himself said so. But isn’t the record clear that channeling spending through the private sector (by cutting taxes) is more productive than politically-influenced, patronage-payoff public sector spending? Obama had the chance to be the next Reagan, but he’ll be remembered as the last Carter (or Hoover).

I don’t remember if I’ve posted this before, but I love it so much I think we can all watch it again. We all need to confront the reality of the money hole. - Aggie

No, I didn’t write this. I already have.

A friend in the hedge fund biz sent me this on Friday.

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As a professional investor I’d have to be out of my skull to partner with this government on anything.

This administration has made it quite clear that they can’t be relied upon to honor contracts or legal precedents and if I can’t know what the rules are before the game starts then I’m not going to play. Hedge funds aren’t like the banks … we haven’t failed. We aren’t beholden to the taxpayer to make our way. We have contractual and fiduciary obligation which we will honor. People pay us to make them money not to meet a political goal. So Obama had better think long and hard before he tries to bully us like he did the banks, or try to tell us that “he’s the only thing between us and the pitchforks.

Also, Geithner and Obama have been saying that they plan on balancing the budget once the crisis is past. The press may believe that twaddle about how he’ll do it by “making things more efficient,” but we in the hedge fund industry aren’t so stupid. We’ve looked at the numbers and know what he’s planning to do. I know dozens of people who are already putting the legal structures in place to move their companies and themselves offshore and away from the grip of the tax man. These are some of the smartest most dynamic people in the world and they’ll have no trouble staying ahead of the kids from the short bus over at the IRS.

So unless Obama wants to run out of “other people’s money” a lot sooner than he expected, he had better keep some people around to pay the bills. And if he keeps demonizing the productive and saying that it’s their responsibility to let him spend their money on the unproductive, then we’ll all be gone. I’ll be working my 14 hour days is Bahrain or Singapore, and Obama can go suck eggs. He needs the productive classes a lot more than the productive classes need him.

Well, I’m not in the hedge fund biz, but I’ve been saying this for a fair while now.

And Obama has been listening:

In the tech industry’s first major disagreement with the Obama administration, Silicon Valley companies are voicing alarm about a proposal that could require corporations to pay billions of dollars in U.S. taxes on foreign earnings.

The administration wants to change a long-standing law that allows American companies to defer paying these taxes as long as the funds are kept overseas. That could have a big impact on a number of U.S. corporations, especially tech giants such as Hewlett-Packard, Cisco Systems and Oracle, which report that overseas markets account for half or more of their sales.

“It’s probably our biggest concern right now. Certainly, it’s the biggest issue where we disagree with the Obama administration,” said Ralph Hellmann, senior vice president of the Information Technology Industry Council, an industry lobbying group.

“On a Richter scale of 1 to 10, this is about a 20,” added Carl Guardino, CEO of the Silicon Valley Leadership Group, who is leading a delegation of valley executives to Washington this week.

They’d better bring their pitchforks.

Give that feline fatality a job!

It’s not like Tim Geithner can afford to lose any of the few officials who are actually working at the Treasury Department with him, but last night, he put one on leave.

The acting director of the Office of Thrift Supervision has been put on leave pending a review of the agency’s role in the backdating of capital infusions by some banks, the agency said Thursday evening.

OTS said in a surprise statement that Scott Polakoff, who has been serving as acting director of the OTS, would be replaced by OTS Chief Counsel John Bowman during the review by the Treasury Department.

Office of Thrift Supervision: do they count paper clips and stockpile scrap paper?

Not exactly:

When Ben Bernanke told the Senate Budget Committee that American International Group (AIG) “exploited a huge gap in the regulatory system” and that “there was no oversight of the Financial Products division,” it seemed to make sense. The Federal Reserve Chairman went on to say, “This was a hedge fund basically that was attached to a large and stable insurance company.”

If nobody was keeping an eye on them, well no wonder it blew up.

But it turns out Mr. Bernanke was not quite accurate when he said “no oversight.” He made that statement on March 3rd.

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“We were clearly responsible as a consolidated regulator for FP,” says Polakoff, and adds, “We, in 2004, should have taken an entirely different approach than what we wound up taking regarding the credit default swaps.” By now, the term credit default swap is practically a barbershop term, but basically it’s just a sort of insurance policy on another financial product like a mortgage-backed security (often stuffed with foreclosed mortgages, as we have all learned to our sorrow).

So when Mr. Polakoff says they should have taken a different approach, what he’s really saying is that the OTS regulators weren’t sophisticated enough to realize that FP was heading for BIG trouble. And why should they have been that prepared? OTS mostly regulates S&L’s which generally take deposits and then make loans for houses and other purposes. Would you expect these civil servants to really understand the risks attached to derivatives that are designed by Math PhD’s to play the odds on pieces of paper that “derive” their value from a mortgage backed security that can’t be valued itself (except maybe by another math nerd).

Who hasn’t backdated the odd multi-million dollar bank draft once or twice?

Or was he canned for speaking truth to power? It is certainly true that these derivatives are beyond the understanding of mere mortals. Why fire him for that? Why not just blame Bush, which is the default position of this administration for everything—and in this case might just be true?

You know who Lonesome Tim Geithner, holed up in the empty halls of Treasury, reminds me of? Remember the Once-ler from Dr. Seuss’s The Lorax?

Really?

The week before last, twenty-five hundred delegates, from more than seventy countries, met in Copenhagen to prepare for the United Nations Climate Change Conference, which will take place there in December and will produce a successor to the Kyoto Protocol, which was adopted in 1992 and will expire in 2012. The speakers in Copenhagen were united by a sense of urgency—and for good reason, given the poor record of most participating countries in meeting their Kyoto targets for reducing the emission of greenhouse gases.

So far, the most effective way for a Kyoto signatory to cut its carbon output has been to suffer a well-timed industrial implosion, as Russia did after the collapse of the Soviet Union, in 1991. The Kyoto benchmark year is 1990, when the smokestacks of the Soviet military-industrial complex were still blackening the skies, so when Vladimir Putin ratified the protocol, in 2004, Russia was already certain to meet its goal for 2012. The countries with the best emissions-reduction records—Ukraine, Latvia, Estonia, Lithuania, Bulgaria, Romania, Hungary, Slovakia, Poland, and the Czech Republic—were all parts of the Soviet empire and therefore look good for the same reason.

The United States didn’t ratify the Kyoto Protocol, but Canada did, and its experience is suggestive because its economy and per-capita oil consumption are similar to ours. Its Kyoto target is a six-per-cent reduction from 1990 levels. By 2006, however, despite the expenditure of billions of dollars on climate initiatives, its greenhouse-gas output had increased to a hundred and twenty-two per cent of the goal, and the environment minister described the Kyoto target as “impossible.”

The explanation for Canada’s difficulties isn’t complicated: the world’s principal source of man-made greenhouse gases has always been prosperity. The recession makes that relationship easy to see: shuttered factories don’t spew carbon dioxide; the unemployed drive fewer miles and turn down their furnaces, air-conditioners, and swimming-pool heaters; struggling corporations and families cut back on air travel; even affluent people buy less throwaway junk. Gasoline consumption in the United States fell almost six per cent in 2008. That was the result not of a sudden greening of the American consciousness but of the rapid rise in the price of oil during the first half of the year, followed by the full efflorescence of the current economic mess.

This is interesting actually. What happens when the college students who pester us all on street corners to sign things and give money to save the environment graduate and have to move in with mom and dad? Do their politics change or do they dig in their heels and blame George Bush? Should be fun to watch.

- Aggie