Great letter to the WSJ. I love the comment on our "fourth branch" of government.

"The Lawnmower Men" (Review & Outlook, July 19) proves the point that we no longer have only three branches of government. To the executive, legislative and judicial branches we have added bureaucracy. There are now a myriad of government agencies which have a say in how we may live our lives, and none of the people who run or staff these red-tape factories can be held accountable to the people of the nation through any electoral process.

So the Environmental Protection Agency wants to regulate my lawnmower and measure "grams per kilogram of cuttings"? This is the U.S. and here we measure in ounces and pounds; granted illegal drug dealers might not have a problem with this metric nonsense. Is the EPA going to say I can't cut my grass until it reaches a certain height in order to achieve the desired measurements? Will there be an extra tax on foods that tend to create more "emissions"? How about a tax credit for Bean-o? How about they just leave us alone.

We could solve the global energy crisis by hooking up generators to the founding fathers' graves. They should be spinning fast enough to produce enough electricity to fuel the whole country. If they were alive, however, I think I know what they would say about this proposal and all of the other rules dumped upon us: "No regulation without representation!" Though if this bureaucratic trend continues, we might go back to: "Give me liberty or give me death!"

Beth Halgren
Eudora, Kan.

Labels: climate, energy, environment as religion, global warming, taxes

Even conservative estimates by the Congressional Budget Office say the cost for this bailout will run to $41.7 billion, with $16.8 billion offset by higher taxes. No one has any idea of the real cost. The most expensive provision gives the Treasury temporary authority to pour money into Fannie Mae and Freddie Mac. The CBO says this could cost $100 billion, or it could cost "nothing." So it threw a dart at the wall and assigned a $25 billion price tag to the Fan and Fred bailout.

Likewise, the bill's $300 billion to refinance and insure distressed loans through the Federal Housing Administration will supposedly cost just a few billion dollars. That assumes few homeowners and lenders will sign up for the program because lenders will have to take a 10% haircut to be eligible. If no one needs this program, why is it there? If lenders do take advantage, they're bound to dump their worst loans on the feds. So as with the Fan and Fred bailout, the FHA guarantee will be either superfluous or much more expensive than we're led to believe.

Alongside these big-ticket items, we suppose the $4 billion tax credit for first-time home buyers, or the $4 billion in "community development" pork grants, or the $180 million for housing counseling are merely routine outrages.

On the other hand, the kid-glove treatment of Fannie Mae and Freddie Mac is very much worth worrying about. On the floor of the House yesterday, Democrats argued that this bill was the least Congress could do "for the people," given the way the government had "helped" Bear Stearns. The cost borne by Bear Stearns was having its shareholders all but wiped out and half its employees pink-slipped. Countrywide was likewise sold at a fire sale price. Not so these two government-chartered giants.

Fannie and Freddie may well be too big to fail, as Treasury Secretary Hank Paulson keeps reminding us. That is true in large part because they were allowed -- no, encouraged -- to grow like Topsy while Congress shielded them from oversight.

-- Wall Street Journal

Labels: CBO, Congress, Countrywide Financial, democrats, Economics, taxes

Washington is teeing up "the rich" for a big tax hike next year, as a way to make them "pay their fair share." Well, the latest IRS data have arrived on who paid what share of income taxes in 2006, and it's going to be hard for the rich to pay any more than they already do. The data show that the 2003 Bush tax cuts caused what may be the biggest increase in tax payments by the rich in American history.

The nearby chart shows that the top 1% of taxpayers, those who earn above $388,806, paid 40% of all income taxes in 2006, the highest share in at least 40 years. The top 10% in income, those earning more than $108,904, paid 71%. Barack Obama says he's going to cut taxes for those at the bottom, but that's also going to be a challenge because Americans with an income below the median paid a record low 2.9% of all income taxes, while the top 50% paid 97.1%. Perhaps he thinks half the country should pay all the taxes to support the other half.

Aha, we are told: The rich paid more taxes because they made a greater share of the money. That is true. The top 1% earned 22% of all reported income. But they also paid a share of taxes not far from double their share of income. In other words, the tax code is already steeply progressive.

We also know from income mobility data that a very large percentage in the top 1% are "new rich," not inheritors of fortunes. There is rapid turnover in the ranks of the highest income earners, so much so that people who started in the top 1% of income in the 1980s and 1990s suffered the largest declines in earnings of any income group over the subsequent decade, according to Treasury Department studies of actual tax returns. It's hard to stay king of the hill in America for long.

The most amazing part of this story is the leap in the number of Americans who declared adjusted gross income of more than $1 million from 2003 to 2006. The ranks of U.S. millionaires nearly doubled to 354,000 from 181,000 in a mere three years after the tax cuts.

This is precisely what supply-siders predicted would happen with lower tax rates on capital gains, dividends and income. The economy and earnings would grow faster, which they did; investors would declare more capital gains and companies would pay out more dividends, which they did; the rich would invest less in tax shelters at lower tax rates, so their tax payments would rise, which did happen.

The idea that this has been a giveaway to the rich is a figment of the left's imagination. Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts. These tax payments from the rich explain the very rapid reduction in the budget deficit to 1.9% of GDP in 2006 from 3.5% in 2003.

This year, thanks to the credit mess and slower growth, taxes paid by the rich may fall and the deficit will rise. (The nonstimulating tax rebates will also hurt the deficit.) Mr. Obama proposes to close this deficit by raising tax rates on the rich to their highest levels since the late 1970s. The very groups like the Congressional Budget Office and Tax Policy Center that wrongly predicted that the 2003 investment tax cuts would cost about $1 trillion in lost revenue are now saying that repealing those tax cuts would gain similar amounts. We'll wager it'd gain a lot less.

If Mr. Obama does succeed in raising tax rates on the rich, we'd also wager that the rich share of tax payments would fall. The last time tax rates were as high as the Senator wants them -- the Carter years -- the rich paid only 19% of all income taxes, half of the 40% share they pay today. Why? Because they either worked less, earned less, or they found ways to shelter income from taxes so it was never reported to the IRS as income.

The way to soak the rich is with low tax rates, and last week's IRS data provide more powerful validation of that proposition.

-- Wall Street Journal

Labels: Economics, tax cuts, taxes

The Metaphysics and Some Politics of Global Warming

Regarding Bret Stephens's "Global Warming as Mass Neurosis" (Global View, July 1): In 1992, at my 25th Harvard College reunion, we got an accurate forecast of the "ideological convenience" driving global warming alarmism. In a discussion of the Rio Summit on environment and development, one of my classmates effused, "Who would have thought that the environment would bring us world government?" In other words, the advent of world-wide "pollution" controls will lead to world government (which all of us statist Harvard grads eagerly await).

On the other hand, climatologist Patrick Michaels has noted that we merely need to "follow the money" to explain global warming enthusiasm among scientists and academicians: Huge amounts of taxpayer dollars are running down the drain of climate research, and the people raking in the bucks are the same ones spouting the global warming nonsense.

--Grant W. Schaumburg Jr.
Boston

Labels: climate, corruption, earmarks, environment as religion, global warming, media bias, taxes

[WSJ] For those who still claim that tax rates don't matter to economic decisions or U.S. competitiveness, we present Exhibit A: the 2004 American Jobs Creation Act.

This law gave American companies a one-year window in 2005 to repatriate earnings from foreign subsidiaries to the United States at a 5.25% tax rate. Normally companies must pay the 35% U.S. corporate tax rate, minus a credit for whatever foreign taxes they paid on those earnings.

The IRS examined the results from this tax cutting experiment and found that the money came back in a flood. More than 800 U.S. corporations repatriated $362 billion from foreign operations. Congress's Joint Committee on Taxation had predicted closer to $200 billion. These dollars are now being invested in the U.S., rather than remaining in Europe or China. This capital infusion may be one reason that U.S. business investment rose 9.6% in 2005 – the highest rate in more than a decade.

Many Democrats, liberal groups and even some economists in the Bush Treasury opposed the measure four years ago, predicting it would lose revenue and merely be a tax holiday for profitable corporations. The Joint Tax Committee estimators also blundered again by predicting a mere $2.8 billion in revenue gains in the first year and then big losses after 2005. As always, they underestimated how tax reductions change behavior. The tax incentive raised $18 billion in 2005, and revenues have continued to exceed estimates. Instead of getting 35% of nothing, as U.S. companies kept their cash abroad, the Treasury took in 5.25% of the hundreds of billions the companies brought home.

Labels: Economics, tax cuts, taxes

Forget Oil, Tax Lawyers' Windfalls
June 25, 2008; Page A14

Recent investigations of some plaintiffs tort law firms have resulted in criminal pleas or massive settlements in the hundreds of millions of dollars, as you've documented in several editorials including "The Firm" (June 18). More investigations are to follow, according to the news. My point is that these cases have finally disclosed an inconvenient truth: The plaintiffs tort bar makes obscene profits at incredible profit margins.

Meanwhile, the Democrat-controlled Congress wants to tax oil companies on their "windfall profits." Why are they not targeting the plaintiffs tort bar for their outrageous profits? The profit margins they make would likely be found to be obscene to most Americans, especially when people are made to realize that the oil companies' profit margins are not only below most other industries, but far, far less than that of the plaintiffs bar.

The reason we hear nothing about these law firms is simple: The tort lawyers are among the biggest contributors to the Democratic Party. Not only does Congress ignore the obscene profits of the tort bar, but new laws are being proposed or passed that protect or enhance those profits. An example is the recent bill to allow tort lawyers to deduct "loans" made to clients to finance their litigation.

If taxing "windfall" profits is truly the goal, then the tort bar is certainly an appropriate target. Personally, I have no problem with anyone making as much profit as they can in a free market, but then I am not the one grandstanding and demanding new taxes on "windfall profits." For me, I bet on Congress's hypocrisy to win out over its alleged principle on this one.

John Watson
Marietta, Ga.

Labels: Economics, energy, Oil, tax cuts, taxes

Sure, sure, Karl Rove is evil and all that, or so we're told. But as it's been said, facts are stubborn things. Here's a few from Mr. Rove, regarding the "windfall profits tax":

Instead ask this: Why should we stop with oil companies? They make about 8.3 cents in gross profit per dollar of sales. Why doesn't Mr. Obama slap a windfall profits tax on sectors of the economy that have fatter margins? Electronics make 14.5 cents per dollar and computer equipment makers take in 13.7 cents per dollar, according to the Census Bureau. Microsoft's margin is 27.5 cents per dollar of sales. Call out Mr. Obama's Windfall Profits Police!

It's not the profit margin, but the total number of dollars earned that is the problem, Mr. Obama might say. But if that were the case, why isn't he targeting other industries? Oil and gas companies made $86.5 billion in profits last year. At the same time, the financial services industry took in $498.5 billion in profits, the retail industry walked away with $137.5 billion, and information technology companies made off with $103.4 billion. What kind of special outrage does Mr. Obama have for these companies?

Labels: Economics, Obama, taxes

New Evidence on Government and Growth
By KEITH MARSDEN
June 16, 2008; Page A15

In the early 1980s, Ronald Reagan embraced the ideas of a small group of economists dubbed "supply-siders." They argued that lower taxes and slimmer government would stimulate growth, enterprise, harder work and higher levels of saving and investment. These views were widely ridiculed at the time, dismissed as "voodoo economics."

Reagan did succeed in lowering some taxes. But a Democrat-controlled Congress weakened their impact by raising government spending sharply, resulting in large budget deficits.

A quarter of a century later, many more countries have cut taxes and reined in heavy-handed government intervention. How far have they gone down this path, and with what success?

My study, "Big, Not Better?" (Centre for Policy Studies, 2008), looks at the performance of 20 countries over the past two decades. The first 10 have slimmer governments with revenue and expenditure levels below 40% of GDP. This group includes Australia, Canada, Estonia, Hong Kong, Ireland, South Korea, Latvia, Singapore, the Slovak Republic and the U.S.

I compared their records to the 10 higher-taxed, bigger-government economies:
Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Portugal, Sweden and the United Kingdom. Both groups cover a representative range of large, medium and small economies measured by their gross national incomes. The average incomes per capita of the two groups are similar ($27,046 and $30,426 respectively in 2005).

Most governments have reduced their top tax rates and spending-to-GDP ratios over the last decade or so, according to data published by the OECD, IMF and World Bank.
But slimmer governments have done so at a faster pace, and to significantly lower levels. Their highest tax rate on personal income fell to a group average of 30% in 2006 from 36% in 1996. Top corporate rates were lowered to an average of 22% from 30%. Their average ratio of total government outlays to GDP fell to 31.6% in 2007, from an average peak level during the previous two decades of 40.4%
Investment growth jumped to an average annual rate of 5.9% in 2000-2005, from 3.8% over the previous decade. Exports have risen by 6.3% annually since 2000. The net result was a surge in economic growth. The IMF reports that GDP soared in the slimmer-government group at a 5.4% average annual rate from 1999-2008 (including its forecast for the current year), up from a 4.6% rate over the previous decade.

Over that same period, the bigger-government group was more timid in its tax reductions. Their highest individual rates declined to an average of 45% from 49%, and corporate rates to 29% from 35%. Furthermore, their average spending-to-GDP ratio only fell to 48.3% from a peak of 55.2%.

The bigger-government group therefore failed to gain any competitive advantages in global markets by generating or attracting larger investment funds. Their investment growth slowed to an average annual rate of 0.8% in 2000-2005, from 4.1% in 1990-2000. Their export growth rate almost halved to 3.1% annually in 2000-2005, down from 6.1% in 1990-2000. The bottom line is a drop in their average annual GDP growth rate to 2.1% in 1999-2008, from 2.3% over the previous decade.

Nor did they balance their books. They ran budgetary deficits averaging 1.1% of GDP in 2006, whereas slimmer governments generated an average surplus of 0.3% of GDP. Their net government debt averaged 39.2% of GDP in 2006, more than four times higher than the latter's. Interest payments on their debt took 2.3% of their GDP, compared with an average of just 0.5% in the slimmer-government group.

Slimmer-government countries also delivered more rapid social progress in some areas. They have, on average, higher annual employment growth rates (1.7% compared to 0.9% from 1995-2005). Their youth unemployment rates have been lower for both males and females since 2000. The discretionary income of households rose faster in the first group. This allowed their real consumption to increase by 4.1% annually from 2000-2005, up from 2.8% in 1990-2000. In the bigger-government group, the growth of household consumption has slowed to a 1.3% average annual rate, from 2.1% during the 1990-2000 period.

Faster economic growth in the first group also generated a more rapid increase in government revenue, despite (or rather, because of, supply-siders suggest) lower overall tax burdens.

Slimmer-government countries seem to have made better use of their smaller health resources. Total spending on health programs reached 9.5% of GDP in the bigger government group in 2004, 1.6 percentage points above the average in the slimmer-government group. Yet slimmer-government countries have raised their average life expectancy at birth at a faster pacer since 1990, reaching an average level of 78 years in 2005, just one year below the average for bigger spenders. Average life expectancy is now 80 years in Singapore, although government and private health programs combined cost only 3.7% of its GDP.

Finally, spending by bigger governments on social benefits (such as unemployment and disability benefits, housing allowances and state pensions) was higher (20.3% of GDP in 2006) than that of slimmer governments (9.6%). But these transfers do not appear to have resulted in greater equality in the distribution of income. The Gini index measuring income distribution is similar for both groups.

Other forces clearly helped to narrow income disparities in slimmer-government economies. These forces include wage-setting practices, saving habits, the availability of employer-funded pension schemes, and income sharing among extended families.

Both groups reduced the share of defense spending in GDP over the past decade. The slimmer-government average fell 0.1 points to 2.2% in 2005, but this level was 0.5 percentage points above the bigger-government average. The average share of armed forces personnel in the total labor force in the bigger-government group fell to 1.1% from 1.5% in 1995, whereas it grew to 1.7% from 1.5% in the slimmer-government group.

Information on public order and safety expenditures is incomplete. But for the 11 countries for which data are available, slimmer governments seem to take their responsibilities more seriously. They spent an average of 1.8% of GDP on these functions in 2006, compared with 1.5% by bigger governments.

The early supply-siders were right. My findings firmly reject the widely held view that lower taxes inevitably result in cuts in public services, slower growth and widening income inequalities. Today's policy makers should take note of how tax cuts and the pruning of inefficient government programs can stimulate sluggish economies.
Mr. Marsden, a fellow of the Centre for Policy Studies in London, was previously an adviser at the World Bank and senior economist in the International Labour Organization.

Labels: Economics, tax cuts, taxes

Economist Larry Kudlow notes that one never knows what John McCain one is going to get.

A few days ago McCain delivered a Reaganesque speech on economic policy, which included tributes to growth through low taxes, supply-side philosophy and credit to private business as the backbone of the country.

But this morning on NBC's Today Show , McCain talks of evil oil, cartels, finite oil (huh!?), and "obscene profits.

[Kudlow] When asked about gas prices at the pump, and whether they could go any lower, Sen. McCain said he didn't think so because "You've got a finite supply, basically, and a cartel controlling it."

This is exactly wrong. There is no finite supply, or if there is we are 100 years away from it. I don't know who has put this thought into the senator's mind, but it is a bad thought in terms of energy and a bad thought in terms of the politics of this campaign.

Look, we have the Bakken fields, the outer continental shelf and all the offshore drilling opportunities, ANWR, and so forth. There's probably over a trillion barrels worth of reserves out there. And Republicans in the Senate are trying to move a deregulated drilling bill through the process. McCain should be backing this and talking about it.

Democrats are out there pushing cap-and-trade, which would jack up gasoline and oil energy prices, damage the economy, and create a massive central-planning exercise. The Democratic Congress has done nothing to alleviate the oil shortage. They're captured by the greenies. They should be blamed.

This is a real turnaround issue for the Republicans and Mr. McCain. But McCain's not going there.
This is what angers me so much about Republicans today. With the exception of a few, most Republicans (1) don't recognize opportunity when it bites them on the rear, and (2) are absolutely terrible at communicating conservative ideals [perhaps because (3) so many of them are not conservatives but just average ideologically expedient politicians].

As Kudlow says, more domestic drilling, and creating refineries to turn the oil into fuel (and plastics for that matter) should be a slam-dunk issue for McCain and Republicans.

The WSJ summarizes the heart of the problem -- obstructionism.

Anyone wondering why U.S. energy policy is so dysfunctional need only review Congress's recent antics. Members have debated ideas ranging from suing OPEC to the Senate's carbon tax-and-regulation monstrosity, to a windfall profits tax on oil companies, to new punishments for "price gouging" – everything except expanding domestic energy supplies.

Amid $135 oil, it ought to be an easy, bipartisan victory to lift the political restrictions on energy exploration and production. Record-high fuel costs are hitting consumers and business like a huge tax increase. Yet the U.S. remains one of the only countries in the world that chooses as a matter of policy to lock up its natural resources. The Chinese think we're insane and self-destructive, while the Saudis laugh all the way to the bank.

There are two separate moratoria on offshore drilling: One is a ban that Congress has attached to every budget since 1982, and the other is a 1990 executive order that President Bush has waived in only a few cases. Republicans made failing attempts to overcome both when they ran Congress, but current Democratic leaders and their green masters remain adamantly opposed. The new political opportunity amid record prices is to convince enough rank-and-file Democrats that they'll suffer at the polls if they don't break with this antiexploration ideology.

While energy "independence" is an impossible dream, there's no doubt the U.S. has vast undeveloped fossil-fuel deposits. A tiny corner of the Arctic National Wildlife Refuge contains an estimated 10.4 billion barrels of oil and would be the largest producing oil field in the Northern Hemisphere. Yet the Senate blocked that development as recently as last month. The Outer Continental Shelf is estimated to contain some 86 billion barrels of oil, plus 420 trillion cubic feet of natural gas. Yet of the shelf's 1.76 billion acres, 85% is off-limits and 97% is undeveloped.

Engineers recently perfected refining solid shale rock into diesel or gas, which may amount to the largest oil supply in the world – perhaps as much as 1.8 trillion barrels in the American West. That's enough to meet current U.S. oil demand for more than two centuries. Yet as late as 2007, Democrats attached a rider to the energy bill that prohibits leasing the federal interior lands that contain at least 80% of America's oil shale. The key vote was cast by liberal Senator Ken Salazar from Colorado, of all places.

These supply guesses are probably conservative, because the only way to know for sure is to drill exploratory wells. Yet most of Alaska and offshore are cut off even from modern seismic testing. Many areas haven't been examined since the 1960s, when exploration technology was far more primitive. This has led to the believe-it-or-not situation in which the Chinese are prepping to drill in Cuban waters less than 60 miles off the Florida coast. American companies are banned from drilling in American waters nearby.

Yes, we know, increased drilling is no energy cure-all; new projects take about a decade to come on line. Then again, more than a few experts say that new production could affect price as the market perceives a new U.S. seriousness to increase supplies. Part of today's futures speculation is based on the assumption that supplies will remain tight for years to come, even as Chinese and Indian demand surges.

Nor would merely repealing the exploration bans be enough. Between 2000 and 2007, the drilling of exploratory oil wells climbed 138%, but over the same period domestic crude oil production decreased 12.4% and fell to the lowest levels since 1947. Refineries for gasoline are stretched to the limit, but multiple regulatory barriers impede new construction or even expansions at existing facilities. Then there is the inevitable lawsuit downpour from the environmental lobby.

Democrats are going to have to grow up. The oil-rich areas they want to leave untouched are accessible with minimal environmental disturbance, thanks to modern technology. Hurricanes Katrina and Rita flattened terminals across the Gulf of Mexico but didn't cause a single oil spill. As for anticarbon theology, oil will be indispensable over the next half-century and probably longer, like it or not. Airplanes will never fly on woodchips, and you won't be able to charge your car with a windmill for some time, if ever.

Public anger over fuel prices could hardly come at a worse time for the GOP, since voters tend to blame a flagging economy on the party that occupies the White House. But the opportunity is to offer a reform alternative to Barack Obama and the high-price energy status quo he embraces. It looks like the public is increasingly ready for . . . change. In a May Gallup poll, 57% favored "allowing drilling in U.S. coastal and wilderness areas now off limits." Just 20% blamed the increase in gas prices on Big Oil, like Mr. Obama does.

Recent weeks have seen some GOP stirrings on Capitol Hill, but John McCain has so far refused to jettison his green posturings, such as his belief in carbon caps and his animus against offshore development. A good reason for a rethink would be $4 gas. At present, it is charitable to call Mr. McCain's energy ideas incoherent, and it may cost him the election.

Labels: climate, democrats, Economics, energy, global warming, mccain, Oil, taxes

I read these headlines and I just am dumbfounded.

Obama says he would impose oil windfall profits tax

McCain wants... regulated CEO pay.
Windfall profits tax? Regulated CEO pay? How does one propose we do that, exactly? Or, better yet, we can just cap prices, let we tried back in the 1970s so unsuccessfully. Somewhere Karl Marx is howling with laughter.

Once more, arrogant politicos wish to legislate what is good for us, rather than letting us decide. How does one subjectively judge what is a "windfall profit" or salary versus what is not? (To be fair to McCain, the lesser of two evils on your wallet to be sure, at least he acknowledges that our current corporate tax rate - second highest in the world - is damaging our economy.)

The truth is they're not econ-ignorant. I don't think they really believe this, because anyone who's ever taken Eco 101, or lived through the 70s, understands that when you cap prices, whether CEO pay or a commodity like oil, you create artifical shortages. There's simply no incentive to produce more.

Rather, and I think this is especially true of McCain in part to live up to his "maverick" identity, these guys know that a large segment of the voting population goes along with what sounds good, what is populist. It's far easier to say "hate CEOs!" than to explain economics.

But facts are stubborn things:

"Though the market is surely not flawless, and government interferences often have praiseworthy goals, good intentions are not enough. Any government that sets out to repair what it sees as a defect in the market mechanism runs the risk of causing even more serious damage elsewhere... In case after case where legal price ceilings are imposed, virtually the same series of consequences ensues. . . . A persistent shortage develops because quantity demanded exceeds quantity supplied. . . . An illegal, or 'black,' market often arises to supply the commodity. . . . Investment in the industry generally dries up. Because price ceilings reduce the monetary returns that investors can legally earn, less capital will be invested in industries that are subject to price controls."

-- Alan S. Blinder, former member of the Council of Economic Advisers and Vice Chairman of the Federal Reserve.
Blinder, by the way, was praised by none other than President Bill Clinton as "a brilliant contributor to our efforts to improve the economy."

Do people really believe this populist crap? And why stop there? What about you, reading this blog? Why not have McCain or Obama decide through presidential fiat or Congressional law when you, personally, have made enough money?

John Hinderaker, over at Power Line Blog, wonders, what of a windfall profit for authors:

Barack Obama said yesterday that he wants to impose a "windfall profits tax" on American oil companies. This is a stupid idea, unless you want to reduce the supply of oil and thereby increase prices even further.

But it did cause me to wonder why we don't have a windfall profits tax on authors. Think about it: it takes as much work to write a 300-page book that sells 1,000 copies as to write one that sells 1,000,000. Yet the former author is paid almost nothing, while the author who happens to write a best-seller gets rich. Where is the fairness in that? Besides, the oil companies need their profits to make huge capital investments in oil drilling equipment, ocean platforms, pipelines, and so on. What capital investment does an author need his windfall profits in order to make? A new pencil? An author could easily pay extra taxes on his windfall profits and have plenty of capital left over for his next book.

A windfall profits tax on authors seems like a no-brainer. Coincidentally, Barack Obama's 2007 income of around $4.2 million came almost entirely from book royalties. Now, that's what I call a windfall! If authors' windfall profits are taxed at 90%, Obama can write a check to the Treasury for around $3.2 million. What do you say, Barack? Why not a windfall profits tax on authors?
Pretty audacious. Obama is a guy who just a few weeks ago told a Wesleyan commencement that he hopes those graduating students do not "take your diploma, walk off this stage, and chase only after the big house and the nice suits and all the other things that our money culture says you should buy." No, Obama said, don't do that because "our individual salvation depends on collective salvation."

$4.2 million windfall profit book deal. Do as I say, not as I do, eh Obama?

The only difference between Karl Marx and Barack Obama is that Marx actually practiced what he preached. At least he was an honest communist.

Check out this post, too, by Hinderaker.

What we need, of course, is oil companies with bigger profits, not smaller. Then we need them to invest those profits in drilling for more oil in places like ANWR and the coastal shelf, as well as developing shale oil reserves. The problem with America's oil companies is not that they're big, the problem is that they are tiny, as this chart shows; click to enlarge:



Our oil companies control tiny amounts of petroleum (relative to the world's big players) because they are shackled by Congress, which prohibits them by law from accessing America's abundant petroleum reserves. If you want gasoline prices to come down, write, call and email your Congressman and Senators and tell them to allow the oil companies to do what only they can do: bring us more oil.

Labels: energy, Obama, Oil, taxes

And while we're on the subject, be sure to check out this post by the US Chamber of Commerce, and the sheer complexity of the failed Warner-Lieberman energy bill. It's more proof positive that the only action from Congress that can help our problems is inaction.

Labels: climate, Economics, global warming, taxes

The Big Chill, by Pete DuPont, explains how the (fortunately) defeated Warner-Lieberman climate bill would have been a trifecta of bad economics.

The Senate's global warming bill began by capping greenhouse gas emissions and reducing them each year, from 5.8 billion metric tons in 2015 to 1.7 billion in 2050. A Heritage Foundation study calculates that such reductions would cost more than 600,000 jobs a year through 2028 (900,000 in both 2016 and 2017), and the Environmental Protection Agency estimates the annual economic losses at $1 trillion to $2.8 trillion by 2050. Electricity prices would rise about 44% by 2030, and gasoline prices by more than 50 cents a gallon. Existing coal-fired plants, which provide about half of our electricity, would be shut down, requiring nuclear generation capacity would have to expand by more than 150%, to 1,982 billion kilowatt-hours from the current 782 billion, by 2050. That is a good idea--nuclear plants are virtually pollution-free--but doubling the number of them has zero chance of happening in a country that has not started construction of a new nuclear plant since 1977.

Then comes modern socialism: The government would offer "allowance" permits to emit greenhouse gasses. Initially about half the permits would be auctioned off to businesses, which Sen. Barbara Boxer (D., Calif.) says would raise about $3.3 trillion by 2050--money the federal government would give away to favorite constituencies. There would be $190 billion for "environmental" job training, $228 billion for federal "wildlife adaptation" and $237 billion to the states for similar efforts. There would be billions for international aid, domestic mass transit, energy research and so on.

The permits that wouldn't be auctioned off would be given by the government to the states, foreign countries, Indian tribes, carbon-heavy industries, utilities, oil refineries and so forth to help them meet their global warming challenges. To make all this work, the bill would create massive new federal bureaucracies, beginning with a Climate Change Credit Corp., which would invest government money in private businesses, and a Carbon Market Efficiency Board, which could change the rules and alter the government demands on businesses.

Finally would come protectionism: A new climate change agency would have the authority to determine whether other countries are taking proper action to prevent climate change, and to restrict their imports into America if not. Sen. Joseph Lieberman (I., Conn.) tells us if a foreign company "enjoys a price advantage over an American competitor" whose country has no cap-and-trade system, "we will impose a fee" on the foreign company's imports "to equalize the price." Sen. Sherrod Brown (D., Ohio) wants to impose trade sanctions on countries that do not cap their emissions. Should Barack Obama become president, his protectionism will become our policy; add to that this global warming bill and rampant protectionism will be with us once again, as it was in 1930.

Labels: climate, Economics, global warming, taxes

Great editorial from the Orange County Register. Read the whole thing. Right now.

Editorial: We dodge a bullet on carbon cap-and-trade
Senate kills a potentially disastrous bill, but possibly worse legislation could be coming

The nation avoided global warming-related devastation last week. The Senate killed a grandiose scheme to clamp down on emissions of CO2, a benign, necessary, natural atmospheric gas. However, something similar, if not worse, will be back next year.

The devastation wouldn't have been the 1- or 2-degree temperature increases that may have occurred over the next century, which may noteven be related to CO2. The real devastation would have been gasoline prices increasing $1.40 per gallon by 2050, millions of jobs lost or shipped overseas, an effective $3,700-a-year tax on families, a 33-percent increase in home energy costs by 2020, and, says the Heritage Foundation, the equivalent economic cost of 35 Hurricane Katrinas every year for two decades.

Those would be certain results of the failed Climate Security Act's vastly expanded government controls to extract trillions of dollars from productive companies and redistribute the money to politically favored interests, say the bill's opponents.
What's uncertain is whether the trouble and expense would have bought anything. Even if CO2 emissions are returned to the level of horse-and-buggy days, an increase of 0.013 degree Celsius mightbe avoided over the next century, says climatologist Patrick Michaels. That's if CO2 increases temperature, which many scientists doubt. So, why go down this path?

"Controlling carbon is a bureaucrat's dream," MIT climate scientist Richard Lindzen said. "If you control carbon, you control life."

Global warming is the perfect big-government issue. First, it's predicated entirely on predicted disasters based on arbitrary data fed into computers. What's fed changes continuously. That's why a few years ago sea levels were predicted to rise 20 feet, but now only 20 inches or less. Garbage in, garbage out.

Second, global warming is unscientific because it can't be disproved. When temperatures slightly dropped over the past decade, then were predicted even by alarmists to drop more over the next decade despite ever-rising CO2, rather than admit their theory is wrong, the story line changed. Now we're told the entirely unpredicted 20-year cooling is only temporary. If temperatures go up, it proves global warming. If they go down, voila!It proves global warming.

Third, global warming is blamed for what has happened since the beginning of time. Climates always change. This ensures permanent government involvement. Fourth, if government imposes costly, Draconian solutions, and temperatures rise, it only means more Draconian solutions are needed. If temperatures drop, it only means Draconian solutions must continue.

Last week we saw how political support is mustered for such an unintuitive idea. Hundreds of billions of dollars never collected by the government before would be doled out to favored interests, after government pocketed its share. The failed bill would have given $51 billion to so-called energy-efficient manufacturers, $68 billion to automakers making government-smiled-upon cars and $150 billion to owners and operators of favored energy producers.

Disguised as a "cap-and-trade" plan, it would have made CO2 emitters pay to do what they've always done for free. Deceptively passed off as a market-based plan, cap-and-trade is really a hidden tax.

Senate Majority Leader Harry Reid assured us, "Gas prices will not go up. They will go down." In the end, the obvious connection to ever-higher gas prices politically killed the Climate Security Act. Next year another version is certain to return with a president inclined to sign it. We had a preview of the future last week. It's grim, costly and authoritarian.

Labels: climate, Economics, global warming, taxes

Okay,I have to admit that Charles Krauthammer gets me to rethink my thought that energy wonks who want to raise taxes on gas are nuts. Krauthammer cites some strong economic arguments... Having said that, Krauthammer can't really believe that the government (at least the Democrats) would ever lower regulation of the energy industry or use gas tax proceeds to offset other taxes. I think that's a pipe dream.

On top of that, it's simply against the conservative viewpoint that the government should see fit to tell other people what's "good" for them by artifically legislating what kind of car they should drive or how they should consume.

So now we know: The price point is $4.

At $3 a gallon, Americans just grin and bear it, suck it up and, while complaining profusely, keep driving like crazy. At $4, it is a world transformed. Americans become rational creatures. Mass transit ridership is at a 50-year high. Driving is down 4 percent. (Any U.S. decline is something close to a miracle.) Hybrids and compacts are flying off the lots. SUV sales are in free fall.

The wholesale flight from gas guzzlers is stunning in its swiftness, but utterly predictable. Everything has a price point. Remember that "love affair" with SUVs? Love, it seems, has its price too.

America's sudden change in car-buying habits makes suitable mockery of that absurd debate Congress put on last December on fuel efficiency standards. At stake was precisely what miles-per-gallon average would every car company's fleet have to meet by precisely what date.

It was one out-of-a-hat number (35 mpg) compounded by another (by 2020). It involved, as always, dozens of regulations, loopholes and throws at a dartboard. And we already knew from past history what the fleet average number does. When oil is cheap and everybody wants a gas guzzler, fuel efficiency standards force manufacturers to make cars that nobody wants to buy. When gas prices go through the roof, this agent of inefficiency becomes an utter redundancy.

At $4 a gallon, the fleet composition is changing spontaneously and overnight, not over the 13 years mandated by Congress. (Even Stalin had the modesty to restrict himself to five-year plans.) Just Tuesday, GM announced that it would shutter four SUV and truck plants, add a third shift to its compact and midsize sedan plants in Ohio and Michigan, and green-light for 2010 the Chevy Volt, an electric hybrid.

Some things, like renal physiology, are difficult. Some things, like Arab-Israeli peace, are impossible. And some things are preternaturally simple. You want more fuel-efficient cars? Don't regulate. Don't mandate. Don't scold. Don't appeal to the better angels of our nature. Do one thing: Hike the cost of gas until you find the price point.

Unfortunately, instead of hiking the price ourselves by means of a gasoline tax that could be instantly refunded to the American people in the form of lower payroll taxes, we let the Saudis, Venezuelans, Russians and Iranians do the taxing for us -- and pocket the money that the tax would have recycled back to the American worker.

This is insanity. For 25 years and with utter futility (starting with "The Oil-Bust Panic," the New Republic, February 1983), I have been advocating the cure: a U.S. energy tax as a way to curtail consumption and keep the money at home. On this page in May 2004 (and again in November 2005), I called for "the government -- through a tax -- to establish a new floor for gasoline," by fully taxing any drop in price below a certain benchmark. The point was to suppress demand and to keep the savings (from any subsequent world price drop) at home in the U.S. Treasury rather than going abroad. At the time, oil was $41 a barrel. It is now $123.

But instead of doing the obvious -- tax the damn thing -- we go through spasms of destructive alternatives, such as efficiency standards, ethanol mandates and now a crazy carbon cap-and-trade system the Senate is debating this week. These are infinitely complex mandates for inefficiency and invitations to corruption. But they have a singular virtue: They hide the cost to the American consumer.

Want to wean us off oil? Be open and honest. The British are paying $8 a gallon for petrol. Goldman Sachs is predicting we will be paying $6 by next year. Why have the extra $2 (above the current $4) go abroad? Have it go to the U.S. Treasury as a gasoline tax and be recycled back into lower payroll taxes.

Announce a schedule of gas tax hikes of 50 cents every six months for the next two years. And put a tax floor under $4 gasoline, so that as high gas prices transform the U.S. auto fleet, change driving habits and thus hugely reduce U.S. demand -- and bring down world crude oil prices -- the American consumer and the American economy reap all of the benefit.

Herewith concludes my annual exercise in futility. By the time I write next year's edition, you'll be paying for gas in bullion.

Labels: CAFE, Economics, energy, Oil, tax cuts, taxes

We Don't Need a Climate Tax on the Poor
By JAMES INHOFE
June 3, 2008; Page A21

With average gas prices across the country approaching $4 a gallon, it may be hard to believe, but the U.S. Senate is considering legislation this week that will further drive up the cost at the pump.

The Senate is debating a global warming bill that will create the largest expansion of the federal government since FDR's New Deal, complete with a brand new, unelected bureaucracy. The Lieberman-Warner bill (America's Climate Security Act) represents the largest tax increase in U.S. history and the biggest pork bill ever contemplated with trillions of dollars in giveaways. Well-heeled lobbyists are already plotting how to divide up the federal largesse. The handouts offered by the sponsors of this bill come straight from the pockets of families and workers in the form of lost jobs, higher gas, power and heating bills, and more expensive consumer goods.

Various analyses show that Lieberman-Warner would result in higher prices at the gas pump, between 41 cents and $1 per gallon by 2030. The Congressional Budget Office (CBO) says Lieberman-Warner would effectively raise taxes on Americans by more than $1 trillion over the next 10 years. The federal Energy Information Administration says the bill would result in a 9.5% drop in manufacturing output and higher energy costs.

Carbon caps will have an especially harmful impact on low-income Americans and those with fixed incomes. A recent CBO report found: "Most of the cost of meeting a cap on CO2 emissions would be borne by consumers, who would face persistently higher prices for products such as electricity and gasoline. Those price increases would be regressive in that poorer households would bear a larger burden relative to their income than wealthier households."

The poor already face energy costs as a much higher percentage of their income than wealthier Americans. While most Americans spend about 4% of their monthly budget on heating their homes or other energy needs, the poorest fifth of Americans spend 19%. A 2006 survey of Colorado homeless families with children found that high energy bills were cited as one of the two main reasons they became homeless.

Lieberman-Warner will also hinder U.S. competitiveness, transferring American jobs overseas to places where environmental regulations are much more lenient. Instead of working to eliminate trade barriers on clean energy and lower emitting technologies, the bill imposes a "green," tariff-style tax on imported goods. This could provoke international retaliatory actions by our trade partners, threatening our own export markets and further driving up the costs of consumer goods.

My colleague, Sen. George Voinovich (R., Ohio), warned last week that Lieberman-Warner "could result in the most massive bureaucratic intrusion into the lives of Americans since the creation of the Internal Revenue Service." Mandating burdensome new layers of federal bureaucracy is not the solution to America's energy challenges.
This bill is ultimately about certainty. We are certain of the huge negative impact on the economy as detailed by numerous government and private analyses. We are certain of the massive expansion of the federal bureaucracy.

And we are certain the bill will not have a detectable impact on the climate. According to the Environmental Protection Agency's own analysis, by 2050 Lieberman-Warner would only lower global CO2 concentrations by less than 1.4% without additional international action. In fact, this bill, often touted as an "insurance policy" against global warming, is instead all economic pain for no climate gain.
Why are many in Washington proposing a bill that will do so much economic harm? The answer is simple. The American people are being asked to pay significantly more for energy merely so some lawmakers in Washington can say they did something about global warming.

I have been battling global warming alarmism since 2003, when I became chairman of the Environment and Public Works Committee. It has been a lonely battle at times, but it now appears that many of my colleagues are waking up to the reality of cap-and-trade legislation.

The better way forward is an energy policy that emphasizes technology and includes developing nations such as China and India. Tomorrow's energy mix must include more natural gas, wind and geothermal, but it must also include oil, coal and nuclear power, which is the world's largest source of emission-free energy. Developing and expanding domestic energy sources will translate into energy security and ensure stable supplies and well-paying jobs for Americans.

Let me end with a challenge to my colleagues. Will you dare stand on the Senate floor in these uncertain economic times and vote in favor of significantly increasing the price of gas at the pump, losing millions of American jobs, creating a huge new bureaucracy and raising taxes by record amounts? The American people deserve and expect a full debate on this legislation.

Mr. Inhofe, a Republican senator from Oklahoma, is ranking member of the Environment and Public Works Committee.

Labels: climate, Economics, global warming, taxes

It's ironic that our founding fathers based this country on individual liberty and property rights, because it's abundantly clear that modern politicians have not just forgotten that but brazenly rejected it.

Get ready, folks, because it's coming. It inevitable, especially because every candidate running for president, including McCain, is advocating some kind of tax on energy consumption. Worse, the science -- and lack thereof -- behind global warming is irrelevant to salivating Senators and Congresspersons (almost every Democrat, but far too many Republicans too) looking to tax and spend even more of your money. If you like the double-digit unemployment rates and miserably high tax rates of Europe than this purposely-deceptive and complicated legislation to "save" the environment will be right up your alley.

And the proponents of this tax-in-sheep's-clothing are brilliantly effective in convincing you that it will only affect some socio-economic group of which you do not consider yourself a member: "The rich," "Big Oil," "Special interests," etc.

But facts are stubborn things, and if history has taught us anything it is that one cannot change the laws of economics without causing a Pandora's Box of problems for all. If you think energy prices are bad now, if you think that unemployment is bad now, if you think GDP is bad now, if you think you're having trouble making ends meet now, just wait until this current group of arrogant legislators impose a cap (i.e., a tax) on the amount of energy one can consume.

Like the income tax that was supposed to be temporary, it doesn't, and grows forever more. And ever more.

First, Robert Samuelson explains in the Washington Post, and the post below that from the WSJ:

... The chief political virtue of cap-and-trade -- a complex scheme to reduce greenhouse gases -- is its complexity. This allows its environmental supporters to shape public perceptions in essentially deceptive ways. Cap-and-trade would act as a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism. Finally, it would trigger a tidal wave of influence-peddling, as lobbyists scrambled to exploit the system for different industries and localities. This would undermine whatever abstract advantages the system has.

The Senate is scheduled to begin debating a cap-and-trade proposal today, and although it's unlikely to pass, the concept will return because all the major presidential candidates support it. Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve. We've had "wars" against poverty, cancer and drugs, but poverty, cancer and drugs remain. President Bush called his landmark education law No Child Left Behind rather than the more plausible Few Children Left Behind.

Carbon-based fuels (oil, coal, natural gas) provide about 85 percent of U.S. energy and generate most greenhouse gases. So, the simplest way to stop these emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does. Companies could emit greenhouse gases only if they had annual "allowances" -- quotas -- issued by the government. The allowances would gradually decline. That's the "cap." Companies (utilities, oil refineries) that needed extra allowances could buy them from companies willing to sell. That's the "trade."

In one bill, the 2030 cap on greenhouse gases would be 35 percent below the 2005 level and 44 percent below the level projected without any restrictions. By 2050, U.S. greenhouse gases would be rapidly vanishing. Even better, their disappearance would allegedly be painless. Reviewing five economic models, the Environmental Defense Fund asserts that the cuts can be achieved "without significant adverse consequences to the economy." Fuel prices would rise, but because people would use less energy, the impact on household budgets would be modest.

This is mostly make-believe. If we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions. If coal is reduced, then conservation or non-fossil-fuel sources will take its place. But in the real world, if coal-fired power plants are canceled (as many were last year), wind or nuclear won't automatically substitute. If the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil.

As emission cuts deepened, the danger of disruptions would mount. Population increases alone raise energy demand. From 2006 to 2030, the U.S. population will grow 22 percent (to 366 million) and the number of housing units 25 percent (to 141 million), the Energy Information Administration projects. The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic. The Congressional Budget Office has estimated that a 15 percent cut of emissions would raise average household energy costs by almost $1,300 a year.

That's how cap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers. Meanwhile, government would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients.

The Senate proposal does both to the tune of about $1 trillion from 2012 to 2018. Beneficiaries would include farmers, Indian tribes, new technology companies, utilities and states. Call this "environmental pork," and it would just be a start. The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think of today's farm programs -- and multiply by 10.

Labels: climate, Economics, global warming, taxes

As the Senate opens debate on its mammoth carbon regulation program this week, the phrase of the hour is "cap and trade." This sounds innocuous enough. But anyone who looks at the legislative details will quickly see that a better description is cap and spend. This is easily the largest income redistribution scheme since the income tax.

Sponsored by Joe Lieberman and John Warner, the bill would put a cap on carbon emissions that gets lowered every year. But to ease the pain and allow for economic adjustment, the bill would dole out "allowances" under the cap that would stand for the right to emit greenhouse gases. Senator Barbara Boxer has introduced a package of manager's amendments that mandates total carbon reductions of 66% by 2050, while earmarking the allowances.

When cap and trade has been used in the past, such as to reduce acid rain, the allowances were usually distributed for free. A major difference this time is that the allowances will be auctioned off to covered businesses, which means imposing an upfront tax before the trade half of cap and trade even begins. It also means a gigantic revenue windfall for Congress.

Ms. Boxer expects to scoop up auction revenues of some $3.32 trillion by 2050. Yes, that's trillion. Her friends in Congress are already salivating over this new pot of gold. The way Congress works, the most vicious floor fights won't be over whether this is a useful tax to create, but over who gets what portion of the spoils. In a conference call with reporters last Thursday, Massachusetts Senator John Kerry explained that he was disturbed by the effects of global warming on "crustaceans" and so would be pursuing changes to ensure that New England lobsters benefit from some of the loot.

Of course most of the money will go to human constituencies, especially those with the most political clout. In the Boxer plan, revenues are allocated down to the last dime over the next half-century. Thus $802 billion would go for "relief" for low-income taxpayers, to offset the higher cost of lighting homes or driving cars. Ms. Boxer will judge if you earn too much to qualify.

There's also $190 billion to fund training for "green-collar jobs," which are supposed to replace the jobs that will be lost in carbon-emitting industries. Another $288 billion would go to "wildlife adaptation," whatever that means, and another $237 billion to the states for the same goal. Some $342 billion would be spent on international aid, $171 billion for mass transit, and untold billions for alternative energy and research – and we're just starting.

Ms. Boxer would only auction about half of the carbon allowances; she reserves the rest for politically favored supplicants. These groups might be Indian tribes (big campaign donors!), or states rewarded for "taking the lead" on emissions reductions like Ms. Boxer's California. Those lucky winners would be able to sell those allowances for cash. The Senator estimates that the value of the handouts totals $3.42 trillion. For those keeping track, that's more than $6.7 trillion in revenue handouts so far.

The bill also tries to buy off businesses that might otherwise try to defeat the legislation. Thus carbon-heavy manufacturers like steel and cement will get $213 billion "to help them adjust," while fossil-fuel utilities will get $307 billion in "transition assistance." No less than $34 billion is headed to oil refiners. Given that all of these folks have powerful Senate friends, they will probably extract a larger ransom if cap and trade ever does become law.

If Congress is really going to impose this carbon tax in the name of saving mankind, the least it should do is forego all of this political largesse. In return for this new tax, Congress should cut taxes elsewhere to make the bill revenue neutral. A "tax swap" would offset the deadweight taxes that impede growth and reduce employment. All the more so because even the cap-and-trade friendly Environmental Protection Agency estimates that the bill would reduce GDP between $1 trillion and $2.8 trillion by 2050.

Most liberal economists favor using the money to reduce the payroll tax. That has the disadvantage politically of adding Social Security into the debate. A cleaner tax swap would compensate for the new tax on business by cutting taxes on investment – such as slashing the 35% U.S. corporate rate that is the second highest in the developed world. Then there's the 2001 and 2003 tax cuts, which are set to expire in 2010 and would raise the overall tax burden by $2.8 trillion over the next decade. Democrats who want to raise taxes on capital gains and dividends are proposing a double tax wallop by embracing Warner-Lieberman-Boxer.

All of this helps explain why so many in Congress are so enamored of "doing something" about global warming. They would lay claim to a vast new chunk of the private economy and enhance their own political power.

-- Wall Street Journal

Labels: climate, Economics, global warming, taxes

Health-care providers – not consumers – are always asking for tighter regulation, because they profit from making everyone subsidize generous plans that cover, say, podiatry or infertility treatment. Given the choice, consumers might choose policies that cover some services but not others.
Regulation is a very misunderstood and often mistaught concept (the above comment, by the way, was taken from a WSJ editorial touting a new Florida state law that would get the Florida government out of health insurance).

We were all taught when we were young that regulators like Teddy Roosevelt "fought" against the powerful big businesses to provide a more governed and regulated (and thus, the argument goes, more "fair" or safe) industrial world. But the truth is that the so-called "fat cats," the Rockefellers, Vanderbilts, etc., co-authored the very regulations that Teddy Roosevelt, among others, was supposedly shoving down their throats.

And why would big business so readily agree to MORE regulation?

Simple. Regulation kills competition. The "fat cats," then, no longer need worry about smaller, more nimble companies undercutting their profit margins. Instead, the government makes the business of doing business so expensive that only the largest corporations will survive.

Whatever the regulation costs the corporations the cost is far less then the cost of competing, and what's more, those costs can just be passed onto the customers, and the customers will just have to eat it because the government killed whatever competitive choice there would have been had government never involved itself in order to "save" us.

The law of unintended consequences strikes again!

Labels: Economics, healthcare, tax cuts, taxes

By David Ranson:

Will increasing tax rates on the rich increase revenues, as Barack Obama hopes, or hold back the economy, as John McCain fears? Or both?

[Economist] Mr. [Kurt] Hauser uncovered the means to answer these questions definitively. On this page in 1993, he stated that "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP." What a pity that his discovery has not been more widely disseminated.

...The federal tax "yield" (revenues divided by GDP) has remained close to 19.5%, even as the top tax bracket was brought down from 91% [during WWII] to the present 35%. This is what scientists call an "independence theorem," and it cuts the Gordian Knot of tax policy debate.

The data show that the tax yield has been independent of marginal tax rates over this period, but tax revenue is directly proportional to GDP. So if we want to increase tax revenue, we need to increase GDP.

What happens if we instead raise tax rates? Economists of all persuasions accept that a tax rate hike will reduce GDP, in which case Hauser's Law says it will also lower tax revenue. That's a highly inconvenient truth for redistributive tax policy, and it flies in the face of deeply felt beliefs about social justice. It would surely be unpopular today with those presidential candidates who plan to raise tax rates on the rich – if they knew about it.

...What makes Hauser's Law work? For supply-siders there is no mystery. As Mr. Hauser said: "Raising taxes encourages taxpayers to shift, hide and underreport income. . . . Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation."

Labels: Economics, laffer curve, tax cuts, taxes

Oh, what a surprise, our Congressmen waste our tax dollars for personal luxury.

Labels: Congress, Economics, tax cuts, taxes