Today’s Brew ☕ 5-25-17

Real Clear Markets

☕ John Tamny reviews a new book by Richard Salsman.

Book Review: Richard Salsman’s ‘The Political Economy of Public Debt’

Excerpt:

All of this speaks to another area of disagreement with Salsman ahead of the ones that will conclude this review.  He correctly notes that the Keynesian “demand-side model was so discredited in the 1970s” in concert with vindication for supply-side economics, which “delivered such positive financial-economic results in the 1980s and 1990s.” There’s no dispute that supply side won precisely because the latter is a tautology: when the tax, regulatory, tariff, and debased money barriers to production are shrunk, booming economic growth is the result.  Supply side makes perfect sense, but it’s arguable that supply-siders have become ridiculous to the point that their policies have become self-suffocating.  Indeed, supply siders, in their worship of the rising revenue implications of tax cuts, have forgotten that government spending is the biggest tax of all.  And in ignoring rising government spending, they’ve allowed the genius of their tax cut, deregulation, free trade, good money policy mix to be neutered.  Figure that the posthumous John F. Kennedy tax cuts were great for economic growth, and as a result, gifted Treasury with a revenue surge in 1965.  The latter gave Congress the means to for instance introduce Medicare; a program that was initially funded with $3 billion.  The problem modernly is that a program which once cost $3 billion is projected to cost $1 trillion by 2025.  Taking nothing away from the good of supply side policies, if not met with spending cuts, they’re not nearly as effective as they otherwise would be.

The problem with supply siders isn’t their belief that deficits don’t matter, but it’s a major problem their belief that government spending doesn’t matter.  This reviewer wishes Salsman had spent more time on this point.  As a deficit realist, Salsman plainly doesn’t like government expanding beyond strict constitutional limits.  Ok, but rising federal revenues have enabled just that, not to mention that it’s much easier for governments to issue new debt if incoming tax revenues are abundant.


☕ Dan Mitchell lists nine great reasons to slash the corporate tax rate.

The Most Persuasive Argument for Slashing the Corporate Tax Rate

Excerpt:

Let’s have a “tax war.” Folks on the left fret that this creates a “race to the bottom,” but that’s because they favor big government and think our incomes belong to the state.

As far as I’m concerned a “tax war” is desirable because that means politicians are fighting each other and every bullet they fire (i.e., every tax they cut) is good news for the global economy.

Now that I’ve shared some good news, I’ll close with potential bad news. I’m worried that the overall tax reform agenda faces a grim future, mostly because Trump won’t address old-age entitlements and also because House GOPers have embraced a misguided border-adjustment tax.

Which is why, when the dust settles, I’ll be happy if all we get a big reduction in the corporate rate.



Today’s Brew ☕ 5-17-17

 

Dan Mitchell does what Dan Mitchell does with the Laffer Curve: He learns from it, applies lessons elsewhere, and makes us all smarter.

Learning from the United Kingdom about the Laffer Curve, Dynamic Scoring, and Class-Warfare Taxes

Excerpt:

As far as I’m concerned, no sentient human being could look at what happened in the United States in the 1980s and not agree that high tax rates on upper-income taxpayers are foolish and self-destructive.

Not only did the economy grow faster after Reagan lowered rates, but the IRS even collected more revenue (a lot more revenue) because rich people earned and reported so much additional income.

That should be a win-win for all sides, though there are some leftists who hate the rich more than they like additional revenue.

Anyhow, I raise this example because there are politicians today who think it’s a good idea to go back to the punitive tax policy that existed in the 1970s.



Today’s Brew ☕ 5-8-17

JFK Rising Tide Lifts All Boats

☕ Dan Mitchell has a wide-ranging new post this morning:

Score a Touchdown with Lower Tax Rates

Excerpt:

Both these views are wrong. President John F. Kennedy was right about a rising tide lifting all boats.

And we see that in the incredible data that’s been shared by scholars such as Deirdre McCloskey and Don Boudreaux.

And since we just quoted Kennedy, let’s close with an equally appropriate quote from Winston Churchill, who famously observed that “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

And the best example of that is in the data comparing the US with Denmark and Sweden. Or the words of Margaret Thatcher.

The moral of the story is that Slovakia has the right approach on taxes while Sweden has the wrong approach. That’s true, whether you want a winning sports team or a winning economy.


Today’s Brew 5-4-17

Dan Mitchell loves the Laffer Curve, and we love learning when and where he see the Laffer Curve doing its thing.

The Continuing Revenge of the Laffer Curve

Excerpts:

Journalists are especially susceptible to silly statements when writing about the real-world impact of tax policy.

They don’t realize (or prefer not to acknowledge) that changes in tax rates alter incentives to engage in productive behavior, and this leads to changes in taxable income. Which leads to changes in tax revenue, a relationship known as the Laffer Curve.
– – – – –

But don’t hold your breath. We have an overseas example of the Laffer Curve, and one of the main lessons is that politicians are willing to sacrifice just about everything in the pursuit of power.
– – – – –

P.S. I’m not quite as pessimistic about the future of tax policy in the United States. The success of the Reagan tax cuts is a very powerful example and American voters still have a bit of a libertarian streak. I’m not expecting big tax cuts, to be sure, but at least we’re fighting in the United States over how to cut taxes rather than how to raise them.


Larry Kudlow joined the Big John and Ray Show out of Chicago. They mostly talked about health insurance issues, important to hear from a supply-sider on this.


Today’s Brew ☕ 5-1-17

☕ Dan Mitchell is doing some incredible work these days on tax cuts and tax reform, he is so quick in fact, that we had to post two entries at once, you will enjoy both.

The Most Emotionally Satisfying Argument for Trump’s Corporate Tax Cut

Excerpt:

But just because I’m pessimistic, that doesn’t change the fact that a lower tax burden would be good for the country.

Toward the end of the interview, I explained that the most important reason for better tax policy is not necessarily to lower taxes for families, but rather to get more prosperity.

If we can restore the kind of growth we achieved when we had more market-friendly policy in the 1980s and 1990s, that would be hugely beneficial for ordinary people.

That’s the main economic argument for Trump’s plan.

But now I’ve come across what I’ll call the emotionally gratifying argument for Trump’s tax cuts. The Bureau of National Affairs is reporting that European socialists are whining that a lower corporate tax rate in the United States will cause “a race to the bottom.”


☕ This post in general is well worth reading, but these graphics are incredibly good and important.

Lessons from the Reagan Tax Cuts

1980 1988 Laffer

Reaganomics Economic Liberty



Today’s Brew ☕ 4-27-17

☕ Dan Mitchell offers some reaction to the Trump Administration’s tax reform proposal launched yesterday.

Red Ink, Washington Politics, and the Trump Tax Cuts

Excerpts:

By the way, the Wall Street Journal editorialized favorably about the plan this morning, mostly because it reflects the sensible supply-side view that it is good to have lower tax rates on productive behavior.

While the details are sparse and will have to be filled in by Congress, President Trump’s outline resembles the supply-side principles he campaigned on and is an ambitious and necessary economic course correction that would help restore broad-based U.S. prosperity. …Faster growth of 3% a year or more is possible, but it will take better policies, and tax reform is an indispensable lever. Mr. Trump’s modernization would be a huge improvement on the current tax code that would give the economy a big lift, especially on the corporate side. …The Trump principles show the President has made growth his highest priority, and they are a rebuke to the Washington consensus that 1% or 2% growth is the best America can do.




The Supply Side Redux

Excerpt:

I’ve spent countless hours of a long career reporting on that question—tracking the story back to its origins on Arthur Laffer’s napkin in a Washington hotel in 1974; spending hours interviewing the colorful collection of characters who first peddled the idea, including the late Jude Wanniski, the late Robert Bartley, and the indefatigable Jack Kemp; following the conversion of Alan Greenspan, the apostasy of David Stockman, and the embrace by George W. Bush in rebellion against his father. I have read countless papers on both sides of the issue, and seen economic statistics tortured near death in defense of one side or the other.

So it is with some experience and a little weariness that I answer: it depends. Back in 1963 when the top personal tax rate was 91%, it is very likely the Laffer Curve held, and cutting exorbitantly high rates led to more revenue, not less, by increasing incentives to work and invest. It’s also true that for certain taxes that easily can be avoided—like the tax on capital gains (you don’t have to pay if you don’t sell the asset) or the tax on overseas earnings (you don’t have to pay if you don’t bring the money home)—a targeted tax cut can coax out more revenue.

Today’s Brew 4-26-17

Investor's Business Daily

Investor’s Business Daily offers this staff editorial today in anticipation of President Trump’s tax plan specifics coming soon.

Trump’s Corporate Tax Cut: A Supply-Side Shot In The Arm

Excerpt:

One other thing he suggested he would do: A one-time tax on repatriated overseas corporate retained earnings that are now kept in overseas accounts to avoid onerous U.S. taxation.

The estimated amount of these funds is staggering: $2.4 trillion. Even repatriating just two-thirds of that amount at 10% would add close to $160 billion to federal tax revenues.

Taken together, these form the core of an extremely supply-side oriented economic growth program that would create jobs and new incomes.

Nor is this a “tax cut for the rich,” as some have claimed.

As IBD noted last September, the “dirty little secret” of corporate taxes is that corporations don’t actually even pay them. Average Americans — that’s you — do. You pay it through lower wages, lower returns on investments and retirement accounts, and higher prices for the things you buy.



Dan Mitchell weighs in on what we know about President Trump’s tax plan(s):

Unfortunately, Trump’s Good Tax Plan Is Not a Serious Tax Plan