Russell Roberts's Blog, page 1502

More Meyerson Muddleheadedness

Here's a letter to the Washington Post:

Harold Meyerson bewilderingly writes, "But money invested in American companies these days is as likely to be spent abroad as in the United States.  By 2008, 48 percent of the revenue of the Standard & Poor's leading 500 companies came from abroad – up from 32 percent in 2001″ ("The paucity of hope – and other victims of Obama's tax-cut deal," Dec. 8).

The first muddle is that Mr. Meyerson confuses investment with revenue. The former is an expense and the latter is a receipt, but Mr. Meyerson interprets a rise in U.S. businesses' foreign-earned revenues as a rise in U.S. businesses' foreign-investment spending.

The second muddle is his lament that the revenue earned abroad by S&P 500 companies is increasing.  Because Mr. Meyerson frequently complains about America's trade deficit, he should applaud increased earnings from abroad – for the more revenue American firms earn abroad, the lower is America's trade (or, more accurately, current-account) deficit.

Sincerely,

Donald J. Boudreaux

Genius

I have no comment. Just watch. (HT: Bruce Kesler at Maggie's Farm)

Open Letter to Sen. Mary Landrieu

7 December 2010

Sen. Mary Landrieu (D-LA)

U.S. Senate

Capitol Hill

Washington, DC

Dear Sen. Landrieu:

Your negative reaction to the proposal not to raise taxes in January on upper-income Americans is – and I quote – "We're going to borrow $46 billion from the poor, from the middle-class, from businesses of all sizes basically, to give a tax cut to families in America today that, despite the recession, are making over $1 million.  This is unprecedented."

No.  Because allowing people to keep more of their own money is not itself an expense, any borrowing Uncle Sam does as a result of reduced tax revenues is a consequence of your and your colleagues' refusal to cut spending by the amount of the revenue reduction.

Moreover (not that it matters as far as the principle is concerned), but how difficult can it be to cut $46 billion in spending from a $3.8 trillion budget?  Is it really so difficult, so cruel, so illiberal to reduce federal-government spending by 1.2 percent?

Sincerely,

Donald J. Boudreaux

Klein Over at Cato Unbound on Overlords

Here's my GMU Econ colleague – and EJW's – Dan Klein writing the lead essay this month at Cato Unbound.  And tune in again (and again) in a day or two for comments on Dan's essay by, among others, David Friedman.

This opportunity is ideal for me to applaud again this great essay from 2002 by Anthony de Jasay, "Your Dog Owns Your House."

A Coasean Turn at Politics

Upset at the GOP's strategy for securing Pres. Obama's agreement to extend all of the Bush tax cuts, New York Times reader Janet Kehl writes that "Holding much-needed relief for millions of desperate unemployed Americans hostage to tax cuts for multimillionaires is despicable."

What's despicable is holding a proposal that allows some Americans to keep more of their own money hostage to a policy of giving other Americans more of other people's money.

On the Tax Burden

E.J. Dionne laments the failure of what he describes as a "proposal [that] could have shifted the tax burden away from middle-income taxpayers toward the wealthy."

Let's look at some facts.  First here.

In 2008 (the latest year for which accurate data are available), the bottom 95 percent of income-earning households in the U.S. – a group that surely includes "middle-income taxpayers" – paid 41 percent of the revenue taken in by Uncle Sam from the personal income tax, while the top 5 percent of income-earning households paid 59 percent of this tax revenue.  And looking only at the top 1 percent of income-earning households – surely "the wealthy" – they paid a whopping 38 percent of federal personal income tax revenue.

Now for a different angle.

In 2008, for the typical household in the top one-percent of income-earning households in America, the percent of its adjusted gross income that it paid in federal income taxes was 23.27.  Middle-income households paid less.  For households whose earnings put them in the top 50 percent, but below the top 25 percent, of income earners, the percent of their adjusted gross income paid in income taxes was, on average, 6.75.  For households in the bottom 50 percent of income-earners, the percent of their adjusted gross income paid in income taxes was, on average, 2.59.

Seems as if the shift in tax burden that Dionne desires has already occurred.

Some Links

Bob Higgs finds wisdom from the past and relates it to the present. Very enlightening!

Steve Horwitz scans the TSA.

The late, great Roy Childs, through Michael Strong, through Arnold Kling, explains regulation.

Bryan Caplan puts prosperity in historical perspective.

Would James Madison & Co. have approved of Uncle Sam doing this?

Taxing Credulity

Here's a letter to the New York Times:

Mentioning only the coming hike in the top income-tax rate from 35 percent to 39.6 percent, Christina Romer claims that "it is just not plausible" that the tax increases scheduled to kick in on January 1st "are a major source of uncertainty" keeping economic activity anemic ("It's the Big Questions That Slow Growth," Dec. 5).

Prof. Romer's claim taxes credulity.  She fails to mention other tax hikes looming on New Years Day, such as the 33 percent rise (from 15 percent to 20 percent) in the top capital-gains tax rate (and the increasing complexity of the capital-gains tax schedule); the increase in the top federal estate-tax rate from 0 percent to 55 percent; and the hike in the top federal divided-tax rate from 15 percent to 39.6 percent – an increase of 164 percent!  This dividend-tax rate, by the way, is scheduled to rise again on January 1, 2013, to 43.4 percent.

And don't forget about the hyper-frantic Fed and its spasms of "quantitative easings."

Is it really not plausible that the uncertainty now haunting investors is the result of these looming tax hikes, combined with fear about the value of the dollar and anxiety over the still-to-be revealed actual consequences of Obamacare, Dodd-Frank, and the other incontinent interventions that have spewed forth from Washington in the past three years?

Sincerely,

Donald J. Boudreaux

Open Letter to U.S. Rep. Brad Sherman

4 December 2010

Rep. Brad Sherman (D-CA)

U.S. House of Representatives

Capitol Hill

Dear Rep. Sherman:

Skeptical of freer trade with South Korea, you proclaim that "It's all well and good to increase exports, but not if we increase imports by an even larger amount" ("Statement of Congressman Brad Sherman on proposed U.S. – South Korea Trade Pact," Dec. 3).

Sooo….  a nation becomes poorer if the goods and services that it receives from others increase by more than what that nation ships to others in exchange?

If you're correct, it must also be true that a family becomes poorer if its hourly income rises.  Because the typical household exports work effort to others and uses the income it earns to import goods and services into that household from others, your economics implies that the key to household prosperity is to work as long and as hard as possible and insist on receiving in return as little as possible.

Sounds dopey strange to me, but at least I now better understand the logic behind so many of the policies championed by you and your colleagues in Congress.

Sincerely,

Donald J. Boudreaux

Professor of Economics

George Mason University

Fairfax, VA 22030

(HT to Mary O'Grady for forwarding to me Rep. Sherman's press release.)

United Auto Weenies

Here's a letter to the Wall Street Journal:

Reporting on the U.S.-Korea free-trade pact, you write that "South Korea agreed to give the U.S. five years to phase out a 2.5% tariff it levies on Korean-built cars, rather than cutting the tariff immediately" ("U.S., Korea Agree on Free-Trade Pact," Dec. 3).

In other words, South Korea agreed to allow Uncle Sam to continue to impose additional financial burdens on Americans who buy automobiles made in South Korea, for no reason other than to make life easier for Detroit.

So much for the Obama administration's courageous refusal to allow special-interest groups (in this case, U.S. automakers and the UAW) to dictate policy – so much for our leader's eagerness to get the policy right even if doing so means getting the politics wrong – and so much for all the ballyhoo, out of Detroit and Washington, about U.S. automakers again being world-class producers who can compete successfully with foreign automakers.

Sincerely,

Donald J. Boudreaux