Results for “corporate tax” 187 found
Will John Kerry bring fiscal discipline?
No, but a Republican Congress might:
My AEI colleague Eric Engen and I [Kevin Hassett] just completed a detailed analysis of the Kerry spending proposals. To perform the analysis, we combed through Kerry’s web site and public statements to assemble a list of every spending promise he has made, and then dug through the public record to find third-party cost estimates for each of his proposals. When necessary, we adjusted the period for the existing score to the 10-year budget window using standard techniques. When we could not find such cost estimates, we relied on numbers that were supplied by the Kerry campaign. When the Kerry campaign did not provide cost estimates, we set the score for that promise to zero.
Even with that generous accounting, the Kerry spending promises add up to an extraordinary amount of money. Our best estimate is that Kerry’s proposals will add up to between $2 trillion and $2.1 trillion over the next ten years. Since the revenue from his tax proposals relative to the current baseline is actually negative, this implies that the Kerry proposal would increase the deficit by perhaps as much as $2.5 trillion over the next ten years.
On August 3, 2004, the Kerry campaign responded to criticisms such as this with a revised budget plan. The main difference between the first and second plans is that the campaign now claims to be able to save about $300 billion from eliminating corporate welfare. Even if we include this rather implausible savings in our estimate, the net increase in the deficit associated with Kerry’s proposals is on the order of $2.2 trillion.
What would he spend the money on? According to our analysis, roughly half of this additional spending is attributable to Senator Kerry’s health care proposals that would add more than $900 billion in federal outlays. Education expenditure accounts for nearly one quarter of Kerry’s new spending, with almost $500 billion added over ten years. A $400 billion expansion of military personnel and benefits for veterans comprises most of the remainder of Kerry’s spending plans, with the balance distributed among numerous social programs and increases in international aid.
I have not been through these numbers, but Kerry has not exactly been running on a platform of spending cuts. Most of all, I’d like to see a further analysis, weighting each number by the probability it will pass into law.
Thanks to TCS for the link.
Further thoughts on declining architecture
Last week I asked why urban architecture appears to have declined in the United States. Readers have offered two further suggestions (also read the trackbacks on the original post):
1. Property taxes create an incentive to improve interior quality rather than exterior quality
2. The need to accommodate automobiles makes it harder to design attractive buildings and cities.
The New York Times ran a feature story on exactly this question. Here is a key passage:
As more high-profile buildings by foreign architects rise in the United States, and as computers allow architects to strive for engineering, design and construction complexities never before imagined, a gathering rumble can be heard across the profession about the way America builds. The country has garnered a reputation for overlooking gaping joints, sloppy measurements and obvious blemishes, and refusing to deviate from even the most outmoded standardized practices. Having exported its expertise, in the 80’s and early 90’s, to destinations from Singapore to Dubai, it is now facing stiff competition from Europe and Asia, where the building traditions favor singularity, craftsmanship and durability over speed and cost.
Most recently at Seattle’s new Central Library, Rem Koolhaas, the Dutch architect, set out to debunk what is perceived as an all-too-common attitude in the American construction industry: if it looks hard to build, don’t, because it will be too expensive. According to Joshua Ramus – a partner at Koolhaas’s firm, Office of Metropolitan Architecture, who is in charge of American projects – no American contractor wanted to take on the building’s highly unusual structure, which is folded like a gigantic mesh party napkin. “They said there was no way anyone could do that on that budget,” Mr. Ramus said of the $165 million library. “We said: `Invest in thinking. It may be expensive but it’s a lot cheaper than bad building.’ “
Construction in the United States relies on the quick fix, said Sara Hart, a senior editor at Architectural Record. “Got a gaping one-inch space between frame and window? Just fill it in with silicone and call it a day. Not perfectly flush or plumb? Who cares!” is the typical American response, she said. “While in Germany or Switzerland, they’d rather die than have a gap of more than one-eighth or even one-sixteenth of an inch.” And though no one is calling Frank Gehry’s Walt Disney Concert Hall slapdash, most American construction aspires to cookie-cutter commercial development rather than high-profile brand-name architecture. Furthermore, in Europe, buildings tend to be smaller and clients accustomed to spending more. One way or another, the conditions have made for considerable bragging rights on the part of European and Asian architects.
Dana Buntrock, an architecture professor at the University of California, Berkeley, and the author of “Japanese Architecture as a Collaborative Process” (Spon Press, 2001), said she once believed that quality was tied to wealth. “Now I am beginning to wonder if well-built architecture occurs only at a very fragile economic moment,” she said. “You need not only affluence, but a group of people who are well paid enough to remain in the crafts and building trades even though they are intelligent, and you need the overall size of an architectural project to remain relatively small.” While enclaves of craftsmen and small companies cultivating specialty talents, like customized steel work or casting plaster, are growing in the United States, large corporate construction companies still rule the sites, with their supersize-me approach to building.
Some of these claims, of course, beg the “why” question. The article also notes that design approval now requires more sign-offs than ever before, which tends to encourage a least common denominator approach to moving forward.
The Bush vision for term two
The Bush team apparently has announced its economic priorities for a second term. The general vision speaks of an “ownership society,” here is one sketchy summary. Partial social security privatization stands at the center of the plan. Brad DeLong wonders where the money will come from. Rather than pursuing this issue, I have wondered what the vision should look like. Here are a few ideas:
1. Eliminate all farm subsidies, tariffs, quotas and price supports.
2. Tell Western Europe it is paying for its own defense from now on.
3. Admit that the Medicare drug prescription bill was a mistake. Repeal it, and consider a revenue-neutral benefit that does not discriminate against prescription drugs. Introduce means-testing for Medicare to stop that program from bankrupting us. I would rather cut this benefit than repeal the tax cuts [tax shifts, correctly, though spending discipline could turn them into real tax cuts.] The long-run benefits of greater capital accumulation remain significant.
4. Negotiate bilateral free trade agreements as rapidly as possible. Start with Japan, the second largest economy in the world.
5. Strengthen America’s commitment to science. This will have implications for educational policy, immigration policy, and regulatory policy. Don’t restrict stem cell research. Hope that science comes up with affordable and politically sustainable solutions for global warming and clean energy independence. You might have libertarian objections to science subsidies, but the realistic alternative today is more government intervention.
6. Strengthen early warning systems against infectious diseases. Increase research into cures, vaccines, immunity, and the like. We don’t want the world to lose fifty million people to avian flu or some other malady.
7. Take in more immigrants, but demand higher levels of skills and education. At the very least, take in any revenue-positive immigrant.
8. Abolish the Department of Education.
9. Abolish the Department of Energy.
10. Repeal all corporate welfare.
11. Repeal the corporate income tax. Repeal the Alternative Minimum Tax. Admittedly these are “ifs,” depending on fiscal considerations.
12. Get on TV and tell the nation that a free economy is a critical source of our strength. Tell them you mean it, and then mean it. Economic growth is the greatest long-run gift we can give to the world.
What I liked about Bush, way back when, was that he seemed willing to talk tough truths and then follow through. Where has that gone?
Secession
Recently Killington voted to secede from Vermont and join New Hampshire. Some people find this desire quixotic since Killington is smack dab in the middle of Vermont. The classic Tiebout argument says that voting with one’s feet helps to discipline government and provide a better match between government and citizen preferences. But why should the dissidents have to pack their bags? It’s the Vermont taxes that the residents of Killington want to escape not the skiing. Wouldn’t it be less costly to switch governance rather than citizens?
Does such a system sound crazy? Perhaps, but it is essentially the same supra-competitive federalism that has worked well for corporate law, so maybe we ought to give it a try.
And remember, if at first you don’t secede, try, try again.
The jobless recovery
This week’s Business Week had a useful though non-revelatory feature article on the jobless recovery (note that the paper edition has much more than the link).
The bottom line? Two root causes — productivity gains and fear — appear to be causing our economy’s weak employment performance.
Rapid productivity gains mean that a business can produce the same output with fewer workers. So unless demand is truly booming, why hire more people?
At the same time uncertainties have kept business cautious. Terrorism, corporate scandals, and the bursting of the high-tech bubble all provide extra reasons to wait. Counterintuitively, largely positive changes, such as productivity boosts and their accompanying sectoral shifts, can spur caution as well. Why make your irreversible investment today when you will know more two years’ down the road?
Some research sources suggest that outsourcing has cost the U.S. only 300,000 jobs in three years, though all such figures should be taken with a grain of salt (for instance, when calculating the number, what is the relevant counterfactual?). A Wall Street Journal survey (12 March 2004) found that only sixteen percent of responding economists blamed outsourcing as a significant source of job losses. More importantly, outsourcing creates more jobs than it destroys; let us not forget the positive role of insourcing as well, the U.S. receives massive capital flows from outside.
And who is to blame for the jobless recovery? Paul Krugman finds a not unsurprising culprit:
…should we blame the Bush administration? Yes – because it refuses to learn from experience. Franklin Roosevelt, in his efforts to combat economic woes, was famously willing to try anything until he found something that worked. George Bush, by contrast, seems determined to try the same thing, over and over again.
I hope Krugman does not really mean the Roosevelt point. Recall that the Great Depression was by many measures worse in 1937-8 than in 1932. A willingness to “try anything” is hardly a recipe for economic success.
And while I buy the Krugman line on Bush’s fiscal irresponsibility, we don’t find it priced in the bond market. So why should we think those bad policies are driving the labor market?
Brad DeLong suggests that the tax cut was ill-targeted for the purposes of stimulating aggregate demand. Point granted. That being said, government is better at stimulating nominal rather than real aggregate demand. In times of structural uncertainty, often the latter is more badly needed. So I don’t blame Bush fiscal policy, whatever its flaws, for the jobless nature of recovery.
The Democrats have little to offer in the way of short-run cures. Perhaps assisting the jobless can be defended on distributional grounds, but it can delay reemployment as much as boost it. A new President, whether or not you favor the idea, would increase rather than lower uncertainty, at least at first. Greater fiscal responsibility will pay off in the future (I am all for it), but I don’t see how it will boost employment over the course of, say, two years. Most of the relevant uncertainties are real and structural in nature.
Read this post on why many people are no longer looking for jobs. Reeducation is a significant reason why many people have stopped looking for work. This might someday kick in with higher productivity. But note also that workers fear being locked into jobs that will later brand them as losers. So in times of uncertainty they, like businesses, often will simply prefer to wait.
The bottom line: There is a potential silver lining in the cloud that we call the jobless recovery. Once those people get to work, output could be especially high, provided we don’t mess up in the meantime. That being said, responsible economists all along the political spectrum remain puzzled by the jobless recovery. We can cite and roughly agree on its causes. But at the end of the day, relative to other recoveries, we all remain surprised by the slowness of employment to adjust.
Addendum: Here is Alex on productivity and employment.
The new Michelin winners
The Michelin dining guide will upgrade three restaurants, all in France, to three-star status. One three-star restaurant will be demoted to two stars. The Michelin three-star designation is the highest a restaurant can obtain, right now there are only twenty-seven three-star restaurants in the world.
Perhaps it is no accident that only three stars are used for the world’s most rigorous restaurant system (Gault-Milleau, in contrast, has a scale up to twenty). The smaller the number of stars, the harder it is to inflate the standard. If the scale has one hundred steps, no one can really tell if a “73” restaurant is pushed up to a “75” rating by mistake. Ratings inflation can slip in over time. But everyone knows if a restaurant is elevated to three-star status by mistake.
Michelin precommits to quality rankings and takes great care to preserve its name as a restaurant “gold standard.” It is commonly believed that the number of three-star restaurants in France is capped, in fact it has remained close to twenty-one since the mid-1930s. Furthermore it is harder to get back a third star once you have lost it, than to win it in the first place, see the first link for more information.
French cooking may be suffering under excess taxes and labor market regulation, but French food criticism is alive and well, in this case under corporate auspices and subsidy. The Red Guide does not make money on its own terms, but rather serves to advertise the parent company and burnish its image. It is a classic instance of the private production of public goods.
So the next time that Roger Ebert gives a movie either a “thumbs up” or a “thumbs down,” this is a signal that he is offering a truly important evaluation.
Glenn Hubbard’s consistency test
Glenn Hubbard (registration required), in a Financial Times review of Robert Rubin’s new book, throws down the gauntlet. You might recall that Hubbard was one of the architects of Bush’s dividend tax cut plan.
Hubbard argues that deficit-cutting is motivated by the view that lower real interest rates will stimulate private investment. But then private investment must be sensitive to price incentives, and a tax cut on investment returns should stimulate investment as well. He describes Rubin (and others) as believing in an asymmetric response, whereby investment is interest-sensitive but not tax-sensitive. Either investment is price-sensitive or it is not, and we should hold a consistent attitude for either lower interest rates and lower tax rates.
My take: Hubbard is right. We should not hastily conclude, however, that a tax cut on dividends was the best way to go. Dividends transfer money from one pot to another, and this is distinct from constituting a real net rate of return. I would sooner have cut and reformed the corporate income tax. In the meantime, however, let us all apply this consistency test to ourselves, are you listening deficit hawks?