The Best of State Tax Expenditure Disclosure

President Obama proposed comprehensive corporate tax reform in the State of the Union.  An crucial first step is disclosing who benefits from expenditures.  Currently the federal government offers no insight into where an estimated $1 trillion in tax breaks go every year.  Some states are beginning to provide information about which corporations benefit from local tax spending programs. None of their state websites are perfect, but their strong suits could be combined to create a powerful tool for disclosing federal corporate tax expenditures. Here are some highlights from state tax expenditure websites:

Best Graphics: Michigan

The Michigan Economic Development Corporation’s Project website literally shows users where their tax dollars are going. They can zoom in on their community and see who got what. As beautiful as the site is, it would be nice to have a database mode for easy access to the raw data. Besides, showing private investments on the front page, while requiring a click through to see how much in taxes a company avoided is burying the lead.

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Muddling Through

Unlike cocktails, the best economies aren't made by muddling. Image by TheogeoWe have grown accustomed to rival constituencies focusing on economic issues with special relevance to them: conservatives want lower taxes, libertarians want smaller government and liberals want better services.  The relative merits of each position wax and wane in the public eye and everyone wins or loses at the margin.  However, our current departure from "normal economic conditions" should remind everyone that these partisan concerns are of secondary importance: allowing greater human flourishing and the prevention of extreme human deprivation are the ultimate ends of all policy preferences.  Conservatives and libertarians favor lower taxes because they believe that low taxes spur growth and allow more people to better their lives.  That low taxes might be a good thing in and of themselves has eventually become ideological dogma, but only because we lacked a sufficiently compelling reason to raise taxes.  While it generally isn't expressed in such utilitarian terms, we all believe we have the best policies to create the most happiness.

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Grownups Appreciate Dad; Only Kids Believe in Santa

Image by Kevin DooleyVia Yglesias, a fantastic article on supply side economics by Kevin Williamson in the National Review.  His basic point: supply side economics as it is popularly understood never existed:

It is true that tax cuts can promote growth, and that the growth they promote can help generate tax revenue that offsets some of the losses from the cuts. When the Reagan tax cuts were being designed, the original supply-side crew thought that subsequent growth might offset 30 percent of the revenue losses. That’s on the high side of the current consensus, but it’s not preposterous. There is, however, a world of difference between tax cuts that only lose only 70 cents on the dollar and tax cuts that pay back 100 cents on the dollar and then some.

That a significant portion of the right believes tax cuts actually increase government revenues exemplifies magical realism in policy.  Supply-siders did not believe in "voodoo economics" and either naked opportunism or incompetence led politicians to misrepresent the possible gains from cutting taxes.  Either way, it has proven to be a boon to Republicans used to taking an unpalatable political stance on deficit reduction:

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Ending Earmarks: Symbolism, not Solutions

If only lobbyists were so forthcomingThe House Democratic Leadership announced today that it would stop accepting earmarks for private companies.  While public agencies and non-profit companies will still be eligible for earmarked funds, the rules change by the Democratic leadership of the House Appropriations Committee will prevent corporations from lobbying Congressman for no-bid contracts and directed pork.  The change is so unequivocally positive that rather than spin the decision the Republicans attempted to one-up the Democrats by banning earmarks entirely in their caucus.  My support for such a change- and I agree with the Republicans that it should be a blanket ban- stems from my belief that the politics of financial quid pro quo have a deleterious effect on the quality of our Congressmen.  Anything that takes away the ability of Congressmen to graft under the the noise of Congressional business is a positive development.  My deep concern over the federal deficit, however, does not figure into my consideration of this change, because banning earmarks will do almost nothing to shrink the deficit.  According to the Appropriations Committee, if their proposal had been in effect in 2009 it would have saved the federal government $1.7 billion.  In other words, this proposal would have fixed .12% of the deficit ($1.412 trillion last year).  

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Our Obese Economy

Panics do not destroy capital; they merely reveal the extent to which it has been destroyed by its betrayal into hopelessly unproductive works. - John Stuart Mill

David Leonhardt recently wrote a column for the New York Times in overwhelming praise of the stimulus.  Leonhardt goes to great lengths to castigate opponents as political opportunists, visceral reactionaries, or ideologues, but Leonhardt, and many other proponents of economic stimulus - including Paul Krugman - fundamentally misunderstands the nature behind the opposition; it's not about doubting the math or denying that government programs designed to create jobs create jobs.  Reasoned opposition relies on the idea of malinvestments contaminating the economy and the creation of moral hazard inevitably postponing a bigger collapse.

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Our Spendthrift Uncle, Sam

We have focused on debt and deficits quite a lot around here lately, and it's not hard to see why: the U.S. deficit is at a record level even as Europe struggles with the consequences of excess deficits in the Greek debt crisis.  Deficits are not intrisinctly bad, pretty clearly some situations demand deficit spending: the choice between running a deficit and say, being conquered by Nazis and Imperial Japan, or a decade long economic collapse accompanied by death from famine and deprivation, isn't difficult to make.  However, the existence of persistent deficits, through good times and bad, indicates a political failure in this country.  To illustrate the problem, let's consider a thought experiment: imagine the U.S. government as a person- someone you know, your wacky, rich Uncle Sam.

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Greek Tragedy of the Commons

The Eurozone faces its first big test this month as revelations of a Greek debt crisis have raised the possibility of an insolvent country within the Euro 16.  So far the rest of the E.U. has insisted that Greece take measures to immediately reduce its deficit to the mandated maximum allowable 3% of GDP by 2012, after it was revealed to have run deficits four times that large in 2009.  The richest countries in Europe, most of whom have passed debt financed economic stimulus plans themselves, forcing new taxes, entitlement cuts and payroll freezes on one of the relatively poorer countries is tough medicine to stomach; however, given that other Mediterrian countries, notably Spain and Italy, face their own debt problems, setting a tough precident is not just justified, but essential.

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Book Review: Bruce Bartlett - The New American Economy

Bruce Bartlett's conservative economic bona fides are apparent in his resume: he started as a member of Ron Paul and Jack Kemp's Congressional staff, then became Executive Director of the Joint Economic Committee during the Reagan administration and later served as Deputy Assistant Secretary of Economic Policy at the Treasury Department under H. W. Bush.  He literally wrote the book on supply-side economics, with Reaganomics: Supply-Side Economics in Action in 1981.  With such unimpeachable conservative economic credentials, Bartlett feels free to slaughter some of the right's sacred cows in his recent book, The New American Economy: The Failure of Reaganomics and the New Way Forward.  He rehabilitates John Maynard Keynes as a misunderstood conservative, calls for the victory celebration and subsequent retirement of supply-side economics and defends President Obama's stimulus plan as the only thing to do.

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A Final Note on a Softer Economic Policy

There is a famous joke about the tendency of economists to consider their chosen field akin to the natural sciences: a physicist, a chemist, and an economist are stuck on a desert island.  A can of beans washes up on the beach.  The physicist devises a mechanism using twigs and rocks to attempt to force open the can, but after several hours with no results, during which the economist sits and smugly smiles, the physicist gives up.  The chemist attempts to extract some sort of substance from plants on the island to melt the can.  The economist continues sitting and smiling arrogantly as the chemist also fails in his efforts.  “What?” the physicist and chemist say, “do you have a better plan?”  The economist stands and walks proudly towards the can on the beach: “Let’s assume we have a can-opener.”

This joke is often told by economists to economists at economic conventions or by economics professors to economics students during economics class, which was where I first heard the joke.  Yet the same economists who make this joke forget their own lack of hard science credentials when they make predictions; and non-economists seem to forget the incorrectness of the last prediction when they hear the next prediction.  In times of trouble, the poor track record of economists at predicting the future is never called into question, and political leaders often blindly surrender national sovereignty to “experts.”

I undoubtedly believe that central economic planners are capable of coordinating and herding hundreds of millions of people to some greater economic purpose by simply printing money and increasing government spending, but I also believe that the negative consequences of these policies usually outweigh their beneficial effects.

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A Rumination on Deflation and Savings

This is the second part of a two-part series.  For the first part, please click here.

People have started saving recently, after years of taking on debt. However, the fact that the savings rate has increased recently seems inevitable: from zero, there's nowhere to go but up.It is often suggested that deflation encourages savings over investment or consumption.  This is because as the value of currency rises, or, as people notice the value of currency rising, they forego unnecessary purchases like new automobiles and that extra Christmas present, and instead save, that is, do not invest and do not consume.  This analysis makes sense logically, however, the impact of deflation largely depends on the decisions of individuals relative to an awareness of persistent deflation.  If individuals were rational in an aggregate sense, they might hold on to their money, but most people are too excited about ten-dollar DVDs and supermarket sales to wait for prices to get even lower.  Plus, if there is 0.18% deflation now in the U.S., is that really enough to reverse 75 years of persistent inflation? 

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A Rumination on Deflation

Recently, the Japanese media has been obsessed with defure, or deflation.  The September annualized rate of deflation for Japan was 2.24%, compared to September annualized deflation rates of 0.18% in the U.S. and 0.80% in China.  Canada, the U.K., Australia, and the European Union had very low rates of annualized inflation in September.  However, it is inconsistent for the media to panic about anomalous low-single-digit deflation while ignoring the well-documented effects of seventy-five years of chronic inflation.  The rationale for the panic is that deflation can lead to a liquidity crisis (government stimulus is rendered impotent) and/or a deflationary spiral (hyperdeflation); yet, in apparent blindness to the lessons of history, inflation is near universally considered a necessary evil, and the idea that inflation could lead to an inflationary spiril is underserved. 

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