Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
The Reverse-Santa-Claus Negotiations Continue
If they can't cut the budget deficits right after a presidential election, when will they do so?
It is the final day of the Reverse-Santa-Claus fiscal cliff negotiations. The main thing that has already been decided by the Republican and Democratic leaders negotiating is that they will steal from America's children. Almost everything has been taken off the table that would reduce the budget deficits. The latest to go is the provision that would slow the cost-of-living increases for entitlements.
They have already negotiated away the fiscal cliff's automatic $502 budget deficit reduction of the $1,327 billion budget deficit. Every time a new deficit reduction target is revealed, the amount of projected deficit reduction has been reduced, $260 billion, then $220 billion then $200 billion. This week, they have stopped mentioning figures altogether.
They justify their irresponsibility by holding that a recession would occur in 2013 if they did not act. There would indeed be a recession, but it would not reach the 9.1% unemployment rate for the fourth quarter of 2013 predicted by the Congressional Budget Office. Ideal Taxes Association has continually been correct regarding the ineffectiveness of budget deficits in one prediction after another:
It Is "Across-the-Board" and a Tax Increase; It Is NOT "Over-the-Cliff"
In 2011, Congress and President Obama could not agree on how to reduce the federal deficit. After much wrangling, Congress passed and Pres. Obama signed the Budget Control Act of 2011, which effectively “kicked the can down the road” and provided that it would become law on January 1, 2013. The phrase “over-the-cliff” has been popularized by the media, giving the impression that the proposal if allowed to become law would cause another recession. The media bought hook, line, and sinker the Keynesian nonsense of Federal Reserve Chairman Ben Bernanke that in the country’s current economic situation trying to balance the federal budget by reducing expenditures and raising taxes would plunge the economy into recession. It was he who first uttered the cliche, “over the cliff”.
The Act called for across-the-board cuts in federal government discretionary expenditures and for allowing the Bush and other tax cuts to expire. To Keynesian economists, cuts in government expenditures and raising taxes would slow the recovery and depress the economy. By this false reasoning, the federal debt can never be reduced. For the past four years, the federal government has been pursuing Keynesian policies, spending trillions of dollars on foolishness and the result has been massive unemployment and stifled growth and a national debt that is out of control. Millions are working part-time and other millions have dropped out of the labor force....
Again! Misleading Data From the Department of Labor
Once again there is misleading information from the Department of Labor about the number of initial unemployment insurance claims filed during the preceding week. In its release for the week ending December 22, it reported that seasonally adjusted initial claims amounted to 350,000, a decrease of 11,250 from the previous week. One paragraph later, the release reported that the actual number of initial claims filed was 440,887, an increase of 39,458! We believe the seasonally adjusted figure is unreliable. CNBC and Bloomberg television reported only the seasonally adjusted number. This is a great disservice to investors who tuned in to CNBC and Bloomberg television at 8:30 A.M. on Thursday to get the latest data. ...
Obama Wants to Continue the Discredited Keynesian Policies of the Past
Congress, in a bill signed by Pres. Obama in 2011, called for sequestering expenditures and mandating that taxes return to the levels that existed before the Bush tax cut if the federal government does not take other steps to reduce the federal deficit. Dr. Bernanke, chairman of the Federal Reserve Board, because he subscribes to the discredited Keynesian policy of stimulating the economy by means of increased government expenditures, described the bill’s provisions, as “going over the cliff” if they were implemented because it would increase taxes and reduce expenditures and thereby force the economy into another recession. The media unanimously approved and popularized the metaphor.
The bill violates the Keynesian rule that to provide economic stimulus taxes should be lowered not increased and government expenditures should be increased and not reduced. The bill does both. It cuts expenditures and raises taxes. Pres. Obama has been pursuing Keyesian policies since his first inauguration with a notable lack of success. The recovery from the 2008 recession has been incorrectly described as the slowest recovery in our history. That is wrong. The recovery from the Great Depression was slower. The trouble is that Keynesian policies cause a decrease in private investment expenditures and an increase in investment is required for economic growth. Keynesian policies do not stimulate growth but actually impede growth because of their negative effect on private investment in plant and equipment....
Obama asking for more balanced trade with China
Early in President Obama's first administration, he dispatched Secretary of State Hillary Clinton to China, not to insist on trade balance, but to beg the Chinese government for loans. The Taipei Times reported on February 23, 2009: "In Beijing, [Clinton] called on Chinese authorities to continue buying U.S. Treasuries, saying it would help jump-start the U.S. economy and stimulate imports of Chinese goods."
President Obama is starting his second term on a different note. The Associated Press reports:
Meanwhile, the US merchandise trade deficit with China (negative net exports) continues to worsen, hitting $311.6 billion over the 12 months ending in October as shown by the graph below:...
The Obama administration may be fudging the climate records
In his inaugural speech, President Obama promised to “restore science to its rightful place.” He might have been referring to a place subservient to politics. Two disturbing reports suggest that his administration is fudging the climate records.
Fudging of the Sea Level Record
Professor Professor Nils-Axel Mörner of the University of Stockholm reported in a December 7 paper published by the Science & Public Policy Institute (Sea Level is Not Rising). Here is his summary of his main points:...
Profiles of Courage on the Fiscal Cliff
In Requiem to an Improvident Generation I concluded three years ago "Vote for a Democrat who supports substantial and specific spending cuts or a Republican who takes a stand for real and sizable tax increases if you can find one. They are rare in this improvident land."
By this standard Republican representative Scott Rigell deserves note for his courage. Rigell has been unusual in the clarity with which he has called for a budget deal which addresses both revenue and spending. He deserves plaudits for facing the fiscal facts without resort to the dreamy fallacies that cutting taxes while cutting spending (Republicans) or increasing spending while increasing taxes on the rich (Democrats) will somehow lead to a balanced budget. He is behaving like a true fiscal conservative. Copied below is a letter Rigell sent to all House Republicans on December 12.
A Genuine Tax Reform: Increased Use of the Estate Tax and Integration of the Corporate And Personal Income Tax
Congress makes changes in the personal income tax code annually. This affects the behavior of investors violating the basic principle of certainty. For example, effective January 1, 2013, the rate of taxation of realized capital gains will increase from 15% to 20%. For many years, capital gains had a different treatment. Fifty percent of long-term realized capital gains was counted as taxable income.and was subject to a maximum tax rate of 25%. Congress changed the treatment several times since then and for the taxable year 2012, there was a single tax rate of 15% applied to long-term realized capital gains. During some years, gains from the sale of dwellings were untaxed if a new dwelling costing more than the realized gain was purchased within two years. During the Clinton administration, the condition that a new dwelling must be purchased within two years was eliminated. As we have shown, there is only one correct treatment of capital gains, namely that realized gains be taxed as ordinary income if consumed and left untaxed if reinvested. A realized appreciation of capital is income only if the proceeds are not reinvested. Capital gains of a decedent escape taxation when the capital asset is inherited. The U.K. until a few decades ago did not tax capital gains believing that an appreciation in the value of capital is not income at all. Indeed they began to tax realized capital gains but not under the income tax. Most American economists have been raided to believe that accrued (unrealized) capital gains are also income but if that were true, an accrued capital gain is simultaneously the source of income and income itself. An accrued capital gain can be defined as the present value of an increase in the expected stream of income as we have shown previously in our book and on this blog. Economists can be wrong. If the economists advising the Congress and the administration, how can we expect rationality from the Congress and the federal administration? .
The owners of corporations are their shareholders. Corporations pay income tax and shareholders pay income tax on corporate dividends. It is not surprising that shareholders try to convert some of their corporate income into capital gains which have been taxed at lower rates than dividends. Corporations pay income tax on income generated domestically and on income earned abroad when and if the income is repatriated. A great deal of corporate income earned abroad is never repatriated. Many governments have a territorial definition of income and do not tax income earned abroad at all. But our unitary definition of income holds that income wherever earned is subject to tax. It is to be expected therefore that the political parties change policies whenever they win an election.
The parties also differ on the estate tax. The conservative opposition to the federal estate tax is misguided. By all the criteria or principles of taxation, the estate tax is one of the best taxes. It accords with ability to pay, it is not arbitrary, it has good interpersonal equity both horizontal and vertical, its economic effects are good or at least not bad, it is economical to administer and to comply with. ...
Will this be Boehner's "Peace in Our Time" Moment?
After insuring World War II by capitulating to Adolf Hitler in Munich, British Prime Minister Neville Chamberlain defended the agreement that he had just negotiated in what has come to be known as his "Peace in Our Time Speech." Chamberlain claimed that all parties at Munich wanted to avoid war. He said:
If a fiscal cliff settlement is arranged along the lines currently being discussed, look for House Speaker John Boehner to make a similar speech in the near future. He would say that all parties in the negotiations wanted to rein in the American budget deficits, something like this:...
US Trade Deficit with China Hits Another Record
At the same time that President Obama continues to pose as the champion of the American manufacturing worker, he continues to give away their jobs to China.
According to statistics released by the Census Bureau this morning, the U.S. merchandise trade deficit with China hit another record in October, climbing to $311.6 billion over the 12 months ending in October as shown in the graph below:
Sarah Palin: "We’ve Already Gone Over the Fiscal Cliff, Now It’s About How Hard We Hit Bottom"
This November 30 interview with Sarah Palin restores my hope that there is intelligence left within the Republican Party:
She's right that we're already over the fiscal cliff in that there's not going to be a painless way to bring down the budget deficits and prevent the collapse that will occur if they continue to grow, in proportion to GDP.
Meanwhile, the House Republicans are currently negotiating an agreement with President Obama that will substitute $200 to $250 billion in budget cuts for the $502 billion that would place if no agreement was reached.
By not dealing with the problem right after the election, they are insuring that trillion dollar deficits will continue to raise the U.S. debt-to-GDP ratio into the forseeable future.
As Palin points out, they are simply postponing the pain and making it much much worse when it does come in the future. This future is easily foreseen:...
Fiscal Cliff: Negotiation Failure Could be the Best Option - we're published in today's American Thinker
Follow the following link to read the rest:
Rise in Initial Unemployment Claims Shows Lack of Economic Recovery
Unemployment sky-rocketed during the weeks preceding December 1, 2012 as the actual number of initial claims for unemployment compensation filed during the week ending December l, 200012 reached the astronomical figure, during a supposed economic recovery, of 498,619. As usual the media did not report the actual number of claims, but something they called the “seasonally adjusted” number of claims filed. I can think of no good reason for reporting the seasonally adjusted number of claims filed. Agricultural labor is seasonal; manufacturing items for sale at Christmas may be seasonal and falls in October and November; and retail trade, transport, and related activities rise in November and December. None of those are sufficient to account for the reported seasonaldecrease of 25,000 in initial unemployment claims in the week ending December 1 when the actual increase in claims was 139,000. ...
The Real Fiscal Cliff
Conrad Black published a piece today in National Review Online that insightfully chronicles the true and the phony fiscal cliffs. On the real cliff he writes:
But, as I among many others have recounted here and everywhere, economics in a sophisticated economy like that of the United States is half Psychology 101 and half Grade 3 arithmetic. But no one, including the learned debaters last week, at this point seems to have grasped that both tests will be flunked...
Approaching the Fiscal Cliff Intelligently
Ezra Klein published a good essay about the nature of the fiscal cliff, and the appropriate response to it last week. While one might disagree with him about certain of the numbers, and his analysis leaves out some key policy approaches that would likely add revenue while spurring growth (e.g. the scaled tariff) he focuses the analysis on the right problem (which is unusual) and attempts to establish metrics that will allow reasoned analysis of the best approaches.
As Klein properly notes, the Fiscal cliff is properly identified as an "austerity crisis". The problem with the "cliff" such as it is, is that it involves very rapid imposition of austerity in a way that has a significant potential to shock (or scare -- GDP numbers are looking weak for the fourth quarter) the economy back into recession. The basic concern about the fiscal cliff is one of too much austerity too fast. Detox without treatment of withdrawl symptoms can be extremely unpleasant. Going cold turkey on deficit spending...
Journal of Economic Literature:
Atlantic Economic Journal: