Relevant and even prescient commentary on news, politics and the economy.

How was this for great timing?

The dollar continues to fall against the Euro, likely due to some nefarious plan by the French to decrease the US trade deficit. On a personal note, it looks like I picked the ideal time in 2003 to visit Europe:


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Credit Where it’s Due

In this instance, to Sen. Charles Grassley (R-Iowa) who, given that a $350b tax cut is a fait accompli, actually came up with a pretty reasonable proposal on dividend taxes:

Bush says his proposal to eliminate dividend taxes would boost stock prices and create jobs [on this point, see my earlier post]. Committee Chairman Charles Grassley, an Iowa Republican, negotiated with key Republican moderates to develop a compromise that would fit elements of Bush’s original $726 billion, 10-year plan into a $350 billion total approved by the Senate.

The compromise bill would exempt the first $500 of dividend income from taxes, which Grassley said would eliminate such taxes for 86 percent of dividend-receiving taxpayers. An additional 10 percent of dividend income above $500 also would be excluded from taxes, with that rising to 20 percent in 2008 through 2012.

Only the pretty well off will have non-sheltered (i.e., non-IRA) dividend income over $500, so those who pay any dividend taxes under this plan will mostly be people in the 34% and 37.6% 2004 brackets, meaning that even with a 20% exclusion they will pay a net tax rate on dividend income of 27%-30%. The rest of the dividend-receiving population will pay much less, zero or nearly zero. Insofar as there are some benefits to not taxing dividends, this strikes me as a reasonable way to reduce the distortion. Nevertheless, this is still a bigger tax cut for the wealthy, to the extent that they derive a greater percentage of their income from dividends than do the less wealthy (they’ll be paying 30% on income that they previously payed around 35% on).

Also note that this proposal is not Bush’s plan; it’s just the best he can get without Snowe, Voinovich, Collins, and Chafee (Zell Miller can only sell out once). Were Bush’s plan implemented, I assure you it would be regressive.


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Well Worth Reading…

…and then buying. Salon has excerpts from Sidney Blumenthal new book, The Clinton Wars. Of course, why buy the cow when you can get the milk for free? (just kidding, I think). Now, if I could just figure out how to get the kickbacks from Amazon for the thousands of click-through sales this post will surely generate.


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The Search for WMJ

Many times over the last few years, current events brought a scene from the Simpsons to mind:

Homer, reporting on the results of Springfield’s attempt to rid the town of bears: “There’s not a single bear in sight–the ‘Bear Patrol’ is working like a charm”

“That’s specious reasoning,” Lisa retorts.

“Thanks, honey,” Homer says to her, adoringly.

“According to your logic,” she says, picking up a stone from their lawn, “this rock keeps tigers away”.

“Hmmm. How does it work?”

“It doesn’t.”

“How so?” Homer asks further.

“It’s just a rock,” she says.

“But I don’t see a tiger, anywhere.”

“Lisa,” concludes Homer, while pulling out his wallet, “I want to buy your rock.”

It’s not exactly parallel, but the latest bit of specious reasoning is that Iraq had WMD and the will to use them against U.S. troops. Fortunately, to hide them from Blix and the UN inspectors, they buried them so deeply that they couldn’t get to them, which is why we can’t find any WMD.

For a more directly on point application of this parable, see this discussion of the effectiveness of the PATRIOT act (from the site where google found the Simpson’s scene that I was looking for).


P.S. That’s not a typo in the title, the ‘J’ is for “Justification”.

UPDATE: For a somewhat different take on missing WMD, be sure to read yesterday’s commentary by Nick Kristof in the NYT, Missing in Action: Truth.

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More Buffet

As reported by Matt Stoller at ISTE, Warren Buffet recently came out strongly against the Bush tax cuts, going so far as to say “I don’t think enough of it [federal revenue] comes from people like me and too much comes from people who work in our shoe factories.”

Is Buffet just some rich old guy with outdated opinions? Consider his track record. In the late 1990s tech boom, Buffet took a lot of heat from Berkshire shareholders over his refusal to involve Berkshire Hathaway in the tech boom. From 2000 onward, he had many grateful shareholders. Buffet also has long argued for the expensing of stock options, arguing that burying those expenses allows companies to inflate earnings and that the options are granted disproportionately to top management. While not the same as the fraud at Enron, not expensing options is similar in spirit and in effect to more nefarious methods of inflating earnings. Also, Buffet’s salary is only $100,000k per year, though he stands to make substantially (i.e., hundres of millions) more if the company he operates, Berkshire Hathaway, does well–and to lose equally large amounts if his company does poorly. The point: the man knows business, and unlike another recent newsmaker, he practices what he preaches.


UPDATE: In 2002 Buffet’s pay was $296K . Extremely modest by CEO standards.

UPDATE 2: Matt Stoller has much more on Buffet at ISTE.

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New Links

Just added: It’s Still the Economy and A Taxing Blog. The former is a team blog devoted to the economy, currently with me, Matt Stoller, and MB of Wampum as contributors, but look for that group to expand.

The latter is also a team blog, with the motto, “A Tax Policy Blog — for tax profs, policy wonks, and other shameless tax nerds.” Personally, I think that they are being overly narrow in describing their target audience. I think it’s of interest to anyone concerned about fiscal policy. Assuming for the moment that the Democrats automatically lose on foreign policy, the key battleground in 2004 will be the economy, meaning fiscal policy: whether we try to stimulate the economy via more tax cuts, more spending, constant spending without tax cuts but with a reduction or elimination of the deficit; should we cut capital gains or dividend taxes? Repeal or extend the Bush tax cuts? What to do about prescription drug coverage, universal health care, controlling medical spending; what is the appropriate level of spending in R&D, education, and other forms of national infrastructure? All of these issues interact directly with tax policy, so I suggest a more ambitious catchphrase for the Taxing Blog: “Economic News and Analysis for Everybody, written by shameless tax nerds”.


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Life in the Land of Programming Executives

So I’m a bit late on this one, but in the wake of hiring noted Jackass Michael Weiner/Savage, MSNBC now has added Peggy Noonan (visit TBogg or Pandagon for amusing Noonan stories). It’s somewhat amusing to watch programming decisions, because there really is an obvious herd mentality. The “Reality TV” wave launched by Survivor is a prime example (pop quiz: how many of you knew that Survivor is still around?) When Friends first became popular, I could picture programmers and writers sitting in a room saying “You know what would be great?”…”if we had eight friends and they were just like these six but better looking”. Remember when ER begat Chicago Hope and a few more knockoffs? Remember the horrible game show wave sparked by Who Wants to be a Millionaire? I’m no student of TV history, but I think it took a British dominatrix to rid the nation of that plague. Funniest Home Videos are another example.

The point is that in the TV business, there really does seem to be an instinctive urge to copy whatever is popular, and copy it until everybody is sick of it: one creative idea pops up, all the networks copy it to death, then everyone hates it. It must be TV’s version of the Hotelling Model, or some bastardized version of the Median Voter Theorem. (Both models show how competition can in some instances drive all rivals to the same place).

What does all this have to do with MSNBC hiring noted Jackass Michael Weiner, crackpot Peggy Noonan, and other shining lights of the right wing? Well it occurs to me that possibly, just possibly, this is simply another programming wave, sparked in this case by Fox News’ dramatic rise. But if other programming waves are a good indicator, after the flow comes the ebb. Will conservative news/commentary go the way of Reality TV and Millionaire? I don’t know, but MSNBC is doing its best to drive the format into the ground (of course, for MSNBC’s programming choices to actually affect viewer tastes, somebody would presumably actually have to be watching MSNBC–call me an optimist).


Note the Angry Bear Milestone! No, not surpassing 10,000 hits. This is the first link to the Drudge Report.

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Must be time for more tax cuts

CNN/Money has a special feature up, Jobless in America. I’ll have comments after I have time to read it (the day job is getting in the way), but in the meantime, here’s some titles of the stories in the feature:

For now, I’ll point out that the 6% number does not count discouraged workers–the unemployment rate is the number of active job searchers divided by (# active job searchers + # of employed people).

More importantly, I’ll also point out that tax cuts really do not benefit the unemployed. Sure, they may be stimulative and someday create growth and thus more jobs, but over the next few weeks and even the next few years, that effect is trivial. The long run benefits of tax cuts must be weighed against the costs of higher deficits and the concomitant expectations of future inflation. While any possible trickle down benefits of a tax cut accrue at some unknown point in the future, the recessionary effects of expectations of future deficits occur now.


X-Posted at It’s the Economy

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More Liberal Media

The NYT managed to put out a 26 paragraph story on the rise and fall of Ashleigh Banfield without ever mentioning noted jackass, Michael Weiner (a.k.a. Michael Savage), and his asinine “mind-slut” comments. The NYT did attribute the fall to a number of factors other than her saying “It [War on Iraq coverage] wasn’t journalism [because] getting access does not mean you’re getting the story. It just means you’re getting one more arm or leg of the story.” I think Savage is relevant to the Banfield story because it demonstrates the regard Banfield was held in by top management–long before she made statements critical of the network.


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McKinsey on Dividend Taxes

McKinsey is one of the top, many say the best, management consulting firms–hardly a left-wing industry. Among their various activities, they distribute a newsletter, The McKinsey Quarterly. In the latest issue, they have a short piece entitled Eliminating the double taxation of dividends is more notable for what it won’t do than for what it will (free registration required). This is an exressly non-political piece that speculates about the implications of eliminating the dividend tax from the management perspective. In my series on dividend taxes (see top left of the sidebar), I argued that eliminating dividend taxes would increase the pressure on managers to distribute funds to shareholders and this would be a good thing because the alternative to paying dividends is often money wasting mergers and acquisitions. Making reference to this theory, the McKinsey newsletter says

We doubt all this. The proposed tax cut, when viewed with an understanding of the shareholder makeup and share price movements of US companies, seems unlikely to have a significant or lasting effect on US share prices. Moreover, history and practice suggest that if the proposal becomes law, most US companies will not—and should not —change their dividend policies significantly.

What? Was Angry Bear wrong? No, not really, a little later in the story they explain why:

…But the proposed tax cut isn’t likely to have a major lasting effect on US share prices, primarily because the key investors who drive them are already exempt from taxes. [emphasis mine]


…tax-paying US individual shareholders own a minority of all US shares—28 percent in 2002, whereas tax-exempt US institutions and individuals who hold shares in tax-exempt accounts owned 61 percent. (The remainder was in foreign hands.) For the most part, tax-paying individual shareholders don’t drive share prices, whereas nontax-paying institutional investors do: the trading activity of a company’s top 40 to 100 investors—again, usually big institutional investors—accounts for 70 percent of its stock price movement.

The point: don’t believe that the dividend tax cut will fix your 401k or other retirement savings. Those funds are already tax exempt so there is no direct benefit. And if you thought that eliminating the dividend tax would lead to a stock market boom and reverse the losses you suffered from 2000-present, think again. And in this case, it’s not (just) me saying it, it’s a top management consulting firm. One more line from the newsletter report: “In the end, the proposed tax cut will not have a significant impact on the wealth of investors or the behavior of managers.”


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