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

Teasers on the Front Page of [even the conservative] Wall Street Journal

  • P.1: Congress Nears Deal to Cut Taxes by $350 Billion: In Bush Victory, Accord Reduces Rates on Dividends; Top-Bracket Relief Survives
  • P. A2: Congress is at risk of passing the Great Tax Shelter Act
  • P. A4: Bush is losing on the tax issue with Americans
  • P. C1: The bill may let some rich investers avoid almost all levies

Here’s a nice highlight from the A2 story:

“…a rich investor might, for instance, borrow money and deduct interest payments…then use the money to buy shares of stock on which he would earn a tax-free dividend paid from profits that have never been taxed. Bottom line: The profits are never taxed, not even once, and the economy gets no new capital or savings because the investor borrows the money that he used to buy the shares.”

From the WSJ/NBC poll on A4, Bush’s overall approval is at 62%; 64% think there are better ways than a tax cut to increase economic growth (7% unsure); by a 55-36 margin, money to help pay for health care beats out tax cuts; and 53% said the 2001 Bush Tax Cut had no real effect on U.S. economic performance, with 15% saying they hurt and 25% saying they helped. Also, Lieberman, Kerry, and Gephart are all 20+% behind Bush in 2004 election polls, though a generic Democrat is only behind 47% to 32%.

From the C1 story:

“I guarantee it produces very, very low [tax] rates”, possibly even zero says Ronald Pearlman, a tax-law professor at Georgetown.

As Warren Buffet points out, the government can’t create a free lunch. Since spending, including discretionary spending, is increasing under Republican Control of the White House, the House, and the Senate, if someone pays less, then someone else has to pay more. We know who will pay less. Guess who will pay more?


P.S. As these stories make clear, there is another reason that the cost of tax cut will be over $350b. I’m guessing that the costs of cutting the dividend tax to 15% were computed as (35%-15%)*($Dividend Income), while totally ignoring the substitution effect: people with the means to do so will shift money in ways to minimize their tax bills, increasing the cost of the tax cut.

X-Posted at It’s Still the Economy.

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Crazy Headlines

No, it’s not a bit from Jay Leno, it’s today’s NYT: “$318 Billion Deal Is Set in Congress for Cutting Taxes“. From the story [emphases mine]:

  • The measure would reduce the tax rate on capital gains and dividends to 15 percent for most taxpayers for five years, and then reinstate the higher existing rates in 2008. Republicans have said they hope to extend the tax cut before it expires.
  • Once it was clear that Mr. Voinovich was a swing vote on the bill, he was invited into the meeting with the vice president and asked pointedly what it would take to get his vote. The senator’s spokesman, Scott Milburn, said Mr. Voinovich told the negotiators that he would support the bill only if its final cost was no more than $350 billion over 10 years, including the aid to states and other tax credits.
  • Mr. Thomas had until recently bitterly criticized such sunset proposals as gimmicky, and he had also said he was adamantly opposed to assistance to state governments who, he said, had caused their own financial problems. [AB note: I agree with Thomas on that last point]
  • “In the long run, the bill will not cost $350 billion or $550 billion, but it will really cost a trillion dollars or more,” said Representative Charles B. Rangel of New York, the ranking Democrat on the Ways and Means Committee. “And all of it is borrowed money which increases the national debt.”
  • Mr. Grassley, among the most genial members of Congress, has said all year that he was not as concerned about the particular aspects of tax legislation this year as he was over finding a package that could get 50 votes.

Now, due respect to the reporters, David Rosenbaum and David Firestone, who write the story, not the headline. But for anyone at the Times to title this story with the phrase “$318 Billion”, when every paragraph implicitly or explicitly says that the true cost is way above that? Just because the reporters don’t write the headline shouldn’t mean that Karl Rove gets to.

And what the hell kind of logic is Grassley applying? The details don’t matter? If it’s a freaking stimulus, then nothing but the details matter. Here are some details Grassley could think about: Is it in fact stimulative, Chuck? What will massive deficits do to future tax rates? What happens when the Baby Boomers retire? Will debt service crowd out future investment? F it, who cares. Will it get 50 votes? That’s what is important. Thank God Grassley is so damn genial.

There appear to be some progressive elements in the package, though the story neither says how they got there nor gives much detail. The child credit–largely progressive because it’s a lump sum–has a two year sunset, though:

The package would also put into effect this year lower tax rates for middle- and upper-income taxpayers that were not scheduled to become effective until 2006. For the next two years, it would give a tax break to married couples, and increase the tax credit for children to $1,000 per child from $600 for all but the wealthiest families….Beginning in about six weeks, less money would be withheld from workers’ paychecks to reflect the lower tax rates, and checks worth $400 per child would be mailed to 25 million families.

I went to CNN for more details. I didn’t find any new details on the plan there, but I did get a chuckle:

“If they stay within the 350, I’m fine,” Voinovich said. “I appreciate the fact that they’ve been trying to honor my concerns and make me an honest man.”

I’m going with Matt Yglesias’ assessment on Voinovich.

In another post, Yglesias takes exception to the NYT’s assessment that this is a “substantial political victory” for Bush, contending instead that it’s a “total surrender to Senator Voinovich”. I disagree. Come next year, Bush can either say “thankfully we were able to push this plan through and enact some dividend and capital gains tax cuts” if the economy is strong, or he can say “if we had been able to pass my larger tax cut, then the economy would be better right now.” And who will refute that? The New York Times? Don’t bet your lunch money.


P.S. Matt’s got another instance of misleading-at-best phrasing from today’s NYT. Much more of this and I’ll start reminiscing about the good old Jayson Blair days.

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More Sid and Hannity

Salon’s David Talbot interviews Sidney Blumenthal. Earlier, I remarked with some surprise that Hannity gave Sid a fair and balanced hearing on his show. (Contrast this to the SCLM’s treatment of late–see the Daily Howler, 5/18, 5/19, 5/20, and 5/21). In any event, here’s Sidney recounting his time on Hannity’s show:

TALBOT: Why did you decide to go on Hannity’s show? A lot of liberals boycott Fox because they feel they’re just used as chum for the sharks.

BLUMENTHAL: Hannity’s is the second biggest radio show after Limbaugh and he’s the second biggest cable TV pundit after O’Reilly; I hadn’t paid a lot of attention to him before. But I was glad to go toe to toe. I didn’t find him mean-spirited. He tried to ask slanted questions that pushed me back on my heels, but I felt fine firing back — and he let me speak. In fact he just asked me to go on his TV show this week.

The rest of the interview is pretty good too.


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Regressive Tax Cuts

I found some numbers at ArgMax that are taken from a Brookings report on the distribution of savings from the Senate’s version of the tax cut, and figured I’d make a nice picture (click to enlarge):

The picture somewhat exaggerates the top-heaviness of the benefits because the bins widen as you move right. Still, it’s quite regressive: for example, the $75k-$100k group has roughly double the income that the $40k-$50k group has but their tax savings ($1,597) are 3.6 times larger. This is what happens when you finance dividend tax cuts by shaving cuts for married couples and small businesses.


UPDATE: This is a great example of why you should be suspicious when the administration continually and virtually exclusively talks about the “average benefit”–which is around $1000 for this proposal. In this instance, anybody making less than $75,000 per year doesn’t come close to getting the average benefit.

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Latest Missive from Nigeria

This one contained a small math error (maybe they should join Stephen Moore’s Club for Growth) that presents me with an opportunity to make an extra $3 million:

Regarding the allocation of money you describe, which I quote here:

(1) 18% for you as the account owner
(2) 62% for I and my colleagues
(3) 10% will be set aside to defray all incidental

It appears that 10% of the money is not allocated, can I have it?

This is my first time answering one of these, I’m curious to see what they say.


UPDATE: I’ll give them points for politeness and a prompt reply: the missing 10% goes to charity (click here for the full response–names and numbers deleted to protect the stupid).

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Slow Loading

Mine, and many other BlogSpot blogs seem to be loading slowly, if at all. I find that it’s more reliable to load Angry Bear with the “www” typed in than without, though either way should work. For other BlogSpot blogs, if using the “www” doesn’t work, then trying without seems to help–and vice-versa.


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More from Buffet

I generally trust people a bit more when they are advocating something that will cost them money, because I can infer that they are making an argument about what they think is right. Most strong advocates of the dividend tax cut are wealthy and stand to disproportionately benefit (here’s a nice example using the Bush cabinet). Similarly, it makes sense for the non-wealthy to oppose it because the lost revenue will, either now or in the future, likely come out of their pockets when general tax rates and fees are raised. What’s more interesing is when the wealthy oppose the dividend tax cut (or previously, the estate tax elimination). So it’s imporant when a wealthy person, who is also one of the most successful businessmen in the past 30 years (paralleled only by Gates and Welch), pipes up against the cut. This from CNN:

Through his 31 percent ownership of [Berkshire Hathaway], Buffett said he would receive an additional $310 million in income that would reduce his tax rate from about 30 percent to 3 percent, while his office secretary would still have a tax rate of about 30 percent.

“The 3 percent overall federal tax rate I would pay — if a Berkshire dividend were to be tax free — seems a bit light,” Buffett wrote.

Instead of the Senate’s tax cut plan, Buffett proposed that it provide tax reductions to those who need and will spend the money in the form of a Social Security tax “holiday” or a tax rebate to lower-income people.


P.S. NEW AB contest: who will be the first Righty to say, “if Buffet wants to pay more in taxes, he’s free to give it to the government, just don’t make me do it too”. As wealthy as Buffet is, acting alone, he couldn’t make more than a small dent in the budget deficit.

UPDATE: We have a winner: Matt Stoller identifies Grover Norquist on 5/5/03 as saying,

“If the president’s tax relief plan really is unjust, then Mr. Buffett should be ready and willing to sign a Pledge to his shareholders at Berkshire Hathaway and to every American he harangues that he won’t accept that relief once it becomes law”.

Matt S. blogged about this way back on 5/10/03, but if I get more quotes, I’ll add them to the list…Stephen Moore? Grover also made this stupid statement, “Buffett is so fabulously wealthy he doesn’t remember that half of Americans are stockholders and all will benefit from the president’s plan”–actually, it’s not really stupid, but rather intentionally disingenous. Over half of Americans do have stock, but the vast majority of those hold their stock in 401k’s, Roths, and Traditional IRAs, and so get nothing from the dividend tax cut.

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Sid and Hannity

I Just heard about ten minutes of Sidney Blumenthal on Sean Hannity’s radio show, and now I have to give credit where it’s due…to Sean Hannity! First, for booking Blumenthal, and second for, in my judgment, giving Blumenthal plenty of time, not interrupting excessively, admitting when Blumenthal had a point, and overall giving a very fair hearing with mostly even-handed give and take.

That said, I got tired of sitting in my car and went inside, so I didn’t hear it all. But the part I did hear was, dare I say, fair and balanced.


P.S. Read Blumenthal’s book.

UPDATE: Contrast my assessment of Hannity to CNN’s Judy Woodruff interviewing Blumenthal last night (transcript here; analysis here).

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