Who's paying for whose mistake?

Professor Don Boudreaux makes a helpful observation about Representative Charlie Rangel's attempt to eliminate the Alternative Minimum Tax. Framing the mission creep of the AMT as a "mistake" that Congress appears ready to correct, he notes:

Given that the current operation of the AMT is a mistake, why do Rep. Charles Rangel and so many others talk of the need to "pay for" fixing the AMT? A merchant who mistakenly overcharges customers is obliged to refund the money and stop overcharging, period.

The problem, of course, is that Congress has already spent the money. But I guess they could just dip into those unsecured Social Security monies to pay for things like they did in the good ol' days.

Stick this in your ear, Lou Dobbs

If you want to stop manufacturing job losses in America, put the breaks on technological innovation, not on free trade. Also be prepared to see reductions in real wages, not gains. This is according to a new study from the Center for Trade Policy Studies at the Cato Institute called "Trading Up: How Expanding Trade has Delivered Better Jobs and Higher Living Standards for American Workers.” The key take-aways:

Trade has not caused a net loss of jobs in the U.S. economy, and accounts for only 3 percent of annual job displacement. Further, the study shows that “between 1997 and the first half of 2007, the U.S. labor market did in fact shed a net 3.3 million manufacturing jobs, but that has been overwhelmed by a net gain of 11.6 million jobs in sectors where the average wage is higher than in manufacturing.”

Critics claim that the “average real wage” has declined since the 1970s, but this study shows that the average real wage is a flawed measure. A more accurate measure of earnings is “real hourly compensation,” which takes into account not only wages but benefits. “In the decade since 1997, as the U.S. economy has become more globalized, real compensation per hour for American workers has risen by 22 percent.”

The study also finds that household income has been rising and middle-class families have been moving up the income ladder. The real median net worth of U.S. households has risen 31 percent in the past decade while the share of income needed to finance debt has remained stable. [emphasis mine]

In other words, increased trade has made our society better, not worse, richer, not poorer, and changed and grown economic opportunity, not shrunk it.

Protectionism is not "progressive." If you really want to be progressive, support free trade.

But everyone else is doing it!

This is brilliant.

I wish I'd read it before my previous post, but it serves to further the point. Thanks, Offa!

Last picked for prom

Turns out Congress is not nearly as popular as its boyfriend SCHIP - 75% of Americans disapprove of Congress's handling of its job, according to a new CNN/Opinion Research Corp. poll. 22 of every 100 people think they're doing a good job (versus about a 33% approval for Bush at the moment).

This quote from the CNN article about the poll intrigued me, though:

The big issues of the day just don't seem to be being addressed," said Sarah Binder, a political science professor at George Washington University who studies Congress. "The issues that matter most to people -- the economy, health care, the environment and the larger war in Iraq -- it is so difficult for Congress to move on those issues that I believe the public looks and says, 'Why aren't they doing anything?'"

Are those the issues that matter most to people? I found a site that synthesises a lot of recent polls. Economy? Yes, that's generally in the top three. Health care? Yup, that one's up there. The "larger war in Iraq" (an odd characterization, since the "larger war" is generally thought to be the war on terror, whereas the war in Iraq happens to be the single largest and most well-known theater of that war) is, without fail, the number 1 issue sited as being important in each of the polls here.

Environment? Irrelevant. The most recent CBS poll listed has 2% of people saying it's the most important issue for presidential candidates. Doesn't merit a mention in the next poll down about the "most important problem facing this country today." Poll after poll shows it to be way down on the list of priorities.

In the next week or so, Congress will begin marking up a new global warming bill that would have disastrous effects on the economy with marginal-to-zero impact on the state of our biosphere. Real People get it, whether or not they can articulate it. Why must the politicians and academics like Ms. Binder continue to force an issue that the American public does not want the government dealing with?

Don't write off the Rangel tax bill yet

The good pieces of Charlie Rangel's (D-NY) proposed tax overhaul bill are good, and they're good for everyone. The bad parts are bad, but they're only bad for some people, and that's the cleverness behind the plan. What's missing is also bad for everyone. Let's look (and if this isn't enough detail for you, Money's website has a pretty good run-down of the bill).

Here are the good things about the bill:

• Full elimination of the Alternative Minimum Tax, which has slowly hit more and more middle-income Americans over the past few years. This is not what the Democratic authors of the bill intended 40 years ago but, because they didn't index it for inflation, that's what happened.
• Expanded credits for low-income couples without children
• 4.5 percentage point cut in the corporate tax rate

And the negatives:

• Hits high income earners ($200,000+) with a new, additional 4% tax
• Hits hedge fund and other money managers with a change in how part of their compensation is classified, resulting in as much as a 20% additional tax on them
• Closes some corporate tax breaks (while this one is unfortunate for the companies, I'm largely ok with this one as I generally view tax breaks as subsidies that you pay to yourself)

What's missing:

• Spending cuts. The money to pay for the good things has to come from somewhere - that's the rule - which is why the tax cuts are made with tax increases. Rather than simply shuffle the tax burden, we would be better served finding places where we can cut spending. Ending earmarks is one place, but that won't help all that much. Finding some bloated federal agencies to trim down would be a good start. Not expanding SCHIP would be a good idea, too. Because here's the magic of the market - tax cuts put more money out in the economy, providing more resources for private firms to fill the gaps where government is stepping back. But I digress. The point - cut spending instead of hiking taxes.

As is the want of the out-of-power party, the Republicans will likely say this whole proposal smells like moldy goat cheese, yell, stomp around, put their fingers in their ears, and then completely fail to offer a suitable counter proposal. I'd like to suggest a different tact:

1. Admit that there are good things in this bill, particularly the AMT elimination at the corporate tax cut. Our corporate taxes are the second highest in the industrialized world, and other governments (of all political persuasions) are cutting their rates, making us less competitive. This is a big deal. The average American will understand there are good things - if you say it stinks, it looks like you don't understand the concerns of Real People. Hint - that's a bad thing.
2. Be for fairness. The good things are good because they have the potential to help everyone, but that's done at the expense of a small number of people. Congress can't, or at least shouldn't, be in the business of picking winners and losers or deciding at what point someone becomes "too rich."
3. Don't whine about the fact that Democrats will get to have elimination of the AMT as a campaign issue. A friend of mine notes that Republicans have done a terrible job of pounding on the fact that Democrats created the AMT. It was also the Democrats who prevented the GOP's attempts to eliminate the AMT in the past decade. Instead of being mad about this, just have a consistent message of "We are glad the Democrats have decided to eliminate the tax they imposed on America 40 years ago, and we are glad they are now seeing things as we have seen them for years - that this tax needs to go. Republicans are happy to once again vote for the elimination of this tax."
4. Push for compromise. Use Rangel's bill as a jumping-off point, agree on the good things, and then offer spending cuts to make up for the tax increases. Remember, my Republican friends, tax cuts alone are not an end-game - our goal is smaller government. Tax cuts are a tactic - spending cuts are real progress.

This is a monumental opportunity, and there is some urgency to it, as the Tax Foundation points out:

The IRS sends the 1040 forms to be printed on November 7, and they need to finalize the rest of the forms by November 16. If Congress doesn't do something with the AMT by then, the updated forms will not be available to taxpayers until after the filing season has started and the original incorrect forms have already been issued. As if taxpayers needed any more confusion, they will then be stuck trying to figure out which set of forms is the correct set.

I'm not so delusional as to not think, given the above comment, that Rangel's not just playing politics by saying he will end the AMT while knowing there isn't enough time to do it. It could all be disingenuous. That's ok, because market-oriented leaders can force the issue. Take up this opportunity and run with it.

SCHIP for Class President! He LIKES you!

The breaking-news headline on CNN right now reads "The House of Representatives passes a more modest expansion of the popular children's SCHIP health insurance program."

I have two problems with this headline.

The first, and more trivial problem, is the use of the word "popular," like SCHIP's the captain of the football team. Throwing that in there is nothing more than editorializing. It is a blatant suggestion by the editors about how they believe their readers to feel about the program. A quick Google News search shows that many other news sources also want to be friends with that popular SCHIP, too.

The second and more substantive problem, though, is that this version is not more modest. It still allows able-bodied adults into the program. It still expands SCHIP into covering middle-class kids. It fails to insist that poor kids be covered before the middle-class kids. It raises taxes in the wake of record federal government revenues. It incentivizes states to enroll more kids in order to get bonus federal dollars.

Rather than offer a bill that provides beneficial coverage for poorer children, the Democrats have once again offered a bill that will lead middle-class families down the garden path of government dependence. Given the choice between "free" health care from the government and health care they have to pay for themselves, people of sound economic judgement are going to take the former. And it's free, so of course it's going to be popular, and since it's popular, we'll just expand it a bit more, so that people making $100,000 or even $200,000 can opt in.

Well, at that point you've got almost everyone, so you might as well make it universal. Everyone has free health care! Hooray! I mean, sure, there are fewer doctors because the money's not what it use to be, and sure the drug companies are folding up and doing less research because there's no profit to be made in that, so we're curing fewer things, but at least he drugs we do have are free. Taxes sure have gone up and the only hospital still open isn't quite as clean anymore.

But that's ok, right? Because it's free health care for everyone.

Libertarians as the future of politics?

Time magazine suggests its possible. Its article, Libertarians Rising, suggests that as the major parties continue to blur the lines of distinction between them, people will increasingly be attracted to a more ideological model such as libertarianism (or, on the other side, what it calls "communitarianism", a phrase I'm somewhat familiar with because a friend of mine use to work with a scholar who promoted such a philosophy. If that's the opposite of libertarianism, then libertarians are pretty safe from some all-out ideological assault for now).

Time gets things right for once:

Libertarians and communitarians (to continue this unjustified generalizing) are different character types. Communitarians tend to be bossy, boring and self-important, if they're not being oversweetened and touchy-feely. Libertarians, by contrast, are not the selfish monsters you might expect. They are earnest and impractical--eager to corner you with their plan for using old refrigerators to reverse global warming or solving the traffic mess by privatizing stoplights. And if you disagree, they're fine with that. It's a free country.

I like it because it's true.

Despite it's glib tone, the article points to the very real fact that the major parties are increasingly not offering what their constituencies want. The ideology offered under the brands of Republican and Democrat have become muddled. There is a great opportunity out there for libertarians and other more ideological movements to kick into high gear and offer a real alternative - or, if not an alternative, at least a source of pressure on the parties. If such a thing happens, it would be exciting and extremely good for American politics.