Daily Archives: June 11, 2010
I disagree with one point in Michael’s otherwise fine post about the mortgage interest deduction. It’s something I hear frequently from fiscal conservatives, and it’s a nice sentiment, but we need a better argument.
…we cannot accept the equivalence drawn between wealth transfers like Medicare, Social Security and Medicaid, and tax breaks like the mortgage interest deduction (MID). In one case, the government is taking money from someone else (despite how it has been characterized) and giving it to another, while in the other situation the government is simply deciding how much of one’s hide it will charge for its oh-so-wonderful services (a.k.a. taxes). It’s the difference between transferring money from one to another, and refraining from taking the money in the first place.
But targeted tax breaks aren’t really different, in practice, from subsidies. The numbers would work out the same if the feds cut checks each year to people who hold mortgages, but we think of the tax break as allowing people to preserve their status quo, while we think of the subsidy as an intervention.
Somebody always has to pay for government spending. A targeted tax break just means the government is going to force other taxpayers to pay for the spending, and when we’re running a deficit, that means future taxpayers.
I anticipate the counter-argument that if we send Congress more money to cover deficits, they’ll just ramp up their spending until they have equally large deficits again, so we won’t “save” future taxpayers a dime. I have two responses:
- That sounds like a fine argument for requiring balanced budgets.
- It appears that nothing short of catastrophic deficits motivates politicians to cut back on spending, and even that is an iffy proposition, so if fiscal conservatives are serious about governing, we need a better strategy than holding the Alamo on taxes.
What’s important for small-government tax policy is that taxes should (1) make people sensitive to increases in government spending (requiring balanced budgets helps), and (2) be simple and broad-based, not a tool for tinkering with social policy.
On the latter point, maybe I should give credit to Democrats for trying to undermine some of the biggest obstacles to the flat tax: the employer health benefits exemption and mortgage interest deduction. I see potential for some political jujutsu: Republicans can let the Democrats take the heat for killing the deduction, and just push for other flat-tax provisions that tend to compensate the losers. Lose the battle, win the war.
May retail sales declined 1.2%, against expectations of a 0.2% rise. And it's across the board, as ex-auto sales were down 1.1%. #
The cluelessness continues in the White House about the impact of the 6 month moratorium on drilling in the Gulf in waters over 500 feet. Taking the BP disaster as 100% certain without out such a moratorium, the administration has effectively stopped work on 33 deepwater exploration rigs in the Gulf . Energy Tomorrow gives a good round up of what the experts are saying about this policy:
•Adam Sieminski of Deutsche Bank predicted that U.S. oil production could fall by 160,000 barrels of oil per day by next year. (Financial Times)
•Bernstein Research said delays from the moratorium and rising costs stemming from new safety regulations are likely to raise the marginal cost of deepwater production by about 10 percent. (Financial Times)
•Paul Cheng of Barclays Capital warned that the higher costs could eliminate small independent companies who compete for drilling projects against the majors. (Financial Times) He also predicted an 11 percent drop in deepwater oil production. (Houston Chronicle)
•The Houston Chronicle reports that two large oil-services companies are relocating workers from the Gulf of Mexico to onshore North America drill sites and Brazil.
•The National Ocean Industries Association (NOIA) predicts that relocation is just part of the pain to be suffered by energy workers. Burt Adams, NOIA’s chairman, said in a statement, “the [president's] order will be felt by the families of tens of thousands of offshore workers who will be unemployed.”
The American Petroleum Institute (API) estimates that the moratorium will cost us 130,000 barrels of oil a day by 2011 and up to 500,000 a day by 2013. And it could put up to 46,200 jobs at risk short-term and as many as 120,000 over the long term.
So the blanket moratorium has some real down-side to it. And it is important that our leaders understand that and are sensitive to it, especially when we’re in the economic doldrums right how, the oil spill has all but devastated fishing in the area and the resort towns who normally thrive in the summer are feeling the impact of the spill. Risking that many jobs with a blanket moratorium is just not good policy.
So how sensitive to all of this is the White House? Louisiana governor Bobby Jindal found out recently:
Jindal said he had a conference call with President Barack Obama’s senior adviser, Valerie Jarrett, and appealed to her to shorten the six-month moratorium, arguing that a half-year pause would force oil companies to move drilling operations overseas for years and that the federal government could easily impose new safety standards and monitoring in a shorter time frame.
“She asked again why the rigs simply wouldn’t come back after six months,” Jindal said. “What worries me is I fear they think these rigs can just flip a switch on and off.”
Gross ignorance is all that can be called. These rigs cost about $500,000 a day for oil companies. You do the math. Those owning the rigs probably wouldn’t mind sitting around, doing nothing and getting paid 90 million for each rig. But the oil companies are going to move them, while they have them under contract, to foreign leases they own in order to seek oil.
Exploration rigs have always been at a premium (which is why their daily rate is so high), and they’re constantly working somewhere – as long as the price of oil supports such exploration. But since half a year is the apparent non-negotiable moratorium, those rigs are going to pull up stakes and move to foreign leases – leaving the oil untapped, and providing jobs elsewhere. We end up with higher unemployment and more dependent on foreign oil than ever.
And our leaders haven’t a clue.
It appears every pro-Palestinian activist group of more than two people is planning on staging a run at the Israeli blockade of the Gaza strip. The ostensible reason is to get much needed supplies and humanitarian aid to the Palestinians living in Gaza.
A group of German and European Jews is probably the most unique of the groups planning such a mission.
“We want to break the Gaza occupation and end the occupation of the West Bank as well,” Kate Katzenstein-Leiterer, a member of the executive committee of the European Jews for a Just Peace, which is organizing the mission, told SPIEGEL ONLINE. “We as Jews want to bring the Palestinians something other than bombs.”
It is always interesting to see such groups elide past the reason for the blockade and lay all the violence on the Israeli side. Certainly not surprising. In fact, it is necessary to develop the false premise that this is all Israel’s fault.
The ship, whose current location in the Mediterranean is being kept secret, will be carrying school supplies, musical instruments, children’s clothing and “stuff for children that Israel has forbidden, such as sweets and chocolates.”
Here’s the irony. In fact there’s a lot of irony here. One, there is rampant unemployment in Gaza. But, when there are certain items embargoed, Gazan Palestinians have started businesses to make up for that. When embargoed items are smuggled in, they put those businesses out of business. This isn’t an argument for continuing to embargo sweets, it is an acknowledgment of the impact of doing so.
Irony two. They could land all of that intact in Egypt and have it shipped through the Egyptian border with Gaza without a single confrontation with the Israelis. So this isn’t about “humanitarian aid” or bringing the Palestinians “something other than bombs”. That way is clear.
This is obviously about confrontation, publicity and attempting to embarrass Israel.
The final irony is that Egypt might not be as open to their shipment as one might imagine. After all, it is a boat load of Jews we’re talking about here.