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Richmans' Trade and Taxes Blog
Economist for the WallStreet Journal Has It Wrong on Trade
Raymond Richman, 3/19/2017
Greg Ip, chief Economics Commentator of the Wall Street Journal, wrote an article (3/16/20!7) entitled, “Deficits are a Flawed Guide to Unfair Trade”. First the term “unfair trade” is seldom if ever used by economists. They usually speak of countries employing mercantilist practices (i.e., tariff and non-tariff barriers to trade including export subsidies). Second, economic theory maintains that balanced trade is always beneficial to both trading partners, even when one of them imposes barriers. Third, when trade is not balanced, it is surely beneficial for the trading partner with the trade surplus. It gains jobs for its workers, it contributes to economic growth, and it gains reserves in the form of foreign currency and government bonds. It is probably not beneficial for the party experiencing the trade deficit, depending on what the party with the surplus does with the currency it receives in exchange for the trade surplus. What is important to all trading partners is their balance with the world. The U.S. has been running a trade deficit with the rest of the world for decades which has converted the U.S. since about 1970 from the world’s leading creditor to the world’s leading debtor.
Mr. Ip states that U.S trade deficits “result from a combination of saving, consumption and investment behavior". To his credit, Mr. Ip does acknowledge that unfair practices, including subsidized exports, benefits the American consumer at the expense of American factory workers. However, fixing unfair practices, he writes, “won’t necessarily correct the overall deficit…Persistent trade deficits reflect structural factors.” That is a statement which on its face is incorrect. There are many causes of chronic trade deficits including artificial barriers, exchange rates that do not equilibrate, inappropriate government policies which is what he probably meant by “structural factors”, etc. He writes, “The U.S. has a trade deficit because it consumes more than it produces. Lacking sufficient savings, the U.S. sells assets…to foreigners to finance consumption and capital spending.” He ignores the fact that U.S. multi-nationals have been saving but invest much of their savings abroad and many export some or most of their product back to the U.S. As for financing capital spending, that’s what moving factories abroad means. The trade deficits are not caused by American consumers who buy very little directly from foreign countries but by foreign and domestic corporations that import autos and consumer goods much of whose value is produced abroad. ...
Do Trade Deficits Matter - The Debate Heats Up -- We're published in today's American Thinker
Howard Richman, 3/16/2017
In today’s American Thinker, we discuss the debate about whether trade deficit’s matter between Trump’s National Trade Council director Peter Navarro (an economic nationalist) and the Wall Street Journal editorial page (economic globalists). We conclude:
The Wall Street Journal continues: “Perhaps the best way to think about the U.S. trade deficits is not to think about it.” It’s true; they’re not. If the economic globalists at the WSJ win, America will be the big loser. If President Trump enacts the suggestions of Peter Navarro and the other economic nationalists, America will benefit immensely.”
To read the commentary, to to:
Trump Must Give Priority to Reducing the Trade Deficits
Raymond Richman, 3/13/2017
Pres. Trump has his priorities wrong. Repealing Obamacare, building the wall on the Mexican border, improving education through school choice, lowering the rates of corporate income tax, reform of the personal income tax, strengthening our military capabilities, etc. are desirable but none of them attacks the real long-term malaise of the U.S. economy, the huge annual U.S. trade deficits. One cannot restore America’s greatness without reducing our international trade deficits which have been the primary cause of the wage stagnation and unemployment in manufacturing, restoration of which must be given the highest priority.
The ideology of free trade has permeated the media like the Wall Street Journal and Barron’s, the New York Times, the Heritage Foundation, and many others including most of the economists in academia. Fortunately, a few like Prof. J. M. Keynes put free trade in perspective. A free trader in principle, he asserted that when the U.K. trading partners pursued “beggar-thy-neighbor” policies, the U.K. should retaliate. For over a century, economists have pointed out that even when countries pursued mercantilist practices, all trading partners gained in welfare so long as trade was balanced. But both parties do not gain if trade is unbalanced. ...
Wall Street Journal Suggests Not to Think About the Trade Deficits
Raymond Richman, 3/11/2017
The editorial writers of the Wall Street Journal, 3/10/2017, wrote an editorial entitled “How to Think About the Trade Deficit”, which they considered an answer to Prof. Peter Navarro’s piece on 3/6/2017, “Why the White House Worries About Trade Deficits.”
Were I still a Prof. of Economics, I would give the WSJ an “F” in the economics of international trade. In the second paragraph, one reads “a trade deficit isn’t a debt that must be repaid. It is often a sign of economic prosperity.” A trade deficit results in the accumulation abroad of U.S. currency, every dollar of which recites that “This note is legal tender tor all debt, public and private.” The U.S. does not have to pay it back but it can be used to buy U.S. government bonds, to purchase Rockefeller Center as the Japanese did, buy real estate as many Germans have done, buy U.S. companies, or keep our IOUs as reserves for future use. The consequence of the trade deficit wherein our trading partners do any one of the above is to create jobs in the trade surplus country and none in the U.S.
In the third paragraph, the WSJ equates balance of payments with balance of trade, capital flows vs. trade in goods. The former is exchanging a $20 bill for two 10s. When we experience a trade deficit, our trading partners gives us goods in exchange for our $20 bill. It takes labor and capital in the exporting country to produce the goods we import while all it takes is paper and ink to produce our evidence of debt. Why would anyone want to exchange goods for a printed piece of paper – are they stupid? No they are buying our promise to let them gain ownership of productive assets in our country in exchange for the paper we used to pay for their goods.
In the 7th paragraph WSJ writes that if trade surpluses were a sign of success, the 1930s might been different, quoting Prof. Don Boudreax of George Mason U, “For only 18 of the 120 months of that dreary decade did the United States run a trade deficit. For each of the remaining 102 months of the decade of the 1930s the U.S. ran a trade surplus.” No one claims that trade deficits have much if anything to do with cyclical fluctuations. That the U.S. ran trade deficits during periods of prosperity has nothing to do with the argument that trade deficits have caused the loss of millions of good-paying jobs in manufacturing. ...
The Result of Excessive Government Is Democratic Fascism
Raymond Richman, 3/8/2017
A country in which central government expenditures account for an excessive part of the GDP can hardly be called democratic. The role of government in a democracy should be limited to defense, treasury operations, inter-country relations, a judicial system, the construction and maintenance of public infrastructure, maintaining law and order, and a limited number of specialized agencies. To the extent that the central government intervenes in the operation of the private economic system it should be limited to the grant of patents and copyrights as a reward for innovation and invention and little else. The setting of prices and wages should be beyond its powers. Even the anti-trust laws smack of crony capitalism.
The reader will recall that the Nazis professed to be socialist; indeed the term Nazi stands for National Socialist German Workers Party, dedicated to government control of all industry. Aided and abetted by Communists and communist fellow travelers, the party has been mislabeled a right-wing party but its basic orientation is socialist. Bernie Sanders self-described himself as a democratic socialist but since he proposes unlimited government expenditures of a social nature his philosophy should be more appropriately described as democratic fascism....
The Proposed Border Tax Would Derail Trump’s Proposals to Reduce Trade Deficits
Raymond Richman, 3/6/2017
Republicans have proposed a border tax supposedly intended to reduce the trade deficits and the budget deficits. And so-called conservative Republicans are pushing to substitute a value-added tax for the progressive personal income tax. The border tax is a modified version of the value-added tax. So both proposals are designed to add two regressive taxes since both fall on consumption and do not tax savings or wealth. We already have border taxes. Retail sales taxes do not apply to exports and most states impose retail sales taxes with rates as high as 9.45% in Tennessee, 9.3% in Arkansas, 8.9% in Alabama, Louisiana, and 8.89 percent in Washington State. The border tax would add 20% making the taxes on import as high as nearly 30%.
Under international law, retail sales taxes and value-added taxes can be exempted from and deducted from exports without violating the rules against “dumping”, i.e., defined as selling abroad at lower prices than sales at home. The value-added tax under international laws is considered a retail sales tax and may be rebated to exporters. Under international law, the border tax might not be considered a sales tax and therefore might violate international laws because the proposed tax affects only exports and imports. The issue would have to be decided in the courts which will take years. Congress could pass a value-added tax which would be deductible, but popular opposition to a sales tax at the federal government level would prevent it ever from passing. The border tax is a modified value-added tax. Under the plan, companies wouldn't be able to deduct the cost of imports from their revenue, a move that today enables them to lower their overall tax burden. At the same time, exports and other foreign sales would be made tax-free. The plan would operate like a tax on the trade deficit and raise about $100 billion per year which could help pay for lower income tax rates.
We have three principal objections to the border tax. First, it is a new federal tax and the federal government is already too large. Second, it is a regressive tax, falling on consumption only. Third it will punish not only countries with which we have a large chronic trade deficit but punish those with which have a trade surplus. ...
The Proposed Border Tax Would Derail President's Proposals to Reduce Trade Deficits
Raymond Richman, 3/1/2017
Our State retail sales taxes are border taxes and are not imposed on exports. Under international law, retail sales taxes and value-added taxes can be exempted from and deducted from exports without violating the rules against dumping, defined as selling abroad at lower price than sales at home. The proposed border tax seeks to impose a 20% tax on all imports. Under international law, the border tax may not be considered a sales tax and therefore might not be deductible. The issue will be decided in the courts which will take years. Congress could pass a value-added tax which would be deductible, but popular opposition to a sales tax at the federal government level would prevent it ever from passing. The border tax is a modified value-added tax. Under the plan, companies wouldn't be able to deduct the cost of imports from their revenue, a move that today enables them to lower their overall tax burden. At the same time, exports and other foreign sales would be made tax-free. The plan would operate like a tax on the trade deficit and raise about $100 billion per year which could help pay for lower income tax rates.
Congress could pass a 20% value-added tax, which amounts to a 20% retail sales tax, but there is no way such a proposal could pass the Congress or be signed by any President in his first term. The border tax is a sort of value-added tax; after all, the value of goods is the sum of value-added. Value-added is the sum of wages, profits, interest, and rent incurred in the course of producing goods and services, which equals the price of the goods and services produced. The IMF for decades has been promoting the value-added tax, concealing the fact that it is equivalent to a retail sales tax to make it easier to be enacted.
The border tax falls on all our trading partners, even those with which we have trade surpluses. Why would we want to hurt them? And the border tax raises the prices of all imports not merely those from countries with which we are experiencing huge deficits. ...
Prof. Martin Feldstein Makes a Poor Case For the Border Fax
Raymond Richman, 2/28/2017
Martin Feldstein, professor of economics at Harvard, former chairman of the Council of Economic Advisors, and a recognized tax expert, writes in an opinion piece in the Wall Street Journal, 2/27/2017, that the border-adjustment tax proposed by some House Republicans “would not hurt American consumers and businesses,” nor affect the overall trade deficit. He gave the following reason for his astonishing conclusion:
Retailers and importers understandably fear that the tax would raise the cost of their products, ultimately increasing the prices to consumers. But the border tax would also cause the international value of the dollar to rise, reducing the cost of imports by enough to offset the tax.
Here’s why the dollar would rise: Without a change in the currency’s value, the border adjustment would cause imports to fall and exports to rise, reducing the overall trade deficit. But it is a fundamental fact of economics that the size of a country’s trade deficit equals the difference between national investment and national savings. Since the border adjustment tax would not alter either investment or saving, there must be no change in the trade deficit
Economic theory does not support Feldstein’s analysis. A country’s investment and savings are affected by trade deficits and surpluses but private investment and savings depend on rates on rates of return and rates on borrowed capital and government investment depends on Congressional and administration decisions while savings depends on the amount of income after tax of individuals and corporations. The author’s conclusion confuses an accounting identity with a statement of causes and effects. ...
Free Trade Has Been a Disastrous Policy for the USA
Raymond Richman, 2/26/2017
Many Republicans continue to espouse free trade under the impression that free trade is a conservative policy. Indeed trade is a conservative policy in the sense that both parties benefit from trade, each giving up goods of less value for goods of greater value. Adam Smith rightfully condemned mercantilist policies and favored a “free exchange”. He never used the term “free trade” and he was always thinking of a free exchange of goods for goods. It never occurred to him to prescribe a unilateral free exchange policy, which unfortunately most economists seem to favor to the everlasting shame of the discipline. The shame is that they never analyzed the consequences of a possible chronic trade deficits. Free trade is an appropriate policy 1) when both trade partners have a common currency, 2) neither imposes tariffs or subsidizes exporters, i.e., neither is pursuing mercantilist policies, and 3) labor and capital can freely move between them. These conditions are imposed upon the States by the U.S. Constitution. They do not exist in international trade. ...
Against the High Tech Luddites
Jesse Richman, 2/24/2017
Several of the United States' high technology billionaires have apparently recently fallen prey to the foolish arguments of neo-luddites. For instance, Bill Gates has recently proposed a tax on robotic automation. Economists have rightly rejected these claims. Indeed, if we want to have rising incomes the best thing is for robots to take more jobs. That's how we become more productive. And ultimately how living standards can rise. It is this kind of ingenuity which has kept Malthus' grim prognostications at bay in much of the world for the last two centuries.
At the present moment, indeed, the US is facing a crisis of low productivity growth. The robots are not being invested in rapidly enough. The graph below shows the BLS estimate of non-farm productivity growth over time. The last several years have been ones of low productivity growth. The five year average rate of productivity increase is among the lowest in the time series....
The Border Tax and the Value-Added Tax Are Bad Proposals
Raymond Richman, 2/17/2017
All kinds of foolish tax ideas are being promoted since Trump proposed corporate and individual tax reforms. One is converting the corporate income tax to a tax on revenues from production and sales in the U.S. plus a 20% tax on imported inputs. This in effect amounts to a border tax of 20% on imports with exports free of tax. Our analysis of this proposal indicates that the border tax will have no lasting effect on the trade deficits. Indeed our State sales taxes are a border tax; exports are exempt from sales taxes. Another proposal is adding a value-added tax, equivalent to a retail sales tax at the federal government level. The value-added will add to the bloated federal bureaucracy. Its justification is to compensate for the loss of revenue resulting from the proposed reduction in the rate of the corporate income tax. A third proposal is to repeal the estate tax, the only measure we have that reduces wealth inequality. Wealth inequality has been increasing for decades; there is no justification for making it more unequal. None of these proposals is necessary or called for. All that we need is the Scaled Tariff, a single-country-variable-tariff which rises and falls with trade deficits, which will bring in lots of revenue until economic growth escalates as a result of trade being balanced. We do not need trade agreements or jaw-boning. ...
Border Adjustable Tax
Jesse Richman, 2/17/2017
The Tax Foundation has put out an analysis of the House Border Adjustable Tax plan. This highlights some of the key elements of the plan, but may be incomplete in particular ways. The full analysis is available here: https://files.taxfoundation.org/20170215084119/Tax-Foundation-SR234.pdf
They make a number of valuable points about the plan. However, some of the arguments made depend upon assumptions which may not necessarily be relevant in the current situation.
One key assumption is that trade is balanced (at least in the longish run).
"Both an origin-based tax and a destination-based tax are trade-neutral and switching from one to another does not impact the trade balance. This is because exports and imports are two sides of the same coin. Exports are needed to pay for imports and imports are the returns to exports. As such, taxing exports ends up reducing imports and taxing imports ends up reducing exports."
If trade is balanced, then of course this is right. On the other hand, the US has run a remarkably robust trade deficit since the Carter administration -- four decades. In the context of a situation in which trade is not balanced, it is worth thinking about the effects of the particular proposal. The current corporate tax system taxes exports but not imports. This will tend to discourage exports. The proposed change will tax imports but not exports. This will tend to discourage imports. If one assumes that trade is balanced, then of course a border adjustable tax will have no effect on the trade balance. But if in fact a country is running a trade deficit, switching the incidence of corporate taxation in a way that taxes imports instead of exports is a prudential measure likely to improve the trade balance. It switches from a tax code that taxes exports to a tax code that taxes imports. This is a VERY GOOD IDEA likely to improve the trade balance.
The paper makes a number of good points about the benefits of the proposal.
"There are actually some non-economic advantages that may make the switch to a destination-based tax worthwhile. Paired with other aspects of a DBCFT, the border adjustment would make many strategies of profit shifting under current law impossible. It would also be possible to lift some of the complex anti-base erosion provisions that typically come with origin-based tax systems. Lastly, a border adjustment in a DBCFT raises a significant amount of revenue in the budget window, which can be used to finance other important reforms such as full expensing and lower marginal tax rates."
Under the current tax system, multinational corporations engage in extensive tax shifting and tax shelter strategies. I would argue that the presence of these strategies is bad for the economy in multiple ways...
Paul Ryan’s Border Adjustment Tax vs. Donald Trump’s Targeted Tariffs -- we're published in American Thinker this morning
Howard Richman, 2/10/2017
In this morning's American Thinker, we compare Paul Ryan's Border Adjustment Tax vs. Donald Trump's Targeted Tariffs.
President Trump's proposed tariffs ("targeted" upon just the countries with which the U.S. has huge trade deficits) would balance trade and bring back American manufacturing jobs and economic growth. Paul Ryan's "Border Adjustment Tax" would not.
Socialism Causes Slow Growth and Is Prone to Violence
Raymond Richman, 2/7/2017
During the recent presidential election, candidates for the Democratic Party nomination included a self-styled “democratic socialist”, Sen. Bernie Sanders. The adjective democratic is used by him to distinguish himself from totalitarian socialists like Adolf Hitler and Joseph Stalin, both noted for the number of their citizens they killed. Violence was a trademark of the Nazis, the National Socialist party of Germany, but our mixed-economy, defined as partially socialist, is not without violence from socialists. Sanders’ followers used violence to prevent a Trump rally in Chicago during the recent Republican primary for President and they organized protests at most of his rallies. Even post-election the violence continues. The violence at our Universities aimed to prevent conservatives from speaking is a manifestation of socialist intolerance for anti-socialist ideas.
Socialists seem unable to accept the reality of Trump’s election and anti-Trump protests continue. The reader may argue that many protestors are Democrats who do not consider themselves to be socialists. But to be a Democrat you have to believe in government intervention in the economy, in the mixed economy, an economy with increasing socialist tendencies.
Socialist are utopian and a world free of competition has always been attractive to young people. I believed in a cooperative commonwealth as a young man. But when I observed the co-op movement in England that created the first supermarket but failed to expand and that co-ops in the U.S. refused to branch out, I realized that co-ops and socialist governments lacked the incentives necessary to grow and develop, lacked the dynamism of a free market economy....
Comments on the news 2/5/2017
Raymond Richman, 2/5/2017
1) The big news was that the Federal Appeals Court of San Francisco temporarily at least supported the lower court judge’s ruling staying the administration’s 90 day ban on immigration from seven countries with Moslem majority populations. What was surprising to me as a lawyer is that they allowed the ban while they considered the arguments. Normally, the practice is to stay the judge’s ruling while it considers the arguments. The Appeals Court gives the impression that political considerations determined their ruling. An anti-Trump judiciary? If so, shame on them.
2) A very interesting article appeared in the Feb. 3, 2017 issue of Quartz magazine, entitled “What Steve Bannon really wants” by Gwyn Guilford.
Following is a quote from the article:
“Bannon’s political philosophy boils down to three things that a Western country, and America in particular, needs to be successful: Capitalism, nationalism, and “Judeo-Christian values.” These are all deeply related, and essential. ...
The Scaled Tariff, a Single Country Variable Tariff, Is All That Is Needed to Balance Trade
Raymond Richman, 1/25/2017
Trump is being importuned to impose a border tax. A border tax is foolish and unnecessary. In the first place, it applies to all our trading partners even those with whom we enjoy a chronic trade surplus. The problem that needs correction are our chronic trade deficits with a handful of countries that has impoverished millions of American manufacturing workers. That is easily corrected by scaled tariffs which rise and fall automatically as the trade deficit widens or contracts. The scaled tariff is a single country variable tariff which has the virtue of raising huge amounts of revenue so long as the trade deficit remains substantial.
The scaled tariff requires no new bureaucracy because tariffs already exist and are administered by an existing revenue authority. A border tariff is a new tax and will require a new bureaucracy to determine how large it should be and to administer it. A border tax imposed on imports from countries with whom we have a trade surplus is an undesirable mercantilist policy on our part, something we oppose when others do it. International law recognizes the right of nations to impose tariffs for the purpose of correcting a trade deficit.
Trade deficits have a number of causes ranging from difference in countries’ savings rates, unjustified wage differences, unjustified barriers to imports and subsidies to exports, and exchange rate manipulation, inter alia. Regardless of their cause, countries have the right to impose tariffs so long as the trade deficits continue.
The U.S. government has the obligation to ensure balanced trade with every major trading partner over the long-run. Balanced trade is always beneficial to all trading partners in the long-run. Unbalanced trade is often beneficial to countries importing capital goods to produce more goods or new goods for their own residents. Many of the countries with which we have a favorable balance of trade are in this category. ...
Soros Finances anti-Trump Women's March
Raymond Richman, 1/22/2017
Ex-WSJ Reporter Finds George Soros Has Ties To More Than 50 "Partners" Of The Women’s March | Zero Hedge
Ex-WSJ Reporter Finds George Soros Has Ties To More Than 50 "Partners" Of The Women’s March
Former WSJ reporter Asra Nomani asks in the NYT's "Women In the World" section what is the link between one of Hillary Clinton’s largest donors and the Women’s March? Her answer: "as it turns out, it’s quite significant."
Here is what else she discovered.
Billionaire George Soros has ties to more than 50 ‘partners’ of the Women’s March on Washington
In the pre-dawn darkness of today’s presidential inauguration day, I faced a choice, as a lifelong liberal feminist who voted for Donald Trump for president: lace up my pink Nike sneakers to step forward and take the DC Metro into the nation’s capital for the inauguration of America’s new president, or wait and go tomorrow to the after-party, dubbed the “Women’s March on Washington”?
The Guardian has touted the “Women’s March on Washington” as a “spontaneous” action for women’s rights. Another liberal media outlet, Vox, talks about the “huge, spontaneous groundswell” behind the march. On its website, organizers of the march are promoting their work as “a grassroots effort” with “independent” organizers. Even my local yoga studio, Beloved Yoga, is renting a bus and offering seats for $35. The march’s manifesto says magnificently, “The Rise of the Woman = The Rise of the Nation.”
It’s an idea that I, a liberal feminist, would embrace. But I know — and most of America knows — that the organizers of the march haven’t put into their manifesto: the march really isn’t a “women’s march.” It’s a march for women who are anti-Trump. ...
The Myth of a Global Manufacturing Employment Decline
Jesse Richman, 1/21/2017
...The graph rather speaks for itself. It is immediately obvious that total manufacturing employment including the USA, the Rest of the West, and China has been on the increase rather than the decline....
Keep the Focus on Net Exports
Jesse Richman, 1/19/2017
The favorite line or political strategy for those who favor trade deals that end up weakening the US economically is that the deal will increase US exports. President Obama bought this line. Many Republicans in Congress have too. The problem is that a focus on exports alone can be deeply misleading.
To think about why, let's start with one of the jokes my father tells periodically about why he quit vegetable and sheep farming in favor of other pursuits.
The hardware store owner sees a man come in to the store one week. He buys twenty pitchforks for $20 each.
The next week the same man comes back, and buys twelve pitch forks for the same price.
The next week the same man purchases another eight pitchforks.
Finally the shopkeeper cannot suppress his curiosity. "Why are you buying all of these pitchforks? What are you doing with them?"
"Well," said the man, "I buy them from you for $20, and then I resell them for $15."
"But you lose at least five dollars for every fork you sell!"..
"Yup," said the man, "But it beats farming!"
Exports are a good thing. Exports create jobs for those who work to produce the exports. And they provide countries with the means to purchase imports.
But just as selling pitchforks for less than one paid for them is a recipe for losses and debt, so too is making a deal that raises exports while raising imports much more. The jobs displaced in the import-competing sectors will not be offset by the jobs created by the much smaller gains in the export-competing sector.
Thus, when politicians speak of exports alone without also discussing imports, they ought to be taken to account. How will their proposed policies influence the overall picture of US trade?
Here are some other metrics to keep in mind....
Walll Street Journal's Recent Bias Against Trump Revealed By Its Editor
Raymond Richman, 1/5/2017
Wall Street Journal editor-in-chief Gerard Baker on 1-5-2017 wrote an opinion piece entitled “Trump, ‘Lies’ and Honest Journalism” in which he argues that when he defended his advice to the press to “be careful about using the word ‘lie’. ‘Lie’ implies much more than just saying something that’s false. It implies a deliberate intent to mislead.” “Mr. Trump certainly has a penchant for saying things whose truthful is, shall we say for now, challengeable” and “Given the number of times Mr. Trumps seems [sic!] to have uttered falsehoods” and “Mr. Trump has a record of saying things that are, as far as the available evidence tells us, untruthful: thousands of Muslims celebrating 9/11 on the rooftops of New Jersey, millions of votes cast illegally in the presidential election, President Obama’s supposed foreign birth” and “When Mr. Trump claimed that millions of votes were cast illegally, we noted, high up in our report, that there was no evidence for such a claim. No fair-minded or intelligent persons was left in any doubt whether this was a truthful statement.” He writes further, “Now, I may (sic!) believe that many of the things Mr. Trump has said in the past year are whoppers of the first order. But there is a difference of believing that, with reason (sic!)—my induction from knowledge of the fact—and reporting it as a fact. The latter demands a very high standard of reporting.” And finally, he concludes, “What matters if that we report the story and that we find the truth. It’s our job also to point out when candidates, presidents, chief executives, public officials or other s in the news say things that are untrue. But I’m content for the most part to leave the judgment about motive—and mendacity—to our readers, who are more than capable of making up their own minds about what constitutes a lie.”...
George Washington’s Farewell Address Had More to Say Than Avoid Entangling Alliances
Raymond Richman, 12/27/2016
In Washington’s Farewell Address 1796, the most frequently quoted passage is his admonition that the USA should avoid entangling alliances. On entangling alliances, he wrote, “It is our true policy to steer clear of permanent alliances with any portion of the foreign world…Taking care always to keep ourselves by suitable establishments on a respectable defensive posture, we may safely trust to temporary alliances for extraordinary emergencies.” He wrote: “Observe good faith and justice towards all nations; cultivate peace and harmony with all. ..In the execution of such a plan, nothing is more essential than that permanent, inveterate antipathies against particular nations, and passionate attachments for others, should be excluded.” What would he think of NATO and our bringing countries bordering Russia into a military alliance directed against Russia? Any NATO country could conceivably force us into a war with Russia.
Another area of concern to Pres. Washington was foreign trade. Regarding trade with nations, he wrote, “The great rule of conduct for us in regard to foreign nations is in extending our commercial relations, to have with them as little political connection as possible… constantly keeping in view that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors, and yet of being reproached with ingratitude for not giving more. ...
The Corporate IncomeTax Is the Worst Tax Ever Invented
Raymond Richman, 12/24/2016
The corporate income tax is the worst tax ever invented. Economists who have studied and written about its incidence, that is who actually pays the tax, agree that it varies from industry to industry. Monopolists pass the tax on to consumers so that although they appear to be paying the tax they do not bear the burden of the tax. It even varies among monopolists depending upon how much competition they have from competing products. It even varies among firms in highly competitive industries like supermarkets. Some have some monopoly power depending on their location and the number of supermarkets in their vicinity. The corporate income tax violates every principle of taxation. Not only does much of it fall on consumers, but the tax penalizes workers who depend on pensions and IRAs, etc. for their retirement. The income from the wages invested in their retirement schemes is taxed at the maximum rate of corporate tax, currently 35% so their pensions and retirement income is much less than it would be if the tax were 15 or 20% as would be if it is were taxed under the personal income tax. The rich shareholders pay no personal income tax on their corporate income except dividends, and they escape the highest rates by buying back shares rather than pay dividends, a practice that is increasing.
So why don’t we tax corporation as partnerships are taxed. Partners pay personal income taxes on their shares of the partnership’s income. The reason given historically is that corporations have the privilege of limited liability for their shareholders. If the corporation fails, shareholders have no additional liability to what they have already invested in the corporation. But even this argument no longer holds. In most States, perhaps all, partnerships and proprietor ships may elect to be treated as limited liability companies. Increasingly one see the letters LL.C. indicating that only the assets of the company are liable for its debts.
So what is the excuse for a separate corporate income tax with all its inequities and bad economic practices that the corporate income tax encourages. No excuse at all As for the abuses, we’ve written about them in articles on this blog in the past.
An essential companion reform is changing the rules for depreciation under the corporate and the personal income tax as well. ...
Four Ways to Balance the Budget and Boost the Economy by Taxing Foreigners - we're published in American Thinker this morning
Howard Richman, 12/22/2016
In the American Thinker this morning, we suggest four tax changes that Congress could enact to balance the budget and boost the economy at the same time by taxing foreigners:
- Close the foreign savings tax loophole.
- Tax foreign dollar reserves.
- Integrate the corporate and personal income taxes.
- Impose trade balancing tariffs.
Our ballpark estimate is that these four proposals would bring the government $465 billion in tax revenue the first year. To read our commentary, go to:
Trump Is Right That the Trade Deficits Have Crippled the U.S. Economy
Raymond Richman, 12/20/2016
In its issue of December 19, Barron’s magazine published an article entitled “Tackling Trump’s Trade Plan” written by a member of its staff, Gene Epstein, who holds an M.A. in Economics from the New School. Judging from his article, Epstein appears to know little about the theory of international trade. He begins by writing how awful the Smoot-Hawley Tariff Act of 1930 was. He writes that “U.S foreign trade plunged by 40%, which helped drag the economy into the Great Depression.” That is nonsense. Net Exports, which is the net effect of foreign trade on Gross Domestic Product, was 0.3 billion in 1930, 0 billion in 1931 and 1932 and did not become negative until Pres. Roosevelt’s New Deal policies made it -0.2 and -0.3 in 1935 and 1936. The Snoot-Hawley tariff, contrary to widespread belief by economists and journalists, not only had no effect on the Great Depression which began three years before the tariffs became effective. It has been used falsely to attack anyone who is for balanced trade and opposes free trade. Of course, trade does not need to be balanced with every nation but over time needs to balanced against the rest of the world. A look at the Bureau of Economic Analysis’ Gross Domestic Product accounts shows that the U.S. has been suffering chronic trade deficits for decades, which has converted the U.S. from the world’s leading creditor to the world’s leading debtor since about 1985, halved the economic growth rate, and caused the loss of millions of good-paying U.S. manufacturing jobs. Our principal trading partners pursued a trade surplus policy to promote their economic growth at our expense.
When trade is balanced, all trading partners gain from trade, obtaining goods they value more by trading for goods they value less. When trade is unbalanced the trade surplus country trades some of its goods for an IOU of the other. Japan used those IOU’s to buy productive assets already in existence in the U.S., the Rockefeller Center. China and others have been buying U.S. businesses. Buying U.S. real estate and existing businesses does not create demand for U.S. labor. The U.S. by running chronic trade deficits with the rest of the world is not exchanging goods it values less for goods it values more. It is increasing employment abroad while decreasing employment at home. ...
COMMENTS ON THE NEWS OF THE DAY
Raymond Richman, 12/15/2016
Two items dominate the news today. The first and occupying the most time on television and space in the printed media are the “leaks” from the CIA that it believes Russian hacked the DNC and provided WikiLeaks with the emails that embarrassed Hillary Clinton’s campaign and caused so many voters to support Trump. Presumably the Russians got the FBI to call attention to Hillary’s posting classified information on her internet servers which also influenced many voters. And no doubt the Russians were responsible for the turnout of more than 60 million voters who voted for Trump. My own view as a person who served as Executive Officer of a B-17 Bomb Squadron which conducted nearly 200 missions over Germany during World War II, is that Russian intelligence if it did not try to help defeat an American administration that got its Baltic neighbors to join in a military pact aimed at Russia and which helped overthrow a government in the Ukraine, Russia’s neighbor. a nation to whom Russia had granted territory housing Russia’s major naval base on its Southwestern, would be derelict in its duty to defend Russia’s interests. Russia has no reason to believe that Trump will change U.S. policy other than the fact that Trump has indicated a willingness to treat Russia civilly as Presidents G.W. Bush and Barack Obama did not.
The CIA has a history of intrusions in domestic politics and in the internal affairs of other independent nations to affect elections and overthrow governments. One could argue that is its duty to promote the interests of the U.S. abroad whatever the means. The CIA brought down a Republican President once before by leaking information that forced Richard Nixon to resign the presidency. ...
COMMENTS ON THE NEWS OF THE DAY
Raymond Richman, 12/14/2016
Democrats and Never-Trump Republicans want an investigation into Russian hacking of the Democratic National Committee’s emails, believing, probably falsely, that the Russians were responsible for the leaks that may have influenced the election in favor of Trump. But the leaks especially Wiki-leaks only revealed e-mails that were never denied. They contained news that the American people were entitled to know. Trump’s victory was a populist, i.e., popular, event similar to Brexit in the U.K. and the recent elections in Italy. If the leaks were the result of Russian hacks, Russia should be thanked by the U.S. Congress on behalf of the American people for revealing the corruption within the Democratic Party, extending up to its chairwoman. Let’s hope we have more hacks that reveal corruption in Washington and anywhere else. If our intelligence is not hacking Russian emails, it should. U.S. intervention around the world is clear to see. We and NATO, our creation and principal supporter, supplied weapons to rebels in Yugoslavia, Libya, Syria, and others, organized the overthrow of the legally elected pro-Russian government of the Ukraine, recruited into NATO countries neighboring Russia. Imagine what they would be saying if Russia were join Cuba, Mexico, and Venezuela into a military pact. Revealing the results of hacking may be a sin only when it does not reveal public corruption.
Democrats and the Never-Trump Republicans and most of the media are saying how awful it is that Trump is appointing qualified skeptics civilians and former generals to cabinet posts. In their view, he should be appointing politicians, who as a group organized the decline of America from its former greatness, promoted the fallacious ideas that global-warming is man-made, that carbon dioxide in the atmosphere causes global warming, and the idea that raising the minimum wage is good economics, etc. That these are fallacious ideas has been pointed out on this blog repeatedly. ...