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 Richmans' Trade and Taxes Blog

Mike Lee gets it -- Watch his "Animal Farm" speech about the Cromnibus bill
Howard Richman, 12/15/2014

After castigating Congress for passing the Cromnibus, he shows he understands just what is happening in our economy today. His theme is the loss of opportunity when Washington is siding with the special interests against the American people.

He says that the loss of opportunity is not globalization only -- perhaps he understands what we have been arguing, that growing trade doesn't help when it involves huge trade deficits....


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Why are oil prices falling?
Howard Richman, 12/10/2014

When prices fall, there are two possibilities: (1) increased supply or (2) reduced demand. If oil prices are falling because of increased oil supply, that can be very good for the U.S. economy. On the other hand, if oil prices are falling due to weakening world aggregate demand, then the price collapse could be a signal that the world economy is about to collapse. Thus, it is important to determine why oil prices are falling.

One way to determine whether supply is rising or demand falling is to look at quantity sold. If quantity is rising, then supply is rising. If quantity is falling, then demand is falling. I found some statistics that might cast some light on whether world oil consumption was rising or falling on the U.S. Energy Information Administration's (EIA) website. According to their short term energy outlook, total world consumption of oil is rising from 90.48 million barrels per day in 2013 to 91.44 in 2014. Thus, unless the EIA has missed a fourth quarter collapse in oil consumption, it appears that world oil consumption is rising.

I see no signs of a fourth quarter collapse in world aggregate demand. In fact, according to the Bureau of Economic Analysis, U.S. exports of goods and services in October increased to $197.5 billion in October, $2.3 billion more than September exports. If world aggregate demand were collapsing, then U.S. exports would likely be falling. So, we can rule out collapsing fourth quarter world demand for oil. 

OIL-PRICE.NET has a good summary (Oil Price Drops on Oversupply) of geo-political reasons why oil price supply is increasing at the moment. Here are some of the ones that they list:...


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How the Minimum Wage Contributed to the Ferguson Riots
Raymond Richman, 11/28/2014

The legal federal minimum wage prevents employers from hiring anyone, with few exceptions, who would work for less. Michael Brown, the young black teenager killed in Ferguson, was one of the millions of black teenagers and other unskilled blacks who are unemployed as a result of the minimum wage of $7.25 per hour which costs prospective employers $16,150 per year including social security tax and Medicare insurance plus some thousands more for Obamacare. As a result, most black teenagers are unable to get the first foot on the ladder to a living wage and the ability to raise a family. And many older unskilled workers, including single mothers, who are without a job find themselves alienated and part of a vast underclass with attendant unsocial and criminal behavior.

That the minimum wage reduces the demand for unskilled workers cannot be denied. The vast majority of economists acknowledge that the legal minimum wage prevents the employment of many unskilled workers but they are afraid to publicly denounce the minimum wage which enjoys so much support from powerful political groups, like the labor unions. Unions do not want competition from non-union employers.

We even hear calls for a “living wage” as though every worker is the sole support of a family. The average household consists of 2.54 persons down from 3.33 in 1960. That statistic includes seniors and families whose children are grown-up. Twenty-eight percent of women age 35 to 44 have three kids or more. During the 1950s, women had four children on the average. That date is significant because the minimum wage began to have its effect about then. Still, the typical family with a teenager in it has one or two parents. If either parent works, a teenager earning $5 and hour adds $10,000 to the family income. His employment could be the difference between the family’s living in poverty or not....


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Keystone XL Pipeline
Jesse Richman, 11/22/2014

Steve Yetiv and I published an op-ed recently in Canada's national newspaper the Globe and Mail on the Keystone XL pipeline.  

We begin:

"The Republican victory in the midterm elections has shaken up politics in the United States. It may even lead to a decision on the controversial Keystone XL pipeline, which would move oil from Alberta’s tar sands and North Dakota’s Bakken oil fields to refineries on the U.S. Gulf Coast.

"Will it clear the way for construction of the last phase of the pipeline? The chances have risen, but passage is still not assured. It will likely depend on a deal between the Republican-dominated Congress and Democratic President Barack Obama."


The entire piece can be read at: 


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Cloture Rule May be Key Senate Vote -- We were published in today's American Thinker
Howard Richman, 11/20/2014

We began:

The most important vote that the Republican Senate takes next year may be a procedural vote.  If the Senate continues last session’s cloture rule, Senate Democrats will be given the power to keep the Republican agenda off President Obama’s desk.

But if senators return to the earlier version of the Senate cloture rule that was in place until the early 1970s, they will be able to put legislation on President Obama’s desk that would be popular with the Republican base in particular and with the majority of the American people as well.

The filibuster was created (at Thomas Jefferson’s behest) when the motion to “call the previous question” was struck from Senate rules, leaving no way to force a final vote on legislation.  A cloture rule was added in 1917 that permitted two thirds of senators present and voting to draw debate to a close.  Although in the 1950s senators experimented with requiring two thirds of all senators to support cloture, Lyndon Johnson’s Senate ultimately returned to the more workable present and voting standard....

To read the rest, go to:


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Government Interference in the Economy Has Been an Unmitigated Disaster
Raymond Richman, 11/13/2014

Few Americans know the economic harm that government mismanagement of the economy has caused. The Community Investment Act—still in force—was the principal cause of the housing bubble that led to the Great Recession, whose effects we are still experiencing. And government intervention in the economy continues to cause untold economic misery. For example, the minimum wage law has denied employment to millions of unskilled workers with dreadful consequences to them and to our society. The Corporate Income Tax was enacted to appease anti-business sentiment. Its proponents unknowingly created a tax that violates all the criteria of a good tax. Americans widely support free trade notwithstanding the fact that some of our trading partners entertain policies that steal American jobs and whole industries. Americans are unaware that the federal government (and some state governments) have given away billions in subsidies and tax credits and conducted a war on fossil fuels in the name of preventing global warming. It has become a world-wide disaster. Scientists are in disagreement as to how much of the global warming is caused by the burning of fossil fuels. Scientists are unanimous in acknowledging that the billions spent to date have had no effect whatsoever on climate change. Moreover, the dynamic oil and natural gas industry has been the major contributor to employment growth during the past six years and is reducing our chronic trade deficits which have cost Americans millions of jobs. Americans are willing to provide low-rental housing for the poor but are unaware that while rentals are low, the cost per unit was astronomical. And Americans should know that many other government policies have slowed America’s rate of economic growth, among them excessive and costly unnecessary government regulations which have raised costs to the consumer and produced little of no benefit. Let us look at a few of these policies....


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Bank of Japan steps up its mercantilist attack upon the U.S. economic future.
Howard Richman, 10/31/2014

The biggest financial news this morning is that the Bank of Japan announced last night that it was going to boost its money creation -- using the money to buy U.S. stocks. Here's a selection from an article on Zero Hedge, my favorite economics blog: 

In retrospect, the BOJ's [Bank of Japan's] announcement [that it would be creating money and using it to buy Japanese government long term bonds] should have been anticipated. Recall that yesterday, the biggest non-story was the regurgitated headline that the Japanese Pension fund would boost its holdings of domestic and foreign stock from 12% to 25%, while slashing its Japan bond holdings from 60% to 35%, something that had been leaked previously. The full changes:

  • Domestic stocks raised to 25% from 12%
  • Japan bonds cut to 35% from 60%
  • Overseas shares 25% from 12%
  • Foreign debt 15% from 11%

And here's an article about the same announcement being the cause of rising U.S. stock prices on the Yahoo Finance blog:



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The role of non-citizens in U.S. Elections
Jesse Richman, 10/24/2014

I have a piece with David Earnest up on the Washington Post website this evening which reports on the results of research into the role of non-citizens in U.S. elections.  Although it is illegal for non-citizens to vote in U.S. elections, some do.  We report on an analysis of survey data that allows us to estimate the scale of this participation, and to identify election outcomes that were likely altered by the presence of non-citizen votes. 

The piece appears on the Monkey Cage, a Washington Post blog which reports on Political Science research.  

We begin: 

Could control of the Senate in 2014 be decided by illegal votes cast by non-citizens? Some argue that incidents of voting by non-citizens are so rare as to be inconsequential, with efforts to block fraud a screen for an agenda to prevent poor and minority voters from exercising the franchise, while others define such incidents as a threat to democracy itself. Both sides depend more heavily on anecdotes than data.

In a forthcoming article in the journal Electoral Studies, we bring real data from big social science survey datasets to bear on the question of whether, to what extent, and for whom non-citizens vote in U.S. elections. Most non-citizens do not register, let alone vote. But enough do that their participation can change the outcome of close races.

I encourage you to take a look at the entire piece. 



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Outsourcing is not a political winner, and may cost Republicans the Senate
Jesse Richman, 10/16/2014

Democrats are taking a page from their Anti-Romney playbook with a series of apparently quite effective attack ads against Georgia Republican Senate candidate David Purdue. Purdue must respond effectively, and articulate a clear vision on trade to counter these attacks.

Purdue seems to be in significant trouble. The polls have tightened, and national super-PACs and campaign committees are pouring millions into the Georgia Senate contest as a result. A major factor in that trouble seems to be his record of outsourcing jobs while CEO of Dollar General and before that as an executive with other firms, as highlighted in a series of attack ads such as this attack on his compensation from managing a struggling manufacturing company that folder soon after he left, this ad emphasizing his career in outsourcing ad and this "outsourcing is good" ad. The Real Clear Politics average for this race began moving substantially immediately after the second ad ran, with Nunn leading in the two most recent polls.

Purdue's campaign website says some very positive things about his aspirations to boost the growth of American manufacturing....


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Similarities and Differences Between Fascism, Communism, Socialism, Democrats and Republicans
Raymond Richman, 10/13/2014

Both political parties in the U.S. are coalitions. The Democrats include persons who believe government has a role in setting the direction of the economy and those who want government to control the economy, including socialists. Republicans include people who believe government has a more modest role in setting the direction of the economy and conservatives who fear a powerful government. The Democrats are labelled as leftists and the Republicans as rightists.

Fascism is always described as far right when it should be described as far left because from its start in Italy and Germany socializing the economy was its intent. Communism until then claimed to be international not national. Stalin was a Georgian, not a Russian. The Communist party in Germany, in its struggle for power with the Nazis, which stands for national socialist party, argued that it was rightist. The notion that it was a rightist party was simply German Communist propaganda that intellectuals around the world bought hook, line, and sinker.  Mussolini had been a communist until he decided that the road to power was to nationalize socialism. National socialism in Germany and Italy wisely tolerated a large private sector because socializing the private sector would have brought disaster to their economies, resulting in the deaths of millions of people as it did in the USSR during its first two decades.

To be far right, one must be for minimum government. Authoritarianism is not rightist; it is leftist. Both Democrats and Republicans have since the 1930s have been increasingly interventionist with the consequent growth of government and its entry into areas where government has never gone before. Only the Tea Party Republicans oppose these tendencies. Perhaps it is time for three parties, including a conservative party on the right.  ...


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Continetti's The Case for Panic
Jesse Richman, 10/4/2014

Writing in The Washington Free Beacon, Matthew Continetti argued The Case for Panic in his October 3rd Column.  His equation for panic is given in the subtitle of the column: "Incompetent government + corrupt elite = disaster."

The first paragraph encapsulates his charge:

"Deadly, irrational, and determined, the intruder snuck across a weakened perimeter. Eluding capture, the intruder was detained only after missteps and close calls. The spin began soon after the threat was isolated. Information was selectively leaked. Half-truths and untruths were uttered. Responsibility was avoided; privileges and credentials asserted; authority reasserted. Trust us. Remain calm. Don’t panic."

It is then effectively applied to a series of recent cases including the White House fence jumping, the spread of Ebola to the United States, the mismanagement of Ukraine, the contradictory US policies toward the Islamic State, Syria, and Iraq. All of it is worth a read, but he leaves out some of the most important cases.

Critical among these omissions is the failure of America's elite to craft an effective -- and balanced -- trade policy over the last four decades, and the resultant destruction of much of U.S. industry, the hollowing out of the defense industrial base, and the undermining of the living standards of the American working class.  My coauthors and I make this case in our book Balanced Trade

He then turns to a brilliant but also limited diagnosis...


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Book Review, Jason L. Riley, Please Stop Helping Us, How Liberals Make It Harder for Blacks to Succeed (NY:Encounter Books, 2014)
Raymond Richman, 9/28/2014

Jason L. Riley, Please Stop Helping Us, How Liberals Make It Harder for Blacks to Succeed (NY:Encounter Books, 2014)

This book is a must read for everyone, white or black, just as another great book by a distinguished black economist, Thomas Sowell’s Black Rednecks and White Liberals (NY: Encounter Books, 2005) is also a must read.

Riley begins by noting that 90 percent of more of black voters continue to support Pres. Obama even though blacks have suffered more from his economic policies than any other ethnic group. He writes that the President and Attorney General Holder and the NAACP oppose voter ID laws as discriminating against blacks even though “in places like Georgia and Indiana minority turnout increased after the laws were passed.”

He contrasts the positions of black historical figures W. E. Du Bois and Booker T. Washington, the latter urging blacks to focus on independent black schools and businesses, on acquiring “property, industry, skill, economy, intelligence, and character” while the Du Bois “argued that civil rights are more important because political power is necessary to protect any economic gains.”

Du Bois’s strategy was achieved political success as indicated by the fact that the number of black officials grew between 1970 and 2001 from “fewer than 1,500 to more than 9,000.” Meanwhile, the poverty rate among blacks declined from 87 to 47 percent from 1940 to 1960 before the civil rights victory but grew not at all between 1972 and 2011 after the civil rights victories and black welfare dependency.

The author contrasts the economic success of Asians who have tended to avoid politics and the Irish, who achieved success in politics but it was only after the decline of the Irish political machines that their “average Irish incomes began to rise” relatively. He points out that black political leaders often voted for policies which denied jobs and benefits to the persistent black underclass....


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Taxing Corporations As Partnerships Solves the Problems of Inversions and Outsourcing
Raymond Richman, 9/24/2014

Treasury Secretary Jacob Lew announced tightened tax rules to deter U.S. companies from moving their headquarters overseas to lower-tax countries, a practice called an inversion. Inversions sometimes take place to avoid paying taxes on the acquired company’s income which before the inversion paid taxes only to the country in which it has its headquarters. An inversion is not to be confused with outsourcing, the practice of closing factories and operations at home and manufacturing products and parts overseas. Outsourcing not only affects tax   revenue but it also causes massive unemployment here at home, and worsens our balance of trade. Inversions do not. Hardly any jobs have been lost by inversions in contrast with the loss of hundreds of thousands of jobs lost by outsourcing. Oddly, the administration has taken no action on outsourcing.

Nearly all the leading American corporations engage in outsourcing, including Apple, Nike, Honeywell, Caterpillar, Hewlett-Packard, Motorola, IBM, NCR, Lev-Strauss, and many, many others. Most, like Apple, add insult to injury by importing the products they produce overseas, worsening the U.S. trade balance. Inversions have little effect on employment and no effect on the trade balance. Why the Administration’s silence about outsourcing? One might hazard a guess. The Treasury Secretary’s silence perhaps can be explained by domestic politics.  Many of the corporations, their owners, and their trade associations contribute to the Democratic Party and the US chamber of Commerce and the National Association of Manufacturers officially espouse free trade.

As an illustrative case, take Burger King’s inversion with Jim Hortons of Canada. It does not reduce U.S. revenues at all from Burger King’s and Tim Hortons’ operations in the U.S. All the Burger Kings and Tim Hortons in the U.S. will continue to pay U.S. and state corporate income taxes. Admittedly, the movement of Burger King’s headquarters will cost the U.S. tax revenue and Canada will gain some. Canada’s top general corporate tax rate is 28 percent (but see below) compared with the U.S. 35 percent, so Burger King would stand to lose from the merger if Tim Hortons’ income were taxed at the U.S. 35 percent rate. The real culprit is a foolish U.S. income tax system.



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Congress needs to seek out testimony from those not tainted by foreign donations
Howard Richman, 9/19/2014

Jesse has already published two postings about the New York Times expose (Foreign Powers Buy Influence at Think Tanks). I especially found interesting an incident involving the Japanese government's use of a think tank called the Center for Strategic and International Studies.

The Japanese government contributed to that think tank, which organized an event promoting the Trans Pacific Partnership (a free trade agreement that would include both the United States and Japan). Then a scholar from that think tank testified before the Senate Foreign Relations Committee:

[A]t a Senate Foreign Relations Committee hearing later that month, Matthew P. Goodman, a scholar at the center, testified in favor of the agreement, his language driving home the very message Japan’s lobbyists and their congressional allies were seeking to convey.

The agreement was critical to “success not only for the administration’s regional economic policy but arguably for the entire Asia rebalancing strategy,” Mr. Goodman said.

In our opinion, Goodman was completely wrong. We have predicted (Fast Track to a Bad Deal) the opposite of a "rebalancing" effect, as far as trade is concerned. The Trans Pacific Partnership, like its model the Korea-US Free Trade agreement, would enable Asian mercantilism and thus worsen the U.S. trade deficits. 

Congress may be making its decisions based upon deluded testimony from think tanks that are bought and paid for by foreign interests. There are ways to avoid such errors:...


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Who Is a Racist? A Conversation with Prof. Jack Anderson
Raymond Richman, 9/17/2014

I had a conversation with my friend Jack Anderson, a retired physics professor at the University of Pittsburgh. I am a retired Professor of Public and International Affairs at Pitt, an economist.. I described the wonderful book I was reading by Jason Riley, a black editorial page staff member of the Wall Street Journal, entitled Please Stop Helping Us, in which he writes, as I have done, about the racial impact of the federal and state minimum wage laws, I described the minimum wage laws as supporting the monopolistic practices of labor unions to restrict competition from employers who pay lower wages and that the first minimum wage was passed by Congress and signed by FDR at the request of the labor unions.   I said it was a racist law. Jack asked, “Did the unions intentionally want to prevent the employment of blacks? If not, how can you describe them and the law as racist?.” By the effects, I replied. Until 1950, the unemployment rate of blacks was actually less than that of white workers. With each successive increase in the minimum wage, the rate of unemployment of blacks increased relative to whites. That is why I describe it as a racist law. Following are recent government figures:



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Government Is Responsible for the Sluggish Economy; What to Do About It
Raymond Richman, 9/14/2014

To grow the U.S. economy is an imperative given the sluggish state of the economy which will soon end our world leadership. The U.S. has been for decades the world’s leading debtor nation. It has 21 percent of the labor force unemployed, underemployed, or not looking for a job since they were laid off. The wealthy have become wealthier thanks to the tax treatment of corporate income and the poor have become more numerous and dependent on government hand-outs. The blame for this malaise are a host of government policies that impede entrepreneurship and risk-taking and interferes with the efficient functioning of a free-enterprise economy.

It is time that we reduced the negative role of government in the economy. 1) We need to reform the tax system by eliminating the corporate income tax and taxing corporate earnings as the personal income of the shareholders. 2) We need to eliminate wasteful subsidies, including tax expenditures. 3) Our health care system is unnecessarily expensive and has undesirable economic effects. 4) Our trade deficits slow economic growth. We need to balance our international trade. The government’s failure to intervene to correct our chronic international trade deficits has cost millions of jobs. 5) The minimum wage should be abolished because it has created an army of unemploy, unskilled labor the value of whose services is less than the legal minimum wage. 6) Wasteful and unnecessary regulation of American business, Following are our reasons for making them.

First, tax corporate earnings as the personal income of shareholders under the more progressive personal income tax. ...


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The Sell-Out by American 'Thinkers'
Jesse Richman, 9/12/2014

 has an excellent follow-up in The New Republic to the New York Times' analysis of the role of foreign money in shaping the 'research' of Washington think tanks, the NYT investigation I discussed in my blog post yesterday. 

Judis connects the dots on foreign influence concerning U.S. trade policy...


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The Perils of Outsourcing Congressional Expertise
Jesse Richman, 9/10/2014

An under-appreciated but critical reason why Congress is less effective -- more polarized, more unproductive -- now than it was in the past is that Congressional committees are a shadow of their former selves. Committees are the intelligent heart of the lawmaking process. Woodrow Wilson, somewhat reluctantly, acknowledged that "Congress in committee is Congress at work." Today the committees know less, do less, and influence less. Congress has outsourced policy expertise to think tanks which, according to a recent NYT article are increasingly bought by foreign interests.

Congress is awash with information. Each member of Congress maintains a staff of legislative aides to help them write bills, negotiatiate legislative language, research issues, frame strategy. And there are hundreds of think tank 'scholars' in each of the major think tanks, thousands of lobbyists, and many many others outside of government who are happy to provide 'expertise'.

But all of this information can simply lead to polarization, idiocy, and a war of talking points without intelligent integration by people who are working for the public interest (as senior members of the committee see it), and have the long-term perspective to see through propaganda and spin to elucidate the best policies. Worse yet, this information stream can be bought and influenced by foreign interests interested in steering US policy in directions that serve themselves. From the New York Times:

More than a dozen prominent Washington research groups have received tens of millions of dollars from foreign governments in recent years while pushing United States government officials to adopt policies that often reflect the donors’ priorities, an investigation by The New York Times has found.

The money is increasingly transforming the once-staid think-tank world into a muscular arm of foreign governments’ lobbying in Washington. And it has set off troubling questions about intellectual freedom: Some scholars say they have been pressured to reach conclusions friendly to the government financing the research.

Over the last several decades, both chambers of Congress have systematically degraded their capacity to engage in this process. Much political science research suggests that an especially important source of expertise in making good policy is the expertise of committee staff. And the committee staff has been starved. The graph below shows the size of the committee staff in the House and Senate over time, based on data collected by the Brookings Institution....


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Returning to the Roots of the Republican Party?
Jesse Richman, 9/6/2014

Heather Richardson has an insightful piece on the Republican Party in the September 4th New York Times.  The title: "Bring Back the Party of Lincoln."  She emphasizes a longstanding tension within the party between (1) centering the party's platform on the promotion of opportunity for the common man, and (2) centering the party's platform on promoting the interests of the wealthy.  She argues that when the party has centered its platform on the first program it has won, when centered on the second program it has lost eventually as an emiserated populace turns away from the party, only to be won back by a return to the first principle.

This is a vast oversimplification of a complex political history that is surely sketched in more detail in the book on which her op-ed is based.  But it does connect to important fundamental principles, and it offers an effective road forward for the Republican Party -- or some other party.  In our present crisis the lack of opportunity for the common man is the problem.  In some instances the solution is less government, in other instances the solution is more government, and in other instances, the solution is re-directing government.  But our current political parties, fixated as they are on redistribution of the pie, seem quite unable to frame an effective and thoughtful national program that places opportunity at the center. 

Let us turn for a moment to the Republican Platform of 1860... 


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Conservatives Want to Eliminate the Ex-Im Bank Which Creates Jobs While Costing the Taxpayer Nothing
Raymond Richman, 8/31/2014

Conservatives oppose renewal by the Congress of the Ex-Im Bank whose guaranteed loans have facilitated exports and created and preserved American jobs while costing the government and taxpayers nothing at all. At the same time, conservatives are silent about the World Bank world socialist bank which the U.S. created and financed at a cost of hundreds of billions of dollars and continues to do so to this day. This is ideology being promoted at the expense of U.S. taxpayers and U.S. workers. There are plenty of government programs that ought to be cut. Why should the one selected be one that costs taxpayers nothing and does create jobs. 

The Heritage Foundation is a conservative think tank promoting a stronger economy and reduced government, traditional family values, and a strong America in the international arena. More often than not, its analyses and recommendations are sound in each of these areas. But one can quarrel with its opposition to Congressional renewal of the charter of the U.S. Export-Import Bank, an independent government agency whose loans to importers of US. goods, loans made usually by U.S. commercial banks, are guaranteed by the government. There can be no doubt of our need to close the U.S. trade gap which has caused extensive dis-employment in the U.S., more than four million jobs over the past two decades in our estimate. Does the Heritage Foundation have a case in opposing the Ex-Im Bank?

The government does not, other than giving its guarantee, subsidize the loans the Ex-Im Bank guarantees. It does not in fact cost the government a dime, something really rare for any government enterprise. The Ex-Im Bank’s default rate is less than one-quarter of one percent and is covered many times over by its successful loans. Diane Katz, a Heritage Foundation Research Fellow writes, “Taxpayers are ultimately on the hook for the $140 billion in loans and other credit that is currently outstanding.” Yes, but it has not cost the government anything, which she does not mention.  ...



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Conservative Opposition to the Ex-Im Bank is Misguided; They Should Consider Opposing the World Bank
Raymond Richman, 8/31/2014

The Heritage Foundation is a conservative think tank promoting a stronger economy and reduced government, traditional family values, and a strong America in the international arena. More often than not, its analyses and recommendations are sound in each of these areas. But one can quarrel with its opposition to Congress renewal of the charter of the U.S. Export-Import Bank, an independent government agency whose loans to exporters of US. goods are guaranteed by the government. There can be no doubt of our need to close the U.S. trade gap which has caused extensive dis-employment in the U.S., more than four million jobs over the past two decaades in our estimate. So does the Heritage Foundation have a case in opposing the Ex-Im Bank?

The government does not, other than giving its guarantee, subsidize the loans the Ex-Im Bank guarantees. It does not in fact cost the government a dime. The Ex-Im Bank’s default rate is less than one-quarter of one percent, covered amply by its successful loans. Diane Katz, a Heritage Foundation Research Fellow writes, “Taxpayers are ultimately on the hook for the $140 billion in loans and other credit that is currently outstanding.” Yes, but it has not cost the government anything, which she does not mention.  

Heritage Foundation’s objection is that the Ex-Im bank is in competition with commercial banks and other lenders who do not enjoy the government’s guarantee of foreign investments that are sometimes risky. The Heritage Foundation’s objection is that the Ex-Im Bank unfairly competes with the private banks because of its ability to make loans at a lower interest rates than commercial banks on  risky loans. True. But instead of recommending an end to the Ex-Im Bank, it could recommend guaranteeing the loans of commercial banks in some way. Stimulating exports is a worthwhile objective, especially when it involves no government expenditure at all. ...


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Inversions Are Not a Problem; the Real Problem Is Outsourcing
Raymond Richman, 8/28/2014

Burger King’s purchase of Canada’s Tim Hortons chain of coffee houses is called an inversion, a term used to describe a company’s moving its headquarters abroad to avoid paying U.S. taxes on the income of a foreign company it purchased. Tim Hortons has a number of locations in the U.S. as well (600) and it pays U.S. and state corporate income taxes on its U.S. operations. Burger King’s inversion does not reduce U.S. revenues from Burger King’s and Tim Hortons' operations in the U.S. at all. All the Burger Kings and Tim Hortons in the U.S. will continue to pay U.S. and state corporate income taxes. The fuss about inversions is a smokescreen that conceal the problem, U.S. manufacturing companies moving abroad and outsourcing their production. Now that is a real problem for the U.S. economy.

An inversion is not to be confused with outsourcing which does affect revenue, causes massive unemployment here at home, and worsens our balance of trade. Inversions do no. Nearly all the leading American corporations engage in outsourcing, including Apple, Nike, Honeywell, Caterpillar, Hewlett-Packard, Motorola, IBM, NCR, Lev-Strauss, and many, many others. They add insult to injury by importing the products they produce overseas to compete with product made here. By contrast, inversions like Burger King-Tim Hortons do not change the place of production or cause unemployment at all or worsen the trade imbalance.

The U.S. Congress and the Obama Administration in their arrogance want to tax Tim Hortons (now Burger King’s) Canadian operations at 35 percent, the U.S. corporate income tax rate. (In addition, the states have rates ranging from zero to Pennsylvania’s 9.99 percent.) The Canadian general corporate income tax rate is 28 percent and on manufacturing and processing corporations, it is 15 percent currently. Canada’s principal provinces levy corporate income taxes of 10 to 12 percent.  Canada reduced its corporate income tax rates from 38 percent to enable Canadian companies to compete with such countries as Ireland which has a 15 percent corporate income tax rate.

All that Burger King wants is to avoid paying more in taxes on the combined company than the two pay at present. The administration wants to increase those taxes as a result of the merger. Most countries have a territorial basis for income taxation and do not tax the foreign income of its companies; we do. All countries are entitled to tax the income earned within its boundaries. But the exercise of an extra-territorial right to tax does appear on the face of it arbitrary and unjustified.  ...


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Tax Inversions and "Factoryless Manufacturers"
Jesse Richman, 8/28/2014

Likely without intending to, Greg Mankiw's recent piece advocating corporate tax reform in the NYT makes the critical argument against the creation of a 'factoryless goods manufacturer' category in our national accounting. Mankiw writes:

A main feature of the modern multinational corporation is that it is, truly, multinational. It has employees, customers and shareholders around the world. Its place of legal domicile is almost irrelevant. A good tax system would focus more on the economic fundamentals and less on the legal determination of a company’s headquarters.

If indeed the multinational corporation is in essence multi-stated or perhaps beyond any corporate state-affiliation, then it makes truly no sense at all to count some of the profits that corporation earns from its overseas activities as American manufacturing. Such corporations are, in Mankiw's logic not American. And the manufacturing clearly doesn't happen in America.


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Burger King Inversion Has No Effect on U.S. Revenues, But the Corporate Income Tax Should Be Abolished Regardless
Raymond Richman, 8/27/2014

The purchase of Tim Hortons, a Canadian restaurant chain, by Burger King, an American restaurant chain, is making news as a so-called inversion, a term used to describe a company’s moving its headquarters abroad to avoid paying U.S. taxes on its foreign income. The Canadian effective corporate income tax rate on manufacturing and processing corporations is 15 percent currently but the provinces levy an additional 10 to 16 percent rate. The top U.S. rate is 35 percent and the states levy corporate income taxes ranging up to 9.9 percent in Pennsylvania and 8.84 percent in California. Burger King does not stand to save anything by moving to Canada but it will avoid an increased tax liability to the U.S. when it buys Tim Hortons by moving its headquarters. At present, the U.S. gets no revenues from Tim Hortons

President Obama and the Secretary of Treasury Lew have called inversions unpatriotic. You be the judge. Inversions cost no revenues. Compare that with out-sourcing abroad which not only affects revenue but c auses massive unemployment here at home and increases our trade deficit. Why the fuss about inversions and none about out-sourcing. And nearly all the leading American corporations do it, including Apple, GM, and other administration favorites. But out-sourcing is another story.

All that Burger King, and Pfizer and others appear to want is to avoid paying an increase in the taxes on the combined company than the two pay at present. The administration wants to increase those taxes, a desire to tax American businesses on their incomes regardless of where it is earned. Hypocritically, Congress and successive administrations have granted an exception for individuals (who vote!) who do not have to pay personal income tax on what they earn abroad as long as they are out of the country for eleven months per year. Thanks to the eleven months provision practically none of the employees of cruise ships patronized by Amearicans mostly are Americans! ...


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Trade (deficit) with China Caused Economic Stagnation (NBER paper)
Jesse Richman, 8/27/2014

An NBER working paper "Import Competition and the Great U.S. Employment Sag of the 2000s" by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price provides additional economic analysis supporting the claim made by us and others that increasing trade (deficits) with China had substantial negative effects on unemployment. Their 'central' estimates are that 2 to 2.4 million net jobs were lost in the American economy as a result of the "swift rise in import competititon from China" and the attendant costs for U.S. manufacturing and other employment....


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Inversion Deals -- Corporate Income Tax Flight Continues
Jesse Richman, 8/26/2014

The United States has noncompetitive corporate income tax rates which create powerful incentives for US companies, aided by hedge funds and Wall Street banks, to flee the country.  A recent story in Forbes highlights the developing trend, and some of the key players in the effort to get Burger King a Canadian passport. 

The U.S. corporate income tax rate is politically hard to touch because people like the idea of taxing big money corporations at high rates.  But it is economically unsustainable, and needs to be significantly replaced by a VAT or some other tax that is less readily avoided. The move of even Burger King to abandon its U.S. corporate citizenship suggests just how important it is to break this political stalemate and reform the tax code. 

U.S. corporate tax rates are quite high compared with the rest of the world.  Canada's tax rate is 15 percent versus the U.S. rate of 35 percent, hence the attraction of a move north for Burger King.  

High corporate tax rates exacerbate the U.S. trade deficit in multiple ways.  For instance: 

1. They make it hard for truly U.S. corporations to compete internationally.  U.S. producers are at a disadvantage relative to foreign concerns paying less tax, and their products are correspondingly either less profitable or less price-competitive...  


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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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