Monday, October 31, 2005

No surprise here

In re. the battle royal presumably building over the Alito nomination, Franklin Foer at the New Republic asks:

"Of course, Bush could have gone right and simultaneously avoided this kind of Battle- of-Somme scenario. Or to re-frame that assertion: Why didn't he nominate Judge Michael McConnell? After all, McConnell would have nearly the same Federalist Society friendly views as Alito. But he would also bring along the endorsement of liberal academia. My best guesses for why he skipped over McConnell: 1) Bush actually needs a bloody confirmation fight. 2) He probably can't stand McConnell's heretical position on Bush v. Gore. 3) McConnell represents the kind of pointy-headed intellectualism that the president can't abide. 4) He's not physically fit enough to deserve a promotion to the highest court in the land."

As one who knows McConnell from our days as colleagues on the University of Chicago law faculty, I can testify that I and many others not from the conservative camp would have supported him. Just because he's a charming and nice person? I don't think it's just that. Rather, my experience with McConnell, and I think that of many others, is that he is a fundamentally fair-minded and honest person intellectually.

I would have bet the house against his being selected however, not only due to # 1 above but # 3. If you hate intellectual merit and achievement, then McConnell is not the man for you.

Can't say I know anything about Alito in this respect. I certainly hope he doesn't share Scalia's abominable lack of anything approaching a judicial temperament.

Sunday, October 30, 2005

Stupid or dishonest?

I remember reading a Mad Magazine when I was a kid, in which one feature had a wife complaining to her husband: "You always say everything of yours is better. Can't you, just this once, name something of mine that you think is better?"

He stops and thinks for a moment, and then finally says: "Well, you have better in-laws than I do."

In approximately that spirit, if I had to praise David Brooks's column in the Sunday Times, I would say: "He can't possibly be that stupid, so he must be dishonest instead." Dishonest in the sense of spinning and making what he must realize are preposterous and phony arguments.

To his mind, Fitzgerald has found one rotten apple, Libby, while somehow affirming that everyone else in the Bush Administration is honest. Fitz has supposedly proven that "there is no cancer on this Presidency." (An actual quote.)

And anyone who thinks there are other crimes, or that there was any sort of cover-up, other than by Libby, is exhibiting what Richard Hofstadter called "the paranoid style in American politics." Witch-hunts, anti-Masonic agitation, McCarthyism, etc. Nice touch with the Hofstadter, by the way. Brooks, as a supposed "intellectual," is showing that he remembers some of the stuff he read in college.

Thus, it would be rampant and indeed clinical paranioa, in Brooks' stated view, to think that Cheney might have discussed outing Plame or had any idea about what Libby was doing.

When you insult your readers' intelligence as Brooks is doing, you are showing that you are either phenomenally stupid or else dishonest. A writer's first obligation should be to the readers, to level with them rather than pursue unstated agendas such as hacking and flacking for your side. Brooks fails this test, no less than Judy Miller in her own special way as an "investigative" reporter, unless he verges on being unable to tie his own shoes. I choose the more charitable interpretation (or is it?).

No need to argue facts, probabilities, reasonable interpretations, etc. if you can simply label all views other than the radically myopic (Libby did everything alone) as "paranoid."

Brooks would be a good 8th grade debater, with silly, transparent tactics like this. But he does not belong on the pages of a major newspaper, even one so compromised as the Times.

UPDATE: Trent Lott asserts that the Bush Administration has serious problems and must address them. I guess, by Brooks' dim lights, he must be "paranoid" too.

Friday, October 28, 2005

Two points about the Libby indictment

1) These are not claims of merely technical inaccuracy, forgetting, etc. Unmistakable perjury and obstruction of justice, dead on the central issue of the investigation, if the charges are true.

2) The underlying acts that Libby is charged with lying about are very serious, verging on treason, whether he is indicted for them or not. No sane person could seriously doubt that Cheney was 100% involved in them too.

Two things that made me laugh

This and this.

Gallows humor ...

... from the floor at a Curriculum Night meeting for parents of seventh graders.

The English/Social Studies curriculum looks at the Renaissance. They are reading parts of the Bible and Koran as literature. The teacher mentions the time when Galileo was forced to recant his claim that the Earth orbits the Sun. John Paul II apparently issued a decree stating that the Church was wrong about this.

"Hasn't that been revoked by Pope Benedict?"

On to the science classroom, where we hear that the kids are learning about the empirical method of testing hypotheses.

"That's not science any more."

"Shouldn't they be reading the Bible as science, not literature?"

Nothing really new here, but ...

... I thought I'd post a self-serving book feature that I dashed off for a local periodical that literally just serves a couple of blocks in the West Village (so not much circulation).


It isn’t easy to promise people $18 trillion of completely unfunded benefits, apparently under the pretense that nothing need be paid for, and yet to make no one happy. This, however, is what the Bush Administration appears to have accomplished with the new Medicare prescription drug benefit that it pushed through Congress in 2003. ($18 trillion, by the way, is the long-term cost of the benefit according to the Medicare Trustees.)

In my recently published book, Who Should Pay for Medicare?, I discuss the approaching fiscal crisis that the enactment of the prescription drug benefit only made worse. I also address the unpopular questions of how we should, and how we probably will, pay for senior healthcare that everyone agrees is important but seems to think our society can get for free.

Medicare’s financing problems partly arise from the aging of America’s population, due both to lengthening lifespans and lower birth rates. An even bigger cause, however, is that healthcare expenditures, for young as well as old, are growing faster than the economy. This trend reflects technological advances that really have made people’s lives longer and better. Strangely, however, studies show that, while America spends far more money per capita on healthcare than peer nations such as Canada and the United Kingdom, we do not seem to get any extra payoff in terms either of results or customer satisfaction.

Making people – the young as well as the old – pay more at the margin for the treatment they get will have to be part of any solution, unless we go to a nationalized healthcare model with queueing. There is no sign, however, that politicians, Democrats as well as Republicans – or, for that matter, voters – are prepared to start considering the hard choices that ultimately will have to be made. The solution that is ultimately adopted is likely to involve new taxes and a period of disruptive inflation, as well as tougher healthcare limits than would have been necessary had we acted sooner.

While Medicare has done much good, it ought to be more of a genuine insurance plan, with greater high-end protection (such as catastrophic coverage) and less funding of routine expenditures. The way it is structured now, it resembles car insurance that pays for your gasoline but will not help you if you have a major accident. Structuring Medicare to please voters rather than to do its job well is a luxury that we possibly could have afforded if the U.S. government’s overall long-term fiscal picture were not so dire. As things look now, however – especially given the Bush Administration’s five-year spree of tax cuts and wild spending – Medicare may have to change surprisingly soon. I certainly hope that the people who read this article will be financially prepared for whatever happens.

Thursday, October 27, 2005

A good idea catching on?

Democratic Senator Ron Wyden has just released a tax reform plan, about which I don't know anything beyond what it says in this description from his website. Whether or not it merits attention, one feature of interest is a proposed refundable credit for state and local taxes.

The Tax Reform Commission likewise proposes credits (although not refundable ones) in lieu of certain personal deductions under current law. So perhaps the idea is starting to catch on a bit, which is all to the good.

If I remember correctly, the Bradley-Gephardt tax reform plan of 1984, which influenced the Tax Reform Act of 1986, used percentage credits in lieu of certain personal deductions. But the idea then disappeared from tax reform agendas for the next twenty years. Score it as one good idea that can raise revenue while also, just maybe, not being politically impossible.

Wednesday, October 26, 2005

Indictments coming?

I hate the waiting, but am cheered by the thought that there are some very bad people out there who hate it a lot more than I do.

Tuesday, October 25, 2005

Why Bush picked Bernanke

The above is the title of a WSJ article by Fred Barnes, which I won't bother to link as it's subscribers-only.

The pick does appear to be a really good one. But a couple of amusing (to me) bits in Barnes' article are as follows:

"Mr. Feldstein's appointment as Fed chair was supported by the president's father, former President George H.W. Bush. But he had many critics, notably James A. Baker II, who was White House chief of staff in the early 1980s when Mr. Feldstein was CEA chairman. They clashed when Mr. Feldstein spoke negatively, on and off the record, about Reagan's tax cuts. Mr. Baker thought Mr. Feldstein was disloyal and warned the current White House not to nominate him."

My God, isn't a decade plus of toeing the line enough to atone for the good deeds of one's youth?

"Mr. Hubbard, now dean of Columbia Business School, was CEA chief. He favored the Bush policies of tax cuts and partial privatization of Social Security, but the president felt Mr. Hubbard sometimes talked down to him."

Can you really blame Glenn? I am not a complete fan of everything he did in the Bush Administration, although perhaps he can defended as supporting the bad so we wouldn't get the worst. But he has standards.

Their master's voice

The papers today have articles describing the Administration's new talking points in its war-room directed campaign against Fitzgerald (mere technicality, rogue prosecutor, not prosecuting the original crime, etc.). And sure enough, right on cue, John Tierney and Nicholas Kristof (who ought to know better) have op-eds in the Times today giving what is exactly the Administration line, with the ingenuous air of something they have thought of themselves.

Were they too busy to write their own columns today?

By the way, it's kind of easier to indict people under one's initial prosecutorial charter if they don't lie about it and cover up. If they do, should one simply fold up shop and go home?

UPDATE: My apologies to Kristof for under-estimating the hard work that he personally did in writing the column. William Kristol in the Weekly Standard, in executing the same set of talking points as Kristof, refers to "clear-cut" perjury rather than to "flat-out" perjury. Wow - that's even more different than their last names are.

Monday, October 24, 2005

New Fed chairman

Bush is apparently going to appoint Ben S. Bernanke, his top economic advisor, to replace Alan Greenspan as the Fed Chair. While that title, under the circumstances, sounds a bit like calling someone Karl Rove's top ethics advisor, so far as I know Bernanke is fairly blameless. Rove is actually Bush's top economic policy (and everything else) advisor.

Greenspan's would be harder shoes to fill were it 5 years ago, when his reputation was much better than it is now. Still, he did seem to have an odd talent for intuiting macroeconomic micro-trends, so we will see how Bernanke meets what are likely to be tougher challenges.

Interesting side bit: Glenn Hubbard and Martin Feldstein, both among the leading conservative economists in the U.S. today, were not named although considered possible candidates. For Feldstein, I am wondering whether this will result in his having a more independent voice in public policy discussion than he has had over the last few years as a hardworking member of the Bush Administration's hallelujah chorus.

In the 1980s, Feldstein showed great courage and integrity in speaking out for fiscal prudence at a point when the problems were much less severe than they are today. He seems to have been retreating from that stance ever since. It has been as if Sergeant York, after capturing all those German soldiers, had spent the rest of his life wishing that he had just surrendered.

Perhaps Feldstein will feel freer to put his true Sergeant York hat back on, now that the glittering prize is not his. What else could he possibly care about that the Administration can provide or deny?

UPDATE: Secretary of the Treasury, perhaps? But who would really want that job at this point?

A great mind at work

Herewith Tax Reform Commissioner Connie Mack talking to the New York Times. Thank goodness my children, aged 9 and 12, are considerably more mature and wise than he is.

NY Times: Well, the U.S. government has to get money from somewhere. As a two-term former Republican senator from Florida, where do you suggest we get money from?

Mack: What money?

NY Times: The money to run this country.

Mack: We'll borrow it.

NY Times: I never understand where all this money comes from. When the president says we need another $200 billion for Katrina repairs, does he just go and borrow it from the Saudis?

Mack: In a sense, we do. Maybe the Chinese.

NY Times: Is that fair to our children? If we keep borrowing at this level, won't the Arabs or the Chinese eventually own this country?

Mack: I am not worried about that.

Saturday, October 22, 2005

David Brooks begs credulity again

In his Sunday Times op-ed, David Brooks takes Bruce Bartlett to task for breaking with the man Brooks calls "the savior of the right." You guessed it, he means Bush.

I'm afraid that non-subscribers will think I'm making this up, but Brooks actually says:

"Almost single-handedly, Bush reconnected with the positive and idealistic instincts of middle-class Americans."

"Bush has ennobled and saved American conservatism. As the G.O.P. moves forward, its leaders will break into two camps, post-Bush and pre-Bush. The post-Bush conservatives will build on the changes Bush introduced and refine his vision of using government positively to give people the tools to run their own lives."

"He sought to mobilize government ... so people around the world can dream of freedom."

"[T]he G.O.P. has become the party of the middle class."

And lots more to the same effect. I guess Bush is far down enough that Brooks thinks he is being bold rather than sycophantic in writing this stuff.

What does Brooks have in mind, exactly? He refers to the "no child left behind" legislation, which recent research reveals has made no difference in school performance.

Medicare prescription drugs, perhaps? New Orleans? Placing incompetent hacks everywhere imaginable? Cutting taxes again and again while never vetoing a single pork barrel spending bill? I guess the Bridge to Nowhere is an example of "using government positively to give people the tools to run their own lives." Quite a $230 million tool for those 50 or so people out there.

These hopelessly out-of-touch Washington pundits, who don't know policy any more than they know anything else besides the right cocktail parties (no matter how many whimsical books they write), ought to realize that moments here and there of triangulating rhetoric, with the occasional dollop of enormously costly symbolic legislation, don't actually add up to anything except mountains of debt.

A final quote from Brooks concerns British conservative David Cameron, who "has learned the essential lessons of Bushism. He offered a positive, governing conservatism. He talked about helping moms afford child care and helping the people of Darfur survive. "

That's exactly it. "Offering" a positive, governing conservatism, and "talking" about childcare and Darfur.

Friday, October 21, 2005

More excitement?

This could be fun. The technical term for it is a two-fer.

Thursday, October 20, 2005

Tales of FEMA

Yes, I know that this is way past beating a dead horse, but it was too amazing to pass up.

Recently posted on the NY Times website, in an article about how FEMA ignored warnings from their local people in New Orleans:

Later, on Aug. 31, [FEMA Regional Director Marty] Bahamonde frantically e-mailed Brown to tell him that thousands are evacuees were gathering in the streets with no food or water and that ''estimates are many will die within hours."

''Sir, I know that you know the situation is past critical," Bahamonde wrote.

Less than three hours later, however, Brown's press secretary wrote colleagues to complain that the FEMA director needed more time to eat dinner at a Baton Rouge restaurant that evening. "He needs much more that (sic) 20 or 30 minutes," wrote Brown aide Sharon Worthy.

"We now have traffic to encounter to go to and from a location of his choise (sic), followed by wait service from the restaurant staff, eating, etc. Thank you."

Wednesday, October 19, 2005

Fun reading

This certainly makes for fun reading. I suspect that Senator Schumer is off President Bush's Christmas list.

Don't make me laugh (or, on second thought, please do)

A reader, picking up on my comparison of DeLay's legal defenses against the money laundering indictment to taxpayers' using sham transactions to circumvent the clear intent of tax rules, brings the following to my attention, from a Washington Post article the other day:

Among the multiple grounds on which DeLay's attorneys have sought dismissal of the indictment is that "the law cover[s] the 'money laundering of funds' such as coins or currency, and ... the money transfers cited in the indictment involved 'checks' that were not 'funds.'

Tuesday, October 18, 2005

Latest on the Tax Reform Commission

The New York Times offers a fair amount of detail concerning the Tax Reform Commission's current intentions. No X-tax in it any more, by the way.

Here is the blow-by-blow with comments on each, followed by my general comments at the end:

1) Elimination of state and local tax deductions for individuals - This is probably correct on the merits given the correlation, however crude, between taxes and benefits received from government services. But political suicide in high-tax states that have lots of voters, and I wouldn't expect even Republicans in New York or California to be pleased. If defended as simplification, I'd note that the complexity of allowing the deduction, while not zero, is not terribly high.

2) Limiting the tax benefit for employer-provided health insurance - More political suicide. But here the change is not merely "probably correct on the merits," like the above, but enormously important to create some possibility, however slim, of slowing the runaway rate of rising healthcare expenditures. People who are less over-insured may be more cost-conscious, although then again this is not a very well-functioning consumer market (given lack of good information) even with more cost-consciousness.

3) Death to the alternative minimum tax (AMT) - obviously necessary, unless one instead greatly raises the exemption amounts and indexes it. But the plan might get less political credit for this from voters than its proponents might hope, because the threat of this tax is still a present not a future one for many Americans.

4) Charitable deductions allowed to all (rather than just itemizers), but only to the extent in excess of 1% of income. Probably a good change, eliminating the penny-ante items and given the lack of a good rationale for allowing it to itemizers only if one likes the deduction. Good for the churches, which to me is unfortunate, but that's just my bias.

5) Lower the amount of mortgage loan principal that can trigger deductible mortgage interest - hear hear, but not exactly likely to be popular. One small technical point, by the way - this is not entirely dissimilar to raising marginal rates for the wealthy, if one's extra income would be spent on a larger house that exceeds the ceiling.

6) Convert various deductions, such as that for mortgage interest, into fixed percentage credits - clearly a better approach than current law to items that aren't part of measuring income and that there is no particular reason to offer with higher reimbursement rates for high-income people.

7) Similarly, family adjustments (personal exemptions et al) are converted into credits. Similar rationale; too bad they aren't refundable (I assume).

8) Only 4 brackets instead of 6, top rate is 33% instead of 35%, lots of people at 15% - The number of brackets is really no big deal from a complexity standpoint. You just look at the table, and I don't think the tax planning aspects of fewer brackets are enormously significant in practice. Here is the nub of the Commission's political problem, which was built into their instructions rather than something they could help. Only a trivial rate reduction (at least apparently) for all the pain they are proposing to inflict. They couldn't cut rates anywhere near as dramatically as happened in 1986, because they had to use nearly all the revenue to pay for the AMT problem, which is still hypothetical not real for lots of people. We now have a verdict: did the AMT end up making tax reform easier or harder? The answer is harder, because it prevents the Commission from offering a more visible tax rate cut in exchange for the base-broadening.

9) Simplified and larger tax-free savings plans, with refundable credits for low-income savers. In general, I'd give this the thumbs up except that I am worried (even with the reduced mortgage interest deduction) about the following arbitrage: borrow against your home and get the credit, invest tax-free in the plans. Result: no more net saving, but the Treasury in effect writes you a check.

I wonder about how the revenue estimators treated the tax-free savings accounts, in determining that the plan is revenue-neutral relative to current law (as modified to extend the Bush tax cuts). I have a sickening suspicion that the estimators might have been told to look only ten years ahead, thus omitting the huge revenue losses in the out years from tax-free withdrawals. (My apologies to the Commission staff if I am wrong about this.) The real hilarity here, if you will, would come from the use of 10-year estimating to ignore the long-term cost, when the Bush Administration so recently was insisting on infinite-horizon forecasting of Social Security.

By the way, I wouldn't bet a nickel on the government's claim (if this plan were to be enacted) that the withdrawals will actually be tax-free. Fast forward ahead to 2020, if you will, when someone who is financially well-off is withdrawing funds from her huge tax-free savings account. Add in the detail that the government might be in desperate fiscal trouble, scrambling to renege on as little as possible of its near-term Social Security and Medicare commitments. What are the odds that the withdrawal will really be tax-free, no matter what Congress said in 2006 or so?

10) Now we get into the really complicated part. Two alternative plans for individuals:

a) No dividend tax, 8.25% capital gains tax on selling corporate stock, interest is taxed like wage income (i.e., up to 33%).

Although the Times account doesn't make this entirely clear, I am guessing this is matched with business taxation plan a: corporations get to deduct interest (though not dividends) and have economic depreciation as under a well-designed income tax.

I am not thrilled with this option. It leaves the debt vs. equity, interest vs. dividend distinction for companies to play games with, stripping out all the interest to go to tax-indifferent parties - unless the plan stops this somehow in a manner not clear to me at the level of detail in the Times article.

To my mind, the only reason for the capital gains tax on selling corporate stock is optics, IF we can be reasonably confident of taxing economic income reasonably broadly at the corporate level.

Or alternatively:

b) 15% tax rate for individuals on interest, dividends, and capital gain. Companies get to expense their investments, but no interest deduction.

Here the interest vs. dividend distinction, a much bigger thorn in the side of the income tax than is generally recognized, is greatly reduced. But note that there is still a double tax on corporate investment, extended to cover both debt and equity investment. And equity is still better than debt, from a tax standpoint, because companies don't have to pay out the dividends and give their investors the tax hit. (Assuming that the debt vs. equity distinction as applied tracks with whether there is mandatory income recognition at the owner level.)

I suspect that this plan is dead on arrival. The Commission was unable to come up with a politically feasible plan. I don't blame them for this, as I don't think I could have done any better given the constraints under which they had to work. The killer, politically (although it would have had little hope anyway) was having to impose visible base-broadening in exchange for tax reductions that were much less visible than rate reductions because they involved the AMT.

The result could be another bad setback for the tax reform cause, killing the issue until the next time around.

For the Bush Administration, this is certainly not the magic bullet to restore those sinking poll ratings. I would not be surprised if they were to bury this plan under the heaviest rock they can find.

UPDATE: To no one's surprise, business interests have begun lobbying against the Tax Reform Commission's report, without even waiting for it to be issued.

Heaven is reserved to the faithful

Bruce Bartlett has been fired from his position as a senior fellow at the conservative think tank, the National Center for Policy Analysis. His sin was writing a forthcoming book, entitled Impostor : How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.

The title would tell you a bit about what to expect from the book even if you have not been following Bartlett's columns. According to the New York Times, he was fired after the Center's president saw the manuscript.

Needless to say, the Center denies firing him because of the book's point of view. Rather, they were concerned that it offers "an evaluation of the motivations and competencies of politicians rather than an analysis of public policy."

Yeah, right. Next thing you know, Bartlett will be accused of playing "the blame game."

By the way, Bartlett's conservative credentials are pretty strong. He served in the Reagan Administration, promoted supply side thinking, and has been a big consumption tax advocate for many years. He supports Social Security privatization. His basic critique of the current Administration, also a theme of mine although I do not line up on the same side of the ball more than 40 percent of the time, is that they aren't conservatives. This is hard to dispute if you interpret "conservative" in the traditional quasi-libertarian, classical liberal, small-government, free market sense. On the other hand, the Bush Administration clearly is "conservative" if you interpret the term to fit, say, Brezhnev in the 1960s Soviet Union or the Nazis in 1930s Germany.

Think tanks with conscious ideological orientations certainly have the right to drum out people who cease to be consistent with their point of view. Thus, I suppose it stands to reason that Bartlett would have been fired had he, say, decided that "socialism with a human face" was his thing. But it is sad if conservative organizations no longer tolerate what I would say is true conservatism in its best sense. And even if one disagrees with Bartlett from a conservative standpoint in evaluating the Bush Administration, it is disgraceful that dissent within the ranks is evidently not allowed. This is storm trooper conservatism, not the leave-me-alone conservatism that the likes of Grover Norquist pretend to support.

I also note the following sentence from the Times article: "In response to a question about whether the administration had pressed the organization about Mr. Bartlett, [the Center's President] relayed a reply through a spokesman saying he had never had any conversation about Mr. Bartlett with anyone in the White House."

Okay, maybe one shouldn't make anything of this. It was a natural question to ask, and if the answer was no then of course they would say so. [Although is it merely one of those carefully drafted non-denial denials? After all, one needn't personally have a "conversation" with anyone, least of all anyone officially "in the White House," in order to receive and follow White House orders.]

But then again, if the answer was yes they would also say no. So the answer inevitably fails to convey any useful information. Its only significance is its putting them on record so they are liars (hairsplitting aside) if it turns out to be false.

I wish I felt less cynical and skeptical about this point, since I have no actual information suggesting that this was a White House-associated political hit. But does anyone want to bet that it wasn't?

Very, very interesting

Perhaps it's just another trial balloon from the Tax Reform Commission, or perhaps it's for real. But in any event, a Ryan Donmoyer story, just posted in here, bears what proves to be the misleading heading: "Bush's Panel May Propose Version of Flat Tax in Final Report."

What makes it potentially misleading is that what they are said to be considering proposing is David Bradford's X-tax, not the familiar flat tax as such.

Technically, the headline is accurate, in that the X-tax is indeed derived from the flat tax. It is, at the least, a "variant" of the flat tax. But it isn't really a "version" of the flat tax, because it isn't flat.

True, the flat tax isn't flat either, since it has a zero bracket. But when you have multiple brackets like the X-tax, it is simply misleading to call it a "version of the flat tax." Not to malign Donmoyer or assert intentionality here, but it sends a signal about the distributional aspects of the proposal that simply is not accurate. The X-tax, depending on its design, can indeed be as progressive as the current income tax, or even more so given the ease of sheltering economic income under the current system.

So I hope Democrats, progressives, etc., will give this a serious look on the merits even though it comes from a Bush-appointed panel, and even though it is related to the flat tax (which they correctly regard as significantly less progressive than current law).

Fat chance, I suppose. On the hopeful side, Bill Gale of Brookings doesn't outright slam it, noting that the X-tax is "an effort to take the flat tax and make it more progressive." I appreciate that Gale may oppose it on the merits in good faith, and that's fine. But others on the liberal side, less well-informed and responsible, will no doubt start baying at the moon any minute now.

Meanwhile, those inclined to oppose the X-tax should note who DOES slam it in the article: Skadden attorney Pam Olson, who was the Treasury Assistant Secretary for Tax Policy, under the Bush Administration, from 2002 to 2004. Olson predicts that it will "land with a thud," warning that under it, as the article paraphrases, "U.S. companies would stop issuing bonds, municipalities would face higher borrowing costs, [and] the housing and life insurance industries would become less attractive to investors."

This is the usual interest group, business-as-usual pablum. No insult intended to Olson here, but clearly she appears to be representing those interests, as one would expect. Something for people not affiliated with those interests to keep in mind.

It is ludicrous to say that U.S. companies would stop issuing bonds under the plan. Would grass grow in the streets, too? Bond interest would no longer be deductible, since financial instruments are ignored by the X-tax. But the interest income wouldn't be includable to investors. So the change is a wash - except insofar as the companies have been issuing bonds to tax-exempts (which is exactly what they do most of the time) so that their business income ends up being totally untaxed. Is that what we need to stop grass from growing in the streets, when other economic activity is being taxed?

It actually is possible to keep municipalities from losing overall under the change. E.g., it's well known that direct federal grants and revenue-sharing do a better job than municipal bonds at delivering the subsidy to the governments, rather than to high-bracket investors. But ending the bond preference has long been an aim of tax reformers of all stripes. Note, by the way, that the bond interest still wouldn't be taxable - it merely would lose its tax advantage over corporate bonds (leaving aside the tax-indifferent investors point).

By the way, I would love to ask Olson why municipalities would face higher borrowing costs if corporations totally exit the bond market as she predicts. Seems to me that this would be a big boon to the municipalities, wiping out the rest of the supply curve.

As for housing and life insurance, anyone who thinks their relative advantages under current law are economically desirable has a pretty hard case to make.

Again, I don't want to be obnoxious here to an intelligent and nice individual, with whom I have various friends in common, who is just doing her job. But the Olson quotes really ought to alert Democratic/left/liberal foes of the Bush Administration that perhaps the Commission's X-tax proposal (if it really is made) is worth looking at after all.

My biggest concern about the proposal, by the way, is that the form in which a Republican Congress would actually enact it would no doubt be odious. But this is true of any proposal that they might consider while the DeLay-Abramoff-Norquist junta continues to rule. The point of the TRC's work, as I see it, is to set forth options for consideration a few years down the road if the Republicans return to sanity and bipartisan compromise once again becomes possible.

Sunday, October 16, 2005

Still a grotesque disgrace

I continue to find the NY Times' behavior in the Judy Miller affair unfathomable. The difference between Judy Miller and Jayson Blair is analogous to the difference between an axe murderer and a jaywalker.

UPDATE: Here's something interesting from the Washington Post:

Craig Pyes, a former contract writer for the Times who teamed up with Miller for a series on al Qaeda, complained about her in a December 2000 [!!!!!] memo to Times editors and asked that his byline not appear on one piece.

"I'm not willing to work further on this project with Judy Miller," wrote Pyes, who now writes for the Los Angeles Times. He added: "I do not trust her work, her judgment, or her conduct. She is an advocate, and her actions threaten the integrity of the enterprise, and of everyone who works with her . . . She has turned in a draft of a story of a collective enterprise that is little more than dictation from government sources over several days, filled with unproven assertions and factual inaccuracies," and "tried to stampede it into the paper."

Thursday, October 13, 2005

Sometimes paranoids are right

The Miers nomination has been such a huge blunder that one struggles to explain it. Probably, the explanations already out there are good enough (Card vs. Rove White House wars, Bush feeling adolescent defiance towards attacks on his cronyism, her lack of any paper trail, etc.). But here is an additional possibility that occurred to me. Its virtue is that it would suggest that Miers had a genuine advantage, from Bush's perspective, over any other possible appointee, thus making the risk (however ill-appreciated) of a hostile reception more worth taking.

Suppose the White House wanted a Justice who would not only vote its way on executive power issues (which is what Bush really seems to care about), but be a double agent, covertly consulting the White House during important cases regarding how to get 5 votes, what the other Justices were thinking, etc. Most prospective Bush appointees, even lockstep hard-line conservatives, probably would not dream of doing such a thing, and it would be dangerous even to ask them. [Maybe Gonzalez would do it, too, and Bush seems to have wanted to name him, but note that Gonzalez has a bit more prominence & career independence than Miers.]

Perhaps Bush knows that Miers is willing to play such a role.

Wednesday, October 12, 2005

No, no, no

Time to quarrel with the liberal bloggers, who pretty well capture my sentiments about the Bush Administration but are people I would disagree with on various issues under saner political circumstances.

What I take to be the principal emerging response among them to the trial balloon from the Tax Reform Commission (see my previous post) is well exemplified by this comment in Eschaton, entitled "How They Want to Pay for Paris Hilton's Tax Cut," and saying that "it's time to start getting Republicans on the record about this cunning plan."

Okay, the Republicans have so exploited the tactic of mindlessly repeating talking points ad nauseum that it's understandably tempting for Democrats to play the same game, and trot out good old Paris Hilton every five minutes. But is supporting the AMT, and opposing limits on wasteful upper-end health insurance tax benefits, as well as on tax breaks that promote borrowing and big homes, really a good place to deploy this strategy?

Making changes such as these is only possible in a bipartisan environment where the two major parties give each other cover for taking on sacred cows. I fully understand that this is not the time for bipartisan cooperation, in that Bush has proved for five years that he does not cooperate in good faith. But it would be nice if these sorts of ideas could still have a chance if and when the political environment changes. And that of course is my hope regarding the work of the Tax Reform Commission - not that anything good will come out of it right away (at present it is bordering on impossible to have anything good come out of the U.S. Congress), but rather that its work will shape high-minded bipartisan compromise possibilities a few years down the road. These, in turn, could involve either revenue-neutral tax reform or tax increases to keep the U.S. Treasury (not to mention Social Security and Medicare) afloat.

Tuesday, October 11, 2005

Tax Reform Commission

Among the changes to current law that the Tax Reform Commission (per Bloomberg News:) reportedly is going to recommend are the following:

1) Reduce the cap on home borrowing that produces deductible home mortgage interest expense from $1 million to $350,000. Also, cap the tax saving from the deduction at 25% of the amount deducted, even for people in the 35% income tax bracket.

2) Cap the employer deduction (or the employee exclusion? - It's not entirely clear which) for tax-free health insurance at $11,000, which is the value of the coverage the federal government provides to its own employees.

3) Repeal the alternative minimum tax (##1 and 2 are supposed to pay for a big chunk of this).

4) Possibly reduce or repeal taxes on investment income.

## 1 through 3 are almost inarguably good tax and social policy. It will be interesting to see if anyone in Congress, from either party, signs on. (It would really almost have to be people from both parties or neither.) For #4, a really crucial consideration is how this is integrated with deductible borrowing. If people can borrow deductibly to finance tax-free investment income, that is a pretty big problem. Reducing the home borrowing cap would help a lot on this front, however.

UPDATE: It occurs to me that the story about what the Commission is considering must be coming out now as a trial balloon. But perhaps the very fact that enactment any time soon is unlikely will spare it from being shot down. If the Democrats decide to attack this, I will certainly be disappointed in them.

A sense of relief

At heart, perhaps we are all still seven years old. Or maybe I should just speak for myself. Part of me is still the only Met fan on my block, growing up in the Bronx towards the tail end of the last pre-Steinbrenner Yankee empire, while the Mets were still as pitiful as they have often continued to be. "Ron Hunt is better than Bobby Richardson!" was the only argument I could even make, and somehow we all had the strange belief that our teams' ability and merits said something about ours.

Nonetheless, I am not unreasonable or vindictive. It's absolutely fine with me for the Yankees to make the playoffs say, once every three years or so, and to win a world championship once every fifteen years or so, even though these are above the per-team average.

When the Yankees threaten to win every single year, however, with their obscene $205 million payroll, playing teams with 40-man rosters that are only 25% as high (or in the Angels' case maybe 40 to 50%), it gets sickening, and it gets really old. I don't even enjoy it when they lose (unless it is especially humiliating for them, like last year), so much as I am relieved - thank goodness that's over; now I can enjoy the rest of the playoffs; why couldn't they have lost even earlier and spared me a lot of anxiety.

Let them compete under fair circumstances, and I would complain less (also they would win a whole lot less). The regulatory way of doing this is salary caps. The free market solution would be allowing unlimited team movement, which would cause more teams to enter the NY area until an equilibrium was reached where the expected return from a franchise in NY was no greater than that from one in Pittsburgh or Kansas City.

As conservative and liberal economists would readily agree, often there is nothing worse than a market that is half-regulated. Case in point: the savings & loans crisis of the late 1980s. Better to restrict S & Ls' permissible investment choices, even if in a narrow and hidebound way, than to let them invest however they like with the owners getting the upside and the US government (via bank insurance) getting the downside. In other words, even if a fully free market was best, a fully regulated market was better than one half-regulated and half not.

Similarly, let's make the Yankees compete either with less regulation (teams can go wherever they like) or else with more (salary caps) and see how well they do. My guess is that a playoff spot every three years and a championship every fifteen is way on the high side as an estimate.

Future biographers take note

While I respect John Roberts, in the end he is simply too much of an intellectual gadfly, flitting from this subject to that, but never digging in with any depth.

Harriet Miers, by contrast, found her great theme some years ago, and has been amplifying it ever since.

Some choice quotes from her in today's NY Times piece on her paperwork from out of Texas:

"You are the best governor ever - deserving of great respect."

"[You and Laura are] the greatest.”

"Texas has a very popular governor and first lady!" [A true writerly touch here, in her use of the exclamation point.]

"I was struck by the tremendous impact you have on the children whose lives you touch."

"Keep up all the great work. The state is in great hands. Thanks also for yours and your family's personal sacrifice." [I would have thought that “your and your family’s” is better grammatically. Shows how much I know.]

"Hopefully Jenna and Barbara recognize that their parents are 'cool' - as do the rest of us."

"Keep up the great work. Texas is blessed."

"All I hear is how great you and Laura are doing … Texas is blessed." [Another writerly touch in the repeated use of "blessed,” assuming these are indeed from different quotes. The latest Sunday Times Book Review notes Joan Didion's use of repetition in her latest book.]

Monday, October 10, 2005

U.N. Secretary General George W. Bush??

Yes, I know it sounds ludicrous. But he has always failed up before, since the earliest Harken Energy days, and it's hard to see where else he could go.

Thursday, October 06, 2005

Money laundering and the economic substance doctrine in tax

One of the emerging DeLay defenses under the money laundering indictment is that he followed the law banning corporate contributions in Texas, because there were no such contributions. Thus, if Texas corporations gave $190,000 to the Republican National Committee, which immediately gave $190,000 to DeLay's gerrymandering jihad, supposedly the law has been followed.

The notion that this is no less illlegal than direct forbidden contributions, and constitutes attempted evasion of the Texas rules via money laundering, is identical to the economic substance doctrine in the income tax, whereby pointless paper-shuffling transactions that have no significance or purpose are disregarded as shams. In both areas, the doctrine is needed to stop people from making a mockery of the laws. Also in both, it means that people just have to go to the effort of differentiating the offsetting transactions a bit, with line-drawing questions regarding whether one has added enough sand to get away with it.

In the DeLay case as set forth in the indictment, it's not even a close call. Clearcut money laundering, cruder and more obvious, even, than the typical KPMG tax shelter.

Sounds like a good tax policy to me

From today's New York Times:

"Proposals to use tax breaks for rebuilding areas devastated by the recent hurricanes may provide only limited help to people and businesses that suffered actual losses, according to many economists. The biggest beneficiaries could turn out to be companies from outside the devastated areas that have big federal contracts to carry out cleanup and reconstruction work."


Bush has never vetoed a single pork barrel spending bill, but he is threatening to veto a bill that would bar the use of "cruel, inhuman or degrading treatment or punishment" against anyone in United States government custody.

One often hears discussion of torture's permissibility as a means (e.g., to head off a nuclear disaster). But for some people, possibly, torture is actually an end.

Wednesday, October 05, 2005

An interesting empirical finding, but what we do with it is unclear

From Landry, Lange, List, Price, and Rupp, "Toward an Understanding of the Economics of Charity: Evidence from a Field Experiment," National Bureau of Economic Research Working Paper 11611 (September 2005):

In measuring factors that affect charitable donation rates, "we find that a one standard deviation increase in female solicitor physical attractiveness ... is roughly equivalent" in its positive effect on participation to moving from the least favorable to the most favorable incentive approach that they tried. "This result is largely driven by increased participation rates among households where a male answered the door."

Still, my favorite NBER empirical paper of all time remains Joel Slemrod's justly infamous paper in which he found that death is tax-responsive (people die more when it is more tax-favorable to do so). Joel carefully noted that his data did not permit him to determine whether the tax-responsiveness pertained to actual times of death or merely to reported times of death.

A good working definition of "compassionate conservatism"

From Robert Samuelson in the Washington Post:

"In practice, Bush has taken the most self-serving aspect of modern liberalism (its instinct to buy public support with massive government handouts) and fused it with the most self-serving aspect of modern conservatism (its instinct to buy support with massive tax cuts)....

"'Compassion' for Bush has consisted mostly of distributing new benefits to large constituencies in the hope of purchasing their gratitude and support....

"Spend more, tax less. That's a brazen political strategy, not a serious governing philosophy."

Monday, October 03, 2005

Cronyism par excellence

For all I know, Miers might not be too terrible as a Justice. But Bush is starting to remind me of Caligula, who named his horse a consul.

Forthcoming NYU events, part 2

The schedule for this spring's Tax Policy Colloquium at NYU, which I will be running with Alan Auerbach, stands at this point as follows:

January 12 – Daniel Shaviro, NYU Law School, “Households and the Fiscal System.” Guest commentator Anne Alstott, Yale Law School.

January 19 – Alex Raskolnikov, Columbia Law School, “An Economic Analysis of Tax Enforcement and the Self-Adjusting Penalty.”

January 26 – Neil Buchanan, Rutgers Law School, [probably a piece on long-term budgeting issues].

February 2 – Jason Furman, NYU Wagner School, “Coping With Demographic Uncertainty.”

February 9 – Stacy Dickert-Conlin, Michigan State University Economics Department, "Love at What Price? Estimating the Value of Marriage."

February 16 – Lee Anne Fennell, NYU Law School (visiting), "Taxation Over Time" (with Kirk Stark, UCLA Law School).

February 23 – Alan Auerbach, Berkeley Economics Department, [paper to be determined.]

March 2 – Joseph Bankman, Stanford Law School, and David Weisbach, University of Chicago Law School, “The Superiority of an Ideal Consumption Tax Over an Ideal Income Tax.”

March 9 – Anne Alstott, Yale Law School, “Revisiting the Fiscal Politics of the 1920s.”

March 23 – Howell Jackson, Harvard Law School, [paper to be determined].

March 30 – Victor Fleischer, UCLA Law School, “Risky Compensation.”

April 6 – Ed McCaffery, USC Law School, “Shakedown at Gucci Gulch: A Tale of Death, Money, and Taxes.”

April 13 – Mitchell Kane, University of Virginia Law School, [paper to be determined].

April 20 – Jeffrey Liebman, Harvard University, Kennedy School of Government [paper to be determined].

Forthcoming NYU Law School events, part 1

For those who are interested, I'm posting two schedules. The first concerns a conference to be held on May 4-5, 2006 at NYU (I should mention sponsorship by NYU, the American Enterprise Institute, the Burch Center for Tax Policy and Public Finance at Berkeley, and the Fund for Tax and Fiscal Research at Harvard Law School). Alan Auerbach and I are collaborating to do the heavy lifting in terms of setting it up.

Tentatively, and I admit not very interestingly, entitled "Key Issues in Public Finance," it is in fact a conference in honor of David Bradford, but one that is intended to be serious and substantive, looking primarily forward at issues that interested David.

The paper topics, each with an author and two discussants, are as follows

1) ISSUES OF BUDGET MEASUREMENT - author is Laurence Kotlikoff, Boston University; discussants are myself and Kent Smetters, University of Pennsylvania.

2) CONSUMPTION TAX IMPLEMENTATION - author is David Weisbach, University of Chicago; discussants are Edward McCaffrey, USC, and Joel Slemrod, University of Michigan.

3) ISSUES OF TRANSITION TO A CONSUMPTION TAX - author is Louis Kaplow, Harvard University; discussants are James Hines, University of Michigan, and Kyle Logue, University of Michigan.

4) THE NEW VIEW OF CORPORATE DIVIDENDS - author is Roger Gordon, UC San Diego; discussants are William Andrews, Harvard University, and George Zodrow, Rice University.

5) THE CHOICE BETWEEN INCOME TAXATION AND CONSUMPTION TAXATION - author is Alan Auerbach, UC Berkeley; discussants are Glenn Hubbard, Columbia University, and Alvin Warren, Harvard University.

6) FISCAL DECENTRALIZATION - author is Wallace Oates, University of Maryland; discussants are Harvey Rosen, Princeton University, and Charles McLure, Hoover Institution.

Conference volume tentatively set to be published by the Harvard University Press. I believe that interested people will generally be welcome to attend the conference.

Sunday, October 02, 2005

1 + 1 = unindicted co-conspirators??

Read this and this, and there would seem to be a definite chance that, under Fitzgerald's theory of the Plame case, there was a criminal conspiracy involving, not just Rove and Libby, but also Bush and Cheney. This suggests the possibility that Fitzgerald will go beyond indicting Rove and Libby to name Bush and Cheney as unindicted co-conspirators.

This presumably would be accompanied by a formal referral to the House Judiciary Committee, not that they would do anything with it.

Quite a turn of the screw if it happens.