New Treasury Secretary

Bush has just named Henry Paulson, the chairman of Goldman Sachs, to replace poor pitiful John Snow as the Treasury Secretary. Past Goldman Sachs chiefs to figure on the national scene include Robert Rubin and Jon Corzine, obviously formidable players.

It's a mystery to me why a person with such a high-powered job would want to be the Treasury Secretary at a time like this.

According to the New York Times, "Republicans had long been pushing for a change at Treasury, arguing that Mr. Snow, despite devoting much of his energy to making the case that the economy had flourished under Mr. Bush, had failed to convince the public at large. Mr. Paulson is known as an ardent and engaging salesman."

That undoubtedly is what the Bush Administration wants him for, since salesmanship is all they ask of a Treasury Secretary (Rove handles the actual economics). Raising, of course, the question of what Paulson thinks he is doing. No doubt they promised him more than this, but why would he believe them? (Or think they could deliver, at this point, even if they were so minded?)

Chuck Schumer is happy, praising Paulson's "experience, intelligence and deep understanding of national and global economic issues." Unfortunately, this is about as relevant to the responsibilities they are likely to give Paulson as the statement in the Times that he prefers birdwatching to playing golf.

UPDATE: The best phrase I've seen about this is that the Bush Administration was so desperate that they resorted to scraping the top of the barrel.

A day late and a dollar short

It's hilarious to see Bush "admitting mistakes" at this late date. The only personal mistake he admits is using tough guy language on a couple of occasions ("bring it on," "dead or alive" ) three and five years ago. But that's apparently behind us now, since he tells us he has learned about "expressing myself maybe in a little more sophisticated manner."

How nice for him to get that off his chest. I won't add anything about the "more sophisticated" bit, although my twelve and ten year old kids thought it was hilarious coming from Bush. Too easy a target.

Turn, turn, turn

Having noticed that Bush has twice in the last month (on 5/1 and 5/22) hailed developments in Iraqi politics as "turning points" in the war there, I thought I'd try to find out just how many turning points there have been. So I did a couple of quick Lexis searches, restricted to the New York Times and the Washington Post. It turns out that, in addition to turning points, there have also been quite a few "milestones." In particular:

July 2003: formation of temporary governing council is an "important milestone."

June 2004: the handover of sovereignty is a "turning point."

January 2005: Iraqi elections were both a "turning point" and a "milestone."

August 2005 and/or October 2005 (not sure if one date is wrong, or, if both are right, whether they relate to different stages): adoption of Iraqi constitution and/or progress towards adoption thereof were "milestones."

December 2005 - Iraqi parliamentary elections were a "major milestone."

Then most recently we have 5/1/06 and 5/22/06, both involving "turning points" that I believe were not exactly the same.

Wow, things are sure going well out there.

Book update

I've finished the third book in the very loosely related trilogy by J. T. Farrell about British imperial decline (Troubles, Siege of Krishnapura, Singapore Grip) and highly recommend it. But in Singapore Grip I thought the anti-colonialist satire was at times a bit overdone. Flawless touch in the first two books, however.

Then I read Richard Condon's The Manchurian Candidate (basis for the 1962 movie that spawned a recent update) - a real hoot and great paranoid fun.

Now I'm reading Daniel Dennett's Breaking the Spell, about religion as an evolutionary phenomenon. I'm finding it a bit too pop in style, and too engaged in laboriously meeting objections to the enterprise that I don't have. Dennett is doing this in the hope of having a bigger impact rather than just preaching to the choir, a worthy goal but one I doubt he'll meet, but in doing so he's certainly weakening the book's appeal to choir members such as me.

At work I'm making great strides on an article I rather like so far, "Permanent Income and the Annual Income Tax," about the use of lifetime versus shorter-term measures of wellbeing in fiscal rules such as taxes and transfers. The summer comes early for legal academics who start teaching in late August, but that's not to say too early.

Fun in the nation's capital

I was in Washington for the spring meeting of the National Tax Association this past Thursday, and the lunch talk was given by Ed Lazear, the labor economist and recent Tax Reform Panel member who is now on Bush's Council of Economic Advisors. Though I realize the job puts pressure on one's public utterances, I was dismayed by the level of sales pitch that I was hearing, all this stuff about how the Administration's tax policy has wonderfully boosted economic growth, increased national saving, etc., etc. E.g., attributing the recent economic growth rate to the tax cuts, rather than to the recessionary trough that the growth came from, and not acknowledging the fairly obvious point that there were also high growth rates after the 1993 tax increases. Claiming that the dividend tax cuts will create vast increases in national saving and economic growth, as predicted by economic theory, blah blah blah.

With no ill will towards Lazear, I must say I found it a bit stomach-turning, even more so than the cardboard cheesecake with raspberry sauce that was sitting in front of me. So I waved my hand like a first grader so I would get to ask the first question, and was I suppose a bit blunt. I noted that economic theory can't predict the consequences of a tax cut in isolation; it needs to be a balanced-budget exercise that includes the offset. I noted that the Administration has vastly increased the fiscal gap, with huge likely negative effects on national saving even if there is no catastrophe. I noted the immense transfers to older generations, from unsustainable tax cuts that will have to be reversed later on plus the Medicare prescription drug benefit, likely to reduce national saving due to the income effect (seniors save less than younger people for lifecycle reasons). Maybe I had one or two more points before I subsided and let Lazear have at it.

I wouldn 't say he answered me, though I can't say I blame him. At some point he started saying something about how, with just a little economic growth, all the deficits will totally disappear. This was a bit thick. So I started to cut in: "There isn't a single reputable expert in the country who believes - "

"I've got the floor now!" was his answer, so I subsided again. He did acknowledge sharing some of my concerns.

No hard feelings, but a job in the Council of Economic Advisors really isn't very good for one's reputation these days.

UPDATE: A Washington Post editorial on Lazear's speech said it all: "Down Is Still Up; The White House continues to tax reality."

Bob Herbert (if anything) understates it

Someone needed to say this in the MSM:

"The Bushies will tell you that it is dangerous and even against the law to inquire into these nefarious activities. We just have to trust the king.

"Well, I give you fair warning. This is a road map to totalitarianism. Hallmarks of totalitarian regimes have always included an excessive reliance on secrecy, the deliberate stoking of fear in the general population, a preference for military rather than diplomatic solutions in foreign policy, the promotion of blind patriotism, the denial of human rights, the curtailment of the rule of law, hostility to a free press, and the systematic invasion of the privacy of ordinary people."

Important military task

According to today's New York Times, "President Bush told President Vicente Fox of Mexico that the use of National Guard troops would only be temporary."

Yes, I think through the November election should just about cover it.

The big question: does Bush get to play dress-up again? Maybe with a Sergeant Pepper outfit and a toy gun?

The next step in budgetary sleaze

Upon reflection (and with thanks to Kirk Stark for nudging me to see it this way), I am disappointed with Congress's lack of imagination in using tax cuts to "pay" for tax cuts, via the IRA conversion rule that raises $6 billion over ten years but increases the fiscal gap by $16.6 billion. Why stop there?

Here's an idea. Take people who are newly graduated from law school or medical school. They might easily have expected career earnings with a present value of, say, $10 million, and expected lifetime income tax liabilities under present law with a present value of, say, $3 million. The income and liabilities are mostly back-loaded, since their earnings would be expected to rise over time. So here's what we do. We let them "prepay" $50,000, which the government will be happy to lend them for 9-1/2 years at zero interest. All who "prepay" are totally exempt from any further income tax liability for the rest of their lives, starting in 10 years. Leaving aside the credibility problems, what a great revenue raiser within the budget window!

Sleazy budget games

I noted in the previous post that the latest tax cuts passing through Congress "raise revenue" to offset a tiny portion of the overall tax cuts by actually losing more revenue, the device being to hurt the government's long-term financing by paying people to convert traditional IRAs into Roth IRAs.

Len Burman at the Urban Institute has the details. The IRA provision in the legislation is scored as a $6.4 billion revenue-raiser over the next ten years. But its estimated long term revenue consequence, in present value terms, is a loss of $16 billion.

Corporate executives who did this sort of thing would go to jail. Come to think of it, there's a pretty good chance that a lot of the people behind this brilliant initiative will end up going to jail, albeit for different reasons.

One last amusing detail: the tax-cutting legislation is entitled the "Tax Increase Prevention and Reconciliation Act." First you put in phony sunsets that hold down the revenue estimates. Then you call extending the tax cuts "Tax Increase Prevention." Then you do it again, since the extension is only for 2 years.

"Orwellian" has become such a cliche - how can we freshen it up when it is needed so regularly?

Tax policy: some good news and some bad news

First the good news: Bush plans to name Eric Solomon the Assistant Secretary of the Treasury for Tax Policy. Solomon, one of the few people I can think of to serve under both the Clinton and Bush Administrations without having a set term, is one of the good people in government. My guess is that more political people didn't want the job or had confirmation issues or both.

The bad news is that the Republicans in Congress have agreed to a $70 billion tax cut bill. That's $70B over two years - it's just temporary extenders of reduced capital gains and dividend rates and AMT relief. So it brings us a larger fiscal gap and only a tiny respite from the nightmare the Republicans caused in 2001 and 2003 with all of their dishonest, rent-extracting phaseouts of new provisions. (Rent-extracting because they make their fat-walleted friends keep lobbying them for extension.)

One way they are going to "pay" for keeping the hit at "only $70B is to lose money for the government over the long run by inducing people to shift from traditional IRAs (deduction upfront, inclusion on the backend) to Roth IRAs (no deduction today, ostensibly no inclusion upon withdrawal). The myopia of a 2-year budget window permits them to present this long-term revenue-losing shift (since people have to be compensated to switch) as revenue raising. So it is as dishonest and irresponsible as most other things in recent tax legislation, if not more so.

Worse news still is that, to keep this at $70B and keep more tax cuts coming in the future, they deliberately left out "extenders" with strong and bipartisan political support, such as the research and development credit. That way, they get to cut taxes still more later on.

Bush I expect to hail this while at the same time grandstanding about how demanding a $20B cut (over 5 years?) in a pork barrel spending bill makes him a deficit hawk.

Elizabeth Bumiller, arch ironist?

Elizabeth Bumiller, the NY Times White House correspondent, aroused my ire last week when her account of the White House Correspondents Dinner mentioned Bush's "comedy" routine but omitted any mention of Colbert.

Today, Bumiller does a little better in her article, "His Legacy and His Library Occupy Bush's Thoughts."

This one at least has a non-lapdog subtext, as in the statement that "Two and a half years before he leaves office, with his popularity at record lows, Mr. Bush is actively thinking ahead to his post-White House life." In other words, to add my own gloss, perhaps he is as eager for his term to end as I am. (Well, he couldn't possibly be AS eager.) That would at least show good judgment.

But I loved this bit:

"'I would like to leave behind a legacy or a think tank, a place for people to talk about freedom and liberty, and the de Tocqueville model, what de Tocqueville saw in America,' Mr. Bush told Mr. Schieffer. 'I would like for there to be a place where young scholars come and write and think and articulate and opine and teach.'"

The jokes here practically write themselves. "Freedom and liberty" is truly an amazing focus, coming as it does from the principal proponent of torture and domestic authoritarianism in U.S. history. De Tocque - who?? No way on earth that Bush has actually heard of him. And yes, scholarship, what a natural legacy for this guy, almost as apt as freedom and liberty.

Glenn Hubbard and Stephen Colbert videos

In case anyone who's interested hasn't seen it yet, here is the link for the amusing Glenn Hubbard video made by students at the Columbia Business School. Suitable for viewing by anyone who knows (or is told) that Glenn reputedly was a candidate for Alan Greenspan's job before it went instead to Ben Bernanke.

But, turning to the Colbert video, words fail me. Give him a Pulitzer Prize for this, throw in the Nobel Peace and Literature Prizes, and it would still fall far short of doing his achievement full justice.

Anniversary celebration

What a nice, if thoroughly traditional, way to celebrate the third anniversary of Bush's "Mission Accomplished" stunt.

Bush is celebrating it with a page from his greatest hits, hailing the formation of a new Iraqi government as a "turning point."

If that by itself isn't encouragement enough, note that he announced the good news after talking with Rumsfeld & Rice about their "surprise visit" to the most fortified spot in the Green Zone.

I am looking forward to more good news whenever Rumsfeld gets around to making a surprise non-visit.

Our friend Grover

Sometimes, when people get books they think may talk about them, the first thing they do is look in the index under their own names. I'm not among these people, but only because I don't expect to figure in indices other than for an occasional scholarly cite.

Today, I got a complimentary copy, from Doubleday, of Matthew Continetti's newly published "The K Street Gang." Perhaps they're hoping I'll mention it in my blog or something. Anyway, I went straight to the index - not for myself, of course, but for Grover Norquist. I was not disappointed. Entries in 3 sub-categories: "ideology," "Indian gaming interests and," "rogue or bogus clients."

The balance between these sub-categories sounds just about right for Grover.

Idiot season

No matter how cynical one is about politics - and I try to set the bar high for myself - it's hard not to get trumped every day of the week. You can't keep up with these guys.

Okay, gasoline prices are way up. What do you expect when Iraq is in flames and Iran will be nuked if Karl Rove concludes that this will pay off electorally in November.

But not to worry, the Democrats have a great plan. Let's suspend the gasoline tax for six months. If the U.S. has monopsony power in the world marketplace, this amounts to saying: let's take the money out of the U.S. government's hands and make sure that foreign governments or oil companies get it instead. Or, if the price does moderate, it says: let's make sure the price signals don't get through and start changing American energy behavior. We wouldn't want to start reducing our international economic vulnerability, after all.

Senator Frist's office, whether or not stupider, is at least funnier. Our friend the timely-trading video diagnostician wants to start mailing out $100 checks to people. No need even to own a car for this one. And the deep thinking behind it is almost as rich as the proposal itself. From today's New York Times:

"David Winston, a Republican pollster who advises the Senate Republican leadership, called the rebate an intuitive way to show voters that Republicans were on their side. 'It is like putting the American family budget ahead of oil company profits, Mr. Winston said. "'How do you help the American families out? Well, give them some money.'"

Not TOO far ahead of oil company profits, however, given that American families are paying for their own checks through the increased fiscal gap. And what's more, the rebate is merely "the signature element of a broader Senate Republican leadership plan announced Thursday that included new incentives for the oil industry to increase its refining capacity and ... would open the Arctic National Wildlife Refuge in Alaska to drilling."

At a certain point there's really nothing left to say.

Another newly posted paper of mine

"Welfare, Cash Grants, and Marginal Rates." available here. The abstract is as follows:

"Marginal rates are frequently analyzed based solely on taxes, without regard to benefit phase-outs that have exactly the same incentive and distributional effects as increasing positive taxes. This myopia reflects the notion, rooted in our current fiscal language, that “taxes” and “spending” are fundamentally different. In fact, however, the difference is purely one of labeling.

"Among the ill consequences of this confusion between substance and labels is the political unfeasibility of demogrant or negative income tax proposals. These proposals often are criticized for seemingly providing universal and unconditional cash grants. In fact, however, cash grants can be just as conditional or selective as benefits that are labeled as “welfare.” Clearer thinking about these matters would expand the realm of politically feasible policy choices, and make excessively high marginal tax rates on people who are escaping poverty easier to avoid."

This one is admittedly a bit of a rehash of past work. I have written about these issues before, but reworked and extended previous writings, while also explicitly linking it to related themes, to serve as chapter 9 of my forthcoming book with the Cambridge U Press, entitled "Taxes, Spending, and the U.S. Government's March Toward Bankruptcy." I then decided (with the Press's kind approval) to break out a revised and shortened version of the chapter to appear in a forthcoming SMU Law Review tax symposium. That, in turn, is the newly posted paper.

Upcoming NYU conference in honor of David Bradford

Coming up on Friday, May 5. This is going to be a serious academic conference, not a tribute session, consistently with what David would have preferred.

Here's the schedule, although the order of the papers still might change:

PANEL 1: ISSUES OF BUDGET MEASUREMENT
Authors:
Jerry Green, Harvard University
Laurence Kotlikoff, Boston University

Discussants:
Daniel Shaviro, NYU
Kent Smetters, University of Pennsylvania

PANEL 2: THE NEW VIEW OF CORPORATE DIVIDENDS
Author:
Roger Gordon, UC San Diego

Discussants:
William Andrews, Harvard University
George Zodrow, Rice University

PANEL 3: FISCAL DECENTRALIZATION
Author:
Wallace Oates, University of Maryland

Discussants:
Harvey Rosen, Princeton University
Charles McLure, Hoover Institution

PANEL 4: THE CHOICE BETWEEN INCOME TAXATION AND
CONSUMPTION TAXATION
Author:
Alan Auerbach, UC Berkeley

Discussants:
Glenn Hubbard, Columbia University
Alvin Warren, Harvard University

PANEL 5: ISSUES OF TRANSITION TO A CONSUMPTION TAX
Author:
Louis Kaplow, Harvard University

Discussants:
James Hines, University of Michigan
Kyle Logue, University of Michigan

PANEL 6: CONSUMPTION TAX IMPLEMENTATION
Author:
David Weisbach, University of Chicago

Discussants:
Edward McCaffery, USC
Joel Slemrod, University of Michigan

Five of the six papers (very shortly to be all six) can be downloaded here.

UPDATE: The order of Panels 5 and 6 has been flipped to accommodate speakers' schedules.

For once I'm glad he's lying

Obviously Bush's pledge to look into "price gouging" on gasoline is a sham. Then again, it probably should be.

Of course, if he hadn't messed up so badly in the Middle East, with more insanity possibly to come, the world price would probably be lower.

A tale of three headlines

1) From today's Washington Post: "Inspectors Find More Torture at Iraqi Jails; Top General's Pledge To Protect Prisoners 'Not Being Followed'."

2) From today's New York Times: "Moves Signal Tighter Secrecy Within C.I.A." The article elaborates that Bush's handpicked CIA director (Porter Goss) is trying "to re-emphasize a culture of secrecy that has included a marked tightening of the review process for books and articles by former agency employees."

3) From today's Wall Street Journal: an opinion column by Natan Sharansky, entitled "Dissident President." Here we learn that Bush is "a man fired by a deep belief in the universal appeal of freedom, its transformative power, and its critical connection to international peace and stability .... Now that President Bush is increasingly alone in pushing for freedom, I can only hope that his dissident spirit will continue to persevere."

... Okay, enough with the deadpan. Somewhere, Andre Sakhorov is vomiting at the thought that the term "dissident" could be so inverted and debased.

Another year done at the NYU Tax Policy Colloquium

We're already gearing up for next year, when my co-convenors (?) will be Alan Auerbach for 7 weeks and Rosanne Altshuler for 7 weeks.