Taxation

Policy makers should recognize information technology as the centerpiece of economic policy and develop their plans accordingly, concludes the Digital Prosperity study published this week by the Information Technology and Innovation Foundation.
“In the new global economy information and communications technology (IT) is the major driver, not just of improved quality of life, but also of economic growth,” writes Foundation president, Dr. Robert D. Atkinson, author of the study.
Atkinson is a widely respected economist who formerly served as project director of the Congressional Office of Technology Assessment, and is the former director of the Progressive Policy Institute’s Technology and New Economy Project of the centrist Democratic Leadership Council.
Based on reviews of other studies, and Atkinson’s own research, the report maintains, “IT was responsible for two-thirds of total factor growth in productivity between 1995 and 2002 and virtually all of the growth in labor productivity” in the United States.

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This morning Fed Chairman Ben Bernanke testified on the budget, trade, and savings gaps — the “triple deficits.” He believes the trade deficit is mostly caused by the savings deficit. Overseas consumers save a lot. Americans save very little — at least according to the conventional measures. Foreigners invest their savings in America. Americans buy lots of foreign goods. To the point of over-consumption, or spending “beyond our means,” say many economists and other preachy observers. Thus the trade deficit.
Bernanke deserves some credit for not hyperventilating about the trade gap. But he does think it’s a “problem.” Increasing American savings, Bernanke says, is the solution. Bernanke referred several times to new research in “behavioral economics,” a relatively new field that, among other things, looks at factors that affect consumer or business behavior beyond traditional incentives like taxes. Bernanke offered the example of 401(k)s savings accounts. He said that even though the tax incentives of 401(k)s are substantial, many employees do not take advantage of the opportunity. But, Bernanke said, research shows that if employers automatically enroll their employees in the 401(k) from the start and allow them to opt out, rather than opt in, the employees are much more likely to remain in the plan. Maybe this automatic 401(k) approach is one way to increase American savings.

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What a complicated mess! See the new and improved version of Robert Pozen’s Social Security scheme. Although a Democrat, Pozen provided the blueprint for President Bush’s failed Social Security push in 2005. Now Pozen is back with new gears, widgets, and valves designed to make sure balance and “solvency” are achieved over the next 75 years. Added to the benefit-cutting mechanism of “Progressive Price Indexing” are now “Longevity Indexing” and a 2% Surtax not just on the upper class but the middle class too. He throws out one attractive idea to Republicans — eliminating the income cap on Roth IRAs so individuals could invest any amount of after-tax income with no future tax hit. But does anyone think such a Read More ›

Sen. Ron Wyden
The Permanent Internet Tax Freedom Act (S. 156) was introcuced by Senators Ron Wyden (D-OR), John McCain (R-AZ) and John Sununu (R-NH) to prohibit: (1) taxes on Internet access, (2) double taxation of a product or service bought over the Internet, and (3) discriminatory taxes that treat Internet purchases differently from other types of sales. The bill is a good start, but doesn’t go far enough. For one thing, it does nothing to reduce disciminatory taxation of telephone, cable and wirless services. Wyden cites these taxes as a justification for his legislation,

If you want to figure out how much discriminatory taxes could be, just look at your phone bill. Taxes and government fees already add as much as 20 percent in surcharges to consumer’s telephone bills.

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Via Don Luskin, It now looks like the 2003 capital gains tax rate reduction will yield some $100 billion in “unexpected” revenues, at least if you go by CBO estmiators. This over a period of just three years. CBO had estimated that 2006 capgains revenue would be less than 2002 levels — $54 billion versus $57 billion. But in addition to higher revenues the last few years, FY2006 receipts could reach $98, close to double CBO’s original projection that relied on its perpetually wrong static model. Of course, these numbers only reflect the windfall to government accounts, not the more important rise in the accounts of American investors. -Bret Swanson P.S. Also watch Luskin hilariously tweaking Paul Krugman for predicting Read More ›

Also via Don Luskin, we note our favorite hedge fund commentators GaveKal Research on the Bush tax cuts, and Paul Krugman’s shifting criticisms: “As religious readers of Paul Krugman (the New York Times columnist), we had expected the Bush tax cuts to be an unmitigated disaster. Because of President Bush’s “fiscal recklessness” we thought, in 2003, that the US would stay in a recession. “Then we felt that the recovery would be a profitless recovery. When the profits hit record highs, we then feared that the recovery would be jobless. When the US economy ended up creating more jobs than anyone had thought possible, we fell back on our default position, namely that the Bush tax cuts had endangered the Read More ›

Our friend Don Luskin links to a wonderful summary of the positive economic effects of the 2003 Bush tax cuts. As a sample, Dan Clifton of the American Shareholder Association, who compiled the numbers, notes that since the ’03 capital gains and dividend rate reductions, U.S. household wealth has risen $14,374,330,000,000 — that’s 14 trillion. It must be said that part of this rise is due to an overly accommodative Fed and the resulting inflation and weaker dollar. Nevertheless, a huge success. -Bret Swanson

Local officials think they’re so smart. In Corvallis, Oregon, for example, the city council approved a 5% tax on telecommunications services. The council said the money would be used to pay for equipment for the city’s fire department, including emergency vehicles. But in reality the additional revenue allows the city to fund less popular programs. Local officials everywhere cite the few worthy activities they perform to justify their tax proposals, knowing that new revenue will free up existing revenue that would otherwise have to be spent on the popular programs anyway. The officials can divert the existing money to the programs voters perceive as questionable, wasteful or of a lower priority. City officials apparently believe that the citizens who elect Read More ›

State and local lawmakers learned in the 1990s that large, broad-based tax increases are political losers and that they redistribute taxpayers (to lower taxing jurisdictions) rather than redistributing income. Hence, the growing interest in targeting tax increases to divide taxpayers into smaller groups and minimize voter backlash. Tobacco and alcohol are the favorites, but the same thing is happening in telecom and housing. These are some of the findings from a study by Daniel Clifton and Elizabeth Karasmeighan for Americans for Tax Reform. According to Tom Tauke, “broadband and, in particular, wireless services are increasingly viewed by state and local governments as the golden goose for raising new revenue. The state and local tax burden on communications is now two Read More ›

It took brain surgery for columnist Michael Kinsley to finally grasp the contrarian economic truth of the Laffer Curve. Upon arising from the procedure where dime sized holes were drilled, and wires inserted, in his head, Kinsley’s first words were: “Well, of course, when you cut taxes, government revenues go up. Why couldn’t I see that before?” Mr. Kinsley has our best wishes for recovery, but already he appears keener than ever. -Bret Swanson