Tax policy and the election
by George Porter
by George Porter
Barack Obama frequently criticizes the Bush tax cuts and suggests that under an Obama presidency, many will be scrapped. Robert Mundell, Nobel laureate and Columbia University Economics professor, is quoted in the June 21 issue of the Wall Street Journal (WSJ) predicting “If that happens, the U.S. will go into a big recession – a nosedive…This would be devastating to the world’s economy, to the United States, and it would be, I think, political suicide in a general election.”
Mundell recounts how the last century experienced a titanic struggle over tax rates: from 3% on only the few of the wealthiest Americans in 1913; up to 60 percent during WW I; down to 25 percent before Congress and Herbert Hoover raised taxes back to 60 percent in 1932 and “sealed the fate of our economy for a long, long time;” all the way up to 92.5 percent during WW II before falling in three steps, reaching 28 percent under President Ronald Reagan; and back to nearly 40 percent under Bill Clinton before George W Bush lowered them to their present level. “The most important thing that could be done with respect to tax rates now is to make the Bush tax cuts permanent. Eliminating that uncertainty would be more important than pushing for a further tax cut -- in the income tax, anyway.”
He does recommend lowering our corporate tax rate from its current 35 percent down to 25 percent to increase American competitiveness.
Robert Mundell, a Canadian now living in New York, is considered the father of the European euro. He recommended a common European currency for 30 years before it came into existence in 1999. He currently advises China on monetary policy, and has been suggesting an Asiatic version of the euro. Long term he recommends one common world currency, possibly the U.S. dollar – “the global economy needs a global currency…I look on the United States still as the main sparkplug of economic growth in the world.”
Mundell was a participant this past May at the Copenhagen Consensus 2008 Conference. He is now pushing for a monetary conference of the world’s leading nations in 2010 at the Shanghai World Fair. Given Mundell’s past record and his global influence, one common world currency may come in the not so distant future.
The Democrat party is split on fiscal and tax policy. The big spenders, higher tax faction within the party, led by House Speaker Nancy Pelosi and Senate majority leader Harry Reid is the dominate Democrat group. More conservative “New” Democrats number only about 40, but were the big gainers in 2006 when Democrats took control of Congress.
“New Democrats” were born in the 1980’s in response to the Reagan Revolution, as the Democratic Leadership Council. Bill Clinton ran on their platform that included economic centrism. The far left despised President Clinton’s embrace of free trade, his accommodation to welfare reform, and his pronouncement that “the era of big government is over.” But Bill Clinton gave the Democrat Party its’ only two full terms in the White House since FDR.
Barack Obama’s tax rate proposals would take us back to those in effect under President Carter. He wants to increase taxes on payroll, capital gains, dividends and death in a redistribution philosophy and the largest tax increase in American history.
John McCain has proposed making the Bush tax cuts permanent, phasing out completely the Alternative Minimum Tax, cutting the corporate tax gradually from the present 35 percent to 25 percent, and doubling the personal exemption for dependents – a move that would lower taxes for all and remove many from having to pay income tax.
While details change weekly as both candidates compete for voter approval, the tax policies advocated by McCain and Obama are radically different and part of packages that embrace two different philosophies of government.
Economist Kurt Hauser 15 years ago published data that documented that federal tax revenue has been a relatively consistent 19.5 percent of gross domestic product (GDP) since 1950, under ever changing tax rates. Tax rate hikes have produced lower GDP. Houser concludes: “Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.”
If Robert Mundell and Kurt Hauser are correct, lower taxes will promote economic growth and a higher GPD, and more government revenue. It’s part of the McCain package.
Tom Coburn, McCain’s co-chair in Oklahoma, wrote in a recent article in the WSJ “John McCain, for all his faults, is the one Republican candidate who can lead us through our wilderness. Mr. McCain is not running on a messianic platform or as a greart healer of dysfunctional Republicans who refuse to help themselves. His humility is one of his great strengths. In his heart, he’s a soldier who sees one more hill to climb, one more mission to complete.”
George Porter is a retired insurance company executive and a Duncan Banner columnist. He may be contacted at geo.porter@att.net
Mundell recounts how the last century experienced a titanic struggle over tax rates: from 3% on only the few of the wealthiest Americans in 1913; up to 60 percent during WW I; down to 25 percent before Congress and Herbert Hoover raised taxes back to 60 percent in 1932 and “sealed the fate of our economy for a long, long time;” all the way up to 92.5 percent during WW II before falling in three steps, reaching 28 percent under President Ronald Reagan; and back to nearly 40 percent under Bill Clinton before George W Bush lowered them to their present level. “The most important thing that could be done with respect to tax rates now is to make the Bush tax cuts permanent. Eliminating that uncertainty would be more important than pushing for a further tax cut -- in the income tax, anyway.”
He does recommend lowering our corporate tax rate from its current 35 percent down to 25 percent to increase American competitiveness.
Robert Mundell, a Canadian now living in New York, is considered the father of the European euro. He recommended a common European currency for 30 years before it came into existence in 1999. He currently advises China on monetary policy, and has been suggesting an Asiatic version of the euro. Long term he recommends one common world currency, possibly the U.S. dollar – “the global economy needs a global currency…I look on the United States still as the main sparkplug of economic growth in the world.”
Mundell was a participant this past May at the Copenhagen Consensus 2008 Conference. He is now pushing for a monetary conference of the world’s leading nations in 2010 at the Shanghai World Fair. Given Mundell’s past record and his global influence, one common world currency may come in the not so distant future.
The Democrat party is split on fiscal and tax policy. The big spenders, higher tax faction within the party, led by House Speaker Nancy Pelosi and Senate majority leader Harry Reid is the dominate Democrat group. More conservative “New” Democrats number only about 40, but were the big gainers in 2006 when Democrats took control of Congress.
“New Democrats” were born in the 1980’s in response to the Reagan Revolution, as the Democratic Leadership Council. Bill Clinton ran on their platform that included economic centrism. The far left despised President Clinton’s embrace of free trade, his accommodation to welfare reform, and his pronouncement that “the era of big government is over.” But Bill Clinton gave the Democrat Party its’ only two full terms in the White House since FDR.
Barack Obama’s tax rate proposals would take us back to those in effect under President Carter. He wants to increase taxes on payroll, capital gains, dividends and death in a redistribution philosophy and the largest tax increase in American history.
John McCain has proposed making the Bush tax cuts permanent, phasing out completely the Alternative Minimum Tax, cutting the corporate tax gradually from the present 35 percent to 25 percent, and doubling the personal exemption for dependents – a move that would lower taxes for all and remove many from having to pay income tax.
While details change weekly as both candidates compete for voter approval, the tax policies advocated by McCain and Obama are radically different and part of packages that embrace two different philosophies of government.
Economist Kurt Hauser 15 years ago published data that documented that federal tax revenue has been a relatively consistent 19.5 percent of gross domestic product (GDP) since 1950, under ever changing tax rates. Tax rate hikes have produced lower GDP. Houser concludes: “Higher taxes reduce the incentives to work, produce, invest and save, thereby dampening overall economic activity and job creation.”
If Robert Mundell and Kurt Hauser are correct, lower taxes will promote economic growth and a higher GPD, and more government revenue. It’s part of the McCain package.
Tom Coburn, McCain’s co-chair in Oklahoma, wrote in a recent article in the WSJ “John McCain, for all his faults, is the one Republican candidate who can lead us through our wilderness. Mr. McCain is not running on a messianic platform or as a greart healer of dysfunctional Republicans who refuse to help themselves. His humility is one of his great strengths. In his heart, he’s a soldier who sees one more hill to climb, one more mission to complete.”
George Porter is a retired insurance company executive and a Duncan Banner columnist. He may be contacted at geo.porter@att.net
Nobel Laureate Robert Mundell has long been a proponent of a Single Global Currency.
ReplyDeleteThe Single Global Currency Association promotes the implementation of a Single Global Currency, with a Global Central bank, by the year 2024. With a primary goal of monetary stability, as with the European Central Bank, the Global Central Bank will uphold conservative values. With the successful use of the euro and other common currencies, more and more people and organizations and nations are seeing the advantages of monetary unions. Our website is at www.singleglobalcurrency.org.
The Association recently published the 2008 Edition of my book, The Single Global Currency - Common Cents for the World. A copy of the 2007 edition is available at the Munchen personal archive at http://mpra.ub.uni-muenchen.de/5879/. and on the Association's website.
The goal of 2024 is only 16 years away. If one looks at the world before the 2002 distribution of the euro to the people of the EMU, you would have seen in 1986 a Europe with a Soviet Union, an East Germany and a Berlin Wall. At that time, most Europeans would have scoffed at the idea of a new monetary union.
The benefits of a Single Global Currency include:
- Zero transaction costs to exchange currencies. Presently, $3.2 trillion is traded every trading day and all this trading and its associated costs, approximately $400 billion annually, can be eliminated.
- The end of currency fluctuations and currency speculation.
- The end of "Balance of Payments", "Current Account" and "global imbalances" problems for currency areas. There will, of course, still be trade and wealth inequalities, and more visibly; but they will not be compounded by the problem of foreign exchange transactions and reserve requirements. There would be no need for countries to maintain international reserves of other currencies.
- Zero manipulation by countries of their currencies, and thus no more need to cajole and jawbone any particular country or currency area about the value of its currency.
- Zero risk of national and regional currency crises such as occurred in the 1990's in Mexico, Argentina, Malaysia, South Korea and Russia.
- Minimal inflation, assuming that the future global central bank sets and achieves a low inflation rate, just as the European Central Bank has done. It's not clear that a zero inflation rate can be secured, as that would bring an economy perilously close to deflation and a deflation spiral, but certainly a low rate of inflation would be better for the world than the current rates.
- Worldwide asset values will increase by about $36 trillion due to the elimination of currency risk. Such an increase in asset values will cause annual worldwide GDP to increase by about $9 trillion.
- With no currrency risk, worldwide interest rates would be lower.
- With zero risk of currency failure and zero manipulation and minimal inflation, the Single Global Currency would satisfy the moral obligation that a stable currency should be considered as a fundamental human right, as is the right to own property. A Single Global Currency would be far more stable than the currencies presently used by billions of human beings
While all these benefits are expected upon the implementation of a Single Global Currency, considerable benefits will also come during the implementation processes which will see the reduction of national currencies as predicted and welcomed recently by Benn Steil in Foreign Affairs.
Of course, not all economists agree with the goal of a single global currency. For those who would label the single global currency utopian, we call their attention to the euro, which began as a plan only about 30 years ago. Who would have thought in the 1970's that Europe would not only adopt a common currency, but also that its member countries would discard their old currencies?
The single global currency might be an enlarged transformation of one of the current major currencies (dollar, euro, yen), perhaps with a new name such as "dey", "eartha", "geo","globo" or "worldo" or it might be a new currency with such a name. How we get to that point is, of course, a major challenge, but there are several possible routes. One is to continue the trend of creating and expanding regional monetary unions, and then combine those monetary unions into one. Another is for smaller countries to continue to "ize" their nations' legal tender, as in "dollarize" and "euroize", as has been done in El Salvador and Monaco. Compatible with all these and other routes is the need to convene an international monetary conference of nations, monetary unions and related organizations, and begin planning for the implementation of a single global currency.
Organizations such as the IMF and the Bank for International Settlements, and individual economists should begin to carefully research and write about the benefits claimed above for the Single Global Currency, and about the costs, too. When the vast benefits become better known, the people of the world will demand a Single Global Currency and ask why we have been burdened so long with the existing multicurrency system, which Robert Mundell describes as "absurd."
Thanks for your comments- I understand the argument for a single currency- I just personally do not agree with it. We have blurred the lines between countries enough in the world and one currency would further erode our country's sovereignty.
ReplyDeleteSteve