Thursday, December 17, 2009

How the Bonus Tax Can Steal Christmas

Bonus taxes on bankers are all the global rage. Soon they’ll likely be extended to corporate executives and other greedy individuals. So, why not impose them on their most vocal advocates, the disproportionately left-leaning professors, especially in the highly-paid elite universities, who routinely support higher taxes on the wealthy to finance increased government spending on their favorite programs!

In keeping with President Obama’s pledge not to raise taxes on single persons earning less than $200,00 and married couples less than $250,000 a year, I suggest a 50 percent bonus tax on all professors whose earnings exceed those levels. Moreover, because the professors are so keen on progressivity, I further propose an additional 5 percent bonus tax on each incremental $50,000, up to a maximum bonus tax of 75 percent on earnings exceeding $450,000 and $500,000 for single and married taxpayers respectively.

Moreover, to avoid any loopholes, professors should also pay these bonus taxes on dividends and capital income, including hitherto tax-exempt bonds.

While we’re at it, how about applying the bonus taxes to state and local taxes!

Applying bonus taxes on academics will affirm their enthusiasm for living by their own doctrine. Or, will it? You place your bet.

Thursday, December 3, 2009

Gold and The Golden Rule

The current high price of gold makes this an opportune time to remind ourselves of "The Golden Rule," namely, "he who has the gold rules."

The U.S. government is issuing enormous amounts of public debt to fund its trillion dollar budget deficits. Outstanding privately held public debt in September 2009 amounted to $6.783 trillion. (Federal Reserve and intergovernmental holdings, chiefly the Social Security and Medicare trust funds, of $5,127 trillion are non-marketable and cannot be traded). Foreign and international holdings amounted to 51.6 percent of privately held public debt in September 2009, up from less than 15 percent in 1986, about 18 percent in 1990, and 34.8 percent in 2000.

A good way to think about the public debt is to imagine that is the equity of a company, in this case the federal government. An investor’s share of a firm’s equity determines his share of seats on the board of directors, which selects and gives guidance to management in directing the operations of the firm. Until recently, U.S. debt was held by U.S. residents and institutions. Now a majority is held by foreign and international owners. The two largest are China (23.55 percent), which has rapidly increased its share, and Japan (21.13 percent). Next in line are the United Kingdom (6.42 percent), oil exporters (5.52 percent), and Caribbean banking centers, whose beneficial owners are not specified (5.64 percent).

Even as foreign ownership is rapidly increasing, treasury officials and other public and private economists insist that large fiscal deficits are not a problem so long as foreigners remain willing to buy our newly-issued debt. In the above model, this amounts to transferring ever-larger ownership of the firm’s equity (U.S. government debt) to non-U.S. residents.

In times of global anxiety, investors flee to safety, precious metals and U.S. treasuries. In normal times, investors pursue more risky investments that yield higher returns. However, applauding increasing foreign ownership of U.S. public debt as a sign of international confidence in the U.S. economy overlooks the golden rule, to wit, that those who own our debt can, if they choose, rule in proportion to that ownership. As the percentage continues to rise, foreign owners, not all of whom have our best interests at heart, can play havoc with the U.S. economy by announcing or undertaking actions to sell or diversify away from U.S. securities.

Cheering one’s increasing loss of financial control seems a strange way to congratulate ourselves and position the U.S. to remain the dominant global economic power.

Wednesday, December 2, 2009

Four Questions for President George W. Bush

Why did you fail to veto a single spending bill passed by the Republican-controlled Congress during 2001-06?

Why did you keep Rumsfeld and his generals for four years in Iraq before replacing them with Gates and Petraeus?

If 15 of the 19 persons who attacked the World Trade Center and the Pentagon were Saudi nationals, and since the Saudis are the principal source of funding madrassas that teach the strict Wahabi form of Islam, why did you invade Iraq?

Finally, did any of your cabinet members, White House advisers, and other government economists warn you of the bubble that was building up in the economy that caused the financial crisis and recession?

Tuesday, December 1, 2009

Are the Swiss Becoming Hateful?

Swiss voters recently approved by a substantial margin (57 percent yes) a referendum to ban minarets on top of mosques. For this exercise of democracy the Swiss have been excoriated as racist bigots, bringing upon them the hostility of Muslims and Western proponents of diversity and tolerance. (Never mind that some Muslim countries do not reciprocate.)

The exercise of democracy has brought to power Hamas in Gaza, Hezbollah in Lebanon, Hugo Chavez in Venezuela, Evo Morales in Bolivia, Vladimir Putin in Russia (with 70 percent approval), and Alexander Lukashenko in Belarus, to name a few of the less attractive parties and regimes in the "democratic" world..

What is one to conclude? That democracy is good if supporters get the outcome they want, but bad if the process produces the "wrong" result.
Math-Challenged Sports Announcers

The definition of average is that half of the population in any group is above and half below the mean or median person in what is measured.

In the sports world, however, every athlete is either a superstar or underrated. Rarely do announcers name below-average players. No one in sports, it would seem, is below average.