Washington likes quick fixes to big problems. Unfortunately, quick fixes rarely benefit the economy. In 1977, in behind-the-scenes discussions with members of Congress, I argued against the New Jobs Tax Credit. It was obvious that the credit would reward new hires long after the decision to hire had been made for other reasons. We spent $5.7 billion of taxpayer money on it anyway so political leaders had something to show the voters back home. No new jobs were created, although proving that is almost impossible.
The White House is considering reviving the New Jobs Tax Credit for to ward off an election debacle 13 months from now. How much is that worth? Replicating the New Jobs Tax Credit would cost about $13 billion. President-elect Obama proposed a smaller, but refundable $3,000 credit in last year's campaign. Last January, he dropped it from his stimulus proposal under pressure from Democratic congressional leaders. Now that the unemployment rate is about to top 10%, it's back on the table.
The most popular tax hike proposal on Capitol Hill these days is the soda tax. The Congressional Budget Office identified it last December as a twofer: it raises revenue and combats obesity at the same time. See Option 106 on page 192. New York Times columnist David Leonhart wrote an excellent analysis of it yesterday. The plan is to use this to pay for health care reform. If it were up to me, I'd add a chip tax too.
Twice a week I tutor inner city children over the lunch hour. It's a Title 1 school, which means their lunches are provided by the Department of Agriculture without charge from agricultural surplus. I sit upwind so I don't get sick. At least they serve subsidized milk instead of soda. But many kids are obese anyway because they crave chips. If your diet consisted of soda and chips you be 50 pounds overweight and a candidate for diabetes too. Every day I tell young kids, "Don't eat chips," but they do anyway.
Monday, President Obama released details of how he proposes to raise $210 b. over the next 10 years from taxing U.S. multinationals on their overseas income and from going after U.S. taxpayers using offshore tax havens.
Deductions associated with deferred overseas income would not be deductible, except for R&D, starting in 2011. Foreign Tax Credit loopholes would be closed. "Check the Box" foreign subsidiaries would be required to file taxes as separate corporations. Tax Havens would be subject to increased disclosure, withholding taxes, and IRS enforcement. Overseas banks will have to file 1099s on income earned by Americans.
Jack Kemp had an idea that launched a fiscal policy era in the U.S., supply side economics. Cut taxes and the economy will grow. Cut taxes more and the economy will grow more. I can't say I agreed with him, but I had to admire Kemp as an inspirational and effective leader. When Kemp became HUD Secretary, I was even more impressed by the rejuvenation he provided low income housing programs -- not exactly what you would expect from a conservative Republican.
After the election, I suggested that the Obama Administration move forward with a green tax swap -- higher taxes on fossil fuels, coupled with lower payroll taxes in a revenue neutral way. Lately, I have been thinking of another pairing of carbon taxes, this time with grants back to states. Here's an outline:
The knock on carbon taxes is that they affect heavy users more than light users of fuel. That's unavoidable -- that's how the taxes curb the usage -- but there are ways to vary the intensity with which this happens. Suppose that the federal government made an estimate of all the fossil fuels that were used in each state in a base period, like the two years from 2007-2008. The federal government could then rebate the tax revenues to each state in proportion to its base-period usage. States that made reductions in usage relative to the base period would receive a net gain from the tax. The estimates might be done on a per capita basis, to account for changes in population over time.