Last Wishes for Trade Policy

With 19 months left in the Bush presidency, June 30 marks the unceremonious end of his trade policy. Though things haven’t looked bright on the trade liberalization front for quite a while, there was a time when the agenda had promise and its keepers had enthusiasm. Tomorrow’s expiration of the president’s trade promotion authority, thus, accentuates the sadness of promise unfilled. On top of that, responsibility for trade policy is returning to a Congress that is, perhaps, more skeptical of trade than any Congress since the days of Smoot and Hawley.

The main goal of the administration’s trade policy was a multilateral trade agreement. That proved elusive, and now the Doha Round lies in a cryogenic state. The administration did bring home some bilateral and regional deals that are important, but relative to what could have and should have been accomplished, it ain’t much.

As we enter the post-TPA period, there are four trade agreements that have been signed, but not yet approved by Congress. The congressional leadership today finally came out and said they will not support the deals with Korea or Colombia (as expected). They offered support for Peru and Panama, but we’ll see whether the rank and file goes along. I’m skeptical.

Regrettably, we may have to endure a dark period on trade policy as members of Congress work to outdo each other with ridiculous, self-defeating legislation. The last responsibility of the Bush administration on trade policy, then, is to hold the line against the onslaught of anti-trade, anti-China legislation and make sure none of those bills becomes law.

Raise Your Own Darn Taxes

In a Politico story about what appears to be push-polling (“a political campaign technique in which an individual or organization attempts to influence or alter the view of respondents under the guise of conducting a poll”) by Hillary Clinton is this gem:

Freeman Ng, a software designer in Oakland, Calif., reported getting a call late in the morning of May 5.

He wrote on DailyKos that day that he was asked how the fact that “Barack Obama failed to vote in favor of abortion rights nine times as a state senator” might affect his vote.

He said he was also asked a question that associated Edwards with tax hikes.

“A lot of the statements struck me as being very conservative and moderate in orientation, like the tax thing,” said Ng, who stands well to the left of center. “To me, that was a plus that he’s going to raise my taxes.”

Hey, you wanna pay more taxes? Fine, pay more taxes. Nobody’s stopping you. But leave me out of it.

Warren Buffett’s Faulty Tax Math

Class-warfare activists were delighted when Warren Buffett recently complained that his tax rate was too low and that his secretary was subject to a higher effective tax rate. The various news reports, including the excerpt below from Tax-news.com, do not provide any detail on Buffett’s taxes, but he almost certainly was being either dishonest or ignorant.

It is probably safe to assume that Buffett receives lots of dividend income and that he also declares a considerable amount of capital gains, both of which are subject to a 15 percent tax rate on an individual tax return. What he did not mention, however, is that corporations pay a 35 percent tax before distributing dividends to shareholders, so the actual effective tax rate on that portion of Buffett’s income is closer to 50 percent.

The capital gains tax is another example of double taxation. An increase in the value of a stock is a reflection of an anticipated increase in the future income stream from that stock. Yet that income stream will be taxed (usually two times!) when it occurs. The real effective rate on that portion of Buffett’s income is harder to calculate, but it certainly will be far higher than 15 percent.

Shifting gears, Buffett’s calculations almost surely include Social Security payroll taxes, which only apply to the first $90,000 of income in exchange for not providing huge benefit payments to rich retirees. Indeed, the overall program is highly progressive once benefit payments are added to the equation, so Buffett’s secretary gets a better deal than he does from Social Security (though both would be better off with a system of personal retirement accounts).

Last but not least, if Buffett really thinks he is not paying enough to government, he can write a check to George Bush, Ted Kennedy, and Nancy Pelosi. But he should not try to assuage his feelings of guilt by seeking higher taxes on other people:

Warren Buffett, perhaps the most successful investors of modern times and one of the world’s wealthiest men, has spoken out against the U.S. tax system which allows him to pay proportionately less of his multi-million dollar annual income in taxes than his cleaning lady. Addressing attendees at the $4,600-a-place fund-raising dinner for the Hilary Clinton presidential campaign, Buffett, who runs investment group Berkshire Hathaway and is reputedly worth $52 billion, told the 600 Wall Street bankers and money managers that: “(We) pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.” According to Buffett, he makes no use of tax shelters to mitigate his tax liability, but still managed to pay an average tax rate of 17.7% on his $46 million income last year. By comparison, his secretary, who earned $60,000, paid tax at 30%.

Let a Hundred Flowers Bloom

The most fascinating story in the world is China today, as the world’s most populous country struggles toward modernity.

The Chinese rulers seem to be trying to emulate Singapore’s success in creating a dynamic modern economy while maintaining authoritarian rule. But can a nation of a billion people be managed as successfully as a city-state? Since 1979 China has liberated its economy, creating de facto and even de jure property rights, allowing the creation of businesses, and freeing up labor markets. The result has been rapid economic growth. China has brought more people out of back-breaking poverty faster than any country in history.

And, as scholars such as F. A. Hayek have predicted, the development of property rights, civil society, and middle-class people has created a demand for political rights as well. Every week there are reports of actual elections for local posts, lawyers suing the government, dissidents standing up and often being jailed, labor agitation, and political demonstrations. It’s reminiscent of the long English struggle for liberty and constitutional government.

And it would be great if it turns out that modern technology can make that struggle shorter than it was in England. A hopeful example was reported this week. According to the Washington Post, hundreds of thousands of “text messages ricocheted around cellphones in Xiamen,” rallying people to oppose the construction of a giant chemical factory. The messages led to “an explosion of public anger,” large demonstrations, and a halt in construction.

Leave aside the question of whether the activists were right to oppose the factory. The more significant element of the story is that, as the Post reported, “The delay marked a rare instance of public opinion in China rising from the streets and compelling a change of policy by Communist Party bureaucrats.”

Cellphones and bloggers fighting against the Communist Party and its Propaganda Department and Public Security Bureau — and the “army of Davids” won. Reporters and editors afraid to cover the story followed it on blogs, even as the censors tried to block one site after another. This isn’t your father’s Red China.

Citizen blogger and eyewitness Wen Yunchao

said he and his friends have since concluded that if protesters had been armed with cellphones and computers in 1989, there would have been a different outcome to the notorious Tiananmen Square protest, which ended with intervention by the People’s Liberation Army and the killings of hundreds, perhaps thousands, in the streets of Beijing.

The cause of freedom is not looking so good in Russia these days. But in China a hundred flowers are blooming, a hundred schools of thought contending.

Heritage — Unhealthy

In his post on the differences over energy policy between the (conservative) Heritage Foundation and the (libertarian) Cato Institute, Jerry Taylor mentions that the two Washington think tanks also have differences regarding health care. For those who are curious, here’s where I see the biggest differences between Cato scholars and Heritage scholars on health policy:

The Heritage Foundation’s health policy team generally supports having the government force people to buy health insurance. Cato scholars generally do not. A couple of weeks ago, Heritage’s director of health policy studies Bob Moffit wrote in the San Diego Union-Tribune:

[M]y Heritage Foundation colleagues and I support the “personal responsibility principle.” It’s a simple idea: All adults have a responsibility to buy their own health insurance, pay their own health care bills, and not shift those costs to others….

People who can reasonably afford it have a responsibility to buy health insurance to protect themselves and their families against the financial devastation of catastrophic illness….

People who do not wish to buy health insurance for whatever reason should be free to do so. But, in exchange, they must demonstrate in some tangible way that they are really going to pay their own hospital bills. 

My Cato colleagues and I generally differ, for a number of reasons: such “individual mandates” are impractical, ineffective, and expand government power beyond its legitimate scope. Government should and does require people to pay their debts, meaning that patients already are legally responsible for their medical bills. The Heritage “personal responsibility principle,” on the other hand, would hold a Christian Scientist responsible for debts that he will never incur.

In addition, Heritage scholars embrace the idea that government should pursue “universal coverage.” Meanwhile, I do things like start the Anti-Universal Coverage Club (whose membership is growing).

There are many areas where Cato and Heritage scholars agree. I personally respect every member of their health policy team. Why, just yesterday Cato hosted Heritage’s Ed Haislmaier at a forum where we released a study critical of the Heritage-backed Massachusetts health plan. 

Where we disagree, we criticize. But I consider such criticism a form of praise. The only reason we bother to criticize is because what Heritage scholars say matters.  A lot.

This Cato-Heritage disagreement over health care goes back more than a decade. It contributes to the free-market movement’s lack of direction on health care reform. The movement cannot move on in a unified manner until that disagreement is resolved.