Cato Daily Dispatch for December 8, 2005
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House Republicans Push to Keep Tax Rate ReductionMicrosoft Invests in India
Martin Attacks America's Climate Stance
House Republicans Push to Keep Tax Rate Reduction
"House Republicans, finally advancing their tax priority for the year, are pushing forward with plans to keep reduced tax rates for capital gains and dividends alive for an extra two years," the Associated Press reports.
The article continues: "It's one part of a bill reducing taxes $56 billion over five years. House GOP leaders want to make sure that 15 percent tax rates for investment income stay in place past the end of 2008, when they're scheduled to disappear."
In "Dividends and Debt," Cato senior fellow Alan Reynolds writes that the best long-term policies happen to be the best short-term stimulus. "Because investors and companies base investment plans on future prospects, policies that improve the long-term outlook promise immediate gains for the economy's weakest links -- the stock market and business investment," Reynolds says. "By raising stockholders' expected after-tax return, reduced taxation of dividends will give an enormous and enduring lift to the stock market. And that, in turn, will greatly increase household wealth, and make it cheaper and easier for firms to raise capital by selling shares rather than getting deeper in hock.
"If stock dividends were taxed at 20 percent, there would be billions more dividends to tax. And millions of dividend-paying shares now sitting in tax-exempt institutions would be acquired by 'rich' individual investors, meaning the second tax on those dividends would rise from zero to 20 percent. Because stocks previously held by tax-exempt pension funds and foundations would be sold to individuals now willing to pay a reasonable tax on dividends, and because dividends would be much more common and generous, actual taxes paid on dividends -- particularly by the rich -- would rise, rather than fall."
Microsoft Invests in India
"Microsoft will invest $1.7 billion in India over the next four years and nearly double its employee ranks in the nation, its chairman, Bill Gates, said Wednesday. Gates's announcement was the third in a recent spate of $1 billion investments proposed by technology multinationals in India," according to The New York Times.
In "Exporting Tech Jobs to India?," Cato senior fellow Alan Reynolds writes: "Worrying about U.S. companies importing services from India is a classic example of the journalistic inclination to ignore the forest and focus on a few twigs. The United States is by far the world's biggest exporter of services, just as the United States is by far the leading exporter of goods.
"The notion that service jobs are being lost to India is paradoxical because similar complaints about China or Japan invariably involved disparaging U.S. service jobs as 'McJobs' -- inferior to working with a sewing machine or wrench. In the case of India, however, even the most menial computer service chores -- such as tech support and handling health insurance claims -- are now being glorified as 'high-wage' jobs. ... Trade phobia has lost any sense of direction. The United States is now said to lose jobs to countries with trade deficits as well as to countries with trade surpluses, and to lose jobs in services as well as manufacturing. Some even suggest the United States will lose most service jobs to India and most manufacturing jobs to China. But without jobs, how could Americans keep buying all those imports?"
Martin Attacks America's Climate Stance
"Canadian Prime Minister Paul Martin took aim at the United States on Wednesday for its refusal to negotiate a new global warming treaty, telling a United Nations conference that the world's most powerful economy needed to resume participating in international talks to reduce greenhouse gases," reports The Los Angeles Times.
"'Climate change is a global challenge that demands a global response. Yet there are nations that resist, voices that attempt to diminish the urgency or dismiss the science, or declare, either in word or indifference, that this is not our problem to solve. Well, let me tell you, it is our problem to solve,' Martin said as he opened the high-level talks at the U.N. Climate Change Conference. Martin's remarks triggered applause from a hall filled with delegates from dozens of countries, who are here to begin talks on a new global warming treaty to take effect once the original commitments of the current pact, the Kyoto Protocol, expire in 2012."
Patrick Michaels, a Cato senior fellow, comments that "the Kyoto Protocol on global warming is a futile treaty that will do absolutely nothing measurable about climate change. It will, however cost the United States a fortune, by requiring us to reduce our emissions of carbon dioxide, a byproduct of our economy, by 25 percent. The only way this can be accomplished is through a series of extremely regressive taxes on energy. Remember that gasoline at $3 per gallon only reduced usage by 4 percent."
In "Blair Plays Fair," Michaels notes that "It's well known in scientific circles that Kyoto would only change global temperature by seven-hundredths of a degree Celsius in fifty years. But it would require reductions in carbon dioxide emissions to 7 percent below 1990 levels by the period 2008-2012. The only way this is possible is with a massive series of highly regressive energy taxes."
Holiday Dmitri, editor, hdmitri@cato.org