Thursday, July 14, 2011

Wednesday, July 13, 2011

Politically-Induced Alcoholism.

Steven Ratnner has penned an excellent critique on the ethanol racket in the United States. He states clearly what many pols know but dare not speak: the US program to promote ethanol production for transporation fuels drives food prices up, is comparable in the energy to produce it than in what it displaces in petroleum, has led to a bizarre and contradictory arrangement of alcohol and petroleum imports and exports, and is a green pig-in-a-poke. But ethanolism does mean big federal subsidies to the agribusiness interests of the corn belt, including Iowa, an early presidential political milestone.

Postscript: a new AEI report on ethanolism can be found here.

Sunday, July 10, 2011

What a "Three-to-One" Deficit Solution Means.

As the United States hurdles toward the Great Debt Extinction Asteroid, the predictable calls for "reasonableness" in a solution have manifested themselves in the "Three-to-One" Proposal: 3 parts spending cuts to 1 part tax increases. Exactly how reasonable is such a solution in what it would require for tax increases?

The "long term" solution proposes a $4T cut in debt over a decade. Assuming unprecedented fiscal discipline by the government, the 3:1 Solution would require $100B in new taxes in the coming year. Well, clearly, the Uber-Rich can accommodate such a paltry sum! No, not really. The top 5% of income earners contributed about $600B in taxes in 2008, so $100B would constitute a 17% increase in taxes for this group, if the entire $100B were extracted from their incomes. The effective tax rate for the top 5% would be raised from 21% of AGI to over 24%, or an average increased federal income tax burden of over $14K per return in this income bracket*.

And now, recall, gentle reader, that this top 5% of earners includes all households above $160K in AGI - so much for the protecting those earners under $250K.

We should not kid ourselves: the 3:1 Solution would hit hard even if Congers demonstrates remarkable restraint over the next decade, and will be much more painful if they behave as normal.

*Yes, the "average increased tax burden" is a silly statistic, for a low-ranking member of the 5% Club will not pay as much as an elite. But it's likely that a threshold member will pay a few thousand dollars more, which means a lot to these earners.