Some Links
Jeb Hensarling warns Republicans to take America’s perilous fiscal situation seriously. A slice:
Congress should be alarmed. Although the Fed has been cutting rates, bond yields have been rising, and some Treasury auctions this year have been weak. That suggests that bondholders are beginning to question America’s ballooning national debt. They likely have noticed that debt service is the fastest-growing line item in the federal budget, now exceeding that of the Pentagon. Congress should follow the Hippocratic counsel to “do no harm”—it can ill afford to make our unsustainable debt even worse.
Besides giving us a robust economy and higher living standards, the Tax Cuts and Jobs Act showed that favorable tax policy also produces more tax revenue. As Congress revisits the TCJA, it can make the tax code even “growthier,” to borrow a word coined by former Trump adviser Larry Kudlow. That doesn’t necessarily mean making the entire TCJA permanent, but it does mean making permanent provisions like the 20% deduction for pass-through income and full and immediate expensing for capital investments. Other growth provisions proposed by Mr. Trump should be considered, such as lowering the corporate tax rate even further.
Unfortunately, even under the most promising growth models, the resulting tax revenue won’t be enough to fill a $5 trillion hole that congressional budget rules require and that bond markets will likely demand. After all other possibilities are explored and exhausted, Congress will need to reduce tax expenditures significantly.
Nixing globalization will, in fact, stymie the main forces undergirding the innovation that has fueled the nation’s remarkable run of prosperity: its ability to draw investment capital and top talent from around the world — which has propelled productivity growth way ahead of its peer nations.
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For starters, the China “shock” was small-bore and localized. Trade with China has been, on average, positive for the United States. The hit to manufacturing jobs was undoubtedly painful in some regions, particularly in the South. But the shock is impossible to detect in the nationwide trend of manufacturing employment, which has been declining as a share of total jobs for more than half a century, driven by increasing automation.
What’s more, factory jobs are no longer the key to a successful American society. Nostalgia is understandable. But economic policy designed to mitigate globalization’s impact on manufacturing employment hopes to re-create the past rather than build a future. Manufacturing jobs have been declining as a share of employment in many countries, including the United States and China. The trend is unlikely to stop, regardless of whether Washington withdraws from globalization or not.
At the heart of this idea is a fundamental misunderstanding of the limitations of tariffs as a revenue source. In 2023, total US imports amounted to $3.1 trillion, which serves as the base for any tariff revenue. In contrast, income taxes — both individual and corporate — generated more than $2 trillion in revenue that year, forming a cornerstone of the federal budget. To match income tax revenues, tariffs would need to be set at implausibly high levels. But as tariff rates rise, the volume of imports would shrink as foreign goods become prohibitively expensive. That diminishing base would make achieving Trump’s $2 trillion revenue goal impossible. Estimates suggest that even with aggressive tariff hikes, such as a 10 percent across-the-board rate and 60 percent tariffs on Chinese goods, revenues would only reach about $225 billion annually – far short of income tax collections. As of last year, tariffs brought in about $80 billion – 2 percent of the US government’s annual total tax income ($4.4 trillion).
Mark Pulliam, for good reason, is not impressed with the woman chosen by Trump to lead the Department of Labor. (HT George Leef) A slice:
The business community is understandably alarmed at Chavez-DeRemer’s nomination in light of her co-sponsorship of H.R.20, the Richard L. Trumka Protecting the Right to Organize Act of 2023 (the “PRO Act” for short). The bill was named after the late head of the United Mine Workers and, later, the AFL-CIO. The PRO Act represents a wish list of special privileges for labor unions, designed to offset unions’ declining market share of the private-sector workforce (public employee unions are booming) and inability to win secret-ballot representation elections. Labor unions represent a minuscule (and declining) percentage of private-sector employees, who increasingly reject union representation because of the high dues, rampant corruption, and left-wing politics of Big Labor.
So why is Mr. Trump rejecting this gift? Because United Steelworkers president David McCall opposes Nippon’s acquisition and favors a merger with Cleveland-Cliffs, which would create a U.S. steel-making cartel. Mr. Trump seems to have a soft spot for labor bosses even though their interests often run counter to those of American workers.
Blocking the deal would also snub Japan, whose help Mr. Trump needs to counter China. “We consider Japan very important,” Mr. Trump said Monday. If so, then why not pledge to approve the deal regardless of whether President Biden tries to block it? Mr. Trump could then take credit for saving steelworker jobs and helping make U.S. Steel great again.
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