Tag Archives: Economic Policy

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Donald Trump’s plan to introduce tariffs is just a tax on consumer goods

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I have a key that will unlock a puzzling mystery
I have a key that will unlock a puzzling mystery

What are the consequences of adopting tariffs for all of the people who are affected? What happens next, after stage one?

Here’s a lesson in basic economics from Joe Carter, writing for the Acton Institute.

He writes:

Both Sanders and Trump propose increasing tariffs on goods imported from other countries — and increase them significantly.* This isn’t that surprising for Sanders, a socialist who, on the issue of economics, is one of the most ill-informed candidates in modern history. But Trump should (and probably does) understand the detrimental impact tariffs have on the poor. And yet he has proposed an economy-crippling, poverty-increasing tariff.

In 2012, Trump proposed a tariff on China of 25 percent. In 2016 he bumped it up to 45 percent. (He later tried to lie and say he never proposed the 45 percent increase, but there is audio of him making the proposal.) A tariff is simply a tax on imports or exports, so Trump is proposing to raise taxes on imported goods by 25 to 45 percent. (To keep this point in mind, I’ll hereafter refer to tariffs as “taxes.”)

You might be thinking, “ So what? That’s a tax the Chinese have to pay.” But that’s not the way tariffs works. China doesn’t pay the tax — you do. If a tariff on Chinese goods is increased by 25 to 45 percent then you pay 25 to 45 percent more for those goods.

Here’s a way to think about it. Imagine there are two hamburger stands in town. One is owned by the mayor’s wife, Veronica, and one is owned by a woman who lives in the next town over, Betty.

Of the two, Betty makes the tastier burger. She is also able to charge $1 a burger since she is able to buy her supplies in her own hometown for much cheaper. Veronica’s burgers aren’t quite as good and cost more to make. She has to charge $1.30 per burger.

The mayor decides to implement a new tax of 45 percent on producers (like Betty) who don’t live in the city limits. Since Betty’s profit margin is already low, she has to pass the bulk of the 45-cent tax on to her customers. Instead of $1 she now has to charge $1.35.

So who is better off in this scenario? The only winner is Veronica. Since her burgers are now cheaper, she is likely to sell more. And who is worse off? The customers who now have to pay 30 to 35 cents more for every burger. That is money they could have used to buy other products or services. Now they have to spend additional money on this new tax.

The same principle applies to taxes on goods and services imported from other countries. Customers simply have to pay more for goods and services they used to get much cheaper.

To understand how Trump’s tax increase would affect consumers, take a trip to Target or Wal-Mart and add 45 percent to almost all the prices. That’s money that comes directly out of your pocket into the hands of the federal government — all to punish you for buying goods that are cheaper to make in China.

Harvard University economist Greg Mankiw explains what most professional economists agree on. The economic benefit of free trade tied for first place, with 93% agreement:

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)

  2. Tariffs and import quotas usually reduce general economic welfare. (93%)

He is the author of his “favorite textbook”, which is published by Harvard University Press.

This is not controversial among professional and academic economists. Economists across the ideological spectrum understand that free trade lowers the prices of consumer goods, and allows individuals, families and businesses to get more quality for their dollars. We can do better than Donald Trump and his naive, populist economic pablum.

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Commentary

Michele Bachmann: hot photos from her vacation on the beach

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Rep. Michele Bachmann

Before we see the hot pictures of Michele Bachmann from her vacation on the beach, let’s take a look at this Wall Street Journal article and find out what sorts of economics books Michele Bachmann reads on the hot beach possibly in her bathing suit.

Ms. Bachmann is best known for her conservative activism on issues like abortion, but what I want to talk about today is economics. When I ask who she reads on the subject, she responds that she admires the late Milton Friedman as well as Thomas Sowell and Walter Williams. “I’m also an Art Laffer fiend—we’re very close,” she adds. “And [Ludwig] von Mises. I love von Mises,” getting excited and rattling off some of his classics like “Human Action” and “Bureaucracy.” “When I go on vacation and I lay on the beach, I bring von Mises.”

Consider Thomas Sowell’s “The Housing Boom and Bust”. Here’s a photo of that book which Michele Bachmann reads on the hot beach possibly in a swimsuit:

Picture of book Michele Bachmann reads on the hot beach
Picture of a book Michele Bachmann reads on the hot beach

The Wall Street Journal explains more:

As we rush from her first-floor digs in the Cannon House Office Building to the House floor so she can vote, I ask for her explanation of the 2008 financial meltdown. “There were a lot of bad actors involved, but it started with the Community Reinvestment Act under Jimmy Carter and then the enhanced amendments that Bill Clinton made to force, in effect, banks to make loans to people who lacked creditworthiness. If you want to come down to a bottom line of ‘How did we get in the mess?’ I think it was a reduction in standards.”

She continues: “Nobody wanted to say, ‘No.’ The implicit and then the explicit guarantees of Fannie Mae and Freddie Mac were sopping up the losses. Being on the Financial Services Committee, I can assure you, all roads lead to Freddie and Fannie.”

Consider Walter Williams’ “Liberty vs the Tyranny of Socialism”. Here’s a picture of that book which Michelle Bachman reads on the hot beach possibly in a bathing suit:

Photo of a book Michelle Bachman reads on the hot beach
Photo of a book Michelle Bachman reads on the hot beach

The Wall Street Journal explains more:

Ms. Bachmann voted against the Troubled Asset Relief Program (TARP) “both times,” she boasts, and she has no regrets since Congress “just gave the Treasury a $700 billion blank check.” She complains that no one bothered to ask about the constitutionality of these extraordinary interventions into the financial markets. “During a recent hearing I asked Secretary [Timothy] Geithner three times where the constitution authorized the Treasury’s actions, and his response was, ‘Well, Congress passed the law.'”

Insufficient focus on constitutional limits to federal power is a Bachmann pet peeve. “It’s like when you come up to a stop sign and you’re driving. Some people have it in their mind that the stop sign is optional. The Constitution is government’s stop sign. It says, you—the three branches of government—can go so far and no farther. With TARP, the government blew through the Constitutional stop sign and decided ‘Whatever it takes, that’s what we’re going to do.'”

Does this mean she would have favored allowing the banks to fail? “I would have. People think when you have a, quote, ‘bank failure,’ that that is the end of the bank. And it isn’t necessarily. A normal way that the American free market system has worked is that we have a process of unwinding. It’s called bankruptcy. It doesn’t mean, necessarily, that the industry is eclipsed or that it’s gone. Often times, the phoenix rises out of the ashes.”

Consider Milton Friedman’s “Capitalism and Freedom”. Here’s a pic of that book which Michelle Bauchman reads on the hot beach possibly in a bikini:

Pics of a book Michelle Bockman reads on the hot beach
Pics of a book Michelle Bauchman reads on the hot beach

The Wall Street Journal explains more:

“For one, I believe my policies prior to ’08 would have been much different from [President Bush’s]. I wouldn’t have spent so much money,” she says, pointing in particular at the Department of Education and the Medicare prescription drug bill. “I would have advocated for greater reductions in the corporate tax rate and reductions in the capital gains rate—even more so than what the president did.” Mr. Bush cut the capital gains rate to 15% from 20% in 2003.

She’s also no fan of the Federal Reserve’s decade-long policy of flooding the U.S. economy with cheap money. “I love a lowered interest rate like anyone else. But clearly the Fed has had competing goals and objectives. One is the soundness of money and then the other is jobs. The two different objectives are hard to reconcile. What has gotten us into deep trouble and has people so perturbed is the debasing of the currency.”

That’s why, if she were president, she wouldn’t renominate Ben Bernanke as Fed chairman: “I think that it’s very important to demonstrate to the American people that the Federal Reserve will have a new sheriff” to keep the dollar strong and stable.

[…]Ms. Bachmann attributes many of her views, especially on economics, to her middle-class upbringing in 1960s Iowa and Minnesota. She talks with almost religious fervor about the virtues of living frugally, working hard and long hours, and avoiding debt. When she was growing up, she recalls admiringly, Iowa dairy farmers worked from 5 a.m. to 10 p.m.

Her political opponents on the left portray her as a “she-devil,” in her words, a caricature at odds with her life accomplishments. She’s a mother of five, and she and her husband helped raise 23 teenage foster children in their home, as many as four at a time. They succeeded in getting all 23 through high school and later founded a charter school.

Michele Bachman is actually willing to pass a lower corporate tax rate than even Tim Pawlenty’s 15% rate:

If she were to take her shot, she’d run on an economic package reminiscent of Jack Kemp, the late congressman who championed supply-side economics and was the GOP vice presidential nominee in 1996. “In my perfect world,” she explains, “we’d take the 35% corporate tax rate down to nine so that we’re the most competitive in the industrialized world. Zero out capital gains. Zero out the alternative minimum tax. Zero out the death tax.”

The 3.8 million-word U.S. tax code may be irreparable, she says, a view she’s held since working as a tax attorney at the IRS 20 years ago. “I love the FAIR tax. If we were starting over from scratch, I would favor a national sales tax.” But she’s not a sponsor of the FAIR tax bill because she fears that enacting it won’t end the income tax, and “we would end up with a dual tax, a national sales tax and an income tax.”

Her main goal is to get tax rates down with a broad-based income tax that everyone pays and that “gets rid of all the deductions.” A system in which 47% of Americans don’t pay any tax is ruinous for a democracy, she says, “because there is no tie to the government benefits that people demand. I think everyone should have to pay something.”

On the stump she emphasizes an “America-centered energy policy” based on “drilling and mining for our rich resources here.” And she believes that repealing ObamaCare is a precondition to restoring a prosperous economy.

[…]Ms. Bachmann also voted for the Republican Study Committee budget that cuts deeper and faster than even Mr. Ryan would. “We do have an obligation with Social Security and Medicare, and we have to recognize that” for those who are already retired, she says. But after that, it’s Katy bar the door: “Everything else is expendable to bring spending down,” and she’d ax “whole departments” including the Department of Education.

Below are some links to learn more about Michele.

Campaign speeches, interviews and debates

Speeches:

Reactions from her recent debate performance:

Profiles of Michele Bachmann:

And here are some of her media interviews and speeches in the House of Representatives.

You can contribute to her campaign right here. You can be her friend on Facebook here and also here.

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And tweeted by Kathleen McKinley and Robert Stacy McCain.

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Tim Pawlenty lays out bold, conservative tax plan to create jobs

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Remember on Sunday when I recommended some policies?

Excerpt:

Let me add this tort reform law (loser pays) to the other list of policies we need at the national level:

  • National right-to-work law
  • National photo ID required for voting
  • National voucher system for education
  • National voucher for health care
  • Nation cap on damages for lawsuits
  • allow Opt-out of Social Security
  • allow Opt-out of Medicare
  • allow Opt-out of Medicaid
  • allow Opt-out of unemployment insurance
  • Flat income tax at 10% below 50,000 and 25% over 50,000, with no deductions except for charity and retirement contributions
  • Zero capital gains tax, phased in over four years
  • Tax-free savings accounts with no restrictions on withdrawals, limit $5,000 per year

In the comments, I added that the limit would be $100,000 for married couples, in response to a challenge from a commenter. And I should have mentioned that I wanted corporate taxes cut to 25%.

Well, guess what Tim Pawlenty went and did?

Excerpt:

Former Minnesota Gov. Tim Pawlenty will propose significant reductions in the corporate and individual tax rates Tuesday while calling for deep spending cuts that could see the federal government abandon its role delivering the mail or backstopping home loans.

The proposals are part of an economic plan Mr. Pawlenty will unveil later today in remarks at the University of Chicago. The plan, according to excerpts provided by Mr. Pawlenty’s campaign, is tailored to the business community and fiscal conservatives as he seeks the Republican presidential nomination, but its impact on the deficit is unclear, given the potential drop in tax revenue.

Mr. Pawlenty wants to reduce the corporate tax rate from 35% to 15% and create just two tax brackets for individuals and families: a 10% rate on the first $50,000 of income for individuals – or $100,000 for married couples – and a 25% rate for all other income. In addition, he will call for the elimination of taxes on capital gains, dividends, interest income and inheritance.

Hey, some of that sounds familiar!

And there’s more:

In order to offset any lost tax revenue — and to tackle the deficit — Mr. Pawlenty calls for something called “The Google Test” to determine whether the government should be involved in a program.

“If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it,” Mr. Pawlenty says. “The post office, the government printing office, Amtrak, Fannie [Mae] and Freddie [Mac], were all built in a time in our country when the private sector did not adequately provide those products. That’s no longer the case.”

He calls on Congress to freeze spending at current levels and impound 5% of spending until the budget is balanced. “If they won’t do it … I will,” he plans to say.

The former governor will call for terminating all federal regulations, unless Congress votes to keep them individually.

I feel that I must make clear that the Wintery Knight is not Tim Pawlenty. However, he may be reading the Wintery Knight. One can’t know for sure.

OK, so right now I am still favoring Bachmann overall, with Cain in second place, and Pawlenty in third place. Feeling better about Pawlenty now. Three strong conservative candidates! WOOHOO!!! I would be happy with ANY of these three candidates.

You can read excepts of Pawlenty’s speech right here on his web site. Awesome stuff!