[FoRK] so is it for real now?

geege schuman geege4 at gmail.com
Mon Oct 13 13:24:26 PDT 2008


When McCain talks about cuts in military spending (and he has referred to
this in each debate) where are *his* specific cuts?

On Mon, Oct 13, 2008 at 3:00 PM, J. Andrew Rogers <
andrew at ceruleansystems.com> wrote:

>
> On Oct 11, 2008, at 11:50 PM, Joe Barrera wrote:
>
>>
>> Is there a previous fork post you can point us at, instead of repeating
>> yourself, that explains more in depth what's wrong with his proposed tax
>> structure?
>>
>
>
> No, it is scattered across multiple posts.  But I will try to put it
> concisely.
>
> Obama is proposing to effectively double capital gains taxes *and* close
> the "loopholes" that have often allowed venture investors to avoid the
> capital gains taxes over the last 25 years.  We experimented with Obama's
> proposal twice in US history ('69 and '76 IIRC), which gave us the economic
> golden years that was the 1970s.  In 1978 people had enough, a thorough
> re-implementation of capital gains tax structures was done by Congress, and
> Reagan was in the right place at the right time -- the economy is
> misattributed to him in many ways -- to inherit an economy that once again
> had a reasonably sane capital gains tax structure that we still use today.
>
> The "loopholes" introduced way back then are a de facto capital gains tax
> break for investments in small-ish businesses in a very generic and unbiased
> way.  Obama has essentially proposed eliminating the current structure and
> instead letting regulators and Congress pick and choose who qualifies for
> tax breaks, a completely unnecessary and incredibly malignant politicization
> of the small business finance process.  If your venture is not anointed by
> the government, the government will impose a 28% tax on investment in your
> business, effectively allowing the government to pick and choose who lives
> or dies on a basis that has nothing to do with venture viability.  Arguably
> worse, whereas the old structures used *tax deferrals* as an incentive
> across all small business investment, the new proposal is a *tax cut* for
> politically approved investments.  In every other case where such regulatory
> structures have been put into place, it has immediately become deeply
> corrupt and subject to influence peddling.  It is not obvious why anyone
> would want to change something that is not broken unless the goal *is* to
> increase the influence and benefit for the political class in the finance
> process.  The whole "tax breaks for startup investment" is a huge red
> herring that preys on the ignorance of the population about the current tax
> code related to such things and the implications.
>
>
> But more generically, raising the capital gains taxes is stupid in pretty
> much every philosophy of economics, with well-understood consequences.  If
> the taxes are raised to the levels he wants, it *will* cause capital to flee
> US venture finance markets for better climes.  Raising income tax or sales
> tax would be preferable, in terms of negative impact; if you want to raise
> taxes, do it elsewhere. A few directly relevant consequences:
>
> - About 5 million US jobs are directly funded by this investment.  A major
> percentage of these jobs will evaporate, like clockwork.  More government
> jobs is a poor substitute.
>
> - Private capital investment in R&D dwarfs public investment in R&D, and US
> investment in R&D is a major percentage of the world total, far
> disproportionate to its population and economy.  If the capital dries up, so
> does the R&D that the world enjoys the product of.
>
> - It will grossly distort the finance market and reduce average returns on
> investment by biasing capital toward inferior long-term yields. And then
> there is the basic loss of liquidity in the markets, as though we need more
> of that.
>
>
> The talking point about capital gains tax rates under Clinton or Reagan is
> deceptive because it very much ignores relevant structural elements that
> Obama has stated he wants to eliminate but which greatly mitigated the
> negative impact of the tax rate structure at that time. Pure
> bait-and-switch.  The closest historical analogue we have to Obama's plan is
> the 9-year window in the 1970s that proved to be a disaster economically.
>  And historically, it only takes about two years for it to show up in the
> economy in a big way, so the downside will be owned by him and (presumably)
> a Democrat congress -- I can guess what the consequences of that might be.
>
> Any policy proposal that doubles capital gains taxes and then replaces
> generic capital gains deferrals for small business and venture investment
> with tax cuts left to the arbitrary and capricious opinion of the
> politicians and regulators is so obviously flawed that I am puzzled why more
> people do not see it, and I have yet to have anyone explain to me why this
> is a good idea that will improve things. Would you want Bush and Cheney to
> have the power to impose a 28% tax penalty on investments they disapprove
> of?  What sane person would want to give that power to government given its
> track record?
>
> All in, it proves that the vast majority of the population cannot be
> trusted with basic matters of economics, since their opinions on such
> matters are about as informed as their opinions of quantum mechanics. Except
> that they are rarely given the opportunity to legislate the latter case.
>
>
>  Is there a reference you can point to regarding Obama and ABM? I know he
>> is
>> no fan of SDI. But what comments in particular are you referring to?
>>
>
>
>
> He has said a number of things regarding military system spending, almost
> all of it so ignorant that it almost is not wrong.  Apparently he does not
> have a relevant policy wonk on his staff to feed him intelligent policy
> soundbites.  A couple easy ones from his policy ads:
>
>
> Obama: "I will cut investments in unproven missile defense systems."
>
> There are no unproven missile defense systems, only relatively new rocket
> motors which are now mostly proven.  And you cannot cut investments in those
> rocket motors because a ton of other unrelated military systems are being
> based on the same rocket motors.  The terminal kill package was proven over
> 15 years ago and is widely deployed in several different weapon systems for
> which no one doubts efficacy.  If he was a policy wonk, he would understand
> that "air defense" and "missile defense" have converged into the same system
> in the latest generation of US military technology.  The only part that is
> relatively "unproven" (the rocket motor) is also being used in tactical Army
> gear, among other things. His statement is about as lame as the media morons
> who still think the US has "GPS-guided" weapons (which the US has never
> had).
>
>
> Obama: "I will slow our development of future combat systems."
>
> This is again shows a deep ignorance of the economics that drive future
> combat systems, making it his policy to reduce the price-performance of
> whatever military we keep around.  The investment in future combat systems
> *decreases* the total cost of maintaining the military over time, fully
> amortizing the R&D *and* procurement cost within a matter of years relative
> to maintaining the systems that are replaced. This has been well-understood
> for years, and one of the reasons the cost of the US military has been
> falling as a percentage of GDP for ages. For decades, part of the design
> requirement for weapon systems, and particularly the big ones, is that the
> life-cycle cost must be less than what they are replacing such that it would
> cost more to keep the old systems around than to replace them with a brand
> new system, all in.  This has proven to be an extremely effective and
> successful policy in practice with measurable positive results.  Over time,
> this policy of continuous system R&D has proven to be one of the most
> reliable ways of reducing military costs -- it is an investment in
> efficiency.
>
>
> Just about everything he has said on these matters has been like this. I do
> not know who his policy handlers are, but his policy opinion on most things
> military is embarrassingly wrong, often running contrary to his other
> nominal stated goals.  On the other hand, most of the American public does
> not understand these topics either so it probably sounds good to them.
>
> Still, just because he can read off a tele-prompter with all due sincerity
> does not mean that he has the slightest clue about the topics he is talking
> about. His education and understanding of policy matters is greatly
> over-stated.
>
>
> Cheers,
>
> J. Andrew Rogers
>
>
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