[FoRK] so is it for real now?

Stephen D. Williams sdw at lig.net
Mon Oct 13 13:59:59 PDT 2008


Thanks!  Although I could still use more details about which "loopholes" 
are at issue, beyond what is plainly in his plan, and exactly what those 
mean, I see your point and I think I agree that mucking with capital 
gains is probably not a good idea.  Perhaps a better formulation would 
be to just penalize certain targets (tobacco, and threaten oil if 
needed), if that is the aim, rather than doing anything blanket-wise.

Additionally, I agree that much of the savings related to DoD can be 
through wise increased investment.  On the other hand, there is a huge 
amount of waste.  I've seen a lot up close, in other projects with other 
companies.  Making a statement that is clearly targeting the right thing 
would be helpful, although possibly difficult and too nuanced for sound 
bites.

I don't have a problem with pointing out those issues and suggesting how 
they can go bad and what alternatives or tuneups make sense.
The main problem I have with the thrust of these arguments from you and 
Jeff is that it you are strongly implying that all of these thrusts will 
break badly  almost for sure and not be corrected once Obama is in 
office.  This while seemingly giving McCain a pass for his whoppers, 
buying all bad house loans et al.  The weighting and assumption that 
Obama won't wise up in rough areas when he has actual professional 
advisers, a cabinet, and the whole Fed. government explaining these 
things to him, not to mention lobbyists (in the good, educational 
sense), and the rest of industry and the media giving feedback is 
belying strong bias against Democrats in general or some aspects of 
Obama in particular.  That assumption of stupidity and stubbornness in 
the face of reality just doesn't fit O like it does W.  Both parties 
have their major mistakes which can be factored as honest bias, however 
the area under the moving average puts the GOP in a far worse light 
overall going back pretty far.  Anyone extrapolating from semi-educated 
campaign suggested solutions to Communism/Socialism/EndTimes-in-4-years 
or similar is just not being fair or rational.

I think I am very even handed in how I compare the positions of the 
candidates.  If anything, I give McCain a pretty big break since I 
assume that he has been talked into pandering by a bad party and bad 
advisers and that he would smack them back somewhat upon winning.  Obama 
is clearly stronger than that, and so I expect him to resist that 
mostly.  That impression of relative strength even just between the 
candidate and party/advisers is itself a factor of course.  I'm pissed 
about the pandering Obama has done, free trade et al, and for voting for 
telecom immunity - I'm not a blind follower, except that the GOP isn't 
even in the ballpark of acceptability in most ways.

So I fudge in some optimism that an intelligent candidate who knows how 
to work with others and cares more broadly in most ways but can stand up 
to and work around problems (party extremists), will do a better job 
than someone weakened and beholden to far more things that I find 
unacceptable.  That some seem to give a lot of that optimism for McCain, 
even knowing who his advisers are and the problem with the party, while 
having only the purest and deepest pessimism for Obama, especially given 
the last 8 years, is telling.

sdw

J. Andrew Rogers 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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